-----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, Cj6RkLuRFFsnz4aHYg8uuyADBBUAd26Q6OpavksdIX1LkRMY8JTuzsbqydAUZ6OB tFQ44rcd/13THoPSMYCpqQ== 0000935069-99-000037.txt : 19990302 0000935069-99-000037.hdr.sgml : 19990302 ACCESSION NUMBER: 0000935069-99-000037 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990301 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: N-30D SEC ACT: SEC FILE NUMBER: 811-06557 FILM NUMBER: 99554187 BUSINESS ADDRESS: STREET 1: 2 OLIVER STREET CITY: BOSTON STATE: MA ZIP: 02109 BUSINESS PHONE: 6109896602 MAIL ADDRESS: STREET 1: 530 E SWEDESFORD ROAD CITY: WAYNE STATE: PA ZIP: 19087-1693 N-30D 1 STI VARIABLE ANNUAL REPORT ANNUAL FINANCIAL REPORT STI Classic Variable Trust December 31, 1998 STI Classic Variable Trust Investment Advisor: STI Capital Management, N.A. STI Classic Variable Trust Funds are not deposits, are not insured or guaranteed by the FDIC or any other government agency, and are not endorsed by and do not constitute obligations of SunTrust Banks, Inc. or any other of its affiliates. Investment in the Funds involves risk, including the possible loss of principal. There is no guarantee that any STI Classic Variable Trust Fund will achieve its investment objective. The STI Classic Variable Trust Funds are advised by an affiliate of SunTrust Banks, Inc. Distributor: SEI Investments Distribution Co. This information must be preceded or accompanied by a current prospectus for each Fund described. MKT 408-8 Dear STI Classic Variable Trust Shareholders: The following 1998 Annual Financial Report provides you a detailed summary of each of the STI Classic Variable Trust Funds. The STI Classic Funds and the STI Classic Variable Trust Funds have presented investors exposure to a variety of investment opportunities since 1992. The six STI Classic Variable Trust Funds were developed specifically to meet the rapidly changing needs of today's investor. Each of these funds offers an investment discipline that identifies a specific mix of risk and return. Together, the STI Classic Variable Trust Funds complement one another, providing access to different segments of the stock and bond markets. The combination of these funds is intended to offer the ideal investment program for almost any investor.
- -------------------------------------------------------------------------------------------------------------- STI Classic Variable Trust Funds (unaudited) Net of Fees Performance as of December 31, 1998 - -------------------------------------------------------------------------------------------------------------- Three Since Inception Inception Months One Year Two Years (Annualized) Date - -------------------------------------------------------------------------------------------------------------- STI Classic Variable Trust Value Income Stock Fund 13.04% 9.69% 17.95% 19.25% 10/2/95 - -------------------------------------------------------------------------------------------------------------- STI Classic Variable Trust Mid-Cap Equity Fund 24.40% 7.16% 14.45% 14.86% 10/2/95 - -------------------------------------------------------------------------------------------------------------- STI Classic Variable Trust Small Cap Equity Fund 11.16% (12.18%) n/a (11.85%) 10/22/97 - -------------------------------------------------------------------------------------------------------------- STI Classic Variable Trust Capital Growth Fund 22.64% 28.97% 32.70% 29.78% 10/2/95 - -------------------------------------------------------------------------------------------------------------- STI Classic Variable Trust Investment Grade Bond Fund (.44%) 9.38% 9.11% 7.45% 10/2/95 - -------------------------------------------------------------------------------------------------------------- STI Classic Variable Trust International Equity Fund 16.62% 10.80% 13.78% 13.66% 11/7/96 - --------------------------------------------------------------------------------------------------------------
Past performance is not a guarantee of future returns. The STI Classic Variable Trust is a well-established family of mutual funds, nationally recognized for the diversity and quality of investment options that they provide. As the advisor to the STI Classic Variable Trust, STI Capital Management is committed to providing you quality investment products which will aid you in achieving your investment objectives. I hope you will find the information on the following pages useful. It is intended to give you a better understanding of how our portfolio managers are investing your money. Thank you for your interest and participation in the STI Classic Variable Trust. We look forward to many successful years of investing in the future. Sincerely, /s/ Anthony R. Gray ---------------------------------------------------- Anthony R. Gray Chief Executive Officer and Chief Investment Officer STI Capital Management, N.A. Value Income Stock Fund ----------------------- The Value Income Stock Fund's (the "Fund") return for the year was 9.69%. The fund underperformed its index, the S&P 500/Barra Value Index, by 4.99%. We believe that the Fund underperformed its index largely because of the energy sector, which performed very poorly. Our investments in Unocal and Atlantic Richfield reflected the slide in oil prices. In retailing, JC Penney continued to disappoint, as the company's inventory and merchandise systems compare poorly to competitors. However, the company's drug store division continues to do extremely well, and the stock pays a very high dividend, so we continue to be patient. Stanley Works, a maker of hardware tools, performed poorly, as the new CEO's promise to deliver earnings continues to be pushed further into the future. Investors gravitate toward value stocks when they're concerned about valuation and fundamentals. Indeed, we were roughly even with the market year to date at the end of the third quarter. But we lagged in the fourth quarter, as investors returned to growth stocks. [GRAPHIC] In the printed version of the document, a line graph appears which depicts the following plot points: COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT STI Classic Variable Trust Lipper Equity Income Stock Income Funds S&P 500/BARRA Fund Average Value Index -------------- ------------- ------------- 10/31/95 10000 10000 10000 12/95 10828 10816 10691 12/96 12846 13194 12752 12/97 16292 17149 16169 12/98 17871 19667 17930 One Annualized Annualized Year 3 Year Inception Return Return to Date ------ ---------- ---------- 9.69% 18.18% 19.25% Past performance is no indication of future performance. 2 Mid-Cap Equity Fund ------------------- The Mid-Cap Equity Fund's (the "Fund") performance for the year was 7.16%. The fund underperformed its index, the S&P 400 Mid-Cap Index, by 11.96%. We believe this underperformance was largely because the bigger names tended to perform better in 1998 and we hold market cap restrictions of $500 million to $5 billion. In general, the mid-cap names did not have the benefit of doubt from investors. A little bad news and many of these stocks would go down drastically. The Fund's top producers were technology stocks, which bounced back with a vengeance in the fourth quarter after taking a drubbing in the third. Stocks such as Flextronics, Teradyne and Immunex doubled in value. For 1999, the Y2K computer problem is a potential stumbling block as companies spend money to upgrade their systems, spending that is unproductive in the sense that it does not produce more profits. Another potential concern is the new euro currency, which may put pressure on companies with international operations, particularly if it shifts some advantage to European countries. Because earnings growth will be hard to come by, companies that can deliver earnings will look good compared to the overall market. [GRAPHIC] In the printed version of the document, a line graph appears which depicts the following plot points: COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT STI Classic Variable Trust Mid-Cap Equity S&P 400 Fund Mid-Cap Index -------------- ------------- 10/31/95 10000 10000 12/95 10226 10408 12/96 11868 12408 12/97 14506 16408 12/98 15568 19545 One Annualized Annualized Year 3 Year Inception Return Return to Date ------ ---------- ---------- 7.16% 14.98% 14.86% Past performance is no indication of future performance. 3 Small Cap Equity Fund --------------------- The Small Cap Equity Fund's (the "Fund") return for the year was -12.18%. The Fund underperformed its index, the Frank Russell 2000, by 9.63%. We believe the Fund's underperformance was because, in general, growth outperformed value. In addition, last year we believed capital goods and basic industries to be cheap. We became weighted more heavily in these areas, but they continued to become cheaper. The gaps in performance between large cap and small cap, and between value and growth, were the widest in memory during 1998. However, many stocks that had been beaten down during the prior few quarters snapped back to life. Those include Mentor Corp., a medical products company, Beldon Wire, which had been knocked down on recession fears, Pittston Bax, an air-freight service selling at five times earnings and Four Seasons, which has 20% of its hotels in Asia. We were able to play the Internet indirectly through our investment in Sotheby's which rose 50% when the auction house moved to conduct some auctions over the Internet, after which point we sold the stock. We continue to own Bowne, a financial printer, which designs web sites for Fortune 500 companies and provides electronic filings for companies when they file their SEC documents. Unlike many pure Internet companies, Bowne's Internet activities are profitable. Yet the stock sells for only about 10 times earnings. From a valuation perspective, small cap value stocks as a whole look extremely attractive. However, the question is when investors will begin to shift away from large cap growth and buy small cap value. [GRAPHIC] In the printed version of the document, a line graph appears which depicts the following plot points: COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT STI Classic Variable Trust Small Cap Equity S&P 400 Fund Mid-Cap Index ---------------- ------------- 12/31/97 10000 10000 12/97 10214 10109 12/98 8970 9851 Annualized One Year Inception Return to Date -------- ---------- -12.18% -11.85% Past performance is no indication of future performance. 4 Capital Growth Fund ------------------- The Capital Growth Fund's return for the year was 28.97%, which slightly outperformed its index, the S&P 500 Composite Index, by 0.37%. We believe this outperformance was because of our broad diversification during the market correction. However, the stock market's performance for the year was extremely uneven. Although the S&P 500 was up 27% for the year, the median stock was only up 2%. While it was a tough year for value and small cap managers, it was another great year for growth. In addition to winners in large cap technology, such as Microsoft, Intel, IBM, Cisco, Sun Microsystems and Texas Instruments, specialty retailers like Costco and Office Depot have done extremely well. This contrasted with general retailers and department stores, which performed poorly. As we enter 1999, stocks in the financial services industry seem to be attractive. Banks are trading at a 45% discount to the market, yet their earnings will likely be better than the market as a whole. Our favorite regional bank is U.S. Bancorp, a Minneapolis-based bank that recently completed a major merger. [GRAPHIC] In the printed version of the document, a line graph appears which depicts the following plot points: COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT STI Classic Variable Trust Capital Growth Lipper Growth S&P 500 Fund Funds Average Composite Index -------------- ------------- --------------- 10/31/95 10000 10000 10000 12/95 10632 10640 10392 12/96 13157 13081 12459 12/97 17964 17444 15605 12/98 23168 22433 19180 One Annualized Annualized Year 3 Year Inception Return Return to Date ------ ---------- ---------- 28.97% 29.65% 29.78% Past performance is no indication of future performance. 5 Investment Grade Bond Fund -------------------------- The Investment Grade Bond Fund's (the "Fund") performance for the year was 9.38%. The Fund slightly underperformed its index, the Lehman Government/Corporate Bond Index by 0.09%. We believe this underperformance was because we were slightly underweighted in corporates. We expect mortgages to perform relatively well in 1999, primarily because their yield spreads are so wide. For the same reason, we believe that corporates will also do fairly well, although we think the return/risk ratio for mortgages is better than corporates right now. In any case, yield will be very important in 1999. Given that Treasury's portfolio offers an average yield of 4.75%, an additional 100 basis points via mortgages and corporates will be a big contributor to total return. The past year has been very good for bonds, with the Lehman Government/Corporate Bond Index returning nearly 9.50% in total return. We believe that 1999 will be another good year for bonds, as interest rates continue to decline, the Federal Reserve continues to ease and economic growth moderates. [GRAPHIC] In the printed version of the document, a line graph appears which depicts the following plot points: COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT STI Classic Variable Trust Lipper Intermediate Investment Grade Lehman Government/ Investment Grade Bond Fund Corporate Bond Index Debt Average ---------------- -------------------- ------------------- 10/31/95 10000 10000 10000 12/95 10295 10314 10273 12/96 10531 10615 10608 12/97 11462 11649 11520 12/98 12537 12753 12355 One Annualized Annualized Year 3 Year Inception Return Return to Date ------ ---------- ---------- 9.38% 6.79% 7.45% Past performance is no indication of future performance. 6 International Equity Fund ------------------------- The International Equity Fund (The "Fund") invests in a diversified portfolio of equity securities of foreign issuers and seeks to provide long term capital appreciation. The Fund focuses on company fundamentals, specifically looking for companies that exhibit top management, quality products and services, and sound financial positions. Our goal is to find companies that fit the above criteria but are selling at a discount to their global peers. For the 1998 calendar year, the Fund returned 10.80% compared to the Lipper International Fund Index return of 13.05% and the Morgan Stanley MSCI EAFE Index of 20.00%. The relatively strong performance of the Morgan Stanley MSCI EAFE was a direct result of its lack of exposure to Latin America, which experienced a difficult year. During this period, the Fund's underweighting in the Japanese market and its relative overweighting in the European markets contributed to its overall return. On a sector basis, the Fund's overweight position in telecommunications was a positive factor in the fourth quarter; however, this was offset by an underweight position in financials, which rebounded strongly. Our current selection process leads us to continue to overweight the telecommunication industry and underweight the energy sector. We remain neutral to positive on the financial sector. Geographically, our largest exposure remains Europe. As we view the world on a regional and an industry basis, we continue to find financially solid companies with appealing valuations in Europe. Emerging market stocks had another difficult year after the debacles in both Russia and Brazil. We have started to add to positions in Latin America as well as Asia where we see value. We are selectively adding to positions as we continue to monitor government policy decisions and company fundamentals. The Fund's largest market weighting deviation continues to be an underweight position in Japan. Japanese officials are beginning to implement the correct policies and the economy is showing some signs of life. However, in terms of offering attractive valuations as well as shareholder value, we continue to find little to invest in. The Japanese market remains expensive compared to its global industrial peers, and thus we remain underweighted. [GRAPHIC] In the printed version of the document, a line graph appears which depicts the following plot points: COMPARISON OF CHANGE IN THE VALUE OF A $10,000 INVESTMENT STI Classic Variable Trust International Equity Morgan Stanley Fund MSC/EAFE Index -------------------- -------------- 11/30/96 10000 10000 12/96 10200 9871 12/97 11918 10047 12/98 13205 12056 One Year Annualized Inception Return to Date -------- -------------------- 10.80% 13.66% Past performance is no indication of future performance. (1) "MSCI EAFE 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 Fund. 7 STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- STI CLASSIC VARIABLE TRUST FUNDS December 31, 1998 Value Income Stock Fund - -------------------------------------------------------------------------------- Shares Value (000) - -------------------------------------------------------------------------------- Common Stocks (89.3%) Basic Materials (12.9%) Allegheny Teledyne 57,900 $ 1,183 B.F. Goodrich 30,100 1,080 Boise Cascade 36,500 1,131 Consolidated Papers 26,300 723 Engelhard 35,800 698 Hercules 25,100 687 Minnesota Mining & Manufacturing 13,400 953 Morton International 38,800 951 Parker Hannifin 23,800 779 Reynolds Metals 23,400 1,233 Sonoco Products 36,530 1,082 Union Camp 11,600 783 Weyerhaeuser 13,800 701 Witco Chemical 18,700 298 Worthington Industries 38,800 485 ------- 12,767 ------- Capital Goods (11.2%) Cooper Industries 25,800 1,230 Corning 13,000 585 Crown Cork & Seal 35,500 1,094 Harris 31,200 1,143 Johnson Controls 20,600 1,215 National Service Industries 28,000 1,064 Pall 41,800 1,058 Tecumseh Products, Cl A 10,400 485 Tenneco 31,000 1,056 Thomas & Betts 26,300 1,139 Volvo* 40,400 942 ------- 11,011 ------- Communication Services (3.8%) Alltel 25,900 1,549 Frontier 15,300 520 GTE 25,100 1,631 ------- 3,700 ------- - -------------------------------------------------------------------------------- Shares Value (000) - -------------------------------------------------------------------------------- Consumer Cyclicals (9.0%) American Greetings, Cl A 24,400 $ 1,002 Genuine Parts 27,000 903 H&R Block 40,300 1,813 ITT Industries 9,700 386 J.C. Penney 40,000 1,875 Masco 38,500 1,107 Stanley Works 47,100 1,307 TRW 9,700 545 ------- 8,938 ------- Consumer Staples (14.9%) Bestfoods 17,500 932 ConAgra 64,300 2,025 Dean Foods 23,300 951 Flowers Industries 31,700 759 Food Lion, Cl A 42,900 456 Fortune Brands 31,800 1,006 General Mills 17,900 1,392 Hormel Foods 14,600 478 International Flavors & Fragrances 32,500 1,436 Kimberly Clark 40,100 2,185 McCormick 22,800 771 Newell 13,400 553 Seagram 27,200 1,034 Wallace Computer Services 28,900 762 ------- 14,740 ------- Energy (9.0%) Atlantic Richfield 29,200 1,905 Baker Hughes 63,900 1,130 Conoco* 47,300 987 Fort James Corp. 26,400 1,056 Kerr-McGee 24,300 929 Murphy Oil 22,600 932 Unocal 65,500 1,912 ------- 8,851 ------- 8 - -------------------------------------------------------------------------------- Shares Value (000) - -------------------------------------------------------------------------------- Financials (15.5%) American Financial Group 20,000 $ 877 American General 12,600 983 AmSouth Bancorp 10,400 475 Bank One 42,300 2,160 BankBoston 24,700 962 Cigna 24,300 1,879 Hibernia, Cl A 39,400 685 KeyCorp 35,200 1,126 Paine Webber Group 22,400 865 PNC Bank 21,600 1,169 Safeco 31,500 1,353 Summit Bancorp 27,000 1,180 Transamerica 8,100 936 Union Planters 14,536 659 ------- 15,309 ------- Health Care (7.4%) Abbott Laboratories 20,700 1,014 American Home Products 30,200 1,701 Baxter International 36,500 2,347 C.R. Bard 13,700 678 Mallinckrodt 15,400 475 Pharmacia Upjohn ADR 19,700 1,116 ------- 7,331 ------- Technology (0.9%) EG&G 33,700 937 ------- Utilities (4.7%) Consolidated Natural Gas 25,200 1,361 GPU 20,800 919 Questar 38,600 748 Scana 25,500 822 Sonat 29,000 785 ------- 4,635 ------- Total Common Stocks (Cost $85,565) 88,219 ------- - -------------------------------------------------------------------------------- Face Amount (000) Value (000) - -------------------------------------------------------------------------------- Repurchase Agreement (10.4%) Morgan Stanley 4.85%, dated 12/31/98, matures 1/4/99, repurchase price $10,265,163 (collateralized by U.S. Agency Obligations: market value $10,581,654) $10,260 $10,260 ------- Total Repurchase Agreement (Cost $10,260) 10,260 ------- Total Investments (99.7%) (Cost $95,825) 98,479 ------- Other Assets and Liabilities, Net (0.3%) 280 ------- Net Assets: Portfolio Shares (unlimited authorization -- no par value) based on 6,548,342 outstanding shares of beneficial interest 87,378 Accumulated net realized gain on investments 8,502 Net unrealized appreciation on investments 2,654 Undistributed net investment income 225 ------- Total Net Assets (100.0%) $98,759 ======= Net Asset Value, Offering and Redemption Price Per Share $15.08 ======= * Non-income producing security ADR -- American Depository Receipt Cl -- Class The accompanying notes are an integral part of the financial statements. 9 STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- STI CLASSIC VARIABLE TRUST FUNDS December 31, 1998 Mid-Cap Equity Fund - -------------------------------------------------------------------------------- Shares Value (000) - -------------------------------------------------------------------------------- Common Stocks (91.5%) Capital Goods (10.9%) Allied Waste Industries* 48,700 $ 1,150 Herman Miller 24,100 648 Motivepower Industries 10,000 322 U.S. Filter* 40,000 915 Watsco 20,700 347 ------- 3,382 ------- Consumer Cyclicals (19.4%) BJ's Wholesale Club* 11,000 509 Borders Group* 39,200 978 Ethan Allen Interiors 12,800 525 Family Dollar Stores 38,100 838 Harley-Davidson 21,400 1,014 Just for Feet* 37,250 647 Men's Wearhouse* 28,150 894 Ralph Lauren* 15,800 303 Staff Leasing* 27,700 322 ------- 6,030 ------- Consumer Staples (12.8%) Avis Rent A Car* 30,400 735 Cracker Barrel Old Country Stores 25,200 587 Dial 11,700 338 Flowers Industries 18,500 443 Interstate Bakeries 24,600 650 Norrell 19,000 280 Papa John's International* 13,900 613 US Foodservice* 6,800 333 ------- 3,979 ------- Energy (1.6%) Anadarko Petroleum 4,400 136 Ensearch Exploration Inc* 17,466 122 National-Oilwell Inc* 22,600 253 ------- 511 ------- - -------------------------------------------------------------------------------- Shares Value (000) - -------------------------------------------------------------------------------- Financials (11.2%) Colonial Bancgroup 27,300 $ 328 Dime Bancorp 15,700 415 First Security 18,637 436 First Virginia Banks 8,100 381 Hibernia, Cl A 24,200 420 North Fork Bancorporation 23,100 553 Peoples Heritage Financial Group 16,000 320 Trustmark 16,600 376 Western Bancorp 8,100 237 ------- 3,466 ------- Health Care (15.0%) Acuson Corp* 12,400 184 Centocor* 11,400 514 Curative Technologies* 16,000 536 Forest Laboratories* 8,500 452 Immunex* 5,300 667 Jones Pharmaceuticals 5,000 182 Mylan Laboratories 18,600 586 Quintiles Transnational* 12,700 678 Watson Pharmaceuticals* 13,600 855 ------- 4,654 ------- Technology (19.4%) ADC Telecommunications* 19,500 678 Fiserv* 14,850 764 Flextronics International* 12,400 1,062 Intuit* 6,300 457 Nova* 15,587 541 Sanmina* 18,900 1,181 Sawtek* 28,700 502 Teradyne* 20,100 852 ------- 6,037 ------- Transportation (1.2%) CNF Transportation 10,000 376 ------- Total Common Stocks (Cost $24,829) 28,435 ------- 10 - -------------------------------------------------------------------------------- Face Amount (000) Value (000) - -------------------------------------------------------------------------------- Repurchase Agreement (5.2%) Morgan Stanley 4.60%, dated 12/31/98, matures 01/04/99, repurchase price $1,612,874 (collateralized by a U.S. Treasury Note: market value $1,652,834) $1,612 $ 1,612 ------- Total Repurchase Agreement (Cost $1,612) 1,612 ------- Total Investments (96.7%) (Cost $26,441) 30,047 ------- Other Assets and Liabilities, Net (3.3%) 1,028 ------- Net Assets: Portfolio Shares (unlimited authorization -- no par value) based on 2,290,850 outstanding shares of beneficial interest 27,086 Accumulated net realized gain on investments 378 Net unrealized appreciation on investments 3,606 Undistributed net investment income 5 ------- Total Net Assets (100.0%) $31,075 ======= Net Asset Value, Offering and Redemption Price Per Share $13.56 ======= * Non-income producing security Cl -- Class The accompanying notes are an integral part of the financial statements. 11 STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- STI CLASSIC VARIABLE TRUST FUNDS December 31, 1998 Small Cap Equity Fund - -------------------------------------------------------------------------------- Market Shares Value (000) - -------------------------------------------------------------------------------- Common Stocks (97.3%) Basic Materials (12.1%) Carpenter Technology 7,600 $ 258 Commonwealth Industries 12,500 117 H. B. Fuller 2,900 140 Lilly Industries Incorporated, Cl A 12,000 239 Madeco ADR 10,900 91 Quimica y Minera Chile ADR 6,600 222 Texas Industries 9,500 256 Titanium Metals 12,800 109 Wausau-Mosinee Paper 9,300 164 ------- 1,596 ------- Capital Goods (15.7%) A.M. Castle 6,400 96 Ameron 3,500 129 Belden 6,500 138 DT Industries 2,800 44 Furon 7,900 135 Gerber Scientific 6,600 157 Hardinge 2,200 41 Kaman 10,000 161 Kaydon 3,200 128 Lindberg 6,800 62 LSI Industries 6,100 137 Pittway, Cl A 6,800 225 Precision Castparts 3,900 173 Regal Beloit 8,500 195 Smith (A.O.) 5,100 125 Valmont Industries 8,200 114 ------- 2,060 ------- Consumer Cyclicals (25.0%) American Woodmark 5,500 188 Angelica 5,600 104 Bush Industries 15,400 192 Chemed 3,700 124 Guilford Mills 11,800 197 Harman International 7,800 297 Interface 24,200 225 - -------------------------------------------------------------------------------- Market Shares Value (000) - -------------------------------------------------------------------------------- Consumer Cyclicals (continued) Jannock Limited 9,300 $ 87 K2 12,800 132 Kimball International* 12,400 236 Midas 5,200 162 Pep Boys 19,200 301 Pillowtex 7,500 201 Polaroid 21,100 394 Ritchie Bros. Auctioneers* 4,900 132 Springs Industries, Cl A 1,600 66 Sturm Ruger 6,500 78 Toro 5,800 165 ------- 3,281 ------- Consumer Staples (16.8%) Banta 4,500 123 Bowne & Company 8,400 150 Heilig-Meyers 35,400 237 Ingles Markets, Cl A 7,900 86 Nash Finch 6,900 98 Norrell 27,900 411 Standard Register 10,400 322 Universal Foods 11,900 326 WD-40 4,000 114 Wolverine World Wide 19,700 261 York Group 8,400 80 ------- 2,208 ------- Energy (1.2%) Giant Industries 17,400 163 ------ Financials (8.9%) Administradora de Fondos de Pensiones Provida ADR* 6,500 87 Alfa 5,100 124 Annuity & Life Re Holdings* 4,800 130 Banco Latinamericano de Exportaciones 4,700 78 Chicago Title 3,000 141 Klamath First Bancorp 5,100 99 12 - -------------------------------------------------------------------------------- Market Shares Value (000) - -------------------------------------------------------------------------------- Financials (continued) Scottish Annuity & Life* 9,500 $ 131 Seacoast Banking of Florida 2,200 62 Stirling Cooke Brown Holdings 4,200 73 Student Loan 2,900 130 Westerfed Financial 6,200 112 ------- 1,167 ------- Health Care (6.3%) Block Drug, Cl A 2,972 129 London International Group ADR 2,400 26 Medeva PLC ADR 22,800 184 Mentor 15,100 354 Vital Signs 7,500 131 ------- 824 ------- Technology (1.6%) Innovex 9,100 125 Pioneer-Standard Electronics 9,800 92 ------- 217 ------- Transportation (6.2%) Bandag 5,700 228 Knightsbridge Tankers Limited* 5,800 121 Pittston Burlington 14,700 164 Sea Containers 9,300 278 Western Star Truck Holdings 1,600 21 ------- 812 ------- Utilities (3.5%) Northwest Natural Gas 3,700 96 NUI 5,300 142 TNP Enterprises 2,500 95 United Water Resources 5,400 129 ------- 462 ------- Total Common Stocks (Cost $14,403) 12,790 ------- - -------------------------------------------------------------------------------- Shares/Face Market Amount (000) Value (000) - -------------------------------------------------------------------------------- Preferred Stock (0.3%) Basic Materials (0.3%) Coeur D'Alene Mines, CV to 0.8260 Share, Callable 03/15/99 @ 21.622 $6,300 $ 43 ------- Total Preferred Stock (Cost $93) 43 ------- Repurchase Agreement (5.4%) Morgan Stanley 4.50%, dated 12/31/98, matures 01/04/99, repurchase price $709,002 (collateralized by a U.S. Treasury Note: market value $725,797) 709 709 ------- Total Repurchase Agreement (Cost $709) 709 ------- Total Investments (103.0%) (Cost $15,205) 13,542 ------- Other Assets and Liabilities (-3.0%) Investment securities purchased payable (784) Other assets and liabilities, net 387 ------- Total Other Assets and Liabilities (397) ------- Net Assets: Portfolio Shares (unlimited authorization -- no par value) based on 1,550,937 outstanding shares of beneficial interest 15,321 Accumulated net realized loss on investments (532) Net unrealized depreciation on investments (1,663) Undistributed net investment income 20 ------- Total Net Assets (100.0%) $13,146 ======= Net Asset Value, Offering and Redemption Price Per Share $8.48 ======= * Non-income producing security ADR -- American Depository Receipt Cl -- Class CV -- Convertible PLC -- Public Limited Corporation The accompanying notes are an integral part of the financial statements. 13 STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- STI CLASSIC VARIABLE TRUST FUNDS December 31, 1998 Capital Growth Fund - -------------------------------------------------------------------------------- Shares Value (000) - -------------------------------------------------------------------------------- Common Stocks (91.7%) Basic Materials (2.2%) Air Products & Chemicals 38,900 $ 1,556 Imperial Chemical ADR 5,600 196 Monsanto 3,100 147 Morton International 14,900 365 Praxair 1,400 49 ------- 2,313 ------- Capital Goods (13.1%) Allied Signal 8,200 363 Allied Waste Industries* 14,500 343 AMP 4,400 229 Eastern Environmental Services* 20,000 592 Emerson Electric 3,800 230 General Electric 38,600 3,940 Honeywell 14,500 1,092 Lockheed Martin 7,100 602 Newell 3,500 144 Republic Services, Cl A* 16,300 301 Textron 4,900 372 Thermo Electron* 6,400 108 Tyco International 24,109 1,819 U.S. Filter* 24,712 565 United Technologies 13,500 1,468 Waste Management Inc* 35,357 1,648 ------- 13,816 ------- Communication Services (3.0%) America Online* 300 48 Century Telephone Enterprises 10,300 695 Ericsson Telephone ADR 7,900 189 Fox Entertainment Group, Cl A* 9,800 247 GTE 11,400 741 MCI WorldCom* 17,312 1,242 ------- 3,162 ------- - -------------------------------------------------------------------------------- Shares Value (000) - -------------------------------------------------------------------------------- Consumer Cyclicals (17.0%) American Greetings 18,800 $ 772 Automatic Data Processing 9,000 722 Carnival 42,200 2,026 Consolidated Stores* 5,200 105 Costco* 19,600 1,415 CVS 26,800 1,474 Dollar General 12,100 286 Federated Department Stores* 10,700 466 Hasbro 17,500 632 Lear* 17,500 674 Lowe's Companies 46,400 2,375 Masco 52,900 1,521 Mattel 29,700 678 McGraw-Hill 7,100 723 New York Times, Cl A 3,800 132 Office Depot* 43,800 1,618 Promus Hotel* 3,300 107 Republic Industries* 4,000 59 Saks Inc* 12,200 385 Service International 17,600 670 SPX* 2,800 188 Starwood Lodging Trust REIT 7,400 168 Tandy 19,200 791 ------- 17,987 ------- Consumer Staples (14.4%) Avon Products 18,000 796 Bestfoods 5,200 277 Campbell Soup 1,000 55 Cendant* 42,406 808 Coca-Cola 4,300 154 Colgate-Palmolive 5,400 501 ConAgra 14,119 445 Flowers Industries 17,600 421 Fort James Corp. 13,900 556 Fred Meyer* 7,500 452 Gillette 5,000 242 14 - -------------------------------------------------------------------------------- Shares Value (000) - -------------------------------------------------------------------------------- Consumer Staples (continued) Hershey Foods 8,200 $ 510 McDonald's 3,000 230 PepsiCo 7,300 299 Philip Morris 19,200 1,027 Procter & Gamble 8,500 776 Ralston Purina 35,000 1,133 Rite Aid 34,800 1,725 Rubbermaid 19,200 604 Safeway* 9,400 573 Sara Lee 47,900 1,350 Tele-Communications, Cl A* 16,300 902 US Foodservice* 12,900 632 Viacom, Cl B* 6,900 511 William Wrigley Jr. 2,300 206 ------- 15,185 ------- Energy (3.1%) Amoco 600 35 British Petroleum ADR 4,734 450 Conoco* 10,700 223 Halliburton 15,400 456 Mobil 3,300 287 Niagara Mohawk Power* 12,000 193 Texaco 17,500 925 Union Pacific Resources Group 15,401 140 Unocal 9,300 271 Weatherford International* 11,300 219 Williams 1,500 47 ------- 3,246 ------- Financials (12.8%) Allstate 1,100 42 American International Group 3,200 309 Associates First Capital 10,200 432 Atlantic Richfield 1,300 85 Bank One 22,860 1,167 Bank United, Cl A 4,600 181 - -------------------------------------------------------------------------------- Shares Value (000) - -------------------------------------------------------------------------------- Financials (continued) BankAmerica 15,542 $ 934 BankBoston 5,100 199 Citigroup 1 -- Chubb 4,400 285 Colonial Bancgroup 3,900 47 Compass Bancshares 5,000 190 Conseco 21,600 660 FHLMC 11,900 767 First American of Tennessee 2,900 129 First Union 1,200 73 FNMA 9,300 688 Household International 19,966 791 KeyCorp 10,000 320 Lincoln National 300 25 Mellon Bank 19,500 1,341 MGIC Investment 9,500 378 PNC Bank 19,400 1,050 Regions Financial 3,100 125 SouthTrust 1,900 70 Sunamerica 18,600 1,509 Torchmark 22,900 809 U.S. Bancorp 5,800 206 Waddell & Reed Financial, Cl A* 7 -- Waddell & Reed Financial, Cl B* 5,191 121 Washington Mutual 11,168 426 Wells Fargo 5,000 200 ------- 13,559 ------- Health Care (11.5%) Abbott Laboratories 23,300 1,142 Allegiance 9,600 448 Alza* 2,200 115 American Home Products 7,900 445 Arterial Vascular Engineering* 2,000 105 Baxter International 7,200 463 Becton Dickinson 11,000 470 Boston Scientific* 16,100 432 15 STATEMENT OF NET ASSETS - -------------------------------------------------------------------------------- STI CLASSIC VARIABLE TRUST FUNDS December 31, 1998 Capital Growth Fund--concluded - -------------------------------------------------------------------------------- Shares Value (000) - -------------------------------------------------------------------------------- Health Care (continued) Bristol-Myers Squibb 23,200 $ 3,104 Eli Lilly 2,900 258 Forest Laboratories* 5,500 293 Healthsouth* 30,302 468 Johnson & Johnson 2,400 201 Merck 14,600 2,156 Tenet Healthcare* 26,100 685 Warner Lambert 17,700 1,331 ------- 12,116 ------- Technology (13.8%) 3Com* 6,900 309 Ceridian* 17,300 1,208 Cisco Systems* 23,500 2,181 Compaq Computer 10,724 450 EMC* 10,800 918 HBO 9,500 273 Hewlett Packard 5,300 362 IBM 12,700 2,346 Intel 7,400 877 Microsoft* 15,100 2,094 Networks Associates* 17,208 1,140 Northern Telecom 6,400 321 Sun Microsystems* 7,500 642 Texas Instruments 5,600 479 W.W. Grainger 8,700 362 Xerox 5,500 649 ------- 14,611 ------- Transportation (0.8%) Burlington Northern Santa Fe 9,000 304 Delta Air Lines 8,200 426 Trans World Air* 3,300 125 ------- 855 ------- Total Common Stocks (Cost $77,720) 96,850 ------- - -------------------------------------------------------------------------------- Shares/Face Amount (000) Value (000) - -------------------------------------------------------------------------------- Preferred Stocks (0.5%) Consumer Staples (0.1%) Suiza Capital Trust II, CV to 0.6390 Share, Callable 04/02/01 @ 51.719* 2,400 $ 104 -------- Technology (0.4%) Microsoft, CV to 1 Share 4,000 391 -------- Total Preferred Stocks (Cost $420) 495 -------- Convertible Bonds (0.9%) Elan Finance, CV to 6.875 Shares Callable 12/14/03 @ 61.657, 0.000%, 12/14/18 (A) (B) (C) $1,000 565 Potomac Electric Power CV to 29.5 Shares Callable 03/15/99 @ 95.644 350 338 -------- Total Convertible Bonds (Cost $859) 903 -------- Regulated Investment Company (0.2%) Dollar General, STRYPES* 6,900 246 -------- Total Regulated Investment Company (Cost $272) 246 -------- Repurchase Agreement (7.3%) Morgan Stanley 4.85%, dated 12/31/98, matures 01/04/99, repurchase price $7,739,646 (collateralized by U.S. Agency Obligations: market value $7,895,204) 7,735 7,735 -------- Total Repurchase Agreement (Cost $7,735) 7,735 -------- Total Investments (100.6%) (Cost $87,006) $106,229 -------- 16 - -------------------------------------------------------------------------------- Value (000) - -------------------------------------------------------------------------------- Other Assets and Liabilities, Net (-0.6%) $ (669) -------- Net Assets: Portfolio Shares (unlimited authorization -- no par value) based on 5,266,489 outstanding shares of beneficial interest 78,704 Accumulated net realized gain on investments 7,573 Net unrealized appreciation on investments 19,223 Undistributed net investment income 60 -------- Total Net Assets (100.0%) $105,560 ======== Net Asset Value, Offering and Redemption Price Per Share $20.04 ======== * Non-income producing security ADR -- American Depository Receipt Cl -- Class CV -- Convertible STRYPES -- Structured Yield Product Exchange Securities (A) -- Zero Coupon Bond (B) -- Private Placement Security (C) -- Put and Demand features exist requiring the issuer to repurchase the instrument prior to maturity. The accompanying notes are an integral part of the financial statements. 17 STATEMENT OF NET ASSETS - ------------------------------------------------------------------ STI CLASSIC VARIABLE TRUST FUNDS December 31, 1998 Investment Grade Bond Fund - ------------------------------------------------------------------ Face Amount (000) Value (000) - ------------------------------------------------------------------ U.S. Treasury Obligations (25.5%) U.S. Treasury Bonds 7.500%, 11/15/16 $ 750 $ 931 8.125%, 08/15/19 1,800 2,404 U.S. Treasury Notes 6.250%, 10/31/01 1,500 1,564 -------- Total U.S. Treasury Obligations (Cost $4,512) 4,899 -------- Corporate Obligations (38.2%) Finance (22.5%) Bank of Boston 6.625%, 12/01/05 100 104 Bear Stearns 6.250%, 07/15/05 200 201 Conseco 6.800%, 06/15/05 200 187 6.400%, 06/15/11 300 291 Countrywide Home Loan, MTN 6.510%, 02/11/05 300 301 Finova Capital 6.250%, 11/01/02 250 251 Ford Motor Credit 6.500%, 02/28/02 300 309 Great Western Financial 8.600%, 02/01/02 100 107 Household Finance 6.500%, 11/15/08 150 156 Liberty Property, MTN 6.600%, 06/05/02 200 205 Merrill Lynch 6.875%, 11/15/18 150 156 Merrill Lynch, MTN 6.060%, 10/15/01 625 633 Morgan Stanley, MTN 6.090%, 03/09/01 250 253 Provident 7.000%, 07/15/18 350 361 - ------------------------------------------------------------------ Face Amount (000) Value (000) - ------------------------------------------------------------------ Finance (continued) Salomon 7.300%, 05/15/02 $250 $ 262 Salomon Smith Barney 6.250%, 01/15/05 250 253 Sprint Capital 6.125%, 11/15/08 300 306 -------- 4,336 -------- Industrial (15.7%) American Home Products 7.900%, 02/15/05 300 335 Bausch & Lomb 6.150%, 08/01/01 400 402 6.750%, 12/15/04 150 154 Dillards 6.430%, 08/01/04 450 457 Ikon Capital, MTN 6.730%, 06/15/01 150 151 Philip Morris 7.250%, 09/15/01 300 313 7.500%, 04/01/04 150 160 Praxair 6.900%, 11/01/06 175 182 Western Resources 6.250%, 08/15/03 200 205 Worldcom 6.125%, 08/15/01 650 660 -------- 3,019 -------- Total Corporate Obligations (Cost $7,241) 7,355 -------- U.S. Government Agency Obligations (25.8%) FHLMC 7.500%, 09/01/03 118 120 FNMA 7.000%, 10/01/03 354 362 18 - ------------------------------------------------------------------ Face Amount (000) Value (000) - ------------------------------------------------------------------ U.S. Government Agency Obligations (continued) GNMA 8.000%, 12/15/22 $2,196 $ 2,282 7.000%, 12/15/28 2,150 2,202 -------- Total U.S. Government Agency Obligations (Cost $4,959) 4,966 -------- Repurchase Agreement (9.2%) Morgan Stanley 4.60%, dated 12/31/98, matures 01/04/99, repurchase price $1,765,979 (collateralized by U.S. Treasury Note: market value $1,810,123) 1,765 1,765 -------- Total Repurchase Agreement (Cost $1,765) 1,765 -------- Total Investments (98.7%) (Cost $18,477) 18,985 -------- Other Assets and Liabilities, Net (1.3%) 251 -------- - ------------------------------------------------------------------ Value (000) - ------------------------------------------------------------------ Net Assets Portfolio Shares (unlimited authorization--no par value) based on 1,818,882 outstanding shares of beneficial interest $ 18,479 Accumulated net realized gain on investments 252 Net unrealized appreciation on investments 507 Distributions in excess of net investment income (2) -------- Total Net Assets (100.0%) $ 19,236 ======== Net Asset Value, Offering and Redemption Price Per Share $10.58 ======== FHLMC -- Federal Home Loan Mortgage Corporation FNMA -- Federal National Mortgage Association GNMA -- Government National Mortgage Association MTN -- Medium Term Note The accompanying notes are an integral part of the financial statements. 19 SCHEDULE OF INVESTMENTS - ------------------------------------------------------------------ STI CLASSIC VARIABLE TRUST FUNDS December 31, 1998 International Equity Fund - ------------------------------------------------------------------ Shares Value (000) - ------------------------------------------------------------------ Foreign Common Stocks (92.7%) Australia (2.2%) AMP Limited 4,200 $ 53 Australia & New Zealand Banking Group 26,066 170 National Australia Bank 3,600 54 QBE Insurance 34,292 142 --------- 419 --------- Austria (0.9%) Erste Bank 3,300 176 --------- Brazil (0.2%) Tele Norte Leste Participacoes ADR 3,500 44 --------- Canada (0.2%) Power Corporation of Canada 2,000 43 --------- Denmark (1.0%) Novo Nordisk, Cl B 1,420 187 --------- France (12.7%) AXA 900 130 Dexia France 2,790 429 Elf Aquitaine 500 58 France Telecom 6,149 488 Groupe Danone 900 257 Lafarge 605 57 Lagardere SCA 6,925 294 Suez Lyonnaise des Eaux 1,870 384 Vivendi 1,200 311 --------- 2,408 --------- Germany (8.9%) Bayer 2,250 94 Buderus 320 116 DaimlerChrysler 2,000 197 Hoechst 1,100 46 Mannesmann 2,400 275 - ------------------------------------------------------------------ Shares Value (000) - ------------------------------------------------------------------ Germany (continued) Preussag 635 $ 287 RWE 7,500 410 Veba 4,328 259 --------- 1,684 --------- Greece (1.5%) Hellenic Telecom Organization 7,480 199 Hellenic Telecom Organization ADR 6,500 86 --------- 285 --------- Hong Kong (0.3%) National Mutual Asia 69,400 52 --------- Indonesia (0.0%) Modern Photo Film, F 60,000 4 --------- Ireland (4.0%) Allied Irish Banks 13,200 235 Bank of Ireland 22,988 505 CRH 700 12 --------- 752 --------- Italy (7.1%) INA 88,600 234 San Paolo-IMI 16,430 290 Telecom Italia 79,520 679 Unione Immobiliare 268,000 140 --------- 1,343 --------- Japan (11.9%) Canon 8,000 171 Eisai 13,000 253 Fuji Photo Film 5,000 186 Honda Motor 6,000 197 Nintendo 800 78 Nippon Telegraph & Telephone 51 394 Ricoh 7,000 65 20 - ------------------------------------------------------------------ Shares Value (000) - ------------------------------------------------------------------ Japan (continued) Sankyo 7,000 $ 153 Takefuji 2,400 175 TDK 2,300 210 Terumo 15,300 360 --------- 2,242 --------- Netherlands (4.8%) Ahold 6,500 240 ING Groep 3,213 196 KPN 9,608 480 --------- 916 --------- New Zealand (3.7%) Fernz 68,400 210 Fletcher Challenge Building 91,338 141 Telecom Corporation of New Zealand 80,800 350 --------- 701 --------- Norway (2.9%) Christiania Bank 21,000 73 Orkla, Cl A 6,100 91 Petroleum Geo Services ADR 5,500 87 Sparebanken NOR 15,210 296 --------- 547 --------- Panama (0.4%) Banco Latinamericano de Exportaciones 4,600 76 --------- Portugal (2.0%) Banco Espirito Santo 4,235 131 Electricidade de Portugal 5,500 121 Portugal Telecom ADR 2,950 132 --------- 384 --------- - ------------------------------------------------------------------ Shares Value (000) - ------------------------------------------------------------------ Spain (3.6%) Argentaria 12,000 $ 311 Endesa 11,350 301 Repsol 1,200 64 --------- 676 --------- Sweden (2.4%) Castellum 12,300 133 Drott, Cl B 11,000 101 Volvo, Cl B 9,700 222 --------- 456 --------- Switzerland (3.4%) Novartis, Registered 331 651 --------- United Kingdom (18.6%) Allied Zurich 27,350 408 Bass 16,060 234 British Aerospace 28,447 241 British Energy PLC 8,600 98 Diageo 20,632 235 General Electric 38,650 348 Glaxo Wellcome 4,100 141 Ladbroke Group 28,840 116 Lloyds TSB Group 14,100 200 LucasVarity 36,158 121 National Westminster Bank 13,553 261 Railtrack Group 3,750 98 Reckitt & Colman 13,400 177 Rolls-Royce 69,300 287 Royal & Sun Alliance 133 1 Smithkline Beecham 19,640 274 Storehouse 33,130 75 Tomkins 41,572 196 --------- 3,511 --------- Total Foreign Common Stocks (Cost $15,965) 17,557 --------- 21 SCHEDULE OF INVESTMENTS - ------------------------------------------------------------------ STI CLASSIC VARIABLE TRUST FUNDS December 31, 1998 International Equity Fund--concluded - ------------------------------------------------------------------ Shares Value (000) - ------------------------------------------------------------------ Foreign Preferred Stock (1.0%) Germany (1.0%) GEA 7,570 $ 181 --------- Total Foreign Preferred Stock (Cost $245) 181 --------- Total Investments (93.7%) (Cost $16,210) $ 17,738 ========= * Non-income producing security ADR -- American Depository Receipt Cl -- Class F -- Foreign Shares PLC -- Public Limited Corporation The accompanying notes are an integral part of the financial statements. 22 This Page Left Intentionally Blank 23 STATEMENT OF ASSETS AND LIABILITIES (000) - -------------------------------------------------------------------------------- STI CLASSIC VARIABLE TRUST FUNDS December 31, 1998
------------- International Equity Fund ------------- Assets: Investments at Market Value (Cost $16,210) $17,738 Cash and Foreign Currency 1,085 Receivables for Investment Securities Sold 93 Other Assets 52 ------- Total Assets 18,968 ------- Liabilities: Payables for Portfolio Shares Redeemed 2 Accrued Expenses 40 ------- Total Liabilities 42 ------- Net Assets: Portfolio Shares (unlimited authorization -- no par value) Based on 1,450,151 Outstanding shares of beneficial interest 17,034 Undistributed net investment income 119 Accumulated net realized gain on investments 270 Accumulated net realized loss on foreign currency transactions (27) Net unrealized appreciation on forward foreign currency contracts, foreign currency, and translation of other assets and liabilities in foreign currency 2 Net unrealized appreciation on investments 1,528 ------- Total Net Assets $18,926 ======= Net Asset Value, Offering and Redemption Price Per Share $ 13.05 =======
The accompanying notes are an integral part of the financial statements. 24 STATEMENT OF OPERATIONS (000) - -------------------------------------------------------------------------------- STI CLASSIC VARIABLE TRUST FUNDS For the Year Ended December 31, 1998
Value Income Mid-Cap Small Cap Capital Investment International Stock Equity Equity Growth Grade Equity Fund Fund Fund Fund Bond Fund Fund ------ ------- --------- -------- ---------- ------------- Investment Income: Interest Income $ 414 $ 118 $ 46 $ 429 $ 861 $ 57 Dividend Income 2,128 118 236 885 -- 358 Less: Foreign Taxes Withheld -- -- -- -- -- (34) ------ ------ ------- ------- ------ --------- Total Investment Income 2,542 236 282 1,314 861 381 ------ ------ ------- ------- ------ --------- Expenses: Investment Advisory Fees 715 317 133 961 107 214 Less: Investment Advisory Fees Waived (144) (105) (81) (218) (85) (81) Administrator Fees 62 62 62 62 62 75 Custody Fees 47 7 5 34 5 32 Transfer Agent Fees 35 7 4 28 5 4 Professional Fees 75 14 9 51 7 11 Trustee Fees 7 2 1 6 1 2 Registration Fees -- -- -- -- -- -- Printing Expenses 42 9 4 28 5 5 Pricing Fees 2 1 -- 2 -- 8 Insurance and Other Fees 3 -- 1 2 -- -- Amortization of Deferred Organization Costs 2 2 1 2 2 3 ------ ------ ------- ------- ------ --------- Total Expenses 846 316 139 958 109 273 ------ ------ ------- ------- ------ --------- Net Investment Income (Loss) 1,696 (80) 143 356 752 108 ------ ------ ------- ------- ------ --------- Net Realized Gain (Loss) on Securities Sold 8,551 485 (532) 7,815 268 270 Net Realized Loss on Foreign Currency Transactions -- -- -- -- -- (15) Net Unrealized Appreciation (Depreciation) on Investments (2,853) 1,389 (1,561) 12,917 251 1,029 Net Unrealized Appreciation on Forward Currency Contracts, Foreign Currency, and Translation of Other Assets and Liabilities in Foreign Currency -- -- -- -- -- 2 ------ ------ ------- ------- ------ --------- Net Realized and Unrealized Gain (Loss) on Investments and Foreign Currency 5,698 1,874 (2,093) 20,732 519 1,286 ------ ------ ------- ------- ------ --------- Increase (Decrease) in Net Assets from Operations $7,394 $1,794 $(1,950) $21,088 $1,271 $ 1,394 ====== ====== ======= ======= ====== =========
Amounts designated as "--" are either $0 or have been rounded to $0. The accompanying notes are an integral part of the financial statements. 25 STATEMENT OF CHANGES IN NET ASSETS (000) - -------------------------------------------------------------------------------- STI CLASSIC VARIABLE TRUST FUNDS
Value Income Mid-Cap Stock Fund Equity Fund -------------------------- -------------------------- 01/01/98- 01/01/97- 01/01/98- 01/01/97- 12/31/98 12/31/97 12/31/98 12/31/97 -------- -------- -------- -------- Investment Activities: Net Investment Income (Loss) $ 1,696 $ 1,115 $ (80) $ (14) Net Realized Gain (Loss) on Investments and Foreign Currency Transactions 8,551 6,730 485 2,335 Net Unrealized Appreciation (Depreciation) on Investments (2,853) 4,177 1,389 1,514 Net Unrealized Appreciation on Forward Foreign Currency Contracts, Foreign Currency, and Translation of Other Assets and Liabilities in Foreign Currency -- -- -- -- -------- -------- -------- -------- Increase (Decrease) in Net Assets Resulting from Operations 7,394 12,022 1,794 3,835 -------- -------- -------- -------- Distributions to Shareholders: Net Investment Income (1,696) (1,121) -- (13) Capital Gains (6,777) (904) (2,305) (736) -------- -------- -------- -------- Total Distributions (8,473) (2,025) (2,305) (749) -------- -------- -------- -------- Capital Transactions: Proceeds from Shares Issued 23,136 32,879 7,168 9,159 Reinvestment of Cash Distributions 8,473 2,025 2,305 749 Cost of Shares Repurchased (4,518) (3,370) (1,800) (3,375) -------- -------- -------- -------- Increase in Net Assets from Capital Transactions 27,091 31,534 7,673 6,533 -------- -------- -------- -------- Total Increase in Net Assets 26,012 41,531 7,162 9,619 -------- -------- -------- -------- Net Assets: Beginning of Period 72,747 31,216 23,913 14,294 -------- -------- -------- -------- End of Period $ 98,759 $ 72,747 $ 31,075 $ 23,913 ======== ======== ======== ======== Shares Issued and Redeemed: Shares Issued 1,451 2,358 509 708 Shares Issued in Lieu of Cash Distributions 622 138 216 55 Shares Redeemed (307) (230) (145) (257) -------- -------- -------- -------- Net Share Transactions 1,766 2,266 580 506 ======== ======== ======== ========
The accompanying notes are an integral part of the financial statements. 26
- ------------------------------------------------------------------------------------------------------------------------------------ Small Cap Capital Growth Equity Fund Fund ----------------------- ----------------------- 01/01/98- 10/22/97*- 01/01/98- 01/01/97- 12/31/98 12/31/97 12/31/98 12/31/97 ---------- ---------- ---------- ---------- Investment Activities: Net Investment Income (Loss) $ 143 $ 20 $ 356 $ 311 Net Realized Gain (Loss) on Investments and Foreign Currency Transactions (532) 20 7,815 7,858 Net Unrealized Appreciation (Depreciation) on Investments (1,561) (103) 12,917 4,911 Net Unrealized Appreciation on Forward Foreign Currency Contracts, Foreign Currency, and Translation of Other Assets and Liabilities in Foreign Currency -- -- -- -- --------- --------- --------- --------- Increase (Decrease) in Net Assets Resulting from Operations (1,950) (63) 21,088 13,080 --------- --------- --------- --------- Distributions to Shareholders: Net Investment Income (143) (20) (356) (312) Capital Gains -- -- (8,084) (1,300) --------- --------- --------- --------- Total Distributions (143) (20) (8,440) (1,612) --------- --------- --------- --------- Capital Transactions: Proceeds from Shares Issued 8,463 7,626 26,149 27,091 Reinvestment of Cash Distributions 143 20 8,440 1,612 Cost of Shares Repurchased (931) -- (3,554) (3,483) --------- --------- --------- --------- Increase in Net Assets from Capital Transactions 7,675 7,646 31,035 25,220 --------- --------- --------- --------- Total Increase in Net Assets 5,582 7,563 43,683 36,688 --------- --------- --------- --------- Net Assets: Beginning of Period 7,563 -- 61,877 25,189 --------- --------- --------- --------- End of Period $ 13,145 $ 7,563 $ 105,560 $ 61,877 ========= ========= ========= ========= Shares Issued and Redeemed: Shares Issued 868 772 1,374 1,771 Shares Issued in Lieu of Cash Distributions 16 2 510 100 Shares Redeemed (107) -- (200) (216) --------- --------- --------- --------- Net Share Transactions 777 774 1,684 1,655 ========= ========= ========= ========= - ------------------------------------------------------------------------------------------------------------------------------------ Investment Grade Bond International Fund Equity Fund ----------------------- ----------------------- 01/01/98- 01/01/97- 01/01/98- 01/01/97- 12/31/98 12/31/97 12/31/98 12/31/97 ---------- ---------- ---------- ---------- Investment Activities: Net Investment Income (Loss) $ 752 $ 493 $ 108 $ 33 Net Realized Gain (Loss) on Investments and Foreign Currency Transactions 268 24 255 101 Net Unrealized Appreciation (Depreciation) on Investments 251 220 1,029 484 Net Unrealized Appreciation on Forward Foreign Currency Contracts, Foreign Currency, and Translation of Other Assets and Liabilities in Foreign Currency -- -- 2 -- --------- --------- --------- --------- Increase (Decrease) in Net Assets Resulting from Operations 1,271 737 1,394 618 --------- --------- --------- --------- Distributions to Shareholders: Net Investment Income (754) (493) (21) (1) Capital Gains -- -- (113) -- --------- --------- --------- --------- Total Distributions (754) (493) (134) (1) --------- --------- --------- --------- Capital Transactions: Proceeds from Shares Issued 9,749 4,194 5,290 12,992 Reinvestment of Cash Distributions 755 493 134 1 Cost of Shares Repurchased (1,687) (3,068) (1,605) (758) --------- --------- --------- --------- Increase in Net Assets from Capital Transactions 8,817 1,619 3,819 12,235 --------- --------- --------- --------- Total Increase in Net Assets 9,334 1,863 5,079 12,852 --------- --------- --------- --------- Net Assets: Beginning of Period 9,902 8,039 13,847 995 --------- --------- --------- --------- End of Period $ 19,236 $ 9,902 $ 18,926 $ 13,847 ========= ========= ========= ========= Shares Issued and Redeemed: Shares Issued 936 421 406 1,136 Shares Issued in Lieu of Cash Distributions 72 49 11 -- Shares Redeemed (161) (309) (134) (67) --------- --------- --------- --------- Net Share Transactions 847 161 283 1,069 ========= ========= ========= =========
*Commencement of Operations Amounts designated as "--" are either $0 or have been rounded to $0. The accompanying notes are an integral part of the financial statements. 27 FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- STI CLASSIC VARIABLE TRUST FUNDS For the Years Ended through December 31, For a Share Outstanding Throughout the Period
Net Net Realized and Net Asset Value Investment Unrealized Gains (Losses) Distributions from Distributions from Beginning of Period Income (Loss) on Investments Net Investment Income Realized Capital Gains ------------------- ------------- ------------------------- --------------------- ---------------------- Value Income Stock Fund 1998 $15.21 $ 0.27 $ 1.02 $(0.28) $(1.14) 1997 12.41 0.28 3.02 (0.28) (0.22) 1996 10.67 0.23 1.74 (0.23) -- 1995 (1) 10.00 0.06 0.67 (0.06) -- Mid-Cap Equity Fund (A) 1998 $13.97 $ 0.00 $ 0.70 -- $(1.11) 1997 11.86 (0.01) 2.64 (0.01) (0.51) 1996 10.27 0.06 1.59 (0.06) -- 1995 (1) 10.00 0.05 0.27 (0.05) -- Small Cap Equity Fund 1998 $ 9.77 $ 0.12 $(1.30) $(0.11) $ -- 1997 (2) 10.00 0.03 (0.23) (0.03) -- Capital Growth Fund 1998 $17.27 $ 0.07 $ 4.54 $(0.08) $(1.76) 1997 13.06 0.10 4.63 (0.10) (0.42) 1996 10.66 0.12 2.40 (0.12) -- 1995 (1) 10.00 0.04 0.66 (0.04) -- Investment Grade Bond Fund 1998 $10.19 $ 0.54 $ 0.39 $(0.54) $ -- 1997 9.92 0.58 0.27 (0.58) -- 1996 10.25 0.54 (0.33) (0.54) -- 1995 (1) 10.00 0.13 0.25 (0.13) -- International Equity Fund 1998 $11.87 $ 0.10 $ 1.17 $(0.01) $(0.08) 1997 10.16 0.03 1.68 -- -- 1996 (3) 10.00 0.01 0.16 (0.01) -- (1) Commenced operations on October 2, 1995. All ratios for the period have been annualized. (2) Commenced operations on October 22, 1997. All ratios for the period have been annualized. (3) Commenced operations on November 7, 1996. All ratios for the period have been annualized. * Returns are for the period indicated and have not been annualized. (A) During the fiscal year ended December 31, 1996, the Aggressive Growth Fund changed its name to the Mid-Cap Equity Fund. Amounts designated as "--" are either $0 or rounded to $0. 28 Ratio of Net Asset Net Assets Ratio of Net Investment Value End Total End of Expenses to Income (Loss) to of Period Return Period (000) Average Net Assets Average Net Assets --------- ------ ------------ ------------------ ------------------ Value Income Stock Fund 1998 $15.08 9.69% $ 98,759 0.95% 1.90% 1997 15.21 26.82 72,747 0.95 2.09 1996 12.41 18.64 31,216 0.95 2.45 1995 (1) 10.67 7.31* 4,015 0.95 2.98 Mid-Cap Equity Fund (A) 1998 $13.56 7.16% $ 31,075 1.15% (0.29)% 1997 13.97 22.23 23,913 1.15 (0.07) 1996 11.86 16.05 14,294 1.15 0.58 1995 (1) 10.27 3.19* 3,409 1.15 2.22 Small Cap Equity Fund 1998 $ 8.48 (12.18)% $ 13,145 1.20% 1.23% 1997 (2) 9.77 (2.05)* 7,563 1.20 1.62 Capital Growth Fund 1998 $20.04 28.97% $105,560 1.15% 0.43% 1997 17.27 36.54 61,877 1.15 0.70 1996 13.06 23.75 25,189 1.15 1.15 1995 (1) 10.66 6.96* 3,778 1.15 1.69 Investment Grade Bond Fund 1998 $10.58 9.38% $19,236 0.75% 5.19% 1997 10.19 8.84 9,902 0.75 5.81 1996 9.92 2.29 8,039 0.75 5.54 1995 (1) 10.25 3.68* 3,115 0.75 5.04 International Equity Fund 1998 $13.05 10.80% $18,926 1.60% 0.63% 1997 11.87 16.84 13,847 1.60 0.41 1996 (3) 10.16 1.70* 995 1.60 1.83 Expenses to Income (Loss) to Average Net Assets Average Net Assets Portfolio (Excluding Waivers (Excluding Waivers Turnover and Reimbursements) and Reimbursements) Rate ------------------- ------------------- ----------- Value Income Stock Fund 1998 1.11% 1.74% 76.36% 1997 1.23 1.81 104.84 1996 1.95 1.45 79.80 1995 (1) 5.72 (1.79) 7.17 Mid-Cap Equity Fund (A) 1998 1.53% (0.67)% 92.27% 1997 1.77 (0.69) 138.98 1996 2.79 (1.06) 139.60 1995 (1) 6.34 (2.97) 13.29 Small Cap Equity Fund 1998 1.89% 0.54% 49.10% 1997 (2) 2.66 0.16 4.11 Capital Growth Fund 1998 1.41% 0.17% 219.17% 1997 1.60 0.25 195.86 1996 2.43 (0.13) 148.48 1995 (1) 6.18 (3.34) 8.05 Investment Grade Bond Fund 1998 1.34% 4.60% 183.13% 1997 1.58 4.98 219.22 1996 2.78 3.51 303.30 1995 (1) 6.05 (0.26) 108.55 International Equity Fund 1998 2.07% 0.16% 128.93% 1997 2.93 (0.92) 99.14 1996 (3) 31.39 (27.96) --
The accompanying notes are an integral part of the financial statements. 29 NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- STI CLASSIC VARIABLE TRUST FUNDS December 31, 1998 1. Organization The STI Classic Variable Trust (the "Trust") was organized as a Massachusetts business trust under a Declaration of Trust dated April 18, 1995. The Trust is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company with six funds: the Value Income Stock Fund, the Mid-Cap Equity Fund, the Small Cap Equity Fund, the Capital Growth Fund, the International Equity Fund (collectively "the Equity Funds") and the Investment Grade Bond Fund. The assets of each Fund are segregated, and a shareholder's interest is limited to the Fund in which shares are held. The Fund's prospectus provides a description of each Fund's investment objective policies and strategies. 2. Significant Accounting Policies The following is a summary of significant accounting policies followed by the Trust. These policies are in conformity with generally accepted accounting principles. Security Valuation -- Investments in equity securities that are traded on a national securities exchange (or reported on the NASDAQ national market system) are valued at the last quoted sales price, if readily available for such equity securities, on each business day. If there is no such reported sale, these securities, and unlisted securities for which market quotations are readily available, are valued at the most recently quoted bid price. Foreign securities in the International Equity Fund are valued based upon quotations from the primary market in which they are traded. Debt obligations exceeding sixty days to maturity for which market quotations are readily available are valued at the most recently quoted bid price. Debt obligations with sixty days or less until maturity may be valued either at the most recently quoted bid price or at their amortized cost. Federal Income Taxes -- It is each Fund's intention to qualify as a regulated investment company for Federal income tax purposes and distribute all of its taxable income and net capital gains. Accordingly, no provisions for Federal income taxes are required. Security Transactions and Investment Income -- Security transactions are accounted for on the trade date of the security purchase or sale. Dividend income is recognized on ex-dividend date, and interest income is recognized on an accrual basis and includes, where applicable, the pro rata amortization of premium or accretion of discount. The cost used in determining net realized capital gains and losses on the sale of securities are those of the specific securities sold, adjusted for the accretion and amortization of purchase discounts and premiums during the applicable holding period. Purchase discounts and premiums on securities are accreted and amortized to maturity using the scientific interest method, which approximates the effective interest method. Repurchase Agreements -- Securities pledged as collateral for repurchase agreements are held by the custodian bank until the repurchase agreements mature. Provisions of the repurchase agreements ensure that the market value of the collateral, including accrued interest thereon, is sufficient in the event of default of the counterparty. If the counterparty defaults and the value of the collateral declines or if the counterparty enters an insolvency proceeding, realization of the collateral by the Funds may be delayed or limited. Net Asset Value Per Share -- The net asset value per share of each Fund is calculated on each business day. It is computed by dividing the assets of each Fund, less its liabilities, by the number of outstanding shares. The offering price per share for the shares of the Investment Grade Bond and Equity Funds is the net asset value per share. 30 Foreign Currency Transactions -- With respect to the International Equity Fund, the books and records are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on the following basis: o market value of investment securities, assets and liabilities at the current rate of exchange; and o purchases and sales of investment securities, income, and expenses at the relevant rates of exchange prevailing on the respective dates of such transactions. The International Equity Fund does not isolate the portion of gains and losses on investments in equity securities that is due to changes in the foreign exchange rates from that which is due to change in market prices of equity securities. The International Equity Fund reports certain foreign currency-related transactions as components of realized gains for financial reporting purposes, whereas such components are treated as ordinary income for Federal income tax purposes. Other -- Distributions from net investment income for the Investment Grade Bond Fund are declared daily and paid monthly to shareholders. Distributions from net investment income for the Value Income Stock Fund, the Mid-Cap Equity Fund, the Small Cap Equity Fund and the Capital Growth Fund are declared and paid quarterly to shareholders. Distributions from net investment income for the International Equity Fund are declared and paid annually to shareholders. Any net realized capital gains are distributed to shareholders at least annually. Expenses related to a specific Fund are charged to that Fund. Other operating expenses of the Trust are pro-rated to the Funds on the basis of relative net assets. Reclassification of Components of Net Assets -- The timing and characterization of certain income and capital gains distributions are determined annually in accordance with federal tax regulations which may differ from generally accepted accounting principles. As a result, net investment income (loss) and net realized gain (loss) on investment transactions for a reporting period may differ significantly from distributions during such period. These book/tax differences may be temporary or permanent in nature. To the extent these differences are permanent, they are charged or credited to paid-in-capital or accumulated net realized gain, as appropriate, in the period that the differences arise. Accordingly, the following permanent differences, primarily attributable to a net operating loss in the Mid-Cap Equity Fund and the classification of short-term capital gains and ordinary income for tax purposes in the Small Cap Equity Fund, have been reclassified to/from the following accounts: Undistributed Accumulated Net Investment Realized Gain Income (000) (000) ------------- -------------- Mid-Cap Equity Fund $ (85) $ 85 Small Cap Equity Fund (20) 20 These reclassifications have no effect on net assets or net asset values per share. Use of Estimates -- The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from these estimates. 3. Administration and Distribution Agreements The Trust and SEI Investments Mutual Fund Services (the "Administrator") are parties to an administration agreement (the "Administration 31 Agreement") dated August 18, 1995 as amended November 19, 1997. Under the terms of the Administration Agreement the Administrator is entitled to a fee, subject to a minimum, (expressed as a percentage of the combined average daily net assets of the Trust and the STI Classic Funds) of: .12% up to $1 billion, .09% on the next $4 billion, .07% on the next $3 billion, .065% on the next $2 billion, and .06% for over $10 billion. The Trust and Federated Services Company are parties to a Transfer Agency servicing agreement dated August 2, 1995 under which Federated Services Company provides transfer agency services to the Trust. The Trust and SEI Investments Distribution Co. ("the Distributor") are parties to a Distribution Agreement dated August 2, 1995. The Distributor receives no fees for its services under this agreement. 4. Investment Advisory Agreement Investment advisory services are provided to the Trust by STI Capital Management, N.A. ("STI Capital"). Under the terms of the investment advisory agreements, STI Capital is entitled to receive a fee from the Fund, computed daily and paid monthly, at an annual rate of .74%, 1.15%, .80%, 1.15%, 1.15% and 1.25% of the average daily net assets of the Investment Grade Bond Fund, Capital Growth Fund, Value Income Stock Fund, Mid-Cap Equity Fund, Small Cap Equity Fund and International Equity Fund, respectively. STI Capital has voluntarily agreed to waive all or a portion of its fees (and to reimburse Funds' expenses) in order to limit operating expenses. Fee waivers and expense reimbursements are voluntary and may be terminated at any time. SunTrust Bank, Atlanta acts as Custodian for all the Funds except the International Equity Fund which has a custodian agreement with the Bank of New York. Fees of the Custodian are paid on the basis of net assets. The Custodian plays no role in determining the investment policies of the Trust or which securities are to be purchased or sold in the Funds. 5. Organizational Costs and Transactions with Affiliates The Trust incurred organization costs of approximately $55,566. These costs have been deferred in the accounts of the Funds and are being amortized on a straight line basis over a period of sixty months commencing with operations. The costs include legal fees of approximately $44,153 for organizational work performed by a law firm of which two officers of the Trust are partners. In the event any of the initial shares of the Trust are redeemed by any holder thereof during the period that the Trust is amortizing its organizational costs, the redemption proceeds payable to the holder thereof by the Trust will be reduced by the unamortized organizational cost in the same ratio as the number of initial shares being redeemed bears to the number of initial shares outstanding at the time of redemption. Certain officers of the Trust are also officers of the Administrator and/or the Distributor. Such officers are paid no fees by the Trust for serving as officers of the Trust. 6. Investment Transactions The cost of security purchases and the proceeds from security sales, excluding short-term investments, for the year ended December 31, 1998 were as follows: U.S. Govt. U.S. Govt. Purchases Sales Purchases Sales (000) (000) (000) (000) --------- ------- ---------- ---------- Value Income Stock Fund $ 79,417 $ 62,106 $ -- $ -- Mid-Cap Equity Fund 27,965 23,387 -- -- Small Cap Equity Fund 13,121 5,253 -- -- Capital Growth Fund 189,306 168,068 -- -- Investment Grade Bond Fund 8,904 6,440 22,042 17,230 International Equity Fund 23,789 20,297 -- -- 32 At December 31, 1998, the total cost of securities and the net realized gains or losses on securities sold for Federal income tax purposes was not materially different from amounts reported for financial reporting purposes. The aggregate gross unrealized appreciation and depreciation for securities held by the Investment Grade Bond and Equity Funds at December 31, 1998 was as follows: Net Unrealized Appreciated Depreciated Appreciation/ Securities Securities (Depreciation) (000) (000) (000) ----------- ----------- -------------- Value Income Stock Fund $ 9,562 $ (6,908) $ 2,654 Mid-Cap Equity Fund 6,438 (2,832) 3,606 Small Cap Equity Fund 728 (2,392) (1,664) Capital Growth Fund 22,353 (3,130) 19,223 Investment Grade Bond Fund 530 (23) 507 International Equity Fund 2,392 (864) 1,528 Subsequent to October 31, 1998, the Funds recognized net capital losses for tax purposes that have been deferred to 1999 and can be used to offset future capital gains at December 31, 1998. The Funds also had capital loss carryforwards at December 31, 1998 as follows: Capital Post Carryover Expires 10/31 12/31/98 2006 Deferred (000) (000) Loss --------- -------- -------- Mid-Cap Equity Fund $-- $-- $ 381 Small Cap Equity Fund 388 388 129 For tax purposes, the losses in the Funds can be carried forward for a maximum of eight years to offset any net realized capital gains. The Capital Growth Fund had cumulative wash sales at December 31, 1998 amounting to $1,147,920. These wash sale losses cannot be used for Federal income tax purposes in the current year and deferred for use in future years. 7. Concentration of Credit Risk The Investment Grade Bond Fund invests primarily in investment grade obligations rated at least BBB or better by S & P or Baa or better by Moody's. Changes by recognized rating agencies in the ratings of any fixed income security or in the ability of an issuer to make payments of interest and principal may affect the value of these investments. 33 Unaudited NOTICE TO SHAREHOLDERS OF STI CLASSIC VARIABLE TRUST FUNDS For shareholders that do not have a December 31, 1998 tax year end, this notice is for informational purposes only. For shareholders with a December 31, 1998 tax year end, please consult your tax advisor as to the pertinence of this notice. For the fiscal year ended December 31, 1998, each portfolio is designating the following items with regard to distributions paid during the year: (A) Long Term (B) (C) (20% Rate) Ordinary Capital Gains Income Total Distributions Distributions Distributions Portfolio (Tax Basis) (Tax Basis) (Tax Basis) - -------- ------------- ------------- ------------- Value Income Stock Fund 14.88% 85.12% 100.00% Mid-Cap Equity Fund 14.99% 85.01% 100.00% Small Cap Equity Fund 0.00% 100.00% 100.00% Capital Growth Fund 7.33% 92.67% 100.00% Investment Grade Bond Fund 0.16% 99.84% 100.00% International Equity Fund 0.00% 100.00% 100.00% (D) (E) Qualifying Tax-Exempt Portfolio Dividends (1) Interest - -------- ------------- ---------- Value Income Stock Fund 57.81% 0.00% Mid-Cap Equity Fund 14.00% 0.00% Small Cap Equity Fund 76.96% 0.00% Capital Growth Fund 0.28% 0.00% Investment Grade Bond Fund 0.00% 0.00% International Equity Fund 0.00% 0.00% - ----------- (1) Qualifying dividends represent dividends which qualify for the corporate dividends received deduction. * Items (A) and (B) are based on a percentage of each portfolio's total distributions. ** Item (D) is based on the net income of the portfolio. *** Item (E) is based on the gross income of the portfolio. 34 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and Board of Trustees of STI Classic Variable Trust: We have audited the accompanying statements of net assets of the Value Income Stock, Mid-Cap Equity, Small Cap Equity, Capital Growth, and Investment Grade Bond Funds, and the statement of assets and liabilities, including the schedule of investments, of the International Equity Fund of STI Classic Variable Trust (the "Trust") as of December 31, 1998, and the related statements of operations, changes in net assets, and financial highlights for the periods presented. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 1998, by correspondence with the custodian and the application of alternative auditing procedures with respect to unsettled securities transactions. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Value Income Stock, Mid-Cap Equity, Small Cap Equity, Capital Growth, Investment Grade Bond and International Equity Funds of STI Classic Variable Trust as of December 31, 1998, the results of their operations, changes in their net assets, and financial highlights for the periods presented, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Philadelphia, PA January 29, 1999 -----END PRIVACY-ENHANCED MESSAGE-----