-----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, Ju2XToNymzaSnHQGOiL+WvTK+zO4ORh7HxWfabeXMoobP+dk9kMFZlMJ2ZUFXgrC Df/JigQJLxkBdFTN7/0omA== 0000935069-02-001101.txt : 20020930 0000935069-02-001101.hdr.sgml : 20020930 20020930131904 ACCESSION NUMBER: 0000935069-02-001101 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 20020930 EFFECTIVENESS DATE: 20020930 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STI CLASSIC FUNDS CENTRAL INDEX KEY: 0000883939 IRS NUMBER: 232678674 STATE OF INCORPORATION: MA FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 033-45671 FILM NUMBER: 02776039 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 485BPOS 1 sticlassic485bcombfi9_02.txt STI CLASSIC 485B FILING 9_02 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 30, 2002 File No. 33-45671 File No. 811-6557 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ] POST-EFFECTIVE AMENDMENT NO. 43 [X] AND REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ] AMENDMENT NO. 45 [X] STI CLASSIC FUNDS ------------------------------------------------- (Exact Name of Registrant as Specified in Charter) 101 Federal Street Boston, Massachusetts 02110 -------------------------------------------------- (Address of Principal Executive Offices, Zip Code) Registrant's Telephone Number, including Area Code (800) 342-5734 -------------- James R. Foggo C/o SEI Corporation Oaks, Pennsylvania 19456 (Name and Address of Agent for Service) Copies to: Richard W. Grant, Esquire W. John McGuire Morgan, Lewis & Bockius LLP Morgan, Lewis & Bockius LLP 1701 Market Street 1111 Pennsylvania Avenue, NW Philadelphia, PA 19103 Washington, DC 20004 It is proposed that this filing become effective (check appropriate box): [ ] Immediately upon filing pursuant to paragraph (b) [X] On October 1, 2002 pursuant to paragraph (b) [ ] 60 days after filing pursuant to paragraph (a)(1) [ ] On [date] pursuant to paragraph (a)(1) [ ] 75 days after filing pursuant to paragraph (a)(2) [ ] On [date] pursuant to paragraph (a) of Rule 485. [COMPASS GRAPHIC OMITTED] 100093/10-02 STI CLASSIC FUNDS-EQUITY FUNDS TRUST SHARES PROSPECTUS OCTOBER 1, 2002 BALANCED FUND CAPITAL APPRECIATION FUND GROWTH AND INCOME FUND INFORMATION AND TECHNOLOGY FUND INTERNATIONAL EQUITY FUND INTERNATIONAL EQUITY INDEX FUND MID-CAP EQUITY FUND MID CAP VALUE EQUITY FUND SMALL CAP GROWTH STOCK FUND SMALL CAP VALUE EQUITY FUND TAX SENSITIVE GROWTH STOCK FUND VALUE INCOME STOCK FUND VANTAGE FUND INVESTMENT ADVISER TO THE FUNDS: TRUSCO CAPITAL MANAGEMENT, INC. (the "Adviser") STI Classic Funds THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. PROSPECTUS ABOUT THIS PROSPECTUS The STI Classic Funds is a mutual fund family that offers shares in separate investment portfolios (Funds). The Funds have individual investment goals and strategies. This prospectus gives you important information about the Trust Shares of the Equity Funds that you should know before investing. Please read this prospectus and keep it for future reference. THIS PROSPECTUS HAS BEEN ARRANGED INTO DIFFERENT SECTIONS SO THAT YOU CAN EASILY REVIEW THIS IMPORTANT INFORMATION. ON THE NEXT PAGE, THERE IS SOME GENERAL INFORMATION YOU SHOULD KNOW ABOUT RISK AND RETURN THAT IS COMMON TO EACH OF THE FUNDS. FOR MORE DETAILED INFORMATION ABOUT EACH FUND, PLEASE SEE: 2 BALANCED FUND 5 CAPITAL APPRECIATION FUND 8 GROWTH AND INCOME FUND 10 INFORMATION AND TECHNOLOGY FUND 13 INTERNATIONAL EQUITY FUND 16 INTERNATIONAL EQUITY INDEX FUND 19 MID-CAP EQUITY FUND 22 MID CAP VALUE EQUITY FUND 24 SMALL CAP GROWTH STOCK FUND 26 SMALL CAP VALUE EQUITY FUND 29 TAX SENSITIVE GROWTH STOCK FUND 32 VALUE INCOME STOCK FUND 35 VANTAGE FUND 38 MORE INFORMATION ABOUT RISK 40 MORE INFORMATION ABOUT FUND INVESTMENTS 40 INVESTMENT ADVISER 41 PORTFOLIO MANAGERS 42 PURCHASING AND SELLING FUND SHARES 44 DIVIDENDS AND DISTRIBUTIONS 44 TAXES 45 FINANCIAL HIGHLIGHTS BACK HOW TO OBTAIN MORE INFORMATION ABOUT THE COVER STI CLASSIC FUNDS - -------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY [TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING? [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES [MOUNTAIN GRAPHIC OMITTED] MORE INFORMATION ABOUT FUND INVESTMENTS [MAGNIFIER GRAPHIC OMITTED] INVESTMENT ADVISER [HANDSHAKE GRAPHIC OMITTED] PURCHASING, SELLING AND EXCHANGING FUND SHARES - -------------------------------------------------------------------------------- OCTOBER 1, 2002 PROSPECTUS 1 - -------------------------------------------------------------------------------- CUSIP/TICKER SYMBOLS - --------------------------------------------------------------------------------
FUND NAME CLASS INCEPTION* TICKER CUSIP - -------------------------------------------------------------------------------- EQUITY FUNDS Balanced Trust 1/3/94 SBATX 784766735 Capital Appreciation Trust 7/1/92 STCAX 784766867 Growth and Income Trust 9/26/92 CRVAX 784766198 Information & Technology Trust 9/30/99 STECX 784767840 International Equity Trust 1/31/95 STITX 784766388 International Equity Index Trust 6/6/94 SIEIX 784766594 Mid-Cap Equity Trust 2/2/94 SAGTX 784766750 Mid Cap Value Equity Trust 11/30/01 SMVTX 784767725 Small Cap Growth Stock Trust 10/8/98 SSCTX 784766263 Small Cap Value Equity Trust 8/31/94 SCETX 784766370 Tax Sensitive Growth Stock Trust 12/31/95 STTAX 784766230 Value Income Stock Trust 10/31/89 STVTX 784766834 Vantage Trust 11/29/01 STVNX 784767675
- -------------------------------------------------------------------------------- * THE INCEPTION DATE REFLECTS THE BEGINNING OF THE CLASS'S PERFORMANCE HISTORY, WHICH MAY INCLUDE THE PERFORMANCE OF OTHER CLASSES OF THE FUND AND/OR PREDECESSORS OF THE FUND. FOR FURTHER INFORMATION, SEE "PERFORMANCE INFORMATION." - -------------------------------------------------------------------------------- RISK/RETURN INFORMATION COMMON TO THE FUNDS - -------------------------------------------------------------------------------- Each Fund is a mutual fund. A mutual fund pools shareholders' money and, using professional investment managers, invests it in securities. Each Fund has its own investment goal and strategies for reaching that goal. The Adviser invests Fund assets in a way that it believes will help a Fund achieve its goal. Still, investing in each Fund involves risk and there is no guarantee that a Fund will achieve its goal. The Adviser's judgments about the markets, the economy or companies may not anticipate actual market movements, economic conditions or company performance, and these judgments may affect the return on your investment. In fact, no matter how good a job the Adviser does, you could lose money on your investment in a Fund, just as you could with other investments. A FUND SHARE IS NOT A BANK DEPOSIT AND IT IS NOT INSURED OR GUARANTEED BY THE FDIC OR ANY GOVERNMENT AGENCY. The value of your investment in a Fund is based on the market prices of the securities the Fund holds. These prices change daily due to economic and other events that affect particular companies and other issuers. These price movements, sometimes called volatility, may be greater or lesser depending on the types of securities a Fund owns and the markets in which they trade. The effect on a Fund of a change in the value of a single security will depend on how widely the Fund diversifies its holdings. 2 PROSPECTUS - -------------------------------------------------------------------------------- BALANCED FUND - -------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOAL Capital appreciation and current income - ------------------------------------------------------------------------------------------------------------------ INVESTMENT FOCUS PRIMARY U.S. common stocks SECONDARY Bonds - ------------------------------------------------------------------------------------------------------------------ SHARE PRICE VOLATILITY Moderate - ------------------------------------------------------------------------------------------------------------------ PRINCIPAL INVESTMENT STRATEGY Attempts to identify companies with a history of earnings growth and bonds with minimal risk - ------------------------------------------------------------------------------------------------------------------ INVESTOR PROFILE Investors who want income from their investment, as well as an increase in its value - ------------------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Balanced Fund invests in common and preferred stocks, convertible securities, U.S. government obligations and investment grade corporate bonds. In selecting stocks for the Fund, the Adviser attempts to identify high-quality companies with a history of above average earnings growth. In selecting bonds, the Adviser tries to minimize risk while attempting to outperform selected market indices. Due to its investment strategy, the Fund may buy and sell securities frequently. This may result in higher transaction costs and additional capital gains tax liabilities. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The prices of the Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, the Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities are generally more volatile, so the average maturity or duration of these securities affects risk. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S TRUST SHARES FROM YEAR TO YEAR.* [GRAPHIC OMITTED] Plot points are as follows: 1995 25.51% 1996 12.13% 1997 21.14% 1998 19.55% 1999 4.66% 2000 4.79% 2001 0.23% BEST QUARTER WORST QUARTER 12.57% -5.89% (12/31/98) (9/30/01) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS -6.64%. PROSPECTUS 3 - -------------------------------------------------------------------------------- BALANCED FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF A HYBRID 60/40 BLEND OF THE S&P 500(R) INDEX AND THE LEHMAN BROTHERS U.S. GOVERNMENT/CREDIT INDEX. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. TRUST SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Fund Returns Before Taxes 0.23% 9.75% 10.00% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions -1.07% 7.37% 7.55% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares 0.61% 6.95% 7.12% - -------------------------------------------------------------------------------- Hybrid 60/40 Blend of the Following Benchmarks -3.67% 9.79% 11.35% - -------------------------------------------------------------------------------- S&P 500(R) Index (reflects no deduction for fees, expenses or taxes) -11.88% 10.70% 13.98% - -------------------------------------------------------------------------------- Lehman Brothers U.S. Government/Credit Index (reflects no deduction for fees, expenses or taxes) 8.51% 7.36% 6.77% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE TRUST SHARES ON JANUARY 3, 1994. BENCHMARK RETURNS SINCE DECEMBER 31, 1993 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). - -------------------------------------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? - -------------------------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The S&P 500(R) Index is a widely-recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index of 500 stocks designed to mimic the overall U.S. equity market's industry weightings. The Lehman Brothers U.S. Government/Credit Index is a widely-recognized, market value-weighted (higher market value bonds have more influence than lower market value bonds) index of U.S. Treasury securities, U.S. government agency obligations, corporate debt backed by the U.S. government, fixed-rate nonconvertible corporate debt securities, Yankee bonds, and nonconvertible debt securities issued by or guaranteed by foreign governments and agencies. All securities in the Index are rated investment grade (BBB) or higher, with maturities of at least 1 year. 4 PROSPECTUS - -------------------------------------------------------------------------------- BALANCED FUND - -------------------------------------------------------------------------------- [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 0.95% Other Expenses 0.10% ------ Total Annual Fund Operating Expenses 1.05%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THIS FEE WAIVER REMAINS IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: Balanced Fund - Trust Shares 1.02% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $107 $334 $579 $1,283 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. In addition, the Fund may enter into arrangements with broker-dealers who have agreed to pay certain Fund expenses in return for executing Fund transactions through that broker-dealer. For more information about these fees, see "Investment Adviser." PROSPECTUS 5 - -------------------------------------------------------------------------------- CAPITAL APPRECIATION FUND - -------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOAL Capital appreciation - --------------------------------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS U.S. common stocks - --------------------------------------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Moderate - --------------------------------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify companies with above average growth potential - --------------------------------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Investors who want the value of their investment to grow, but do not need to receive income on their investment - ---------------------------------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Capital Appreciation Fund invests primarily in U.S. common stocks and other equity securities that the Adviser believes have strong business fundamentals, such as revenue growth, cash flows and earnings trends. In selecting investments for the Fund, the Adviser chooses companies that it believes have above average growth potential. The Adviser uses a "bottom-up" process based on individual company earnings trends and fundamentals to determine the weighting of the Fund's investments in various equity market sectors. The Adviser's strategy focuses primarily on large-cap stocks, but will also utilize mid-cap stocks. Due to its investment strategy, the Fund may buy and sell securities frequently. This may result in higher transaction costs and additional capital gains tax liabilities. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. [BULLS EYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S TRUST SHARES FROM YEAR TO YEAR.* [GRAPHIC OMITTED] Plot points are as follows: 1993 9.89% 1994 -7.41% 1995 31.15% 1996 20.31% 1997 31.13% 1998 28.06% 1999 9.71% 2000 1.62% 2001 -6.49% BEST QUARTER WORST QUARTER 22.93% -14.98% (12/31/98) (9/30/01) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS -13.00%. 6 PROSPECTUS - -------------------------------------------------------------------------------- CAPITAL APPRECIATION FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE S&P 500(R) INDEX. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. TRUST SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Fund Returns Before Taxes -6.49% 11.85% 12.91% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions -7.62% 8.46% 9.69% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares -2.83% 8.72% 9.56% - -------------------------------------------------------------------------------- S&P 500(R) Index (reflects no deduction for fees, expenses or taxes) -11.88% 10.70% 13.73% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE TRUST SHARES ON JULY 1, 1992. BENCHMARK RETURNS SINCE JUNE 30, 1992 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). - -------------------------------------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? - -------------------------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The S&P 500(R) Index is a widely-recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index of 500 stocks designed to mimic the overall U.S. equity market's industry weightings. PROSPECTUS 7 - -------------------------------------------------------------------------------- CAPITAL APPRECIATION FUND - -------------------------------------------------------------------------------- [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 1.15% Other Expenses 0.09% ------ Total Annual Fund Operating Expenses 1.24%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THIS FEE WAIVER REMAINS IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: Capital Appreciation Fund - Trust Shares 1.22% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $126 $393 $681 $1,500 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. In addition, the Fund may enter into arrangements with broker-dealers who have agreed to pay certain Fund expenses in return for executing Fund transactions through that broker-dealer. For more information about these fees, see "Investment Adviser." 8 PROSPECTUS - -------------------------------------------------------------------------------- GROWTH AND INCOME FUND - -------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOALS PRIMARY Long-term capital appreciation SECONDARY Current income - ------------------------------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS Equity securities - ------------------------------------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Moderate - ------------------------------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify securities of companies with market capitalizations of at least $1 billion with attractive valuation and/or above average earnings potential relative either to their sectors or the market as a whole - -------------------------------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Investors who are looking for capital appreciation potential and some income with less volatility than the equity market as a whole - -------------------------------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED]INVESTMENT STRATEGY The Growth and Income Fund invests primarily in equity securities, including common stocks of domestic companies and listed American Depositary Receipts (ADRs) of foreign companies, all with market capitalizations of at least $1 billion. However, the average market capitalization can vary throughout a full market cycle and will be flexible to allow the Adviser to capture market opportunities. The Adviser uses a quantitative screening process to identify companies with attractive fundamental profiles. The portfolio management team selects stocks of companies with strong financial quality and above average earnings potential to secure the best relative values in each economic sector. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. Investing in foreign countries poses additional risks since political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. In addition, investments in foreign countries are generally denominated in a foreign currency. As a result, changes in the value of those currencies compared to the U.S. dollar may affect (positively or negatively) the value of a Fund's investments. These currency movements may happen separately from and in response to events that do not otherwise affect the value of the security in the issuer's home country. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S TRUST SHARES FROM YEAR TO YEAR.* [GRAPHIC OMITTED] Plot points are as follows: 1993 10.20% 1994 -0.81% 1995 29.38% 1996 19.06% 1997 27.69% 1998 18.20% 1999 14.17% 2000 1.43% 2001 -6.60% BEST QUARTER WORST QUARTER 17.38% -10.84% (6/30/97) (9/30/01) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS -8.67%. PROSPECTUS 9 - -------------------------------------------------------------------------------- GROWTH AND INCOME FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE S&P 500(R)/BARRA VALUE INDEX. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. TRUST SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Fund Returns Before Taxes -6.60% 10.30% 12.32% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions -6.81% 7.94% 9.67% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares -4.03% 7.68% 9.16% - -------------------------------------------------------------------------------- S&P 500(R)/BARRA Value Index (reflects no deduction for fees, expenses or taxes) -11.71% 9.49% 13.46% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE TRUST SHARES ON SEPTEMBER 26, 1992. BENCHMARK RETURNS SINCE SEPTEMBER 30, 1992 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). - -------------------------------------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? - -------------------------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The S&P 500(R)/BARRA Value Index is a widely-recognized index of the stocks in the S&P 500(R) Index that have lower price-to-book ratios. The S&P 500(R) Index is a widely-recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index of 500 stocks designed to mimic the overall U.S. equity market's industry weightings. [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 0.90% Other Expenses 0.09% ----- Total Annual Fund Operating Expenses 0.99% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $101 $315 $547 $1,213 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. In addition, the Fund may enter into arrangements with broker-dealers who have agreed to pay certain Fund expenses in return for executing Fund transactions through that broker-dealer. For more information about these fees, see "Investment Adviser." 10 PROSPECTUS - -------------------------------------------------------------------------------- INFORMATION AND TECHNOLOGY FUND - -------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOAL Long-term capital growth - ----------------------------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS Common stocks of companies benefiting from information and technology - ----------------------------------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Very high - ----------------------------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify companies benefiting from technology and information to achieve above average growth - ----------------------------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Aggressive investors with long-term investment goals who are willing to accept significant volatility for the possibility of higher returns - -----------------------------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Information and Technology Fund invests at least 80% of its net assets in common stocks of U.S. companies that are expected to benefit substantially from information and technology and achieve above average growth. The Fund believes that information-oriented companies and technology-oriented companies offer the potential for significant long-term growth. The Fund's holdings are generally diversified across three market segments. The first segment is comprised of corporations whose core line of business focuses on an emerging information-related or technology-related market. The second segment consists of established technology companies that provide the infrastructure to support the transfer of information. The third segment includes established, non-tech corporations from multiple industries that are harnessing the power of information to drive company growth. In selecting investments for the Fund, the Adviser uses a "bottom-up" analysis that evaluates the competitive advantages and market sustainability of individual companies. The Fund invests primarily in companies with market capitalizations over $1 billion, but may invest a portion of its assets in smaller companies. Due to its investment strategy, the Fund may buy and sell securities frequently. This may result in higher transaction costs and additional capital gains tax liabilities. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The smaller capitalization companies the Fund invests in may be more vulnerable to adverse business or economic events than larger, more established companies. In particular, these small companies may have limited product lines, markets and financial resources, and may depend upon a relatively small management group. Therefore, small cap stocks may be more volatile than those of larger companies. These securities may be traded over-the- counter or listed on an exchange. Due to the focus of the Fund, many holdings share similar risk factors. Many companies in the portfolio have limited operating histories, function in rapidly changing business environments and trade at valuations which are significantly higher than average. As a result, the Fund's net asset value (NAV) may be more volatile than other, broadly diversified equity funds. PROSPECTUS 11 - -------------------------------------------------------------------------------- INFORMATION AND TECHNOLOGY FUND - -------------------------------------------------------------------------------- [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S TRUST SHARES FROM YEAR TO YEAR.* [GRAPHIC OMITTED] Plot points are as follows: 2000 -16.75% 2001 -26.65% BEST QUARTER WORST QUARTER 27.45% -32.91% (12/31/01) (9/30/01) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS -37.17%. THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE GOLDMAN SACHS TECHNOLOGY COMPOSITE INDEX AND THE LIPPER SCIENCE & TECHNOLOGY FUNDS AVERAGE. PREVIOUSLY, THE FUND'S RETURNS HAD BEEN COMPARED TO THE GOLDMAN SACHS E-COMMERCE INDEX, BUT THE ADVISER BELIEVES THAT THE GOLDMAN SACHS TECHNOLOGY COMPOSITE INDEX MORE ACCURATELY REFLECTS THE INCLUSION OF COMPANIES THAT ARE NOT FOCUSED ON ACHIEVING GROWTH THROUGH E-COMMERCE INITIATIVES. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. TRUST SHARES 1 YEAR SINCE INCEPTION* - -------------------------------------------------------------------------------- Fund Returns Before Taxes -26.65% 2.97% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions -26.65% 2.97% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares -16.23% 2.38% - -------------------------------------------------------------------------------- Goldman Sachs Technology Composite Index (reflects no deduction for fees, expenses or taxes) -28.56% -18.53% - -------------------------------------------------------------------------------- Lipper Science & Technology Funds Average (reflects no deduction for taxes) -36.74% -15.99% - -------------------------------------------------------------------------------- Goldman Sachs E-Commerce Index (reflects no deduction for fees, expenses or taxes) -33.35% -19.99% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE TRUST SHARES ON SEPTEMBER 30, 1999. - -------------------------------------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? - -------------------------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Goldman Sachs Technology Composite Index is a modified capitalization-weighted index of selected technology funds. The Lipper Science and Technology Funds Average is an average of funds that invest 65% of their equity portfolio in science and technology stocks. The number of funds in the Average varies. Developed jointly by the Goldman Sachs E-Commerce research team and Goldman Sachs Index Services, the Goldman Sachs E-Commerce Index is built from a universe of 39 stocks. To be included in the index, firms must generate a majority of their revenues online, operate as virtual companies outside the traditional "bricks and mortar" framework or be key e-commerce infrastructure providers. 12 PROSPECTUS - -------------------------------------------------------------------------------- INFORMATION AND TECHNOLOGY FUND - -------------------------------------------------------------------------------- [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 1.10% Other Expenses 0.09% ----- Total Annual Fund Operating Expenses 1.19% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $121 $378 $654 $1,443 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. In addition, the Fund may enter into arrangements with broker-dealers who have agreed to pay certain Fund expenses in return for executing Fund transactions through that broker-dealer. For more information about these fees, see "Investment Adviser." PROSPECTUS 13 - -------------------------------------------------------------------------------- INTERNATIONAL EQUITY FUND - -------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOAL Long-term capital appreciation - -------------------------------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS Foreign common stocks - -------------------------------------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY High - -------------------------------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify companies with good fundamentals or a history of consistent growth - -------------------------------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Investors who want an increase in the value of their investment without regard to income, are willing to accept the increased risks of international investing for the possibility of higher returns, and want exposure to a diversified portfolio of international stocks - --------------------------------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The International Equity Fund invests at least 80% of its net assets in common stocks and other equity securities of foreign companies. The Fund invests primarily in developed countries, but may invest in countries with emerging markets. The Adviser's "bottom-up" approach to stock selection focuses on individual stocks and fundamental characteristics of companies. The Adviser's goal is to find companies with top management, quality products and sound financial positions, or a history of consistent growth in cash flows, sales, operating profits, returns on equity and returns on invested capital. In selecting investments for the Fund, the Adviser diversifies the Fund's investments among at least three foreign countries. Due to its investment strategy, the Fund may buy and sell securities frequently. This may result in higher transaction costs and additional capital gains tax liabilities. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The Fund is also subject to the risk that foreign common stocks may underperform other segments of the equity market or the equity market as a whole. Investing in foreign countries poses additional risks since political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. In addition, investments in foreign countries are generally denominated in a foreign currency. As a result, changes in the value of those currencies compared to the U.S. dollar may affect (positively or negatively) the value of a Fund's investments. These currency movements may happen separately from and in response to events that do not otherwise affect the value of the security in the issuer's home country. Emerging market countries are countries that the World Bank or the United Nations considers to be emerging or developing. Emerging markets may be more likely to experience political turmoil or rapid changes in market or economic conditions than more developed countries. In addition, the financial stability of issuers (including governments) in emerging market countries may be more precarious than in other countries. As a result, there will tend to be an increased risk of price volatility associated with the Fund's investments in emerging market countries, which may be magnified by currency fluctuations relative to the U.S. dollar. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how 14 PROSPECTUS - -------------------------------------------------------------------------------- INTERNATIONAL EQUITY FUND - -------------------------------------------------------------------------------- the Fund will perform in the future. The Fund began operating as a registered mutual fund on December 1, 1995. Performance prior to December 1, 1995 is that of the Adviser's similarly managed collective investment fund, which began operations on January 31, 1995. The collective fund's performance has been adjusted to reflect the fees and expenses for Trust Shares of the Fund. As a collective fund, rather than a registered mutual fund, it was not subject to the same investment and tax restrictions. If it had been, the collective fund's performance would have been lower. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S TRUST SHARES FROM YEAR TO YEAR.* [GRAPHIC OMITTED] Plot points are as follows: 1996 22.08% 1997 13.35% 1998 11.22% 1999 9.47% 2000 -3.46% 2001 -17.71% BEST QUARTER WORST QUARTER 16.88% -18.28% (12/31/98) (9/30/98) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS -1.43%. THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE, AUSTRALASIA AND FAR EAST (MSCI EAFE) INDEX. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. SINCE SINCE INCEPTION INCEPTION AS A OF THE REGISTERED COLLECTIVE MUTUAL INVESTMENT TRUST SHARES 1 YEAR 5 YEARS FUND* FUND** - -------------------------------------------------------------------------------- Fund Returns Before Taxes -17.71% 1.86% 5.57% 9.32% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions -17.71% -0.39% 3.47% N/A+ - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares -10.79% 1.00% 4.05% N/A+ - -------------------------------------------------------------------------------- MSCI EAFE Index (reflects no deduction for fees, expenses or taxes) -21.44% 0.89% 2.38% 3.66% - -------------------------------------------------------------------------------- * FUND RETURNS SINCE INCEPTION OF THE TRUST SHARES ON DECEMBER 1, 1995, WHEN THE FUND BEGAN OPERATING AS A REGISTERED MUTUAL FUND. BENCHMARK RETURN SINCE NOVEMBER 30, 1995 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). ** SINCE INCEPTION OF THE COLLECTIVE INVESTMENT FUND ON JANUARY 31, 1995. + IT IS NOT POSSIBLE TO REFLECT THE IMPACT OF TAXES ON THE COLLECTIVE INVESTMENT FUND'S PERFORMANCE. - -------------------------------------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? - -------------------------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The MSCI EAFE Index is a widely-recognized, capitalization-weighted (companies with larger market capitalizations have more influence than smaller market capitalizations) index of over 900 securities listed on the stock exchanges in Europe, Australasia and the Far East. The country weighting of the Index is calculated using the market capitalization of each of the various countries, and then with respect to the market capitalization of the various companies operating in each country. PROSPECTUS 15 - -------------------------------------------------------------------------------- INTERNATIONAL EQUITY FUND - -------------------------------------------------------------------------------- [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 1.25% Other Expenses 0.23% ----- Total Annual Fund Operating Expenses 1.48% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $151 $468 $808 $1,768 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. In addition, the Fund may enter into arrangements with broker-dealers who have agreed to pay certain Fund expenses in return for executing Fund transactions through that broker-dealer. For more information about these fees, see "Investment Adviser." 16 PROSPECTUS - -------------------------------------------------------------------------------- INTERNATIONAL EQUITY INDEX FUND - -------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOAL Investment results that correspond to the performance of the MSCI EAFE-GDP Weighted Index - ---------------------------------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS Foreign equity securities in the MSCI EAFE-GDP Weighted Index - ---------------------------------------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY High - ---------------------------------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Statistical analysis to track the Index - ---------------------------------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Aggressive investors who want exposure to foreign markets and are willing to accept the increased risks of foreign investing for the possibility of higher returns - ----------------------------------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The International Equity Index Fund invests at least 80% of its net assets in equity securities of foreign companies. In selecting investments for the Fund, the Adviser chooses companies included in the MSCI EAFE-GDP Weighted Index, an index of equity securities of companies located in Europe, Australasia and the Far East. While the Fund is structured to have overall investment characteristics similar to those of the Index, it selects a sample of securities within the Index using a statistical process. So, the Fund will not hold all securities included in the Index. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The Fund is also subject to the risk that foreign equity securities may underperform other segments of the equity market or the equity market as a whole. Investing in foreign countries poses additional risks since political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. In addition, investments in foreign countries are generally denominated in a foreign currency. As a result, changes in the value of those currencies compared to the U.S. dollar may affect (positively or negatively) the value of a Fund's investments. These currency movements may happen separately from and in response to events that do not otherwise affect the value of the security in the issuer's home country. In addition to the above mentioned risks, the Adviser may not be able to match the performance of the Fund's benchmark. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S TRUST SHARES FROM YEAR TO YEAR.* [GRAPHIC OMITTED] Plot points are as follows: 1995 10.73% 1996 6.04% 1997 8.99% 1998 30.02% 1999 30.66% 2000 -17.06% 2001 -23.47% BEST QUARTER WORST QUARTER 21.26% -15.46% (12/31/98) (9/30/01) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS -0.63%. PROSPECTUS 17 - -------------------------------------------------------------------------------- INTERNATIONAL EQUITY INDEX FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE MORGAN STANLEY CAPITAL, INTERNATIONAL EUROPE, AUSTRALASIA AND FAR EAST - GROSS DOMESTIC PRODUCT (MSCI EAFE-GDP) WEIGHTED INDEX. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. TRUST SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Fund Returns Before Taxes -23.47% 3.28% 4.00% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions -23.44% 2.07% 2.92% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares -14.17% 2.69% 3.17% - -------------------------------------------------------------------------------- MSCI EAFE-GDP Weighted Index (reflects no deduction for fees, expenses or taxes) -23.26% 1.63% 2.91% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE TRUST SHARES ON JUNE 6, 1994. BENCHMARK RETURNS SINCE MAY 31, 1994 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The MSCI EAFE-GDP Weighted Index is a widely-recognized, capitalization-weighted (companies with larger market capitalizations have more influence than smaller market capitalizations) index of over 900 securities listed on the stock exchanges in Europe, Australasia and the Far East. The country weighting of the Index is calculated using the gross domestic product of each of the various countries and then with respect to the market capitalization of the various companies operating in each country. 18 PROSPECTUS - -------------------------------------------------------------------------------- INTERNATIONAL EQUITY INDEX FUND - -------------------------------------------------------------------------------- [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 0.90% Other Expenses 0.22% ----- Total Annual Fund Operating Expenses 1.12%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THIS FEE WAIVER REMAINS IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: International Equity Index Fund - Trust Shares 1.04% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $114 $356 $617 $1,363 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. In addition, the Fund may enter into arrangements with broker-dealers who have agreed to pay certain Fund expenses in return for executing Fund transactions through that broker-dealer. For more information about these fees, see "Investment Adviser." PROSPECTUS 19 - -------------------------------------------------------------------------------- MID-CAP EQUITY FUND - -------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOAL Capital appreciation - ---------------------------------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS U.S. mid-cap common stocks - ---------------------------------------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Moderate to high - ---------------------------------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify companies with above average growth potential at an attractive price - ---------------------------------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Investors who want the value of their investment to grow and who are willing to accept more volatility for the possibility of higher returns - ----------------------------------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Mid-Cap Equity Fund invests at least 80% of its net assets in a diversified portfolio of common stocks and other equity securities of U.S. companies that have small- to mid-sized market capitalizations (I.E., companies with market capitalizations of $500 million to $10 billion or companies in the S&P Mid Cap 400(R) Index). In selecting investments for the Fund, the Adviser chooses companies that, in its opinion, offer above average growth potential at attractive prices. The Adviser evaluates companies based on their industry sectors and the market in general. The Fund maintains holdings in the industries that appear to perform best during a given business cycle. The Adviser analyzes companies that are in favored industries based on their fundamental characteristics, such as growth rates and earnings. The Adviser does not consider current income in selecting investments for the Fund. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The Fund is also subject to the risk that mid-cap common stocks may underperform other segments of the equity market or the equity market as a whole. The small- to mid-sized capitalization companies the Fund invests in may be more vulnerable to adverse business or economic events than larger, more established companies. In particular, these small companies may have limited product lines, markets and financial resources, and may depend upon a relatively small management group. Therefore, small-cap and mid-cap stocks may be more volatile than those of larger companies. These securities may be traded over-the-counter or listed on an exchange. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S TRUST SHARES FROM YEAR TO YEAR.* [GRAPHIC OMITTED] Plot points are as follows: 1995 31.22% 1996 15.42% 1997 21.23% 1998 6.48% 1999 16.14% 2000 -2.97% 2001 2.38% BEST QUARTER WORST QUARTER 24.73% -19.96% (12/31/98) (9/30/98) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS -18.14%. 20 PROSPECTUS - -------------------------------------------------------------------------------- MID-CAP EQUITY FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE S&P MID CAP 400(R) INDEX. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. TRUST SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Fund Returns Before Taxes 2.38% 8.29% 10.60% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions 2.38% 5.12% 7.67% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares 1.45% 5.56% 7.58% - -------------------------------------------------------------------------------- S&P Mid Cap 400(R) Index (reflects no deduction for fees, expenses or taxes) -0.61% 16.11% 15.38% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE TRUST SHARES ON FEBRUARY 2, 1994. BENCHMARK RETURNS SINCE JANUARY 31, 1994 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). - -------------------------------------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? - -------------------------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The S&P Mid Cap 400(R) Index is a widely-recognized, capitalization-weighted (companies with larger market capitalizations have more influence than those with smaller market capitalizations) index of 400 domestic mid-cap stocks chosen for market size, liquidity, and industry group representation. PROSPECTUS 21 - -------------------------------------------------------------------------------- MID-CAP EQUITY FUND - -------------------------------------------------------------------------------- [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 1.15% Other Expenses 0.09% ------ Total Annual Fund Operating Expenses 1.24%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THIS FEE WAIVER REMAINS IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: Mid-Cap Equity Fund - Trust Shares 1.22% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $126 $393 $681 $1,500 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. In addition, the Fund may enter into arrangements with broker-dealers who have agreed to pay certain Fund expenses in return for executing Fund transactions through that broker-dealer. For more information about these fees, see "Investment Adviser." 22 PROSPECTUS - -------------------------------------------------------------------------------- MID CAP VALUE EQUITY FUND - -------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOALS PRIMARY Capital appreciation SECONDARY Current income - ----------------------------------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS U.S. mid-cap equity securities - ----------------------------------------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Moderate - ----------------------------------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify undervalued mid-cap securities - ----------------------------------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Investors who primarily want the value of their investment to grow, but want to receive some income from their investment - -----------------------------------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Mid Cap Value Equity Fund invests at least 80% of its net assets in equity securities of U.S. mid-sized companies with market capitalizations between approximately $1 billion and $12 billion. In selecting investments for the Fund, the Adviser chooses common stocks that it believes are undervalued in the market. The Adviser may sell a security when it achieves a designated target price, a company's growth prospects change, or the opportunity for a better investment arises. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The Fund is also subject to the risk that mid-cap equity securities may underperform other segments of the equity market or the equity market as a whole. The mid-sized capitalization companies the Fund invests in may be more vulnerable to adverse business or economic events than larger, more established companies. In particular, these smaller companies may have limited product lines, markets and financial resources, and may depend upon a relatively small management group. Therefore, mid-cap stocks may be more volatile than those of larger companies. These securities may be traded over-the-counter or listed on an exchange. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The Mid Cap Value Equity Fund commenced operations on November 30, 2001, and therefore does not have a performance history for a full calendar year. PROSPECTUS 23 - -------------------------------------------------------------------------------- MID CAP VALUE EQUITY FUND - -------------------------------------------------------------------------------- [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 1.25% Other Expenses 0.12% ------ Total Annual Fund Operating Expenses 1.37%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE CURRENT FISCAL YEAR ARE EXPECTED TO BE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER INTENDS TO WAIVE A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THIS FEE WAIVER REMAINS IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES WOULD BE AS FOLLOWS: Mid Cap Value Equity Fund - Trust Shares 1.27% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS $139 $434 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. In addition, the Fund may enter into arrangements with broker-dealers who have agreed to pay certain Fund expenses in return for executing Fund transactions through that broker-dealer. For more information about these fees, see "Investment Adviser." 24 PROSPECTUS - -------------------------------------------------------------------------------- SMALL CAP GROWTH STOCK FUND - -------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOAL Long-term capital appreciation - -------------------------------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS U.S. small cap common stocks of growth companies - -------------------------------------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY High - -------------------------------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Identifies small cap companies with above average growth potential - -------------------------------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Investors who want the value of their investment to grow, but do not need current income - --------------------------------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Small Cap Growth Stock Fund invests at least 80% of its net assets in small U.S. companies with market capitalizations between $50 million and $3 billion in size. The Fund's investment philosophy is based on the premise that a portfolio of small cap stocks with positive earnings trends, reasonable valuation, and strong fundamentals will provide superior returns over time. The Adviser selects companies with strong current earnings growth, improving profitability, a strong balance sheet, strong current and projected business fundamentals, and priced at reasonable valuations. The Adviser believes in executing a very disciplined and objective investment process and in controlling risk through a broadly diversified portfolio. Due to its investment strategy, the Fund may buy and sell securities frequently. This may result in higher transaction costs and the potential for capital gains tax liabilities. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? Since it purchases common stocks, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the stock markets have moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The Fund is also subject to the risk that small capitalization growth stocks may underperform other segments of the equity market or the equity market as a whole. The smaller capitalization companies the Fund invests in may be more vulnerable to adverse business or economic events than larger, more established companies. In particular, these small companies may have limited product lines, markets and financial resources, and may depend upon a relatively small management group. Therefore, small cap stocks may be more volatile than those of larger companies. These securities may be traded over-the-counter or listed on an exchange. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S TRUST SHARES FROM YEAR TO YEAR.* [GRAPHIC OMITTED] Plot points are as follows: 1999 20.55% 2000 11.76% 2001 -0.82% BEST QUARTER WORST QUARTER 23.93% -22.83% (12/31/01) (9/30/01) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS -9.21%. PROSPECTUS 25 - -------------------------------------------------------------------------------- SMALL CAP GROWTH STOCK FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE S&P SMALL CAP 600(R) INDEX. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. TRUST SHARES 1 YEAR SINCE INCEPTION* - -------------------------------------------------------------------------------- Fund Returns Before Taxes -0.82% 23.08% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions -0.90% 22.16% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares -0.42% 18.99% - -------------------------------------------------------------------------------- S&P Small Cap 600(R) Index (reflects no deduction for fees, expenses or taxes) 6.54% 14.99% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE TRUST SHARES ON OCTOBER 8, 1998. BENCHMARK RETURNS SINCE SEPTEMBER 30, 1998 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). - -------------------------------------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? - -------------------------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The S&P Small Cap 600(R) Index is a widely-recognized, capitalization-weighted (companies with larger market capitalizations have more influence than those with smaller market capitalizations) index of 600 domestic small cap stocks. [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 1.15% Other Expenses 0.10% ----- Total Annual Fund Operating Expenses 1.25% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $127 $397 $686 $1,511 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. In addition, the Fund may enter into arrangements with broker-dealers who have agreed to pay certain Fund expenses in return for executing Fund transactions through that broker-dealer. For more information about these fees, see "Investment Adviser." 26 PROSPECTUS - -------------------------------------------------------------------------------- SMALL CAP VALUE EQUITY FUND - -------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOALS PRIMARY Capital appreciation SECONDARY Current income - -------------------------------------------------------------------------------- INVESTMENT FOCUS U.S. small cap equity securities - -------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Moderate - -------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify undervalued small cap securities - -------------------------------------------------------------------------------- INVESTOR PROFILE Investors who primarily want the value of their investment to grow, but want to receive some income from their investment - -------------------------------------------------------------------------------- [TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Small Cap Value Equity Fund invests at least 80% of its net assets in equity securities of small-sized U.S. companies (I.E., companies with market capitalizations under $2 billion). In selecting investments for the Fund, the Adviser chooses equity securities of small sized companies that it believes are undervalued in the market. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The Fund is also subject to the risk that small capitalization common stocks may underperform other segments of the equity market or the equity market as a whole. The smaller capitalization companies the Fund invests in may be more vulnerable to adverse business or economic events than larger, more established companies. In particular, these small companies may have limited product lines, markets and financial resources, and may depend upon a relatively small management group. Therefore, small cap stocks may be more volatile than those of larger companies. These securities may be traded over-the-counter or listed on an exchange. [BULLS EYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. The Fund began operating as a registered mutual fund on January 31, 1997. Performance prior to January 31, 1997 is that of the Adviser's similarly managed collective investment fund, which began operations on August 31, 1994. The collective fund's performance has been adjusted to reflect the fees and expenses for Trust Shares of the Fund. As a collective fund, rather than a registered mutual fund, it was not subject to the same investment and tax restrictions. If it had been, the collective fund's performance would have been lower. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S TRUST SHARES FROM YEAR TO YEAR.* [BAR GRAPH OMITTED] [PLOT POINTS FOLLOW:] 1995 30.99% 1996 34.25% 1997 32.59% 1998 -13.45% 1999 -2.72% 2000 17.96% 2001 21.21% BEST QUARTER WORST QUARTER 19.82% -21.99% (6/30/99) (9/30/98) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS 7.72%. PROSPECTUS 27 - -------------------------------------------------------------------------------- SMALL CAP VALUE EQUITY FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE RUSSELL 2000 VALUE INDEX. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. SINCE SINCE INCEPTION INCEPTION AS A OF THE REGISTERED COLLECTIVE MUTUAL INVESTMENT TRUST SHARES 1 YEAR 5 YEARS FUND* FUND** - -------------------------------------------------------------------------------- Fund Returns Before Taxes 21.21% 9.80% 9.44% 15.23% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions 20.69% N/A+ 7.98% N/A+ - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares 12.88% N/A+ 6.94% N/A+ - -------------------------------------------------------------------------------- Russell 2000 Value Index (reflects no deduction for fees, expenses or taxes) 14.02% 11.21% 11.06% 13.26% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE TRUST SHARES ON JANUARY 31, 1997, WHEN THE FUND BEGAN OPERATING AS A REGISTERED MUTUAL FUND. ** SINCE INCEPTION OF THE COLLECTIVE INVESTMENT FUND ON AUGUST 31, 1994. + IT IS NOT POSSIBLE TO REFLECT THE IMPACT OF TAXES ON THE COLLECTIVE INVESTMENT FUND'S PERFORMANCE. - -------------------------------------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? - -------------------------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Russell 2000 Value Index is a widely-recognized, capitalization-weighted (companies with larger market capitalizations have more influence than those with smaller market capitalizations) index of companies in the Russell 2000 Index with lower growth rates and price-to-book ratios. 28 PROSPECTUS - -------------------------------------------------------------------------------- SMALL CAP VALUE EQUITY FUND - -------------------------------------------------------------------------------- [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 1.15% Other Expenses 0.10% ----- Total Annual Fund Operating Expenses 1.25% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $127 $397 $686 $1,511 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. In addition, the Fund may enter into arrangements with broker-dealers who have agreed to pay certain Fund expenses in return for executing Fund transactions through that broker-dealer. For more information about these fees, see "Investment Adviser." PROSPECTUS 29 - -------------------------------------------------------------------------------- TAX SENSITIVE GROWTH STOCK FUND - -------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOAL Long-term capital growth with nominal dividend income - -------------------------------------------------------------------------------- INVESTMENT FOCUS U.S. common stocks of growth companies - ------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Moderate - -------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify companies that have above average growth potential and uses a low portfolio turnover strategy to reduce capital gains distributions - -------------------------------------------------------------------------------- INVESTOR PROFILE Investors who want to increase the value of their investment while minimizing taxable capital gains distributions - -------------------------------------------------------------------------------- [TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Tax Sensitive Growth Stock Fund invests primarily in a diversified portfolio of common stocks of financially strong U.S. growth companies. Many of these companies have a history of stable or rising dividend payout policies. The Adviser attempts to minimize the impact of capital gains taxes on investment returns by using a low turnover rate (generally 50% or less) strategy, in conjunction with other tax management strategies. These strategies may lead to lower capital gains distributions and, therefore, lower capital gains taxes. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? Since it purchases common stocks, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the stock markets have moved in cycles, and the value of the Fund's common stocks may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of stocks issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The Fund is also subject to the risk that common stocks of U.S. growth companies may underperform other segments of the equity market or the equity market as a whole. The smaller capitalization companies the Fund invests in may be more vulnerable to adverse business or economic events than larger, more established companies. In particular, these small companies may have limited product lines, markets and financial resources, and may depend upon a relatively small management group. Therefore, small cap stocks may be more volatile than those of larger companies. These securities may be trades over-the-counter or listed on an exchange. [BULLS EYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. The Fund began operating as a registered mutual fund on December 11, 1998. Performance prior to December 11, 1998 is that of the Adviser's similarly managed collective investment fund, which began operations on December 31, 1995. The collective fund's performance has been adjusted to reflect the fees and expenses for Trust Shares of the Fund. As a collective fund, rather than a registered mutual fund, it was not subject to the same investment and tax restrictions. If it had been, the collective fund's performance would have been lower. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S TRUST SHARES FROM YEAR TO YEAR.* [BAR GRAPH OMITTED] [PLOT POINTS FOLLOW:] 1996 21.04% 1997 28.76% 1998 31.73% 1999 24.74% 2000 -12.15% 2001 -18.21% BEST QUARTER WORST QUARTER 27.74% -16.18% (12/31/98) (3/31/01) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS -11.46%. 30 PROSPECTUS - -------------------------------------------------------------------------------- TAX SENSITIVE GROWTH STOCK FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF S&P 500(R) INDEX. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. SINCE SINCE INCEPTION INCEPTION AS A OF THE REGISTERED COLLECTIVE MUTUAL INVESTMENT TRUST SHARES 1 YEAR 5 YEARS FUND* FUND** - -------------------------------------------------------------------------------- Fund Returns Before Taxes -18.21% 8.74% -1.28% 10.70% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions -18.21% N/A+ -1.29% N/A+ - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares -11.09% N/A+ -1.02% N/A+ - -------------------------------------------------------------------------------- S&P 500(R) Index (reflects no deduction for fees, expenses or taxes) -11.88% 10.70% 0.81% 12.65% - -------------------------------------------------------------------------------- * FUND RETURNS SINCE INCEPTION OF THE TRUST SHARES ON DECEMBER 11, 1998, WHEN THE FUND BEGAN OPERATING AS A REGISTERED MUTUAL FUND. BENCHMARK RETURNS SINCE NOVEMBER 30, 1998 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). ** SINCE INCEPTION OF THE COLLECTIVE INVESTMENT FUND ON DECEMBER 31, 1995. + IT IS NOT POSSIBLE TO REFLECT THE IMPACT OF TAXES ON THE COLLECTIVE INVESTMENT FUND'S PERFORMANCE. - -------------------------------------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? - -------------------------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The S&P 500(R) Index is a widely-recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index of 500 stocks designed to mimic the overall U.S. equity market's industry weightings. PROSPECTUS 31 - -------------------------------------------------------------------------------- TAX SENSITIVE GROWTH STOCK FUND - -------------------------------------------------------------------------------- [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 1.15% Other Expenses 0.09% ----- Total Annual Fund Operating Expenses 1.24% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your share at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $126 $393 $681 $1,500 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. In addition, the Fund may enter into arrangements with broker-dealers who have agreed to pay certain Fund expenses in return for executing Fund transactions through that broker-dealer. For more information about these fees, see "Investment Adviser." 32 PROSPECTUS - -------------------------------------------------------------------------------- VALUE INCOME STOCK FUND - -------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOALS PRIMARY Current income SECONDARY Capital appreciation - -------------------------------------------------------------------------------- INVESTMENT FOCUS U.S. common stocks - -------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Moderate - -------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify high dividend-paying, undervalued stocks - -------------------------------------------------------------------------------- INVESTOR PROFILE Investors who are looking for current income and capital appreciation with less volatility than the average stock fund - -------------------------------------------------------------------------------- [TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Value Income Stock Fund invests at least 80% of its net assets in common stocks and other equity securities of companies. In selecting investments for the Fund, the Adviser primarily chooses U.S. companies that have a market capitalization of at least $5 billion and that have a history of paying regular dividends. The Adviser focuses on dividend-paying stocks that trade below their historical value. The Adviser's "bottom-up" approach to stock selection emphasizes individual stocks over economic trends. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. [BULLS EYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. The Fund began operating as a registered mutual fund on February 12, 1993. Performance prior to February 12, 1993 is that of the Adviser's similarly managed collective investment fund, which began operations on October 31, 1989. The collective fund's performance has been adjusted to reflect the current fees and expenses for Trust Shares of the Fund. As a collective fund, rather than a registered mutual fund, it was not subject to the same investment and tax restrictions. If it had been, the collective fund's performance would have been lower. THE BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S TRUST SHARES FROM YEAR TO YEAR.* [BAR GRAPH OMITTED] [PLOT POINTS FOLLOW:] 1992 20.05% 1993 11.14% 1994 3.54% 1995 35.93% 1996 19.46% 1997 27.08% 1998 10.58% 1999 -2.93% 2000 10.85% 2001 -0.95% BEST QUARTER WORST QUARTER 15.35% -12.14% (6/30/99) (9/30/99) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS -4.36%. PROSPECTUS 33 - -------------------------------------------------------------------------------- VALUE INCOME STOCK FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE S&P 500(R)/BARRA VALUE INDEX. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. SINCE INCEPTION AS A REGISTERED TRUST SHARES 1 YEAR 5 YEARS 10 YEARS MUTUAL FUND* - -------------------------------------------------------------------- Fund Returns Before Taxes -0.95% 8.41% 12.88% 12.29% - -------------------------------------------------------------------- Fund Returns After Taxes on Distributions -1.45% 4.90% N/A+ 8.30% - -------------------------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares -0.60% 5.35% N/A+ 8.27% - -------------------------------------------------------------------- S&P 500(R)/BARRA Value Index (reflects no deduction for fees, expenses or taxes) -11.71% 9.49% 13.10% 13.18% - -------------------------------------------------------------------------------- * FUND RETURNS SINCE INCEPTION OF THE TRUST SHARES ON FEBRUARY 12, 1993, WHEN THE FUND BEGAN OPERATING AS A REGISTERED MUTUAL FUND. BENCHMARK RETURN SINCE JANUARY 31, 1993 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). + IT IS NOT POSSIBLE TO REFLECT THE IMPACT OF TAXES ON THE COLLECTIVE INVESTMENT FUND'S PERFORMANCE. -------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? -------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The S&P 500(R)/BARRA Value Index is a widely-recognized index of the stocks in the S&P 500(R) Index that have lower price-to-book ratios. The S&P 500(R) Index is a widely-recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index of 500 stocks designed to mimic the overall U.S. equity market's industry weightings. 34 PROSPECTUS - -------------------------------------------------------------------------------- VALUE INCOME STOCK FUND - -------------------------------------------------------------------------------- [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 0.80% Other Expenses 0.10% ----- Total Annual Fund Operating Expenses 0.90% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $92 $287 $498 $1,108 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. In addition, the Fund may enter into arrangements with broker-dealers who have agreed to pay certain Fund expenses in return for executing Fund transactions through that broker-dealer. For more information about these fees, see "Investment Adviser." PROSPECTUS 35 - -------------------------------------------------------------------------------- VANTAGE FUND - -------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOALS PRIMARY Long-term capital appreciation SECONDARY Hedge against periodic declines in equity markets - -------------------------------------------------------------------------------- INVESTMENT FOCUS U.S. common stocks - -------------------------------------------------------------------------------- SHARE PRICE VOLATILITY High - -------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify undervalued and overvalued stocks - -------------------------------------------------------------------------------- INVESTOR PROFILE Aggressive investors with long-term investment goals who are willing to accept significant volatility for the possibility of higher returns - -------------------------------------------------------------------------------- [TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Vantage Fund establishes long and short positions primarily in common stocks of U.S. companies. Using fundamental analysis, the Adviser buys stocks "long" that it believes will perform better than their peers, and sells stocks "short" that it believes will underperform their peers. A long position is established when the Adviser purchases a stock outright, and a short position is established when the Adviser sells a security that it has borrowed. Short positions may be used to partially hedge long positions or to garner returns from declines in securities prices. The Adviser may also seek to enhance returns by purchasing securities with borrowed money. This investment technique, known as "leveraging," increases investment risk, but also increases investment opportunity. The Fund may borrow up to 33.33% of its assets (including the amount borrowed). From time to time, the Adviser may take defensive positions in cash or short-term debt securities. There may be several times per year when the Fund places more than 25% of its assets in cash or short-term debt securities. The Fund would initiate such defensive positions when the Adviser is concerned that short-term market volatility is unusually high or while the Adviser is reviewing and assessing the financial consequences of significant economic events. At such times, the Fund may not achieve its investment objective. The Adviser seeks to identify long and short opportunities by utilizing both "bottom-up" and "top-down" fundamental analysis methodologies. "Bottom-up" analysis is employed to evaluate the competitive advantages and market sustainability of individual companies. "Top-down" analysis is used to assess the relative attractiveness of investment opportunities within the context of industry, macro-economic and financial market trends. Using top-down analysis, the Adviser frequently increases and decreases the amount of long and short positions allocated to various market sectors, such as technology, financial services, capital goods, energy, utilities, consumer cyclicals, transportation and consumer staples. This strategy of adjusting sector weightings, also known as "sector rotation," is employed when industry or macro-economic changes cause the investment outlook of a particular sector to improve or worsen relative to other sectors. If the Adviser believes, for example, that economic growth is accelerating rapidly, then it may increase the Fund's long positions in economically sensitive stocks, such as consumer cyclicals. To execute its sector rotation strategy efficiently, the Adviser may establish long or short positions in securities that represent indexes or other groups of stocks, such as exchange traded funds. For a complete list of investment techniques that may be employed by the fund, please see the Statement of Additional Information. The Fund invests primarily in companies with market capitalizations over $1 billion, but may invest a portion of its assets in smaller companies. Due to its investment strategy, the Fund will buy and sell securities frequently. This may result in higher transaction costs and additional capital gains tax liabilities. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? Since it establishes long and short positions in common stocks, the Fund is subject to the risk that stock prices will rise and fall over short or extended periods of time. Historically, the stock markets have moved in cycles, and the value of the Fund's common stocks may fluctuate drastically from day to day. Individual companies may report unexpected results or be affected considerably by industry and/or economic trends and developments. The prices of 36 PROSPECTUS - -------------------------------------------------------------------------------- VANTAGE FUND - -------------------------------------------------------------------------------- stocks issued by such companies may change substantially in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. Since the Fund engages in selling stocks short, the risk of price volatility may be greater in this fund than in long-only equity mutual funds. While the potential losses associated with long positions are typically limited to the original cost of the securities, the potential for losses associated with short positions is theoretically unlimited. The Fund may engage in hedging transactions to reduce the risks of its investments in equity securities. However, hedging will not necessarily protect the Fund fully against anticipated risks. Moreover, hedging transactions involve costs and risks of their own. As a result, hedging may not improve the Fund's performance either on an absolute or risk-adjusted basis. The practice of sector rotation will result in increased exposure to risks inherent in particular industries or sectors. Different industries and sectors may be more or less susceptible to changes in economic conditions, including, for example, interest rates, inflation rates, industry conditions, competition, technological developments, trade relationships, political and diplomatic events and trends. Concentrations in sectors that produce unfavorable performance may cause the Fund to perform more unfavorably than a broadly diversified fund that has less exposure to those industries or sectors. The small and medium capitalization companies in which the Fund invests may be more vulnerable to unexpected business or economic events than larger, more established companies. In particular, these small and medium companies may have limited product lines, markets and financial resources, and may depend upon a relatively small management group. Therefore, small cap stocks may be more volatile than those of larger companies. These securities may be traded over-the-counter or listed on an exchange and may or may not pay dividends. Investing in foreign countries poses additional risks since political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. In addition, investments in foreign countries are generally denominated in a foreign currency. As a result, changes in the value of those currencies compared to the U.S. dollar may affect (positively or negatively) the value of a Fund's investments. These currency movements may happen separately from and in response to events that do not otherwise affect the value of the security in the issuer's home country. These various risks will be even greater for investments in emerging market countries since political turmoil and rapid changes in economic conditions are more likely to occur in these countries. [BULLS EYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The Vantage Fund commenced operations on November 29, 2001, and therefore does not have a performance history for a full calendar year. PROSPECTUS 37 - -------------------------------------------------------------------------------- VANTAGE FUND - -------------------------------------------------------------------------------- [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 1.60% Other Expenses 0.53% Total Annual Fund Operating Expenses 2.13%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE CURRENT FISCAL YEAR ARE EXPECTED TO BE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER INTENDS TO WAIVE A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THIS FEE WAIVER REMAINS IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES WOULD BE AS FOLLOWS: Vantage Fund - Trust Shares 2.03% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS $216 $667 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. In addition, the Fund may enter into arrangements with broker-dealers who have agreed to pay certain Fund expenses in return for executing Fund transactions through that broker-dealer. For more information about these fees, see "Investment Adviser." 38 PROSPECTUS - -------------------------------------------------------------------------------- MORE INFORMATION ABOUT RISK - -------------------------------------------------------------------------------- [LIFE PRESERVER GRAPHIC OMITTED] MORE INFORMATION ABOUT RISK EQUITY RISK ALL FUNDS Equity securities include public and privately issued equity securities, common and preferred stocks, warrants, rights to subscribe to common stock and convertible securities, as well as instruments that attempt to track the price movement of equity indices. Investments in equity securities and equity derivatives in general are subject to market risks that may cause their prices to fluctuate over time. The value of securities convertible into equity securities, such as warrants or convertible debt, is also affected by prevailing interest rates, the credit quality of the issuer and any call provision. Fluctuations in the value of equity securities in which a mutual fund invests will cause a fund's net asset value to fluctuate. An investment in a portfolio of equity securities may be more suitable for long-term investors who can bear the risk of these share price fluctuations. FIXED INCOME RISK BALANCED FUND The market value of fixed income investments changes in response to interest rate changes and other factors. During periods of falling interest rates, the values of outstanding fixed income securities generally rise. Moreover, while securities with longer maturities tend to produce higher yields, the prices of longer maturity securities are also subject to greater market fluctuations as a result of changes in interest rates. In addition to these fundamental risks, different types of fixed income securities may be subject to the following additional risk: CREDIT RISK BALANCED FUND The possibility that an issuer will be unable to make timely payments of either principal or interest. FOREIGN SECURITY RISKS GROWTH AND INCOME FUND INTERNATIONAL EQUITY FUND INTERNATIONAL EQUITY INDEX FUND Investments in securities of foreign companies or governments can be more volatile than investments in U.S. companies or governments. Diplomatic, political, or economic developments, including nationalization or appropriation, could affect investments in foreign countries. Foreign securities markets generally have less trading volume and less liquidity than U.S. markets. In addition, the value of securities denominated in foreign currencies, and of dividends from such securities, can change significantly when foreign currencies strengthen or weaken relative to the U.S. dollar. Foreign companies or governments generally are not subject to uniform accounting, auditing, and financial reporting standards comparable to those applicable to domestic U.S. companies or governments. Transaction costs are generally higher than those in the U.S. and expenses for custodial arrangements of foreign securities may be somewhat greater than typical expenses for custodial arrangements of similar U.S. securities. Some foreign governments levy withholding taxes against dividend and interest income. Although in some countries a portion of these taxes are recoverable, the non-recovered portion will reduce the income received from the securities comprising the portfolio. HEDGING RISK VANTAGE FUND Hedging is a strategy designed to offset investment risks. The Vantage Fund's hedging activities are primarily short sales, but may also include among other things, forwards, options and futures. There are risks associated with hedging activities, including: o 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 and currency exchange rates. PROSPECTUS 39 - -------------------------------------------------------------------------------- MORE INFORMATION ABOUT RISK - -------------------------------------------------------------------------------- o There may be an imperfect or no correlation between the changes in market value of the securities held by the Fund or the currencies in which those securities are denominated and the prices of forward contracts, futures and options on futures. o There may not be a liquid secondary market for a futures contract or option. o Trading restrictions or limitations may be imposed by an exchange, and government regulations may restrict trading in currencies, futures contracts and options. LEVERAGING RISK VANTAGE FUND Leveraging activities include, among other things, borrowing and the use of short sales, options and futures. There are risks associated with leveraging activities, including: o A fund experiencing losses over certain ranges in the market that exceed losses experienced by a non-leveraged fund. o There may be an imperfect or no correlation between the changes in market value of the securities held by a fund and the prices of futures and options on futures. o Although the funds will only purchase exchange-traded futures and options, due to market conditions there may not be a liquid secondary market for a futures contract or option. As a result, the Fund may be unable to close out their futures or options contracts at a time which is advantageous. o Trading restrictions or limitations may be imposed by an exchange, and government regulations may restrict trading in futures contracts and options. In addition, the following leveraged instruments are subject to certain specific risks: DERIVATIVES RISK VANTAGE FUND The Fund may use derivatives to attempt to achieve its investment objectives, while at the same time maintaining liquidity. To collateralize (or cover) these derivatives transactions, the Fund holds cash or U.S. government securities. SHORT SALES VANTAGE FUND Short sales are transactions in which a Fund sells a security it does not own. To complete a short sale, a Fund must borrow the security to deliver to the buyer. The Fund is then obligated to replace the borrowed security by purchasing the security at the market price at the time of replacement. This price may be more or less than the price at which the security was sold by the Fund. Potential losses associated with a short sale are theoretically unlimited, since prices of the stocks being sold short have unlimited appreciation potential. TRACKING ERROR RISK INTERNATIONAL EQUITY INDEX FUND Factors such as Fund expenses, imperfect correlation between the Fund's investments and those of their benchmarks, rounding of share prices, changes to the benchmark, regulatory policies, and leverage, may affect their ability to achieve perfect correlation. The magnitude of any tracking error may be affected by a higher portfolio turnover rate. Because an index is just a composite of the prices of the securities it represents rather than an actual portfolio of those securities, an index will have no expenses. As a result, a Fund, which will have expenses such as taxes, custody, management fees and other operational costs, and brokerage, may not achieve its investment objective of accurately correlating to an index. 40 PROSPECTUS - -------------------------------------------------------------------------------- MORE INFORMATION ABOUT FUND INVESTMENTS - -------------------------------------------------------------------------------- [MOUNTAIN GRAPHIC OMITTED] MORE INFORMATION ABOUT FUND INVESTMENTS This prospectus describes the Funds' primary strategies, and the Funds will normally invest in the types of securities described in this prospectus. However, in addition to the investments and strategies described in this prospectus, each Fund also may invest in other securities, use other strategies and engage in other investment practices. These investments and strategies, as well as those described in this prospectus, are described in detail in the Statement of Additional Information (SAI). The investments and strategies described in this prospectus are those that the Funds use under normal conditions. During unusual economic or market conditions, or for temporary defensive or liquidity purposes, each Fund may invest up to 100% of its assets in cash, money market instruments, repurchase agreements and short-term obligations that would not ordinarily be consistent with a Fund's objective. The Small Cap Value Equity Fund also may invest in investment grade fixed income securities and mid- to large-cap common stocks that would not ordinarily be consistent with the Fund's objective. A Fund will do so only if the Adviser believes that the risk of loss outweighs the opportunity for capital gains or higher income. Of course, a Fund cannot guarantee that it will achieve its investment goal. [MAGNIFIER GRAPHIC OMITTED] INVESTMENT ADVISER The investment adviser (Adviser) makes investment decisions for the Funds and continuously reviews, supervises and administers each Fund's respective investment program. The Board of Trustees supervises the Adviser and establishes policies that the Adviser must follow in its management activities. Trusco Capital Management, Inc. (Trusco or the Adviser), 50 Hurt Plaza, Suite 1400, Atlanta, Georgia 30303, serves as the Adviser to the Funds. As of June 30, 2002, Trusco had $45.5 billion in assets under management. For the fiscal period ended May 31, 2002, the Adviser received advisory fees of: BALANCED FUND 0.92% CAPITAL APPRECIATION FUND 1.13% GROWTH AND INCOME FUND 0.90% INFORMATION AND TECHNOLOGY FUND 1.10% INTERNATIONAL EQUITY FUND 1.25% INTERNATIONAL EQUITY INDEX FUND 0.82% MID-CAP EQUITY FUND 1.13% MID CAP VALUE EQUITY FUND 1.15% SMALL CAP GROWTH STOCK FUND 1.15% SMALL CAP VALUE EQUITY FUND 1.15% TAX SENSITIVE GROWTH STOCK FUND 1.15% VALUE INCOME STOCK FUND 0.80% VANTAGE FUND 1.50% The Adviser may use its affiliates as brokers for Fund transactions. Prior to January 1, 2000, STI Capital Management, N.A. (STI), a subsidiary of SunTrust Banks, Inc. served as the investment adviser to the Balanced Fund, Capital Appreciation Fund, International Equity Fund, Mid-Cap Equity Fund, Small Cap Value Equity Fund, and Value Income Stock Fund. On January 1, 2000, SunTrust Bank (formerly SunTrust Bank, Atlanta), a subsidiary of SunTrust Banks, Inc. succeeded STI as the investment adviser to those Funds. On July 1, 2000, SunTrust Banks, Inc. reorganized its money management units, including those of SunTrust Bank, into Trusco Capital PROSPECTUS 41 - -------------------------------------------------------------------------------- PORTFOLIO MANAGERS - -------------------------------------------------------------------------------- Management, Inc. As a result, Trusco now serves as the investment adviser to each STI Classic Fund. PORTFOLIO MANAGERS The Balanced Fund is co-managed by Mr. Robert J. Rhodes, CFA, Mr. Earl L. Denney, CFA, and Mr. Dave E. West, CFA. Mr. Rhodes manages the equity portion of the Fund. Mr. Denney and Mr. West co-manage the fixed-income portion of the Fund. Mr. Rhodes has also managed the Capital Appreciation Fund since June 2000. Mr. Rhodes is an Executive Vice President and head of the Equity Funds group at Trusco. Mr. Rhodes has been employed by Trusco since 1973 and was Director of Research at Trusco from 1980 to 2000. Mr. Rhodes has more than 29 years of investment experience. In January 2000, Mr. Denney was named Managing Director of SunTrust Bank and is now a Managing Director of Trusco after serving as Managing Director of STI since 1983. Mr. Denney has more than 23 years of investment experience. In January 2000, Mr. West was named Managing Director of SunTrust Bank, and is now a Managing Director of Trusco after working at STI since 1985. Mr. West has more than 16 years of investment experience. Mr. Alan S. Kelley serves as the Lead Portfolio Manager of the Information and Technology Fund. He has served as Vice President of Trusco and has managed the Fund since it began operating in September 1999. He has also managed the Vantage Fund since it began operating in November 2001. Prior to joining Trusco, Mr. Kelley served as a Portfolio Manager with SunTrust Bank, Atlanta from 1995 to 1999. He has more than 8 years of investment experience. Mr. Jeffrey E. Markunas, CFA, has served as Lead Portfolio Manager of the Growth and Income Fund since it began operating in September 1992. From 1992 until July 2000, he served as Senior Vice President and Director of Equity Management for Crestar Asset Management Company. Additionally, he was named Senior Vice President of Trusco in January 1999 and Managing Director in July 2000. Mr. Markunas has more than 19 years of investment experience. The International Equity Index Fund is managed by Mr. Chad Deakins, CFA. Mr. Deakins serves as a Vice President of Trusco and has worked there since 1996. He has managed the International Equity Index Fund since February 1999. Mr. Deakins has also managed the International Equity Fund since May 2000. Prior to joining Trusco, Mr. Deakins worked at SunTrust Bank. He has more than 8 years of investment experience. Mr. John Hamlin has served as a Vice President of Trusco since July 2000, after serving as a Portfolio Manager of STI since March 1999. He has managed the Mid-Cap Equity Fund since April 1999. Prior to joining STI, Mr. Hamlin served as Portfolio Manager at Phoenix Investment Counsel, Inc. from 1992 to 1999. He has more than 13 years of investment experience. The Mid Cap Value Equity Fund has been team managed since November 2001 by Mr. Mills Riddick, CFA, Mr. Dan Lewis, MBA, Mr. Brett Barner, CFA and Mr. Don Wordell, MBA. Mr. Riddick has served as a Managing Director of Trusco since July 2000, after serving as Managing Director of STI Capital Management, N.A. (STI), a subsidiary of SunTrust Banks, Inc. since 1994. Mr. Riddick has more than 20 years of investment experience. Mr. Lewis has served as a Portfolio Manager of Trusco since July 2000, after serving as a Portfolio Manager for STI since 1993. He has more than 10 years of investment experience. Mr. Barner has served as Vice President of Trusco since July 2000, after serving as a Managing Director of STI since 1994. Mr. Barner has more than 18 years of investment experience. Mr. Wordell has served as a Portfolio Manager since joining Trusco in 1996. He is a member of the Association for Investment Management & Research (AIMR) and the Orlando Society of Financial Analysts and has more than 6 years of investment experience. Mr. Mark D. Garfinkel, CFA, has served as a Portfolio Manager of Trusco since 1994. He has managed the Small Cap Growth Stock Fund since it began operating in October 1998. He has more than 15 years of investment experience. Mr. Brett Barner, CFA, has served as a Vice President of Trusco since July 2000, after serving as a Managing 42 PROSPECTUS - -------------------------------------------------------------------------------- PURCHASING AND SELLING FUND SHARES - -------------------------------------------------------------------------------- Director of STI since 1994. He has managed the Small Cap Value Equity Fund since it began operating in January 1997. He has more than 18 years of investment experience. Mr. Jonathan Mote, CFA, CFP, has served as a Portfolio Manager of Trusco since August 1998. He has managed the Tax Sensitive Growth Stock Fund since it began operating in December 1998. Prior to joining Trusco, Mr. Mote served as a Portfolio Manager with SunTrust Banks. He has more than 17 years of investment experience. The Value Income Stock Fund is managed by Mr. Mills Riddick, CFA. Mr. Riddick has served as a Managing Director of Trusco since July 2000, after serving as a Managing Director of STI since 1994. He has managed the Value Income Stock Fund since April 1995. Mr. Riddick has more than 20 years of investment experience. [HANDSHAKE GRAPHIC OMITTED] PURCHASING AND SELLING FUND SHARES This section tells you how to purchase and sell (sometimes called "redeem") Trust Shares of the Funds. HOW TO PURCHASE FUND SHARES The Funds offer Trust Shares only to financial institutions or intermediaries, including subsidiaries of SunTrust Banks, Inc. (SunTrust), for their own or their customers' accounts for which they act as fiduciary, agent, investment adviser, or custodian. As a result, you, as a customer of a financial institution may purchase Trust Shares through accounts made with financial institutions and potentially through the Investor's Advantage Account (an asset allocation account available through SunTrust Securities, Inc.). Trust Shares will be held of record by (in the name of) your financial institution. Depending upon the terms of your account, however, you may have, or be given, the right to vote your Trust Shares. The Funds may reject any purchase order if it is determined that accepting the order would not be in the best interests of the STI Classic Funds or its shareholders. WHEN CAN YOU PURCHASE SHARES? You may purchase shares on any day that the New York Stock Exchange is open for business (a Business Day). The price per share (the offering price) will be the net asset value per share (NAV) next determined after the Funds receive your purchase order. Each Fund calculates its NAV once each Business Day at the regularly-scheduled close of normal trading on the New York Stock Exchange (normally, 4:00 p.m., Eastern Time). So, for you to receive the current Business Day's NAV, generally a Fund must receive your purchase order in proper form before 4:00 p.m., Eastern Time. The Fund will not accept orders that request a particular day or price for the transaction or any other special conditions. FOR CUSTOMERS OF SUNTRUST, ITS AFFILIATES, AND OTHER FINANCIAL INSTITUTIONS YOU MAY HAVE TO TRANSMIT YOUR PURCHASE AND SALE REQUESTS TO SUNTRUST OR OTHER FINANCIAL INSTITUTIONS AT AN EARLIER TIME FOR YOUR TRANSACTION TO BECOME EFFECTIVE THAT DAY. THIS ALLOWS THE FINANCIAL INSTITUTION TIME TO PROCESS YOUR REQUEST AND TRANSMIT IT TO THE ADMINISTRATOR OR TRANSFER AGENT IN TIME TO MEET THE ABOVE STATED FUND CUT-OFF TIMES. FOR MORE INFORMATION ABOUT HOW TO PURCHASE OR SELL FUND SHARES, INCLUDING SPECIFIC SUNTRUST OR OTHER FINANCIAL INSTITUTIONS INTERNAL ORDER ENTRY CUT-OFF TIMES, PLEASE CONTACT YOUR FINANCIAL INSTITUTION DIRECTLY. HOW THE FUNDS CALCULATE NAV In calculating NAV, each Fund generally values its investment portfolio at market price. If market prices are unavailable or a Fund thinks that they are unreliable, fair value prices may be determined in good faith using methods approved by the Board of Trustees. Some Funds hold securities that are listed on foreign exchanges. These securities may trade on weekends or other days when the Funds do not calculate NAV. As a result, the market value of these investments may change on days when you cannot purchase or sell Fund shares. PROSPECTUS 43 - -------------------------------------------------------------------------------- PURCHASING AND SELLING FUND SHARES - -------------------------------------------------------------------------------- NET ASSET VALUE NAV for one Fund share is the value of that share's portion of the net assets of the Fund. MINIMUM PURCHASES To purchase Trust Shares of the Vantage Fund for the first time, you must invest at least $25,000 in the Fund. The Vantage Fund may accept investments of smaller amounts at its discretion. HOW TO SELL YOUR FUND SHARES You may sell (sometimes called "redeem") your shares on any Business Day by contacting SunTrust or your financial institution. SunTrust or your financial institution will give you information about how to sell your shares including any specific cut-off times required. Holders of Trust Shares may sell shares by following the procedures established when they opened their account or accounts with the Funds or with their financial institution or intermediary. The sale price of each share will be the next NAV determined after the Funds receive your request. RECEIVING YOUR MONEY Normally, the Funds will send your sale proceeds within five Business Days after the Funds receive your request, but it may take up to seven days. REDEMPTIONS IN KIND The Funds generally pay sale (redemption) proceeds in cash. However, under unusual conditions that make the payment of cash unwise (and for the protection of the Fund's remaining shareholders) the Funds might pay all or part of your redemption proceeds in liquid securities with a market value equal to the redemption price (redemption in kind). It is highly unlikely that your shares would ever be redeemed in kind, but if they were you would probably have to pay transaction costs to sell the securities distributed to you, as well as taxes on any capital gains from the sale as with any redemption. SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES A Fund may suspend your right to sell your shares if the New York Stock Exchange restricts trading, the SEC declares an emergency or for other reasons. More information about this is in the SAI. TELEPHONE TRANSACTIONS Purchasing and selling Fund shares over the telephone is extremely convenient, but not without risk. Although the Fund has certain safeguards and procedures to confirm the identity of callers and the authenticity of instructions, the Fund is not responsible for any losses or costs incurred by following telephone instructions the Fund reasonably believes to be genuine. If you or your financial institution transact with the Fund over the telephone, you will generally bear the risk of any loss. The Funds reserve the right to modify, suspend or terminate telephone transaction privileges at any time. MARKET TIMERS Short-term or excessive trading into and out of a Fund may harm the Fund's performance by disrupting the Adviser's investment strategy and by increasing Fund expenses. Accordingly, any Fund may restrict or refuse purchase or exchange requests by Market Timers or investors who seem to follow a short-term trading pattern that may adversely affect a Fund. You may be classified as a Market Timer if you: o Request a substantial exchange out of any Fund within two weeks of a prior substantive exchange request out of any Fund; or o Request a substantial exchange out of any Fund more than twice during any 90 day continuous period. Anyone considered to be a Market Timer by the Fund, its manager(s) or a shareholder servicing agent will be notified in writing of their designation as a Market Timer. Market Timers who redeem or exchange their shares out of any Fund within 90 days of purchase may be charged a redemption fee of up to 2% of redemption proceeds, which will automatically be paid to the Fund. This redemption fee does not apply to 401(k)/403(b) type participant accounts, Systematic Withdrawal Plan accounts, SunTrust Securities asset allocation accounts or accounts held on 44 PROSPECTUS - -------------------------------------------------------------------------------- DIVIDENDS AND DISTRIBUTIONS - -------------------------------------------------------------------------------- an omnibus arrangement. Dealers who purchase Trust shares on behelf of Market Timers, including Market Timers with shares held through an omnibus account, may not be eligible to receive shareholder servicing fees or other contractual concession payments. Further, all Funds reserve the right to refuse any purchase or exchange requests by any investor at any time. DIVIDENDS AND DISTRIBUTIONS Each Fund distributes its net investment income as follows: QUARTERLY - -------------------------------------------------------------------------------- BALANCED FUND CAPITAL APPRECIATION FUND GROWTH AND INCOME FUND INFORMATION AND TECHNOLOGY FUND MID-CAP EQUITY FUND MID CAP VALUE EQUITY FUND SMALL CAP GROWTH STOCK FUND SMALL CAP VALUE EQUITY FUND TAX SENSITIVE GROWTH STOCK FUND VALUE INCOME STOCK FUND VANTAGE FUND ANNUALLY - -------------------------------------------------------------------------------- INTERNATIONAL EQUITY FUND INTERNATIONAL EQUITY INDEX FUND Each Fund makes distributions of its net realized capital gains, if any, at least annually. If you own Fund shares on a Fund's record date, you will be entitled to receive the distribution. You will receive dividends and distributions in the form of additional Fund shares unless you elect to receive payment in cash. To elect cash payment, you must notify the Funds in writing prior to the date of the distribution. Your election will be effective for dividends and distributions paid after the Funds receive your written notice. To cancel your election, simply send the Funds written notice. TAXES Please consult your tax advisor regarding your specific questions about federal, state and local income taxes. Below the Funds have summarized some important tax issues that affect the Funds and their shareholders. This summary is based on current tax laws, which may change. Each Fund will distribute substantially all of its net investment income and its net realized capital gains, if any, at least annually. The dividends and distributions you receive may be subject to federal, state and local taxation, depending upon your tax situation. Distributions you receive from a Fund may be taxable whether or not you reinvest them. Income distributions are generally taxable at ordinary income tax rates. Capital gains distributions are generally taxable at the rates applicable to long-term capital gains. EACH SALE OF FUND SHARES MAY BE A TAXABLE EVENT. FOR TAX PURPOSES, AN EXCHANGE OF FUND SHARES FOR SHARES OF A DIFFERENT STI CLASSIC FUND IS TREATED THE SAME AS A SALE. If you have a tax-advantaged or other retirement account you will generally not be subject to federal taxation on income and capital gain distributions until you begin receiving your distributions from your retirement account. You should consult your tax advisor regarding the rules governing your own retirement plan. The International Equity Fund and International Equity Index Fund may be able to pass along a tax credit for foreign income taxes they pay. In such event, each Fund will provide you with the information necessary to reflect such foreign taxes on your federal income tax return. MORE INFORMATION ABOUT TAXES IS IN THE SAI. PROSPECTUS 45 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS The financial highlights table is intended to help you understand a Fund's financial performance for the period of the Fund's (and its predecessor's) operations. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). The information provided below for the period ended May 31, 2002 has been audited by PricewaterhouseCoopers LLP. The information for prior periods has been audited by predecessor independent accounting firms. The Reports of Independent Accountants for each such period along with the Fund's financial statements and related notes, are included in the Annual Reports to Shareholders for such periods. The 2002 Annual Report is available upon request and without charge by calling 1-800-428-6970. The 2002 Annual Report is incorporated by reference in the SAI. For the Periods Ended May 31, (unless otherwise indicated) For a Share Outstanding Throughout the Periods NET REALIZED NET ASSET NET AND DISTRIBUTIONS VALUE INVESTMENT UNREALIZED FROM NET DISTRIBUTIONS NET ASSET NET ASSETS BEGINNING INCOME GAINS (LOSSES) INVESTMENT FROM REALIZED VALUE END TOTAL END OF OF PERIOD (LOSS) ON INVESTMENTS INCOME CAPITAL GAINS OF PERIOD RETURN (+) PERIOD (000) ----------- ----------- -------------- ----------- ------------- --------- ---------- ------------ - ------------- BALANCED FUND - ------------- Trust Shares 2002 $13.18 $ 0.23 $(0.65) $(0.24) $(0.34) $12.18 (3.29)% $ 241,604 2001 13.37 0.30 0.12 (0.31) (0.30) 13.18 3.24 209,316 2000 13.26 0.32 0.33 (0.30) (0.24) 13.37 5.02 223,634 1999 13.09 0.28 1.09 (0.28) (0.92) 13.26 10.98 251,752 1998 11.94 0.31 2.19 (0.32) (1.03) 13.09 22.15 188,465 - ------------------------- CAPITAL APPRECIATION FUND - ------------------------- Trust Shares 2002 $13.89 -- $(1.53) -- $(0.12) $12.24 (11.06)% $1,204,445 2001 17.12 $(0.05) (0.38) -- (2.80) 13.89 (3.74) 1,177,933 2000 16.62 0.02 1.40 -- (0.92) 17.12 8.98 1,296,927 1999 16.48 0.05 2.70 $(0.06) (2.55) 16.62 17.83 1,966,842 1998 15.09 0.09 3.96 (0.09) (2.57) 16.48 29.51 1,532,587 - -------------------------- GROWTH AND INCOME FUND (A) - -------------------------- Trust Shares 2002 $15.05 $ 0.09 $(1.26) $(0.08) -- $13.80 (7.80)% $ 792,557 2001 15.53 0.07 (0.04) (0.08) $(0.43) 15.05 0.11 867,664 2000 16.09 0.11 0.55 (0.10) (1.12) 15.53 4.11 885,109 1999(1) 15.10 0.04 1.97 (0.02) (1.00) 16.09 14.24 634,279 For the years ended November 30: 1998 16.55 0.09 1.64 (0.09) (3.09) 15.10 13.64 577,042 1997 13.39 0.14 3.24 (0.15) (0.07) 16.55 25.41 590,824 - ------------------------------- INFORMATION AND TECHNOLOGY FUND - ------------------------------- Trust Shares 2002 $13.34 $ 0.01 $(5.29) -- -- $ 8.06 (39.58)% $ 32,068 2001 15.87 (0.08) (2.45) -- -- 13.34 (15.94) 87,045 2000(2) 10.00 (0.04) 5.91 -- -- 15.87 58.70 106,425
RATIO OF NET RATIO OF RATIO OF INVESTMENT NET EXPENSES TO INCOME (LOSS) TO RATIO OF INVESTMENT AVERAGE NET AVERAGE NET EXPENSES TO INCOME (LOSS) ASSETS (EXCLUDING ASSETS (EXCLUDING PORTFOLIO AVERAGE TO AVERAGE WAIVERS AND WAIVERS AND TURNOVER NET ASSETS NET ASSETS REIMBURSEMENTS) REIMBURSEMENTS) RATE ----------- ------------- ----------------- -------------- --------- - ------------- BALANCED FUND - ------------- Trust Shares 2002 1.02% 1.78% 1.05% 1.75% 95% 2001 1.01 2.24 1.05 2.20 99 2000 0.97 2.39 1.07 2.29 182 1999 0.97 2.19 1.06 2.10 179 1998 0.96 2.51 1.08 2.39 154 - ------------------------- CAPITAL APPRECIATION FUND - ------------------------- Trust Shares 2002 1.22% (0.54)% 1.24% (0.56)% 75% 2001 1.21 (0.29) 1.24 (0.32) 75 2000 1.17 0.10 1.26 0.01 129 1999 1.17 0.29 1.26 0.20 147 1998 1.16 0.61 1.27 0.50 194 - -------------------------- GROWTH AND INCOME FUND (A) - -------------------------- Trust Shares 2002 0.99% 0.63% 0.99% 0.63% 68% 2001 0.99 0.49 0.99 0.49 73 2000 1.01 0.76 1.01 0.76 53 1999(1) 1.14 0.49 1.43 0.20 31 For the years ended November 30: 1998 1.03 0.63 1.21 0.45 71 1997 1.02 0.92 1.17 0.77 100 - ------------------------------- INFORMATION AND TECHNOLOGY FUND - ------------------------------- Trust Shares 2002 1.19% (0.92)% 1.19% (0.92)% 1,102% 2001 1.20 (0.45) 1.21 (0.46) 750 2000(2) 1.20 (0.54) 1.34 (0.68) 250
(+) Returns are for the period indicated and have not been annualized. (1) For the six month period ended May 31, 1999. All ratios for the period have been annualized. The performance in the above table does not reflect the deduction of taxes the shareholder would pay on fund distributions or redemption of fund shares. (2) Trust shares were offered beginning on September 30, 1999. All ratios for the period have been annualized. (A) On May 24, 1999, the CrestFunds Value Fund exchanged all of its assets and certain liabilities for shares of the Growth and Income Fund. The CrestFunds Value Fund is the accounting survivor in this transaction, and as a result, its basis of accounting for assets and liabilities and its operating results for the periods prior to May 24, 1999 have been carried forward in these financial highlights. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Amounts designated as "--" are either $0 or round to $0. 46 PROSPECTUS - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- For the Periods Ended May 31, For a Share Outstanding Throughout the Periods NET REALIZED NET ASSET NET AND DISTRIBUTIONS VALUE INVESTMENT UNREALIZED FROM NET DISTRIBUTIONS NET ASSET NET ASSETS BEGINNING INCOME GAINS (LOSSES) INVESTMENT FROM REALIZED VALUE END TOTAL END OF OF PERIOD (LOSS) ON INVESTMENTS INCOME CAPITAL GAINS OF PERIOD RETURN (+) PERIOD (000) ----------- ----------- -------------- ----------- ------------- --------- ---------- ------------ - ------------------------- INTERNATIONAL EQUITY FUND - ------------------------- Trust Shares 2002 $10.19 $ 0.19 $(1.07) -- -- $ 9.31 (8.64)% $ 252,991 2001 12.56 -- (1.22) $(0.04) $(1.11) 10.19 (10.79) 208,120 2000 12.97 (0.10) 1.42 (0.07) (1.66) 12.56 10.58 299,100 1999 15.00 -- (1.14) (0.05) (0.84) 12.97 (7.43) 573,255 1998 13.63 0.04 2.69 (0.04) (1.32) 15.00 21.87 628,870 - ------------------------------- INTERNATIONAL EQUITY INDEX FUND - ------------------------------- Trust Shares 2002 $11.18 $ 0.04 $(1.43) $(0.03) -- $ 9.76 (12.43)% $ 287,944 2001 13.97 0.06 (2.69) (0.07) $(0.09) 11.18 (18.90) 236,862 2000 11.82 0.16 2.13 (0.03) (0.11) 13.97 19.36 340,853 1999 13.31 0.09 0.85 (0.24) (2.19) 11.82 7.87 74,616 1998 11.34 0.11 2.65 (0.11) (0.68) 13.31 25.82 56,200 - ------------------- MID-CAP EQUITY FUND - ------------------- Trust Shares 2002 $10.95 $ 0.01(4) $(1.17)(4) -- -- $ 9.79 (10.59)% $ 171,813 2001 14.10 (0.03) (0.61) -- $(2.51) 10.95 (6.92) 156,111 2000 12.68 (0.04) 2.32 -- (0.86) 14.10 19.10 206,545 1999 13.79 0.01 0.07 -- (1.19) 12.68 1.61 254,055 1998 13.21 -- 2.54 -- (1.96) 13.79 21.14 337,825 - ------------------------- MID CAP VALUE EQUITY FUND - ------------------------- Trust Shares 2002(1) $10.00 $ 0.02 $ 0.94 $(0.01) -- $10.95 9.65% $ 174,859 - --------------------------- SMALL CAP GROWTH STOCK FUND - --------------------------- Trust Shares 2002 $18.37 -- $(1.02) -- $(0.07) $17.28 (5.55)% $ 593,211 2001 18.30 $(0.18) 1.71 -- (1.46) 18.37 8.33 508,857 2000 14.55 (0.08) 4.02 -- (0.19) 18.30 27.24 431,478 1999(2) 10.00 (0.05) 4.62 -- (0.02) 14.55 45.70 152,290 - --------------------------- SMALL CAP VALUE EQUITY FUND - --------------------------- Trust Shares 2002 $12.21 $ 0.08 $ 2.35 $(0.10) -- $14.54 20.06% $ 614,199 2001 9.13 0.17 3.07 (0.16) -- 12.21 35.90 401,900 2000 9.70 0.13 (0.59) (0.11) -- 9.13 (4.72) 212,074 1999 12.88 0.13 (2.57) (0.13) $(0.61) 9.70 (18.72) 301,984 1998 11.07 0.14 2.41 (0.12) (0.62) 12.88 23.59 390,841 - ------------------------------- TAX SENSITIVE GROWTH STOCK FUND - ------------------------------- Trust Shares 2002 $26.74 $(0.02) $(3.47) -- -- $23.25 (13.05)% $ 244,707 2001 33.10 (0.03) (6.33) -- -- 26.74 (19.21) 460,311 2000 29.96 0.02 3.12 -- -- 33.10 10.48 710,179 1999(3) 25.61 0.02 4.34 $(0.01) -- 29.96 17.04 223,543 - ----------------------- VALUE INCOME STOCK FUND - ----------------------- Trust Shares 2002 $11.61 $0.12 $(0.56) $(0.12) -- $11.05 (3.68)% $ 686,014 2001 10.38 0.19 1.24 (0.20) -- 11.61 14.09 704,842 2000 12.85 0.23 (1.49) (0.22) $(0.99) 10.38 (10.52) 921,797 1999 13.90 0.24 1.02 (0.24) (2.07) 12.85 11.13 1,589,951 1998 13.71 0.26 2.62 (0.27) (2.42) 13.90 23.10 1,725,418 - ------------ VANTAGE FUND - ------------ Trust Shares 2002(1) $10.00 $(0.03) $(0.32) -- -- $ 9.65 (3.50)% $ 8,816
RATIO OF NET RATIO OF RATIO OF INVESTMENT NET EXPENSES TO INCOME (LOSS) TO RATIO OF INVESTMENT AVERAGE NET AVERAGE NET EXPENSES TO INCOME (LOSS) ASSETS (EXCLUDING ASSETS (EXCLUDING PORTFOLIO AVERAGE TO AVERAGE WAIVERS AND WAIVERS AND TURNOVER NET ASSETS NET ASSETS REIMBURSEMENTS) REIMBURSEMENTS) RATE ----------- ------------- ----------------- --------------- ---------- - ------------------------- INTERNATIONAL EQUITY FUND - ------------------------- Trust Shares 2002 1.48% 0.48% 1.48% 0.48% 102% 2001 1.45 0.50 1.45 0.50 68 2000 1.48 0.59 1.48 0.59 179 1999 1.47 0.68 1.52 0.63 161 1998 1.47 0.61 1.48 0.60 108 - ------------------------------- INTERNATIONAL EQUITY INDEX FUND - ------------------------------- Trust Shares 2002 1.04% 0.63% 1.12% 0.55% 35% 2001 1.06 0.40 1.09 0.37 13 2000 1.07 0.83 1.18 0.72 9 1999 1.07 0.69 1.17 0.59 32 1998 1.06 0.88 1.18 0.76 1 - ------------------- MID-CAP EQUITY FUND - ------------------- Trust Shares 2002 1.22% (0.18)% 1.24% (0.20)% 87% 2001 1.21 (0.24) 1.25 (0.28) 100 2000 1.17 -- 1.25 (0.08) 131 1999 1.17 (0.47) 1.28 (0.58) 76 1998 1.16 (0.29) 1.27 (0.40) 129 - ------------------------- MID CAP VALUE EQUITY FUND - ------------------------- Trust Shares 2002(1) 1.27% 0.29% 1.37% 0.19% 30% - --------------------------- SMALL CAP GROWTH STOCK FUND - --------------------------- Trust Shares 2002 1.25% (1.01)% 1.25% (1.01)% 100% 2001 1.24 (0.95) 1.25 (0.96) 112 2000 1.20 (0.86) 1.23 (0.89) 110 1999(2) 1.20 (0.48) 1.49 (0.77) 75 - --------------------------- SMALL CAP VALUE EQUITY FUND - --------------------------- Trust Shares 2002 1.25% 0.67% 1.25% 0.67% 29% 2001 1.25 1.72 1.25 1.72 86 2000 1.22 1.31 1.25 1.28 65 1999 1.22 1.27 1.27 1.22 63 1998 1.21 1.07 1.31 0.97 55 - ------------------------------- TAX SENSITIVE GROWTH STOCK FUND - ------------------------------- Trust Shares 2002 1.24% (0.10)% 1.24% (0.10)% 69% 2001 1.24 (0.10) 1.25 (0.11) 103 2000 1.20 0.13 1.26 0.07 30 1999(3) 1.20 0.21 1.34 0.07 18 - ----------------------- VALUE INCOME STOCK FUND - ----------------------- Trust Shares 2002 0.90% 1.13% 0.90% 1.13% 60% 2001 0.90 1.70 0.90 1.70 77 2000 0.89 2.02 0.89 2.02 62 1999 0.92 1.91 0.92 1.91 69 1998 0.92 1.85 0.92 1.85 99 - ------------ VANTAGE FUND - ------------ Trust Shares 2002(1) 2.03% (0.78)% 2.13%(4) (0.88)%(4) 1,063%
(+) Returns are for the period indicated and have not been annualized. (1) Commenced operations on November 30, 2001. All ratios for the period have been annualized. (2) Shares were offered beginning on October 8, 1998. All ratios for the period have been annualized. (3) Trust shares were offered beginning on December 11, 1998. All ratios for the period have been annualized. (4) This amount/ratio has been changed to reflect the correction of a clerical error contained in the Fund's 2002 Annual Report to Shareholders. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Amounts designated as "--" are either $0 or round to $0. PROSPECTUS 47 - -------------------------------------------------------------------------------- NOTES - -------------------------------------------------------------------------------- 48 PROSPECTUS - -------------------------------------------------------------------------------- NOTES - -------------------------------------------------------------------------------- PROSPECTUS 49 - -------------------------------------------------------------------------------- NOTES - -------------------------------------------------------------------------------- 50 PROSPECTUS - -------------------------------------------------------------------------------- HOW TO OBTAIN MORE INFORMATION ABOUT THE STI CLASSIC FUNDS - -------------------------------------------------------------------------------- INVESTMENT ADVISER Trusco Capital Management, Inc. 50 Hurt Plaza Suite 1400 Atlanta, Georgia 30303 DISTRIBUTOR SEI Investments Distribution Co. One Freedom Valley Drive Oaks, Pennsylvania 19456 LEGAL COUNSEL Morgan, Lewis & Bockius LLP More information about the Funds is available without charge through the following: STATEMENT OF ADDITIONAL INFORMATION (SAI) The SAI dated October 1, 2002, includes detailed information about the STI Classic Funds. The SAI is on file with the SEC and is incorporated by reference into this prospectus. This means that the SAI, for legal purposes, is a part of this prospectus. ANNUAL AND SEMI-ANNUAL REPORTS These reports list each Fund's holdings and contain information from the Funds' managers about strategies and recent market conditions and trends and their impact on Fund performance. The reports also contain detailed financial information about the Funds. TO OBTAIN AN SAI, ANNUAL OR SEMI-ANNUAL REPORT, OR MORE INFORMATION: BY TELEPHONE: Call 1-800-428-6970 BY MAIL: Write to the Funds c/o SEI Investments Distribution Co. Oaks, Pennsylvania 19456 FROM THE SEC: You can also obtain the SAI or the Annual and Semi-Annual reports, as well as other information about the STI Classic Funds, from the EDGAR Database on the SEC's website ("http://www.sec.gov"). You may review and copy documents at the SEC Public Reference Room in Washington, DC (for information on the operation of the Public Reference Room, call 202-942-8090). You may request documents by mail from the SEC, upon payment of a duplicating fee, by writing to: Securities and Exchange Commission, Public Reference Section, Washington, DC 20549-0102. You may also obtain this information, upon payment of a duplicating fee, by e-mailing the SEC at the following address: publicinfo@sec.gov. The STI Classic Funds' Investment Company Act registration number is 811-06557. STI-PS-013-0200 [GRAPHIC OMITTED] COMPASS STI CLASSIC FUNDS-EQUITY FUNDS FLEX AND INVESTOR SHARES PROSPECTUS OCTOBER 1, 2002 BALANCED FUND CAPITAL APPRECIATION FUND GROWTH AND INCOME FUND INFORMATION AND TECHNOLOGY FUND INTERNATIONAL EQUITY FUND INTERNATIONAL EQUITY INDEX FUND MID-CAP EQUITY FUND MID CAP VALUE EQUITY FUND SMALL CAP GROWTH STOCK FUND SMALL CAP VALUE EQUITY FUND TAX SENSITIVE GROWTH STOCK FUND VALUE INCOME STOCK FUND VANTAGE FUND INVESTMENT ADVISER TO THE FUNDS: TRUSCO CAPITAL MANAGEMENT, INC. (the "Adviser") [LOGO OMITTED] STI Classic Funds THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. PROSPECTUS ABOUT THIS PROSPECTUS The STI Classic Funds is a mutual fund family that offers shares in separate investment portfolios (Funds). The Funds have individual investment goals and strategies. This prospectus gives you important information about the Investor Shares and Flex Shares of the Equity Funds that you should know before investing. Please read this prospectus and keep it for future reference. Investor Shares and Flex Shares have different expenses and other characteristics, allowing you to choose the class that best suits your needs. You should consider the amount you want to invest, how long you plan to have it invested, and whether you plan to make additional investments. INVESTOR SHARES o Front-end sales charge o 12b-1 fees o $2,000 minimum initial investment FLEX SHARES o Contingent deferred sales charge o Higher 12b-1 fees o $5,000 minimum initial investment THIS PROSPECTUS HAS BEEN ARRANGED INTO DIFFERENT SECTIONS SO THAT YOU CAN EASILY REVIEW THIS IMPORTANT INFORMATION. ON THE NEXT PAGE, THERE IS SOME GENERAL INFORMATION YOU SHOULD KNOW ABOUT RISK AND RETURN THAT IS COMMON TO EACH OF THE FUNDS. FOR MORE DETAILED INFORMATION ABOUT EACH FUND, PLEASE SEE: 2 BALANCED FUND 5 CAPITAL APPRECIATION FUND 8 GROWTH AND INCOME FUND 11 INFORMATION AND TECHNOLOGY FUND 14 INTERNATIONAL EQUITY FUND 17 INTERNATIONAL EQUITY INDEX FUND 20 MID-CAP EQUITY FUND 23 MID CAP VALUE EQUITY FUND 25 SMALL CAP GROWTH STOCK FUND 28 SMALL CAP VALUE EQUITY FUND 31 TAX SENSITIVE GROWTH STOCK FUND 34 VALUE INCOME STOCK FUND 37 VANTAGE FUND 40 MORE INFORMATION ABOUT RISK 41 MORE INFORMATION ABOUT FUND INVESTMENTS 42 INVESTMENT ADVISER 42 PORTFOLIO MANAGERS 43 PURCHASING, SELLING AND EXCHANGING FUND SHARES 49 DIVIDENDS AND DISTRIBUTIONS 49 TAXES 50 FINANCIAL HIGHLIGHTS BACK HOW TO OBTAIN MORE INFORMATION ABOUT COVER THE STI CLASSIC FUNDS [SUITCASE GRAPHIC OMITTED] FUND SUMMARY [TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING? [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES [MOUNTAIN GRAPHIC OMITTED] MORE INFORMATION ABOUT FUND INVESTMENTS [MAGNIFIER GRAPHIC OMITTED] INVESTMENT ADVISER [HANDSHAKE GRAPHIC OMITTED] PURCHASING, SELLING AND EXCHANGING FUND SHARES [DOLLAR BILL GRAPHIC OMITTED] SALES CHARGES OCTOBER 1, 2002 PROSPECTUS 1 - -------------------------------------------------------------------------------- CUSIP/TICKER SYMBOLS - -------------------------------------------------------------------------------- FUND NAME CLASS INCEPTION* TICKER CUSIP - -------------------------------------------------------------------------------- Balanced Flex 6/14/95 SCBFX 784766446 Balanced Investor 1/3/94 STBLX 784766727 Capital Appreciation Flex 6/1/95 STCFX 784766479 Capital Appreciation Investor 6/9/92 STCIX 784766859 Growth and Income Flex 4/5/95 CVIBX 784766172 Growth and Income Investor 5/7/93 CFVIX 784766180 Information & Technology Flex 1/24/00 STEFX 784767824 International Equity Flex 1/2/96 SIEFX 784766412 International Equity Investor 1/2/96 SCIIX 784766396 International Equity Index Flex 6/8/95 SIIFX 784766420 International Equity Index Investor 6/6/94 SIIIX 784766586 Mid-Cap Equity Flex 6/5/95 SCMEX 784766453 Mid-Cap Equity Investor 1/31/94 SCAIX 784766743 Mid Cap Value Equity Flex 11/30/01 SMVFX 784767717 Small Cap Growth Stock Flex 10/8/98 SSCFX 784766248 Small Cap Growth Stock Investor 12/10/99 SCGIX 784766255 Small Cap Value Equity Flex 6/6/97 STCEX 784766321 Tax Sensitive Growth Stock Flex 12/15/98 STTFX 784766214 Value Income Stock Flex 6/1/95 SVIFX 784766461 Value Income Stock Investor 2/17/93 SVIIX 784766842 Vantage Flex 3/11/02 STVFX 784767667 - -------------------------------------------------------------------------------- * THE INCEPTION DATE REFLECTS THE BEGINNING OF THE CLASS'S PERFORMANCE HISTORY, WHICH MAY INCLUDE THE PERFORMANCE OF OTHER CLASSES OF THE FUND AND/OR PREDECESSORS OF THE FUND. FOR FURTHER INFORMATION, SEE "PERFORMANCE INFORMATION." - -------------------------------------------------------------------------------- RISK/RETURN INFORMATION COMMON TO THE FUNDS - -------------------------------------------------------------------------------- Each Fund is a mutual fund. A mutual fund pools shareholders' money and, using professional investment managers, invests it in securities. Each Fund has its own investment goal and strategies for reaching that goal. The Adviser invests Fund assets in a way that it believes will help a Fund achieve its goal. Still, investing in each Fund involves risk and there is no guarantee that a Fund will achieve its goal. The Adviser's judgments about the markets, the economy or companies may not anticipate actual market movements, economic conditions or company performance, and these judgments may affect the return on your investment. In fact, no matter how good a job the Adviser does, you could lose money on your investment in a Fund, just as you could with other investments. A FUND SHARE IS NOT A BANK DEPOSIT AND IT IS NOT INSURED OR GUARANTEED BY THE FDIC OR ANY GOVERNMENT AGENCY. The value of your investment in a Fund is based on the market prices of the securities the Fund holds. These prices change daily due to economic and other events that affect particular companies and other issuers. These price movements, sometimes called volatility, may be greater or lesser depending on the types of securities a Fund owns and the markets in which they trade. The effect on a Fund of a change in the value of a single security will depend on how widely the Fund diversifies its holdings. 2 PROSPECTUS - -------------------------------------------------------------------------------- BALANCED FUND - -------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY
INVESTMENT GOAL Capital appreciation and current income - ---------------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS PRIMARY U.S. common stocks SECONDARY Bonds - ---------------------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Moderate - ---------------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify companies with a history of earnings growth and bonds with minimal risk - ---------------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Investors who want income from their investment, as well as an increase in its value - ----------------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Balanced Fund invests in common and preferred stocks, convertible securities, U.S. government obligations and investment grade corporate bonds. In selecting stocks for the Fund, the Adviser attempts to identify high-quality companies with a history of above average earnings growth. In selecting bonds, the Adviser tries to minimize risk while attempting to outperform selected market indices. Due to its investment strategy, the Fund may buy and sell securities frequently. This may result in higher transaction costs and additional capital gains tax liabilities. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's equity securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The prices of the Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, the Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities are generally more volatile, so the average maturity or duration of these securities affects risk. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S INVESTOR SHARES FROM YEAR TO YEAR. THE CHART DOES NOT REFLECT SALES CHARGES. IF SALES CHARGES HAD BEEN REFLECTED, RETURNS WOULD BE LESS THAN THOSE SHOWN.* [GRAPHIC OMITTED] 1995 25.08% 1996 11.85% 1997 20.71% 1998 19.21% 1999 4.31% 2000 4.44% 2001 -0.07% BEST QUARTER WORST QUARTER 12.52% -6.01% (12/31/98) (9/30/01) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS -6.83%. PROSPECTUS 3 - -------------------------------------------------------------------------------- BALANCED FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF A HYBRID 60/40 BLEND OF THE S&P 500(R) INDEX AND THE LEHMAN BROTHERS U.S. GOVERNMENT/CREDIT INDEX. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only the Investor Shares. After-tax returns for other classes will vary. INVESTOR SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Fund Returns Before Taxes -3.84% 8.57% 9.10% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions -4.97% 6.35% 6.84% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares -1.88% 6.04% 6.45% - -------------------------------------------------------------------------------- Hybrid 60/40 Blend of the Following Benchmarks -3.67% 9.79% 11.35% - -------------------------------------------------------------------------------- S&P 500(R) Index (reflects no deduction for fees, expenses or taxes) -11.88% 10.70% 13.98% - -------------------------------------------------------------------------------- Lehman Brothers U.S. Government/ Credit Index (reflects no deduction for fees, expenses or taxes) 8.51% 7.36% 6.77% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE INVESTOR SHARES ON JANUARY 3, 1994. BENCHMARK RETURNS SINCE DECEMBER 31, 1993 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). FLEX SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Fund Returns Before Taxes -2.70% 8.58% 9.90% - -------------------------------------------------------------------------------- Hybrid 60/40 Blend of the Following Benchmarks -3.67% 9.79% 11.69% - -------------------------------------------------------------------------------- S&P 500(R) Index (reflects no deduction for fees, expenses or taxes) -11.88% 10.70% 14.17% - -------------------------------------------------------------------------------- Lehman Brothers U.S. Government/ Credit Index (reflects no deduction for fees, expenses or taxes) 8.51% 7.36% 7.18% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE FLEX SHARES ON JUNE 14, 1995. BENCHMARK RETURNS SINCE MAY 31, 1995 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). - -------------------------------------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? - -------------------------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The S&P 500(R) Index is a widely-recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index of 500 stocks designed to mimic the overall U.S. equity market's industry weightings. The Lehman Brothers U.S. Government/Credit Index is a widely-recognized, market value-weighted (higher market value bonds have more influence than lower market value bonds) index of U.S. Treasury securities, U.S. government agency obligations, corporate debt backed by the U.S. government, fixed-rate nonconvertible corporate debt securities, Yankee bonds, and nonconvertible debt securities issued by or guaranteed by foreign governments and agencies. All securities in the Index are rated investment grade (BBB) or higher, with maturities of at least 1 year. 4 PROSPECTUS - -------------------------------------------------------------------------------- BALANCED FUND - -------------------------------------------------------------------------------- [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - -------------------------------------------------------------------------------- INVESTOR SHARES FLEX SHARES Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)* 3.75% None Maximum Deferred Sales Charge (Load) (as a percentage of net asset value)** None 2.00% * THIS SALES CHARGE VARIES DEPENDING UPON HOW MUCH YOU INVEST. YOU MAY BUY INVESTOR SHARES IN AMOUNTS OF $1,000,000 OR MORE AT NET ASSET VALUE (WITHOUT AN INITIAL SALES CHARGE), BUT IF YOU REDEEM THOSE SHARES WITHIN ONE YEAR OF YOUR PURCHASE, YOU WILL PAY A DEFERRED SALES CHARGE OF 1.00%. SEE "SALES CHARGES." ** THIS SALES CHARGE IS IMPOSED IF YOU SELL FLEX SHARES WITHIN ONE YEAR OF YOUR PURCHASE. SEE "SALES CHARGES." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- INVESTOR SHARES FLEX SHARES Investment Advisory Fees 0.95% 0.95% Distribution and Service (12b-1) Fees 0.28% 1.00% Other Expenses 0.32% 0.21% ----- ----- Total Annual Fund Operating Expenses 1.55%* 2.16%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER AND THE DISTRIBUTOR WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THESE FEE WAIVERS REMAIN IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER AND THE DISTRIBUTOR MAY DISCONTINUE ALL OR PART OF THESE FEE WAIVERS AT ANY TIME. WITH THESE FEE WAIVERS, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: Balanced Fund - Investor Shares 1.33% Balanced Fund - Flex Shares 2.09% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: IF YOU SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS Investor Shares $527 $846 $1,188 $2,151 Flex Shares $419 $676 $1,159 $2,493 IF YOU DO NOT SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS Investor Shares $527 $846 $1,188 $2,151 Flex Shares $219 $676 $1,159 $2,493 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. In addition, the Fund may enter into arrangements with broker-dealers who have agreed to pay certain Fund expenses in return for executing Fund transactions through that broker-dealer. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." PROSPECTUS 5 - -------------------------------------------------------------------------------- CAPITAL APPRECIATION FUND - -------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY
INVESTMENT GOAL Capital appreciation - ------------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS U.S. common stocks - ------------------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Moderate - ------------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify companies with above average growth potential - ------------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Investors who want the value of their investment to grow, but do not need to receive income on their investment - -------------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Capital Appreciation Fund invests primarily in U.S. common stocks and other equity securities that the Adviser believes have strong business fundamentals, such as revenue growth, cash flows and earnings trends. In selecting investments for the Fund, the Adviser chooses companies that it believes have above average growth potential. The Adviser uses a "bottom-up" process based on individual company earnings trends and fundamentals to determine the weighting of the Fund's investments in various equity market sectors. The Adviser's strategy focuses primarily on large cap stocks, but will also utilize mid-cap stocks. Due to its investment strategy, the Fund may buy and sell securities frequently. This may result in higher transaction costs and additional capital gains tax liabilities. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S INVESTOR SHARES FROM YEAR TO YEAR. THE CHART DOES NOT REFLECT SALES CHARGES. IF SALES CHARGES HAD BEEN REFLECTED, RETURNS WOULD BE LESS THAN THOSE SHOWN.* [GRAPHIC OMITTED] 1993 9.27% 1994 -8.01% 1995 30.33% 1996 19.50% 1997 30.34% 1998 27.26% 1999 9.06% 2000 0.94% 2001 -7.11% BEST QUARTER WORST QUARTER 22.78% -15.10% (12/31/98) (9/30/01) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS -13.27%. 6 PROSPECTUS - -------------------------------------------------------------------------------- CAPITAL APPRECIATION FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE S&P 500(R) INDEX. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only the Investor Shares. After-tax returns for other classes will vary. INVESTOR SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Fund Returns Before Taxes -10.58% 10.31% 12.09% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions -11.68% 7.03% 9.07% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares -5.34% 7.50% 8.98% - -------------------------------------------------------------------------------- S&P 500(R) Index (reflects no deduction for fees, expenses or taxes) -11.88% 10.70% 13.43% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE INVESTOR SHARES ON JUNE 9, 1992. BENCHMARK RETURNS SINCE MAY 31, 1992 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). FLEX SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Fund Returns Before Taxes -9.30% 10.61% 13.37% - -------------------------------------------------------------------------------- S&P 500(R) Index (reflects no deduction for fees, expenses or taxes) -11.88% 10.70% 14.17% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE FLEX SHARES ON JUNE 1, 1995. BENCHMARK RETURNS SINCE MAY 31, 1995 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). - -------------------------------------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? - -------------------------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The S&P 500(R) Index is a widely-recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index of 500 stocks designed to mimic the overall U.S. equity market's industry weightings. PROSPECTUS 7 - -------------------------------------------------------------------------------- CAPITAL APPRECIATION FUND - -------------------------------------------------------------------------------- [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - -------------------------------------------------------------------------------- INVESTOR SHARES FLEX SHARES Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)* 3.75% None Maximum Deferred Sales Charge (Load) (as a percentage of net asset value)** None 2.00% * THIS SALES CHARGE VARIES DEPENDING UPON HOW MUCH YOU INVEST. YOU MAY BUY INVESTOR SHARES IN AMOUNTS OF $1,000,000 OR MORE AT NET ASSET VALUE (WITHOUT AN INITIAL SALES CHARGE), BUT IF YOU REDEEM THOSE SHARES WITHIN ONE YEAR OF YOUR PURCHASE, YOU WILL PAY A DEFERRED SALES CHARGE OF 1.00%. SEE "SALES CHARGES." ** THIS SALES CHARGE IS IMPOSED IF YOU SELL FLEX SHARES WITHIN ONE YEAR OF YOUR PURCHASE. SEE "SALES CHARGES." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- INVESTOR SHARES FLEX SHARES Investment Advisory Fees 1.15% 1.15% Distribution and Service (12b-1) Fees 0.68% 1.00% Other Expenses 0.16% 0.24% ----- ----- Total Annual Fund Operating Expenses 1.99%* 2.39%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER AND THE DISTRIBUTOR WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THESE FEE WAIVERS REMAIN IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER AND THE DISTRIBUTOR MAY DISCONTINUE ALL OR PART OF THESE FEE WAIVERS AT ANY TIME. WITH THESE FEE WAIVERS, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: Capital Appreciation Fund - Investor Shares 1.88% Capital Appreciation Fund - Flex Shares 2.35% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: IF YOU SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS Investor Shares $569 $976 $1,407 $2,605 Flex Shares $442 $745 $1,275 $2,726 IF YOU DO NOT SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS Investor Shares $569 $976 $1,407 $2,605 Flex Shares $242 $745 $1,275 $2,726 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. In addition, the Fund may enter into arrangements with broker-dealers who have agreed to pay certain Fund expenses in return for executing Fund transactions through that broker-dealer. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." 8 PROSPECTUS
- -------------------------------------------------------------------------------------------------------------- GROWTH AND INCOME FUND - -------------------------------------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOALS PRIMARY Long-term capital appreciation SECONDARY Current income - -------------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS Equity securities - -------------------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Moderate - -------------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify securities of companies with market capitalizations of at least $1 billion with attractive valuation and/or above average earnings potential relative either to their sectors or the market as a whole - -------------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Investors who are looking for capital appreciation potential and some income with less volatility than the equity market as a whole - --------------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Growth and Income Fund invests primarily in equity securities, including common stocks of domestic companies and listed American Depositary Receipts (ADRs) of foreign companies, all with market capitalizations of at least $1 billion. However, the average market capitalization can vary throughout a full market cycle and will be flexible to allow the Adviser to capture market opportunities. The Adviser uses a quantitative screening process to identify companies with attractive fundamental profiles. The portfolio management team selects stocks of companies with strong financial quality and above average earnings potential to secure the best relative values in each economic sector. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. Investing in foreign countries poses additional risks since political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. In addition, investments in foreign countries are generally denominated in a foreign currency. As a result, changes in the value of those currencies compared to the U.S. dollar may affect (positively or negatively) the value of a Fund's investments. These currency movements may happen separately from and in response to events that do not otherwise affect the value of the security in the issuer's home country. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S INVESTOR SHARES FROM YEAR TO YEAR. THE CHART DOES NOT REFLECT SALES CHARGES. IF SALES CHARGES HAD BEEN REFLECTED, RETURNS WOULD BE LESS THAN THOSE SHOWN.* [GRAPHIC OMITTED] 1994 -0.91% 1995 29.45% 1996 19.12% 1997 27.58% 1998 18.25% 1999 14.10% 2000 1.30% 2001 -6.84% BEST QUARTER WORST QUARTER 17.35% -10.86% (6/30/97) (9/30/01) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS -8.75%. PROSPECTUS 9 - -------------------------------------------------------------------------------- GROWTH AND INCOME FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE S&P 500(R)/BARRA VALUE INDEX. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only the Investor Shares. After-tax returns for other classes will vary. INVESTOR SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Fund Returns Before Taxes -10.33% 9.36% 11.28% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions -10.45% 7.19% 8.59% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares -6.29% 7.03% 8.21% - -------------------------------------------------------------------------------- S&P 500(R)/BARRA Value Index (reflects no deduction for fees, expenses or taxes) -11.71% 9.49% 12.84% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE INVESTOR SHARES ON MAY 7, 1993. BENCHMARK RETURNS SINCE APRIL 30, 1993 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). FLEX SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Fund Returns Before Taxes -9.32% 9.40% 12.26% - -------------------------------------------------------------------------------- S&P 500(R)/BARRA Value Index (reflects no deduction for fees, expenses or taxes) -11.71% 9.49% 13.84% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE FLEX SHARES ON APRIL 5, 1995. BENCHMARK RETURNS SINCE MARCH 31, 1995 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). - ------------------------------------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? - -------------------------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The S&P 500(R)/BARRA Value Index is a widely-recognized index of the stocks in the S&P 500(R) Index that have lower price-to-book ratios. The S&P 500(R) Index is a widely-recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index of 500 stocks designed to mimic the overall U.S. equity market's industry weightings. 10 PROSPECTUS - -------------------------------------------------------------------------------- GROWTH AND INCOME FUND - -------------------------------------------------------------------------------- [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - -------------------------------------------------------------------------------- INVESTOR SHARES FLEX SHARES Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)* 3.75% None Maximum Deferred Sales Charge (Load) (as a percentage of net asset value)** None 2.00% * THIS SALES CHARGE VARIES DEPENDING UPON HOW MUCH YOU INVEST. YOU MAY BUY INVESTOR SHARES IN AMOUNTS OF $1,000,000 OR MORE AT NET ASSET VALUE (WITHOUT AN INITIAL SALES CHARGE), BUT IF YOU REDEEM THOSE SHARES WITHIN ONE YEAR OF YOUR PURCHASE, YOU WILL PAY A DEFERRED SALES CHARGE OF 1.00%. SEE "SALES CHARGES." ** THIS SALES CHARGE IS IMPOSED IF YOU SELL FLEX SHARES WITHIN ONE YEAR OF YOUR PURCHASE. SEE "SALES CHARGES." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)* - -------------------------------------------------------------------------------- INVESTOR SHARES FLEX SHARES Investment Advisory Fees 0.90% 0.90% Distribution and Service (12b-1) Fees 0.25% 1.00% Other Expenses 0.21% 0.26% ----- ----- Total Annual Fund Operating Expenses 1.36%* 2.16%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE DISTRIBUTOR WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THIS FEE WAIVER REMAINS IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE DISTRIBUTOR MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: Growth and Income Fund - Investor Shares 1.18% Growth and Income Fund - Flex Shares 1.93% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: IF YOU SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS Investor Shares $508 $790 $1,092 $1,949 Flex Shares $419 $676 $1,159 $2,493 IF YOU DO NOT SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS Investor Shares $508 $790 $1,092 $1,949 Flex Shares $219 $676 $1,159 $2,493 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. In addition, the Fund may enter into arrangements with broker-dealers who have agreed to pay certain Fund expenses in return for executing Fund transactions through that broker-dealer. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." PROSPECTUS 11 - -------------------------------------------------------------------------------- INFORMATION AND TECHNOLOGY FUND - -------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY
INVESTMENT GOAL Long-term capital growth - ----------------------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS Common stocks of companies benefiting from information and technology - ----------------------------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Very high - ----------------------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify companies benefiting from technology and information to achieve above average growth - ----------------------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Aggressive investors with long-term investment goals who are willing to accept significant volatility for the possibility of higher returns - -----------------------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Information and Technology Fund invests at least 80% of its net assets in common stocks of U.S. companies that are expected to benefit substantially from information and technology and achieve above average growth. The Fund believes that information-oriented companies and technology-oriented companies offer the potential for significant long-term growth. The Fund's holdings are generally diversified across three market segments. The first segment is comprised of corporations whose core line of business focuses on an emerging information-related or technology-related market. The second segment consists of established technology companies that provide the infrastructure to support the transfer of information. The third segment includes established, non-tech corporations from multiple industries that are harnessing the power of information to drive company growth. In selecting investments for the Fund, the Adviser uses a "bottom-up" analysis that evaluates the competitive advantages and market sustainability of individual companies. The Fund invests primarily in companies with market capitalizations over $1 billion, but may invest a portion of its assets in smaller companies. Due to its investment strategy, the Fund may buy and sell securities frequently. This may result in higher transaction costs and additional capital gains tax liabilities. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of stocks issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The smaller capitalization companies the Fund invests in may be more vulnerable to adverse business or economic events than larger, more established companies. In particular, these small companies may have limited product lines, markets and financial resources, and may depend upon a relatively small management group. Therefore, small cap stocks may be more volatile than those of larger companies. These securities may be traded over-the-counter or listed on an exchange. Due to the focus of the Fund, many holdings share similar risk factors. Many companies in the portfolio have limited operating histories, function in rapidly changing business environments and trade at valuations which are significantly higher than average. As a result, the Fund's net asset value (NAV) may be more volatile than other, broadly diversified equity funds. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. Flex Shares were offered beginning on January 24, 2000. Performance between September 30, 1999 and January 24, 2000 is that of Trust Shares of the Fund, and has not been adjusted to reflect Flex Share expenses. If it had been, performance would have been lower. 12 PROSPECTUS - -------------------------------------------------------------------------------- INFORMATION AND TECHNOLOGY FUND - -------------------------------------------------------------------------------- THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S FLEX SHARES FROM YEAR TO YEAR. THE CHART DOES NOT REFLECT SALES CHARGES. IF SALES CHARGES HAD BEEN REFLECTED, RETURNS WOULD BE LESS THAN THOSE SHOWN.* [GRAPHIC OMITTED] 2000 -17.56% 2001 -27.41% BEST QUARTER WORST QUARTER 27.10% -33.09% (12/31/01) (9/30/01) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS -37.57%. THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE GOLDMAN SACHS TECHNOLOGY COMPOSITE INDEX AND THE LIPPER SCIENCE & TECHNOLOGY FUNDS AVERAGE. PREVIOUSLY, THE FUND'S RETURNS HAD BEEN COMPARED TO THE GOLDMAN SACHS E-COMMERCE INDEX, BUT THE ADVISER BELIEVES THAT THE GOLDMAN SACHS TECHNOLOGY COMPOSITE INDEX MORE ACCURATELY REFLECTS THE INCLUSION OF COMPANIES THAT ARE NOT FOCUSED ON ACHIEVING GROWTH THROUGH E-COMMERCE INITIATIVES. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only the Flex Shares. After-tax returns for other classes will vary. FLEX SHARES 1 YEAR SINCE INCEPTION* - -------------------------------------------------------------------------------- Fund Returns Before Taxes -28.86% 2.04% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions -28.86% 2.04% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares -17.58% 1.64% - -------------------------------------------------------------------------------- Goldman Sachs Technology Composite Index (reflects no deduction for fees, expenses or taxes) -28.56% -18.53% - -------------------------------------------------------------------------------- Lipper Science & Technology Funds Average (reflects no deduction for fees, expenses or taxes) -36.74% -15.99% - -------------------------------------------------------------------------------- Goldman Sachs E-Commerce Index (reflects no deduction for fees, expenses or taxes) -33.35% -19.99% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE TRUST SHARES ON SEPTEMBER 30, 1999. - -------------------------------------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? - -------------------------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Goldman Sachs Technology Composite Index is a modified capitalization-weighted index of selected technology funds. The Lipper Science and Technology Funds Average is an average of funds that invest 65% of their equity portfolio in science and technology stocks. The number of funds in the Average varies. Developed jointly by the Goldman Sachs E-Commerce research team and Goldman Sachs Index Services, the Goldman Sachs E-Commerce Index is built from a universe of 39 stocks. To be included in the index, firms must generate a majority of their revenues online, operate as virtual companies outside the traditional "bricks and mortar" framework or be key e-commerce infrastructure providers. PROSPECTUS 13 - -------------------------------------------------------------------------------- INFORMATION AND TECHNOLOGY FUND - -------------------------------------------------------------------------------- [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - -------------------------------------------------------------------------------- FLEX SHARES Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None Maximum Deferred Sales Charge (Load) (as a percentage of net asset value) 2.00%* * THIS SALES CHARGE IS IMPOSED IF YOU SELL YOUR FLEX SHARES WITHIN ONE YEAR OF YOUR PURCHASE. SEE "SALES CHARGES." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- FLEX SHARES Investment Advisory Fees 1.10% Distribution and Service (12b-1) Fees 1.00% Other Expenses 0.47% ----- Total Annual Fund Operating Expenses 2.57%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE DISTRIBUTOR WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THIS FEE WAIVER REMAINS IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE DISTRIBUTOR MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: Information and Technology Fund - Flex Shares 2.25% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: IF YOU SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $460 $799 $1,365 $2,905 IF YOU DO NOT SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $260 $799 $1,365 $2,905 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. In addition, the Fund may enter into arrangements with broker-dealers who have agreed to pay certain Fund expenses in return for executing Fund transactions through that broker-dealer. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." 14 PROSPECTUS - -------------------------------------------------------------------------------- INTERNATIONAL EQUITY FUND - -------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY
INVESTMENT GOAL Long-term capital appreciation - ------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS Foreign common stocks - ------------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY High - ------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify companies with good fundamentals or a history of consistent growth - ------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Investors who want an increase in the value of their investment without regard to income, are willing to accept the increased risks of international investing for the possibility of higher returns, and want exposure to a diversified portfolio of international stocks - -------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The International Equity Fund invests at least 80% of its net assets in common stocks and other equity securities of foreign companies. The Fund invests primarily in developed countries, but may invest in countries with emerging markets. The Adviser's "bottom-up" approach to stock selection focuses on individual stocks and fundamental characteristics of companies. The Adviser's goal is to find companies with top management, quality products and sound financial positions, or a history of consistent growth in cash flows, sales, operating profits, returns on equity and returns on invested capital. In selecting investments for the Fund, the Adviser diversifies the Fund's investments among at least three foreign countries. Due to its investment strategy, the Fund may buy and sell securities frequently. This may result in higher transaction costs and additional capital gains tax liabilities. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The Fund is also subject to the risk that foreign common stocks may underperform other segments of the equity market or the equity market as a whole. Investing in foreign countries poses additional risks since political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. In addition, investments in foreign countries are generally denominated in a foreign currency. As a result, changes in the value of those currencies compared to the U.S. dollar may affect (positively or negatively) the value of a Fund's investments. These currency movements may happen separately from and in response to events that do not otherwise affect the value of the security in the issuer's home country. Emerging market countries are countries that the World Bank or the United Nations considers to be emerging or developing. Emerging markets may be more likely to experience political turmoil or rapid changes in market or economic conditions than more developed countries. In addition, the financial stability of issuers (including governments) in emerging market countries may be more precarious than in other countries. As a result, there will tend to be an increased risk of price volatility associated with the Fund's investments in emerging market countries, which may be magnified by currency fluctuations relative to the U.S. dollar. PROSPECTUS 15 - -------------------------------------------------------------------------------- INTERNATIONAL EQUITY FUND - -------------------------------------------------------------------------------- [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. The Fund began operating as a registered mutual fund on December 1, 1995. Performance prior to December 1, 1995 is that of the Adviser's similarly managed collective investment fund, which began operations on January 31, 1995. The collective fund's performance has been adjusted to reflect the fees and expenses for Trust Shares of the Fund. As a collective fund, rather than a registered mutual fund, it was not subject to the same investment and tax restrictions. If it had been, the collective fund's performance would have been lower. Investor and Flex Shares were offered beginning January 2, 1996. Performance between December 1, 1995 and January 2, 1996 is that of Trust Shares of the Fund, and has not been adjusted to reflect Investor or Flex Share expenses, respectively. If it had been, performance would have been lower. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S INVESTOR SHARES FROM YEAR TO YEAR. THE PERIODS FROM JANUARY 1996 TO THE PRESENT REPRESENT THE PERFORMANCE OF THE INVESTOR SHARES OF THE FUND. THE CHART DOES NOT REFLECT SALES CHARGES. IF SALES CHARGES HAD BEEN REFLECTED, RETURNS WOULD BE LESS THAN THOSE SHOWN.* [GRAPHIC OMITTED] 1996 21.58% 1997 13.01% 1998 10.69% 1999 9.05% 2000 -3.74% 2001 -17.99% BEST QUARTER WORST QUARTER 16.74% -18.33% (12/31/98) (9/30/98) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS -1.67%. THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE, AUSTRALASIA, AND FAR EAST (MSCI EAFE) INDEX. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only the Investor Shares. After-tax returns for other classes will vary. SINCE SINCE INCEPTION INCEPTION OF THE OF THE REGISTERED COLLECTIVE MUTUAL INVESTMENT INVESTOR SHARES 1 YEAR 5 YEARS FUND* FUND ** - -------------------------------------------------------------------------------- Fund Returns Before Taxes -21.09% 0.72% 4.53% 8.37% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions -21.09% -1.47% 2.47% N/A+ - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares -12.84% 0.09% 3.17% N/A+ - -------------------------------------------------------------------------------- MSCI EAFE Index (reflects no deduction for fees, expenses or taxes) -21.44% 0.89% 2.38% 3.66% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE TRUST SHARES ON DECEMBER 1, 1995, WHEN THE FUND BEGAN OPERATING AS A REGISTERED MUTUAL FUND. BENCHMARK RETURNS SINCE NOVEMBER 30, 1995 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). ** SINCE INCEPTION OF THE COLLECTIVE INVESTMENT FUND ON JANUARY 31, 1995. + IT IS NOT POSSIBLE TO REFLECT THE IMPACT OF TAXES ON THE COLLECTIVE INVESTMENT FUND'S PERFORMANCE. FLEX SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Fund Returns Before Taxes -20.20% 0.77% 8.32% - -------------------------------------------------------------------------------- MSCI EAFE Index (reflects no deduction for fees, expenses or taxes) -21.44% 0.89% 3.66% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE COLLECTIVE INVESTMENT FUND ON JANUARY 31, 1995. 16 PROSPECTUS - -------------------------------------------------------------------------------- INTERNATIONAL EQUITY FUND - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? - -------------------------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The MSCI EAFE Index is a widely-recognized, capitalization-weighted (companies with larger market capitalizations have more influence than those with smaller market capitalizations) index of over 900 securities listed on the stock exchanges in Europe, Australasia and the Far East. The country weighting of the Index is calculated using the market capitalization of each of the various countries, and then with respect to the market capitalization of the various companies operating in each country. [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - -------------------------------------------------------------------------------- INVESTOR SHARES FLEX SHARES Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)* 3.75% None Maximum Deferred Sales Charge (Load) (as a percentage of net asset value)** None 2.00% * THIS SALES CHARGE VARIES DEPENDING UPON HOW MUCH YOU INVEST. YOU MAY BUY INVESTOR SHARES IN AMOUNTS OF $1,000,000 OR MORE AT NET ASSET VALUE (WITHOUT AN INITIAL SALES CHARGE), BUT IF YOU REDEEM THOSE SHARES WITHIN ONE YEAR OF YOUR PURCHASE, YOU WILL PAY A DEFERRED SALES CHARGE OF 1.00%. SEE "SALES CHARGES." ** THIS SALES CHARGE IS IMPOSED IF YOU SELL FLEX SHARES WITHIN ONE YEAR OF YOUR PURCHASE. SEE "SALES CHARGES." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- INVESTOR SHARES FLEX SHARES Investment Advisory Fees 1.25% 1.25% Distribution and Service (12b-1) Fees 0.33% 1.00% Other Expenses 0.50% 0.68% ---- ----- Total Annual Fund Operating Expenses 2.08%* 2.93%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE DISTRIBUTOR WAIVED A PORTION OF THE FEES IN ORDER TO KEEP ACTUAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THIS FEE WAIVER REMAINS IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE DISTRIBUTOR MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: International Equity Fund - Investor Shares 1.83% International Equity Fund - Flex Shares 2.53% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: IF YOU SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS Investor Shares $578 $1,002 $1,452 $2,695 Flex Shares $496 $907 $1,543 $3,252 IF YOU DO NOT SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS Investor Shares $578 $1,002 $1,452 $2,695 Flex Shares $296 $907 $1,543 $3,252 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. In addition, the Fund may enter into arrangements with broker-dealers who have agreed to pay certain Fund expenses in return for executing Fund transactions through that broker-dealer. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." PROSPECTUS 17 - -------------------------------------------------------------------------------- INTERNATIONAL EQUITY INDEX FUND - -------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY
INVESTMENT GOAL Investment results that correspond to the performance of the MSCI EAFE-GDP Weighted Index - --------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS Foreign equity securities in the MSCI EAFE-GDP Weighted Index - --------------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY High - --------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Statistical analysis to track the Index - --------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Aggressive investors who want exposure to foreign markets and are willing to accept the increased risks of foreign investing for the possibility of higher returns - ---------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The International Equity Index Fund invests at least 80% of its net assets in equity securities of foreign companies. In selecting investments for the Fund, the Adviser chooses companies included in the MSCI EAFE-GDP Weighted Index, an index of equity securities of companies located in Europe, Australasia and the Far East. While the Fund is structured to have overall investment characteristics similar to those of the Index, it selects a sample of securities within the Index using a statistical process. So, the Fund will not hold all securities included in the Index. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The Fund is also subject to the risk that foreign equity securities may underperform other segments of the equity market or the equity market as a whole. Investing in foreign countries poses additional risks since political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. In addition, investments in foreign countries are generally denominated in a foreign currency. As a result, changes in the value of those currencies compared to the U.S. dollar may affect (positively or negatively) the value of a Fund's investments. These currency movements may happen separately from and in response to events that do not otherwise affect the value of the security in the issuer's home country. In addition to the above mentioned risks, the Adviser may not be able to match the performance of the Fund's benchmark. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S INVESTOR SHARES FROM YEAR TO YEAR. THE CHART DOES NOT REFLECT SALES CHARGES. IF SALES CHARGES HAD BEEN REFLECTED, RETURNS WOULD BE LESS THAN THOSE SHOWN.* [GRAPHIC OMITTED] 1995 10.20% 1996 5.78% 1997 8.44% 1998 29.68% 1999 29.97% 2000 -17.44% 2001 -23.91% BEST QUARTER WORST QUARTER 21.20% -15.54% (12/31/98) (9/30/01) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS -0.64%. 18 PROSPECTUS - -------------------------------------------------------------------------------- INTERNATIONAL EQUITY INDEX FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE, AUSTRALASIA, AND FAR EAST-GROSS DOMESTIC PRODUCT (MSCI EAFE-GDP) WEIGHTED INDEX. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only the Investor Shares. After-tax returns for other classes will vary. INVESTOR SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Fund Returns Before Taxes -26.77% 2.01% 3.01% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions -26.68% 0.90% 2.07% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares -16.18% 1.67% 2.43% - -------------------------------------------------------------------------------- MSCI EAFE-GDP Weighted Index (Price Return) (reflects no deduction for fees, expenses or taxes) -23.26% 1.63% 2.91% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE INVESTOR SHARES ON JUNE 6, 1994. BENCHMARK RETURNS SINCE MAY 31, 1994 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). FLEX SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Fund Returns Before Taxes -25.74% 2.18% 3.09% - -------------------------------------------------------------------------------- MSCI EAFE-GDP Weighted Index (Price Return) (reflects no deduction for fees, expenses or taxes) -23.26% 1.63% 2.86% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE FLEX SHARES ON JUNE 8, 1995. BENCHMARK RETURNS SINCE MAY 31, 1995 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). - -------------------------------------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? - -------------------------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The MSCI EAFE-GDP Weighted Index is a widely-recognized, capitalization-weighted (companies with larger market capitalizations have more influence than those with smaller market capitalizations) index of over 900 securities listed on the stock exchanges in Europe, Australasia and the Far East. The country weighting of the Index is calculated using the gross domestic product of each of the various countries and then with respect to the market capitalization of the various companies operating in each country. PROSPECTUS 19 - -------------------------------------------------------------------------------- INTERNATIONAL EQUITY INDEX FUND - -------------------------------------------------------------------------------- [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - -------------------------------------------------------------------------------- INVESTOR SHARES FLEX SHARES Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)* 3.75% None Maximum Deferred Sales Charge (Load) (as a percentage of net asset value)** None 2.00% * THIS SALES CHARGE VARIES DEPENDING UPON HOW MUCH YOU INVEST. YOU MAY BUY INVESTOR SHARES IN AMOUNTS OF $1,000,000 OR MORE AT NET ASSET VALUE (WITHOUT AN INITIAL SALES CHARGE), BUT IF YOU REDEEM THOSE SHARES WITHIN ONE YEAR OF YOUR PURCHASE, YOU WILL PAY A DEFERRED SALES CHARGE OF 1.00%. SEE "SALES CHARGES." ** THIS SALES CHARGE IS IMPOSED IF YOU SELL FLEX SHARES WITHIN ONE YEAR OF YOUR PURCHASE. SEE "SALES CHARGES." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- INVESTOR SHARES FLEX SHARES Investment Advisory Fees 0.90% 0.90% Distribution and Service (12b-1) Fees 0.38% 1.00% Other Expenses 0.62% 0.72% ----- ----- Total Annual Fund Operating Expenses 1.90%* 2.62%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER AND THE DISTRIBUTOR WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THESE FEE WAIVERS REMAIN IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER AND THE DISTRIBUTOR MAY DISCONTINUE ALL OR PART OF THESE FEE WAIVERS AT ANY TIME. WITH THESE FEE WAIVERS, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: International Equity Index Fund - Investor Shares 1.49% International Equity Index Fund - Flex Shares 2.14% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: IF YOU SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS Investor Shares $561 $950 $1,363 $2,514 Flex Shares $465 $814 $1,390 $2,954 IF YOU DO NOT SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS Investor Shares $561 $950 $1,363 $2,514 Flex Shares $265 $814 $1,390 $2,954 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. In addition, the Fund may enter into arrangements with broker-dealers who have agreed to pay certain Fund expenses in return for executing Fund transactions through that broker-dealer. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." 20 PROSPECTUS - -------------------------------------------------------------------------------- MID-CAP EQUITY FUND - -------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY
INVESTMENT GOAL Capital appreciation - ------------------------------------------------------------------------------------------------------------ INVESTMENT FOCUS U.S. mid-cap common stocks - ------------------------------------------------------------------------------------------------------------ SHARE PRICE VOLATILITY Moderate to high - ------------------------------------------------------------------------------------------------------------ PRINCIPAL INVESTMENT STRATEGY Attempts to identify companies with above average growth potential at an attractive price - ------------------------------------------------------------------------------------------------------------ INVESTOR PROFILE Investors who want the value of their investment to grow and who are willing to accept more volatility for the possibility of higher returns - ------------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Mid-Cap Equity Fund invests at least 80% of its net assets in a diversified portfolio of common stocks and other equity securities of U.S. companies that have small- to mid-sized market capitalizations (I.E., companies with market capitalizations of $500 million to $10 billion or companies in the S&P Mid Cap 400(R) Index). In selecting investments for the Fund, the Adviser primarily chooses companies that, in its opinion, offer above average growth potentials at attractive prices. The Adviser evaluates companies based on their industry sectors and the market in general. The Fund maintains holdings in the industries that appear to perform best during a given business cycle. The Adviser analyzes companies that are in favored industries based on their fundamental characteristics, such as growth rates and earnings. The Adviser does not consider current income in selecting investments for the Fund. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The Fund is also subject to the risk that mid-cap common stocks may underperform other segments of the equity market or the equity market as a whole. The small- to-mid-sized capitalization companies the Fund invests in may be more vulnerable to adverse business or economic events than larger, more established companies. In particular, these small companies may have limited product lines, markets and financial resources, and may depend upon a relatively small management group. Therefore, small-cap and mid-cap stocks may be more volatile than those of larger companies. These securities may be traded over-the-counter or listed on an exchange. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S INVESTOR SHARES FROM YEAR TO YEAR. THE CHART DOES NOT REFLECT SALES CHARGES. IF SALES CHARGES HAD BEEN REFLECTED, RETURNS WOULD BE LESS THAN THOSE SHOWN.* [GRAPHIC OMITTED] 1995 30.57% 1996 14.93% 1997 20.67% 1998 5.98% 1999 15.69% 2000 -3.42% 2001 1.88% BEST QUARTER WORST QUARTER 24.52% -20.00% (12/31/98) (9/30/98) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS -18.17%. PROSPECTUS 21 - -------------------------------------------------------------------------------- MID-CAP EQUITY FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE S&P MID CAP 400(R) INDEX. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only the Investor Shares. After-tax returns for other classes will vary. INVESTOR SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Fund Returns Before Taxes -1.90% 6.98% 9.54% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions -1.90% 3.80% 6.68% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares -1.16% 4.48% 6.72% - -------------------------------------------------------------------------------- S&P Mid Cap 400(R) Index (reflects no deduction for fees, expenses or taxes) -0.61% 16.11% 15.38% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE INVESTOR SHARES ON JANUARY 31, 1994. FLEX SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Fund Returns Before Taxes -0.72% 7.14% 9.75% - -------------------------------------------------------------------------------- S&P Mid Cap 400(R) Index (reflects no deduction for fees, expenses or taxes) -0.61% 16.11% 17.64% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF FLEX SHARES ON JUNE 5, 1995. BENCHMARK RETURNS SINCE MAY 31, 1995 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). - -------------------------------------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? - -------------------------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The S&P Mid Cap 400(R) Index is a widely-recognized, capitalization-weighted (companies with larger market capitalizations have more influence than those with smaller market capitalizations) index of 400 domestic mid-cap stocks chosen for market size, liquidity, and industry group representation. 22 PROSPECTUS - -------------------------------------------------------------------------------- MID-CAP EQUITY FUND - -------------------------------------------------------------------------------- [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - -------------------------------------------------------------------------------- INVESTOR SHARES FLEX SHARES Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)* 3.75% None Maximum Deferred Sales Charge (Load) (as a percentage of net asset value)** None 2.00% * THIS SALES CHARGE VARIES DEPENDING UPON HOW MUCH YOU INVEST. YOU MAY BUY INVESTOR SHARES IN AMOUNTS OF $1,000,000 OR MORE AT NET ASSET VALUE (WITHOUT AN INITIAL SALES CHARGE), BUT IF YOU REDEEM THOSE SHARES WITHIN ONE YEAR OF YOUR PURCHASE, YOU WILL PAY A DEFERRED SALES CHARGE OF 1.00%. SEE "SALES CHARGES." ** THIS SALES CHARGE IS IMPOSED IF YOU SELL FLEX SHARES WITHIN ONE YEAR OF YOUR PURCHASE. SEE "SALES CHARGES." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- INVESTOR SHARES FLEX SHARES Investment Advisory Fees 1.15% 1.15% Distribution and Service (12b-1) Fees 0.43% 1.00% Other Expenses 0.31% 0.35% ----- ----- Total Annual Fund Operating Expenses 1.89%* 2.50%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER AND THE DISTRIBUTOR WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THESE FEE WAIVERS REMAIN IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER AND THE DISTRIBUTOR MAY DISCONTINUE ALL OR PART OF THESE FEE WAIVERS AT ANY TIME. WITH THESE FEE WAIVERS, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: Mid-Cap Equity Fund - Investor Shares 1.68% Mid-Cap Equity Fund - Flex Shares 2.28% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: IF YOU SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS Investor Shares $560 $947 $1,358 $2,504 Flex Shares $453 $779 $1,331 $2,836 IF YOU DO NOT SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS Investor Shares $560 $947 $1,358 $2,504 Flex Shares $253 $779 $1,331 $2,836 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. In addition, the Fund may enter into arrangements with broker-dealers who have agreed to pay certain Fund expenses in return for executing Fund transactions through that broker-dealer. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." PROSPECTUS 23 - -------------------------------------------------------------------------------- MID CAP VALUE EQUITY FUND - -------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY
INVESTMENT GOALS PRIMARY Capital appreciation SECONDARY Current income - ---------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS U.S. mid-cap equity securities - ---------------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Moderate - ---------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify undervalued mid-cap securities - ---------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Investors who primarily want the value of their investment to grow, but want to receive some income from their investment - ----------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Mid Cap Value Equity Fund invests at least 80% of its net assets in equity securities of U.S. mid-sized companies with market capitalizations between approximately $1 billion and $12 billion. In selecting investments for the Fund, the Adviser chooses common stocks that it believes are undervalued in the market. The Adviser may sell a security when it achieves a designated price target, a company's growth prospects change, or the opportunity for a better investment arises. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The Fund is also subject to the risk that mid-cap equity securities may underperform other segments of the equity market or the equity market as a whole. The mid-sized capitalization companies the Fund invests in may be more vulnerable to adverse business or economic events than larger, more established companies. In particular, these smaller companies may have limited product lines, markets and financial resources, and may depend upon a relatively small management group. Therefore, mid-cap stocks may be more volatile than those of larger companies. These securities may be traded over-the-counter or listed on an exchange. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The Mid Cap Value Equity Fund commenced operations on November 30, 2001, and therefore does not have performance history for a full calendar year. 24 PROSPECTUS - -------------------------------------------------------------------------------- MID CAP VALUE EQUITY FUND - -------------------------------------------------------------------------------- [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - -------------------------------------------------------------------------------- FLEX SHARES Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None Maximum Deferred Sales Charge (Load) (as a percentage of net asset value) 2.00%* * THIS CHARGE IS IMPOSED IF YOU SELL YOUR FLEX SHARES WITHIN ONE YEAR OF YOUR PURCHASE. SEE "SALES CHARGES." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- FLEX SHARES Investment Advisory fees 1.25% Distribution and Service (12b-1) Fees 1.00% Other Expenses 0.47% ----- Total Annual Fund Operating Expenses 2.72%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE CURRENT FISCAL YEAR ARE EXPECTED TO BE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER AND THE DISTRIBUTOR INTEND TO WAIVE A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THESE FEE WAIVERS REMAIN IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER AND THE DISTRIBUTOR MAY DISCONTINUE ALL OR PART OF THESE FEE WAIVERS AT ANY TIME. WITH THESE FEE WAIVERS, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES WOULD BE AS FOLLOWS: Mid Cap Value Equity Fund - Flex Shares 1.89% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: IF YOU SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS $475 $844 IF YOU DO NOT SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS $275 $844 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. In addition, the Fund may enter into arrangements with broker-dealers who have agreed to pay certain Fund expenses in return for executing Fund transactions through that broker-dealer. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." 25 PROSPECTUS - -------------------------------------------------------------------------------- SMALL CAP GROWTH STOCK FUND - -------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY
INVESTMENT GOAL Long-term capital appreciation - -------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS U.S. small cap common stocks of growth companies - -------------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY High - -------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Identifies small cap companies with above average growth potential - -------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Investors who want the value of their investment to grow, but do not need current income - --------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Small Cap Growth Stock Fund invests at least 80% of its net assets in small U.S. companies with market capitalizations between $50 million and $3 billion in size. The Fund's investment philosophy is based on the premise that a portfolio of small cap stocks with positive earnings trends, reasonable valuation, and strong fundamentals will provide superior returns over time. The Adviser selects companies with strong current earnings growth, improving profitability, a strong balance sheet, strong current and projected business fundamentals, and priced at reasonable valuations. The Adviser believes in executing a very disciplined and objective investment process and in controlling risk through a broadly diversified portfolio. Due to its investment strategy, the Fund may buy and sell securities frequently. This may result in higher transaction costs and the potential for capital gains tax liabilities for taxable investors. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The Fund is also subject to the risk that small capitalization growth stocks may underperform other segments of the equity market or the equity market as a whole. The smaller capitalization companies the Fund invests in may be more vulnerable to adverse business or economic events than larger, more established companies. In particular, these small companies may have limited product lines, markets and financial resources, and may depend upon a relatively small management group. Therefore, small cap stocks may be more volatile than those of larger companies. These securities may be traded over-the-counter or listed on an exchange. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. Investor Shares were offered beginning on December 10, 1999. Investor Share performance between October 8, 1998 and December 10, 1999 is that of Trust Shares of the Fund, and has not been adjusted to reflect Investor Share expenses. If it had been, performance would have been lower. Both Flex Shares and Trust Shares were offered beginning on October 8, 1998. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S FLEX SHARES FROM YEAR TO YEAR. THE CHART DOES NOT REFLECT SALES CHARGES. IF SALES CHARGES HAD BEEN REFLECTED, RETURNS WOULD BE LESS THAN THOSE SHOWN.* [GRAPHIC OMITTED] 1999 20.48% 2000 11.42% 2001 -1.16% BEST QUARTER WORST QUARTER 23.88% -22.92% (12/31/01) (9/30/01) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS -9.39%. 26 PROSPECTUS - -------------------------------------------------------------------------------- SMALL CAP GROWTH STOCK FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE S&P SMALL CAP 600(R) INDEX. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only the Flex Shares. After-tax returns for other classes will vary. INVESTOR SHARES 1 YEAR SINCE INCEPTION* - -------------------------------------------------------------------------------- Fund Returns Before Taxes -4.86% 21.36% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions -4.94% 20.46% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares -2.89% 17.52% - -------------------------------------------------------------------------------- S&P Small Cap 600(R) Index (reflects no deduction for fees, expenses or taxes) 6.54% 14.99% * SINCE INCEPTION OF THE TRUST SHARES ON OCTOBER 8, 1998. BENCHMARK RETURNS SINCE SEPTEMBER 30, 1998 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). FLEX SHARES 1 YEAR SINCE INCEPTION* - -------------------------------------------------------------------------------- Fund Returns Before Taxes -3.81% 21.84% - -------------------------------------------------------------------------------- S&P Small Cap 600(R) Index (reflects no deduction for fees, expenses or taxes) 6.54% 14.99% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE FLEX SHARES ON OCTOBER 8, 1998. BENCHMARK RETURNS SINCE SEPTEMBER 30, 1998 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). - -------------------------------------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? - -------------------------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The S&P Small Cap 600(R) Index is a widely-recognized, capitalization weighted (companies with larger market capitalizations have more influence than those with smaller market capitalizations) index of 600 domestic small cap stocks. PROSPECTUS 27 - -------------------------------------------------------------------------------- SMALL CAP GROWTH STOCK FUND - -------------------------------------------------------------------------------- [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - -------------------------------------------------------------------------------- INVESTOR SHARES FLEX SHARES Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)* 3.75% None Maximum Deferred Sales Charge (Load) (as a percentage of net asset value)** None 2.00% * THIS SALES CHARGE VARIES DEPENDING UPON HOW MUCH YOU INVEST. YOU MAY BUY INVESTOR SHARES IN AMOUNTS OF $1,000,000 OR MORE AT NET ASSET VALUE (WITHOUT AN INITIAL SALES CHARGE), BUT IF YOU REDEEM THOSE SHARES WITHIN ONE YEAR OF YOUR PURCHASE, YOU WILL PAY A DEFERRED SALES CHARGE OF 1.00%. SEE "SALES CHARGES." ** THIS SALES CHARGE IS IMPOSED IF YOU SELL FLEX SHARES WITHIN ONE YEAR OF YOUR PURCHASE. SEE "SALES CHARGES." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- INVESTOR SHARES FLEX SHARES Investment Advisory Fees 1.15% 1.15% Distribution and Service (12b-1) Fees 0.50% 1.00% Other Expenses 0.23% 0.26% ----- ----- Total Annual Fund Operating Expenses 1.88%* 2.41%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE DISTRIBUTOR WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THIS FEE WAIVER REMAINS IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE DISTRIBUTOR MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: Small Cap Growth Stock Fund - Investor Shares 1.61% Small Cap Growth Stock Fund - Flex Shares 2.31% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: IF YOU SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS Flex Shares $559 $944 $1,353 $2,493 Investor Shares $444 $751 $1,285 $2,746 IF YOU DO NOT SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS Flex Shares $559 $944 $1,353 $2,493 Investor Shares $244 $751 $1,285 $2,746 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. In addition, the Fund may enter into arrangements with broker-dealers who have agreed to pay certain Fund expenses in return for executing Fund transactions through that broker-dealer. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." 28 PROSPECTUS - -------------------------------------------------------------------------------- SMALL CAP VALUE EQUITY FUND - -------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY
INVESTMENT GOALS PRIMARY Capital appreciation SECONDARY Current income - ------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS U.S. small cap equity securities - ------------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Moderate - ------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify undervalued small cap securities - ------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Investors who primarily want the value of their investment to grow, but want to receive some income from their investment - -------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Small Cap Value Equity Fund invests at least 80% of its net assets in equity securities of small-sized U.S. companies (I.E., companies with market capitalizations under $2 billion). In selecting investments for the Fund, the Adviser chooses equity securities of small sized companies that it believes are undervalued in the market. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The Fund is also subject to the risk that small capitalization equity securities may underperform other segments of the equity market or the equity market as a whole. The smaller capitalization companies the Fund invests in may be more vulnerable to adverse business or economic events than larger, more established companies. In particular, these small companies may have limited product lines, markets and financial resources, and may depend upon a relatively small management group. Therefore, small cap stocks may be more volatile than those of larger companies. These securities may be traded over-the-counter or listed on an exchange. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. The Fund began operating as a registered mutual fund on January 31, 1997. Performance prior to January 31, 1997 is that of the Adviser's similarly managed collective investment fund, which began operations on August 31, 1994. The collective fund's performance has been adjusted to reflect the fees and expenses for Trust Shares of the Fund. As a collective fund, rather than a registered mutual fund, it was not subject to the same investment and tax restrictions. If it had been, the collective fund's performance would have been lower. Flex Shares were offered beginning on June 6, 1997. Performance between January 31, 1997 and June 6, 1997 is that of Trust Shares of the Fund, and has not been adjusted to reflect Flex Share expenses. If it had been, performance would have been lower. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S FLEX SHARES FROM YEAR TO YEAR. THE CHART DOES NOT REFLECT SALES CHARGES. IF SALES CHARGES HAD BEEN REFLECTED, RETURNS WOULD BE LESS THAN THOSE SHOWN.* [GRAPHIC OMITTED] 1995 30.99% 1996 34.25% 1997 31.79% 1998 -14.33% 1999 -3.67% 2000 16.68% 2001 19.87% BEST QUARTER WORST QUARTER 19.45% -22.14% (6/30/99) (9/30/98) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS 7.22%. PROSPECTUS 29 - -------------------------------------------------------------------------------- SMALL CAP VALUE EQUITY FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE RUSSELL 2000 VALUE INDEX. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only the Flex Shares. After-tax returns for other classes will vary. SINCE SINCE INCEPTION INCEPTION OF THE OF THE REGISTERED COLLECTIVE MUTUAL INVESTMENT FLEX SHARES 1 YEAR 5 YEARS FUND* FUND ** - -------------------------------------------------------------------------------- Fund Returns Before Taxes 17.87% 8.75% 8.37% 14.47% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions 17.75% N/A+ 7.30% N/A+ - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares 10.88% N/A+ 6.28% N/A+ - -------------------------------------------------------------------------------- Russell 2000 Value Index (reflects no deduction for fees, expenses or taxes) 14.02% 11.21% 11.06% 13.26% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE TRUST SHARES ON JANUARY 31, 1997, WHEN THE FUND BEGAN OPERATING AS A REGISTERED MUTUAL FUND. ** SINCE INCEPTION OF THE COLLECTIVE INVESTMENT FUND ON AUGUST 31, 1994. + IT IS NOT POSSIBLE TO REFLECT THE IMPACT OF TAXES ON THE COLLECTIVE INVESTMENT FUND'S PERFORMANCE. - -------------------------------------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? - -------------------------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Russell 2000 Value Index is a widely-recognized, capitalization weighted (companies with larger market capitalizations have more influence than those with smaller market capitalizations) index of companies in the Russell 2000 Index with lower growth rates and price-to-book ratios. 30 PROSPECTUS - -------------------------------------------------------------------------------- SMALL CAP VALUE EQUITY FUND - -------------------------------------------------------------------------------- [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - -------------------------------------------------------------------------------- FLEX SHARES Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None Maximum Deferred Sales Charge (Load) (as a percentage of net asset value)* 2.00% * THIS SALES CHARGE IS IMPOSED IF YOU SELL FLEX SHARES WITHIN ONE YEAR OF YOUR PURCHASE. SEE "SALES CHARGES." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- FLEX SHARES Investment Advisory Fees 1.15% Distribution and Service (12b-1) Fees 1.00% Other Expenses 0.37% ----- Total Annual Fund Operating Expenses 2.52%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE DISTRIBUTOR WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THIS FEE WAIVER REMAINS IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE DISTRIBUTOR MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: Small Cap Value Equity Fund - Flex Shares 2.31% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: IF YOU SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $455 $785 $1,340 $2,856 IF YOU DO NOT SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $255 $785 $1,340 $2,856 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. In addition, the Fund may enter into arrangements with broker-dealers who have agreed to pay certain Fund expenses inreturn for executing Fund transactions through that broker-dealer. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." PROSPECTUS 31 - -------------------------------------------------------------------------------- TAX SENSITIVE GROWTH STOCK FUND - -------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY
INVESTMENT GOAL Long-term capital growth with nominal dividend income - --------------------------------------------------------------------------------------------------- INVESTMENT FOCUS U.S. common stocks of growth companies - --------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Moderate - --------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify companies that have above-average growth potential and uses a low portfolio turnover strategy to reduce capital gains distributions - --------------------------------------------------------------------------------------------------- INVESTOR PROFILE Investors who want to increase the value of their investment while minimizing taxable capital gains distributions - ---------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Tax Sensitive Growth Stock Fund primarily invests in a diversified portfolio of common stocks of financially strong U.S. growth companies. Many of these companies have a history of stable or rising dividend payout policies. The Adviser attempts to minimize the impact of capital gains taxes on investment returns by using a low turnover rate (generally 50% or less) strategy, in conjunction with other tax management strategies. These strategies may lead to lower capital gains distributions and, therefore, lower capital gains taxes. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? Since it purchases common stocks, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the stock markets have moved in cycles, and the value of the Fund's common stocks may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of stocks issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The Fund is also subject to the risk that common stocks of U.S. growth companies may underperform other segments of the equity market or the equity market as a whole. The smaller capitalization companies the Fund invests in may be more vulnerable to adverse business or economic events than larger, more established companies. In particular, these small companies may have limited product lines, markets and financial resources, and may depend upon a relatively small management group. Therefore, small cap stocks may be more volatile than those of larger companies. These securities may be traded over-the-counter or listed on an exchange. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. The Fund began operating as a registered mutual fund on December 11, 1998. Performance prior to December 11, 1998 is that of the Adviser's similarly managed collective investment fund, which began operations on December 31, 1995. The collective fund's performance has been adjusted to reflect the fees and expenses for Trust Shares of the Fund. As a collective fund, rather than a registered mutual fund, it was not subject to the same investment and tax restrictions. If it had been, the collective fund's performance would have been lower. Flex Shares were offered beginning on December 15, 1998. Performance between December 11, 1998 and December 15, 1998 is that of Trust Shares of the Fund, and has not been adjusted to reflect Flex Share expenses. If it had been, performance would have been lower. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S FLEX SHARES FROM YEAR TO YEAR. THE CHART DOES NOT REFLECT SALES CHARGES. IF SALES CHARGES HAD BEEN REFLECTED, RETURNS WOULD BE LESS THAN THOSE SHOWN.* [GRAPHIC OMITTED] 1996 21.04% 1997 28.76% 1998 31.73% 1999 23.52% 2000 -13.06% 2001 -19.08% BEST QUARTER WORST QUARTER 27.74% -16.41% (12/31/98) (3/31/01) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS -11.94%. 32 PROSPECTUS - -------------------------------------------------------------------------------- TAX SENSITIVE GROWTH STOCK FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE S&P 500(R) INDEX. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only the Flex Shares. After-tax returns for other classes will vary. SINCE SINCE INCEPTION INCEPTION OF THE OF THE REGISTERED COLLECTIVE MUTUAL INVESTMENT FLEX SHARES 1 YEAR 5 YEARS FUND* FUND ** - -------------------------------------------------------------------------------- Fund Returns Before Taxes -20.70% 8.07% -2.28% 10.13% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions -20.70% N/A+ -2.28% N/A+ - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares -12.61% N/A+ -1.81% N/A+ - -------------------------------------------------------------------------------- S&P 500(R) Index (reflects no deduction for fees, expenses or taxes) -11.88% 10.70% 0.81% 12.65% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE TRUST SHARES ON DECEMBER 11, 1998, WHEN THE FUND BEGAN OPERATING AS A REGISTERED MUTUAL FUND. BENCHMARK RETURNS SINCE NOVEMBER 30, 1998 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). ** SINCE INCEPTION OF THE COLLECTIVE INVESTMENT FUND ON DECEMBER 31, 1995. + IT IS NOT POSSIBLE TO REFLECT THE IMPACT OF TAXES ON THE COLLECTIVE INVESTMENT FUND'S PERFORMANCE. - -------------------------------------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? - -------------------------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The S&P 500(R) Index is a widely-recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index of 500 stocks designed to mimic the overall U.S. equity market's industry weightings. PROSPECTUS 33 - -------------------------------------------------------------------------------- TAX SENSITIVE GROWTH STOCK FUND - -------------------------------------------------------------------------------- [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - -------------------------------------------------------------------------------- FLEX SHARES Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None Maximum Deferred Sales Charge (Load) (as a percentage of net asset value)* 2.00% * THIS SALES CHARGE IS IMPOSED IF YOU SELL FLEX SHARES WITHIN ONE YEAR OF YOUR PURCHASE. SEE "SALES CHARGES." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- FLEX SHARES Investment Advisory Fees 1.15% Distribution and Service (12b-1) Fees 1.00% Other Expenses 0.21% ----- Total Annual Fund Operating Expenses 2.36%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE DISTRIBUTOR WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THIS FEE WAIVER REMAINS IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE DISTRIBUTOR MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: Tax Sensitive Growth Stock Fund - Flex Shares 2.31% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: IF YOU SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $439 $736 $1,260 $2,696 IF YOU DO NOT SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $239 $736 $1,260 $2,696 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. In addition, the Fund may enter into arrangements with broker-dealers who have agreed to pay certain Fund expenses in return for executing Fund transactions through that broker-dealer. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." 34 PROSPECTUS - -------------------------------------------------------------------------------- VALUE INCOME STOCK FUND - -------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY
INVESTMENT GOALS PRIMARY Current income SECONDARY Capital appreciation - ---------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS U.S. common stocks - ---------------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Moderate - ---------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify high dividend-paying, undervalued stocks - ---------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Investors who are looking for current income and capital appreciation with less volatility than the average stock fund - ----------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Value Income Stock Fund invests at least 80% of its net assets in common stocks and other equity securities of companies. In selecting investments for the Fund, the Adviser primarily chooses U.S. companies that have a market capitalization of at least $5 billion and that have a history of paying regular dividends. The Adviser focuses on dividend-paying stocks that trade below their historical value. The Adviser's "bottom-up" approach to stock selection emphasizes individual stocks over economic trends. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. The Fund began operating as a registered mutual fund on February 12, 1993. Performance prior to February 12, 1993 is that of the Adviser's similarly managed collective investment fund, which began operations on October 31, 1989. The collective fund's performance has been adjusted to reflect the fees and expenses for Trust Shares of the Fund. As a collective fund, rather than a registered mutual fund, it was not subject to the same investment and tax restrictions. If it had been, the collective fund's performance would have been lower. Investor and Flex Shares were offered beginning on February 17, 1993 and June 1, 1995, respectively. Performance between February 12, 1993 and when each class was offered is that of Trust Shares of the Fund, and has not been adjusted to reflect Investor or Flex Share expenses, respectively. If it had been, performance would have been lower. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S INVESTOR SHARES FROM YEAR TO YEAR. THE PERIODS FROM FEBRUARY 1993 TO THE PRESENT REPRESENT THE PERFORMANCE OF THE FUND'S INVESTOR SHARES. THE CHART DOES NOT REFLECT SALES CHARGES. IF SALES CHARGES HAD BEEN REFLECTED, RETURNS WOULD BE LESS THAN THOSE SHOWN.* [GRAPHIC OMITTED] 1992 20.05% 1993 10.86% 1994 2.87% 1995 35.50% 1996 19.06% 1997 26.57% 1998 10.16% 1999 -3.31% 2000 10.38% 2001 -1.33% BEST QUARTER WORST QUARTER 15.29% -12.25% (6/30/99) (9/30/99) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS -4.47%. PROSPECTUS 35 - -------------------------------------------------------------------------------- VALUE INCOME STOCK FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE S&P 500(R)/ BARRA VALUE INDEX. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only the Investor Shares. After-tax returns for other classes will vary. SINCE INCEPTION AS A REGISTERED MUTUAL INVESTOR SHARES 1 YEAR 5 YEARS 10 YEARS FUND* - -------------------------------------------------------------------------------- Fund Returns Before Taxes -5.06% 7.16% 12.06% 11.70% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions -5.40% 3.84% N/A+ 7.90% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares -3.09% 4.42% N/A+ 7.88% - -------------------------------------------------------------------------------- S&P 500(R)/BARRA Value Index (reflects no deduction for fees, expenses or taxes) -11.71% 9.49% 13.10% 13.18% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE TRUST SHARES ON FEBRUARY 12, 1993, WHEN THE FUND BEGAN OPERATING AS A REGISTERED MUTUAL FUND. BENCHMARK RETURNS SINCE JANUARY 31, 1993 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). + IT IS NOT POSSIBLE TO REFLECT THE IMPACT OF TAXES ON THE COLLECTIVE INVESTMENT FUND'S PERFORMANCE. FLEX SHARES 1 YEAR 5 YEARS 10 YEARS - -------------------------------------------------------------------------------- Fund Returns Before Taxes -3.95% 7.22% 12.07% - -------------------------------------------------------------------------------- S&P 500(R)/BARRA Value Index (reflects no deduction for fees, expenses or taxes) -11.71% 9.49% 13.10% - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? - -------------------------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The S&P 500(R)/BARRA Value Index is a widely-recognized index of the stocks in the S&P 500(R) Index that have lower price-to-book ratios. The S&P 500(R) Index is a widely-recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index of 500 stocks designed to mimic the overall U.S. equity market's industry weightings. 36 PROSPECTUS - -------------------------------------------------------------------------------- VALUE INCOME STOCK FUND - -------------------------------------------------------------------------------- [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - -------------------------------------------------------------------------------- INVESTOR SHARES FLEX SHARES Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)* 3.75% None Maximum Deferred Sales Charge (Load) (as a percentage of net asset value)** None 2.00% * THIS SALES CHARGE VARIES DEPENDING UPON HOW MUCH YOU INVEST. YOU MAY BUY INVESTOR SHARES IN AMOUNTS OF $1,000,000 OR MORE AT NET ASSET VALUE (WITHOUT AN INITIAL SALES CHARGE), BUT IF YOU REDEEM THOSE SHARES WITHIN ONE YEAR OF YOUR PURCHASE, YOU WILL PAY A DEFERRED SALES CHARGE OF 1.00%. SEE "SALES CHARGES." ** THIS SALES CHARGE IS IMPOSED IF YOU SELL FLEX SHARES WITHIN ONE YEAR OF YOUR PURCHASE. SEE "SALES CHARGES." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- INVESTOR SHARES FLEX SHARES Investment Advisory Fees 0.80% 0.80% Distribution and Service (12b-1) Fees 0.33% 1.00% Other Expenses 0.18% 0.25% ----- ----- Total Annual Fund Operating Expenses 1.31%* 2.05%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE DISTRIBUTOR WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THIS FEE WAIVER REMAINS IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE DISTRIBUTOR MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: Value Income Stock Fund - Investor Shares 1.28% Value Income Stock Fund - Flex Shares 2.02% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: IF YOU SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS Investor Shares $503 $775 $1,066 $1,895 Flex Shares $408 $643 $1,103 $2,379 IF YOU DO NOT SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS Investor Shares $503 $775 $1,066 $1,895 Flex Shares $208 $643 $1,103 $2,379 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. In addition, the Fund may enter into arrangements with broker-dealers who have agreed to pay certain Fund expenses in return for executing Fund transactions through that broker-dealer. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." PROSPECTUS 37 - -------------------------------------------------------------------------------- VANTAGE FUND - -------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY
INVESTMENT GOALS PRIMARY Long-term capital appreciation SECONDARY Hedge against periodic declines in equity markets - -------------------------------------------------------------------------------------------------- INVESTMENT FOCUS U.S. common stocks - -------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY High - -------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify undervalued and overvalued stocks - -------------------------------------------------------------------------------------------------- INVESTOR PROFILE Aggressive investors with long-term investment goals who are willing to accept significant volatility for the possibility of higher returns - --------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Vantage Fund establishes long and short positions primarily in common stocks of U.S. companies. Using fundamental analysis, the Adviser buys stocks "long" that it believes will perform better than their peers, and sells stocks "short" that it believes will underperform their peers. A long position is established when the Adviser purchases a stock outright, and a short position is established when the Adviser sells a security that it has borrowed. Short positions may be used to partially hedge long positions or to garner returns from declines in securities prices. The Adviser may also seek to enhance returns by purchasing securities with borrowed money. This investment technique, known as "leveraging," increases investment risk, but also increases investment opportunity. The Fund may borrow up to 33.33% of its assets (including the amount borrowed). From time to time, the Adviser may take defensive positions in cash or short-term debt securities. There may be several times per year when the Fund places more than 25% of its assets in cash or short-term debt securities. The Fund would initiate such defensive positions when the Adviser is concerned that short-term market volatility is unusually high or while the Adviser is reviewing and assessing the financial consequences of significant economic events. At such times, the Fund may not achieve its investment objective. The Adviser seeks to identify long and short opportunities by utilizing both "bottom-up" and "top-down" fundamental analysis methodologies. "Bottom-up" analysis is employed to evaluate the competitive advantages and market sustainability of individual companies. "Top-down" analysis is used to assess the relative attractiveness of investment opportunities within the context of industry, macro-economic and financial market trends. Using top-down analysis, the Adviser frequently increases and decreases the amount of long and short positions allocated to various market sectors, such as technology, financial services, capital goods, energy, utilities, consumer cyclicals, transportation and consumer staples. This strategy of adjusting sector weightings, also known as "sector rotation," is employed when industry or macro-economic changes cause the investment outlook of a particular sector to improve or worsen relative to other sectors. If the Adviser believes, for example, that economic growth is accelerating rapidly, then it may increase the Fund's long positions in economically sensitive stocks, such as consumer cyclicals. To execute its sector rotation strategy efficiently, the Adviser may establish long or short positions in securities that represent indexes or other groups of stocks, such as exchange traded funds. For a complete list of investment techniques that may be employed by the fund, please see the Statement of Additional Information. The Fund invests primarily in companies with market capitalizations over $1 billion, but may invest a portion of its assets in smaller companies. Due to its investment strategy, the Fund will buy and sell securities frequently. This may result in higher transaction costs and additional capital gains tax liabilities. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? Since it establishes long and short positions in common stocks, the Fund is subject to the risk that stock prices will rise and fall over short or extended periods of time. Historically, the stock markets have moved in cycles, and the value of the Fund's common stocks may fluctuate drastically from day-to-day. Individual companies may report unexpected results or be affected considerably by industry and/or economic trends and developments. The prices of stocks issued by such companies may change substantially in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. Since the Fund engages in selling stocks short, the risk of price volatility may be greater in this fund 38 PROSPECTUS - -------------------------------------------------------------------------------- VANTAGE FUND - -------------------------------------------------------------------------------- than in long-only equity mutual funds. While the potential losses associated with long positions are typically limited to the original cost of the securities, the potential for losses associated with short positions is theoretically unlimited. The Fund may engage in hedging transactions to reduce the risks of its investments in equity securities. However, hedging will not necessarily protect the Fund fully against anticipated risks. Moreover, hedging transactions involve costs and risks of their own. As a result, hedging may not improve the Fund's performance either on an absolute or risk-adjusted basis. The practice of sector rotation will result in increased exposure to risks inherent in particular industries or sectors. Different industries and sectors may be more or less susceptible to changes in economic conditions, including, for example, interest rates, inflation rates, industry conditions, competition, technological developments, trade relationships, political and diplomatic events and trends. Concentrations in sectors that produce unfavorable performance may cause the Fund to perform more unfavorably than a broadly diversified fund that has less exposure to those industries or sectors. The small and medium capitalization companies in which the Fund invests may be more vulnerable to unexpected business or economic events than larger, more established companies. In particular, these small and medium companies may have limited product lines, markets and financial resources, and may depend upon a relatively small management group. Therefore, small and mid-cap stocks may be more volatile than those of larger companies. These securities may be traded over-the-counter or listed on an exchange and may or may not pay dividends. Investing in foreign countries poses additional risks since political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. In addition, investments in foreign countries are generally denominated in a foreign currency. As a result, changes in the value of those currencies compared to the U.S. dollar may affect (positively or negatively) the value of a Fund's investments. These currency movements may happen separately from and in response to events that do not otherwise affect the value of the security in the issuer's home country. These various risks will be even greater for investments in emerging market countries since political turmoil and rapid changes in economic conditions are more likely to occur in these countries. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The Vantage Fund Flex Shares commenced operations on March 11, 2002, and therefore does not have a performance history for a full calendar year. [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - -------------------------------------------------------------------------------- FLEX SHARES Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None Maximum Deferred Sales Charge (Load) (as a percentage of net asset value) 2.00%* * THIS CHARGE IS IMPOSED IF YOU SELL YOUR FLEX SHARES WITHIN ONE YEAR OF YOUR PURCHASE. SEE "SALES CHARGES." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- FLEX SHARES Investment Advisory fees 1.60% Distribution and Service (12b-1) Fees 1.00% Other Expenses 0.72% ----- Total Annual Fund Operating Expenses 3.32%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE CURRENT FISCAL YEAR ARE EXPECTED TO BE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER AND THE DISTRIBUTOR INTEND TO WAIVE A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THESE FEE WAIVERS REMAIN IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER AND THE DISTRIBUTOR MAY DISCONTINUE ALL OR PART OF THESE FEE WAIVERS AT ANY TIME. WITH THESE FEE WAIVERS, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES WOULD BE AS FOLLOWS: Vantage Fund - Flex Shares 2.73% PROSPECTUS 39 - -------------------------------------------------------------------------------- VANTAGE FUND - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: IF YOU SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS $535 $1,021 IF YOU DO NOT SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS $335 $1,021 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. In addition, the Fund may enter into arrangements with broker-dealers who have agreed to pay certain Fund expenses in return for executing Fund transactions through that broker-dealer. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." 40 PROSPECTUS - -------------------------------------------------------------------------------- MORE INFORMATION ABOUT RISK - -------------------------------------------------------------------------------- [LIFE PRESERVER GRAPHIC OMITTED] MORE INFORMATION ABOUT RISK EQUITY RISK ALL FUNDS Equity securities include public and privately issued equity securities, common and preferred stocks, warrants, rights to subscribe to common stock and convertible securities, as well as instruments that attempt to track the price movement of equity indices. Investments in equity securities and equity derivatives in general are subject to market risks that may cause their prices to fluctuate over time. The value of securities convertible into equity securities, such as warrants or convertible debt, is also affected by prevailing interest rates, the credit quality of the issuer and any call provision. Fluctuations in the value of equity securities in which a mutual fund invests will cause a fund's net asset value to fluctuate. An investment in a portfolio of equity securities may be more suitable for long-term investors who can bear the risk of these share price fluctuations. FIXED INCOME RISK BALANCED FUND The market value of fixed income investments changes in response to interest rate changes and other factors. During periods of falling interest rates, the values of outstanding fixed income securities generally rise. Moreover, while securities with longer maturities tend to produce higher yields, the prices of longer maturity securities are also subject to greater market fluctuations as a result of changes in interest rates. In addition to these fundamental risks, different types of fixed income securities may be subject to the following additional risk: CREDIT RISK BALANCED FUND The possibility that an issuer will be unable to make timely payments of either principal or interest. FOREIGN SECURITY RISKS GROWTH AND INCOME FUND INTERNATIONAL EQUITY FUND INTERNATIONAL EQUITY INDEX FUND Investments in securities of foreign companies or governments can be more volatile than investments in U.S. companies or governments. Diplomatic, political, or economic developments, including nationalization or appropriation, could affect investments in foreign countries. Foreign securities markets generally have less trading volume and less liquidity than U.S. markets. In addition, the value of securities denominated in foreign currencies, and of dividends from such securities, can change significantly when foreign currencies strengthen or weaken relative to the U.S. dollar. Foreign companies or governments generally are not subject to uniform accounting, auditing, and financial reporting standards comparable to those applicable to domestic U.S. companies or governments. Transaction costs are generally higher than those in the U.S. and expenses for custodial arrangements of foreign securities may be somewhat greater than typical expenses for custodial arrangements of similar U.S. securities. Some foreign governments levy withholding taxes against dividend and interest income. Although in some countries a portion of these taxes are recoverable, the non-recovered portion will reduce the income received from the securities comprising the portfolio. HEDGING RISKS VANTAGE FUND Hedging is a strategy designed to offset investment risks. The Vantage Fund's hedging activities are primarily short sales, but may also include, among other things, forwards, options and futures. There are risks associated with hedging activities, including: o 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 and currency exchange rates. o There may be an imperfect or no correlation between the changes in market value of the securities held by a Fund or the currencies in which those securities are denominated and the prices of forward contracts, futures and options on futures. PROSPECTUS 41 - -------------------------------------------------------------------------------- MORE INFORMATION ABOUT FUND INVESTMENTS - -------------------------------------------------------------------------------- o There may not be a liquid secondary market for a futures contract or option. o Trading restrictions or limitations may be imposed by an exchange, and government regulations may restrict trading in currencies, futures contracts and options. LEVERAGING RISK VANTAGE FUND Leveraging activities include, among other things, borrowing and the use of short sales, options and futures. There are risks associated with leveraging activities, including: o A fund experiencing losses over certain ranges in the market that exceed losses experienced by a non-leveraged fund. o There may be an imperfect or no correlation between the changes in market value of the securities held by a fund and the prices of futures and options on futures. o Although the Fund will only purchase exchange-traded futures and options, due to market conditions there may not be a liquid secondary market for a futures contract or option. As a result, the Fund may be unable to close out their futures or options contracts at a time which is advantageous. o Trading restrictions or limitations may be imposed by an exchange, and government regulations may restrict trading in futures contracts and options. In addition, the following leveraged instruments are subject to certain specific risks: DERIVATIVES RISK VANTAGE FUND The Fund may use derivatives to attempt to achieve its investment objective, while at the same time maintaining liquidity. To collateralize (or cover) these derivatives transactions, the Fund holds cash or U.S. government securities. SHORT SALES VANTAGE FUND Short sales are transactions in which a Fund sells a security it does not own. To complete a short sale, a Fund must borrow the security to deliver to the buyer. The Fund is then obligated to replace the borrowed security by purchasing the security at the market price at the time of replacement. This price may be more or less than the price at which the security was sold by the Fund. Potential losses associated with a short sale are theoretically unlimited, since prices of the stocks being sold short have unlimited appreciation potential. TRACKING ERROR RISK INTERNATIONAL EQUITY INDEX FUND Factors such as Fund expenses, imperfect correlation between the Fund's investments and those of its benchmarks, rounding of share prices, changes to the benchmark, regulatory policies, and leverage, may affect its ability to achieve perfect correlation. The magnitude of any tracking error may be affected by a higher portfolio turnover rate. Because an index is just a composite of the prices of the securities it represents rather than an actual portfolio of those securities, an index will have no expenses. As a result, the Fund, which will have expenses such as taxes, custody, management fees and other operational costs, and brokerage, may not achieve its investment objective of accurately correlating to an index. [MOUNTAIN GRAPHIC OMITTED] MORE INFORMATION ABOUT FUND INVESTMENTS This prospectus describes the Funds' primary strategies, and the Funds will normally invest in the types of securities described in this prospectus. However, in addition to the investments and strategies described in this prospectus, each Fund also may invest in other securities, use other strategies and engage in other investment practices. These investments and strategies, as well as those described in this prospectus, are described in detail in the Statement of Additional Information (SAI). The investments and strategies described in this prospectus are those that we use under normal conditions. During unusual economic or market conditions, or for temporary defensive or liquidity purposes, each Fund may invest up to 100% of its assets in cash, money market instruments, repurchase agreements and short-term obligations. The Small Cap Value Equity Fund also may invest in investment grade fixed income securities and mid- to large-cap common stocks that would not ordinarily be consistent with the 42 PROSPECTUS - -------------------------------------------------------------------------------- INVESTMENT ADVISER - -------------------------------------------------------------------------------- Fund's objective. A Fund will do so only if the Adviser believes that the risk of loss outweighs the opportunity for capital gains or higher income. Of course, a Fund cannot guarantee that it will achieve its investment goal. [MAGNIFIER GRAPHIC OMITTED] INVESTMENT ADVISER The investment adviser (Adviser) makes investment decisions for the Funds and continuously reviews, supervises and administers each Fund's respective investment program. The Board of Trustees supervises the Adviser and establishes policies that the Adviser must follow in its management activities. Trusco Capital Management, Inc. (Trusco or the Adviser), 50 Hurt Plaza, Suite 1400, Atlanta, Georgia 30303, serves as the Adviser to the Funds. As of June 30, 2002, Trusco had $45.5 billion in assets under management. For the fiscal period ended May 31, 2002, the Adviser received advisory fees of: BALANCED FUND 0.92% CAPITAL APPRECIATION FUND 1.13% GROWTH AND INCOME FUND 0.90% INFORMATION AND TECHNOLOGY FUND 1.10% INTERNATIONAL EQUITY FUND 1.25% INTERNATIONAL EQUITY INDEX FUND 0.82% MID-CAP EQUITY FUND 1.13% MID CAP VALUE EQUITY FUND 1.15% SMALL CAP GROWTH STOCK FUND 1.15% SMALL CAP VALUE EQUITY FUND 1.15% TAX SENSITIVE GROWTH STOCK FUND 1.15% VALUE INCOME STOCK FUND 0.80% VANTAGE FUND 1.50% The Adviser may use its affiliates as brokers for Fund transactions. Prior to January 1, 2000, STI Capital Management, N.A. (STI), a subsidiary of SunTrust Banks, Inc. served as the investment adviser to the Balanced Fund, Capital Appreciation Fund, International Equity Fund, Mid-Cap Equity Fund, Small Cap Value Equity Fund, and Value Income Stock Fund. On January 1, 2000, SunTrust Bank (formerly SunTrust Bank, Atlanta), a subsidiary of SunTrust Banks, Inc. succeeded STI as the investment adviser to those Funds. On July 1, 2000, SunTrust Banks, Inc. reorganized its money management units, including those of SunTrust Bank, into Trusco Capital Management, Inc. As a result, Trusco now serves as the investment adviser to each STI Classic Fund. PORTFOLIO MANAGERS The Balanced Fund is co-managed by Mr. Robert J. Rhodes, CFA, Mr. Earl L. Denney, CFA, and Mr. Dave E. West, CFA. Mr. Rhodes manages the equity portion of the Fund. Mr. Denney and Mr. West co-manage the fixed-income portion of the Fund. Mr. Rhodes has also managed the Capital Appreciation Fund since June 2000. Mr. Rhodes is an Executive Vice President and head of the Equity funds group at Trusco. Mr. Rhodes has been employed by Trusco since 1973 and was Director of Research at Trusco from 1980 to 2000. Mr. Rhodes has more than 29 years of investment experience. In January 2000, Mr. Denney was named Managing Director of SunTrust Bank and is now a Managing Director of Trusco after serving as Managing Director of STI since 1983. Mr. Denney has more than 23 years of investment experience. In January 2000, Mr. West was named Managing Director of SunTrust Bank, and is now a Managing Director of Trusco after working at STI since 1985. Mr. West has more than 16 years of investment experience. Mr. Alan S. Kelley serves as the Lead Portfolio Manager of the Information and Technology Fund. He has served as Vice President of Trusco and has managed the Fund since it began operating in September 1999. He has also managed the Vantage Fund since it began operating in November 2001. Prior to joining Trusco, Mr. Kelley served as a Portfolio Manager with SunTrust Bank, Atlanta from 1995 to 1999. He has more than 8 years of investment experience. Mr. Jeffrey E. Markunas, CFA, has served as Lead Portfolio Manager of the Growth and Income Fund since it began operating in September 1992. From 1992 until July 2000, he served as Senior Vice President and Director of Equity Management for Crestar Asset Management Company. Additionally, he was named Senior Vice President of Trusco in January 1999, and Managing Director in July 2000. Mr. Markunas has more than 19 years of investment experience. The International Equity Index Fund is managed by Mr. Chad Deakins, CFA. Mr. Deakins serves as a Vice President of Trusco and has worked there since 1996. He has managed the International Equity Index Fund since February 1999. Mr. Deakins has also managed the International Equity Fund since May 2000. Prior to joining Trusco, Mr. Deakins worked at SunTrust Bank. He has more than 8 years of investment experience. PROSPECTUS 43 - -------------------------------------------------------------------------------- PURCHASING, SELLING AND EXCHANGING FUND SHARES - -------------------------------------------------------------------------------- Mr. John Hamlin has served as a Vice President of Trusco since July 2000, after serving as a Portfolio Manager of STI since March 1999. He has managed the Mid-Cap Equity Fund since April 1999. Prior to joining STI, Mr. Hamlin served as Portfolio Manager at Phoenix Investment Counsel, Inc. from 1992 to 1999. He has more 13 years of investment experience. The Mid Cap Value Equity Fund has been team managed since November 2001 by Mr. Mills Riddick, CFA, Mr. Dan Lewis, MBA, Mr. Brett Barner, CFA and Mr. Don Wordell, MBA. Mr. Riddick has served as a Managing Director of Trusco since July 2000, after serving as Managing Director of STI Capital Management, N.A. (STI), a subsidiary of SunTrust Banks, Inc. since 1994. Mr. Riddick has more than 20 years of investment experience. Mr. Lewis has served as a Portfolio Manager of Trusco since July 2000, after serving as a Portfolio Manager for STI since 1993. He has more than 10 years of investment experience. Mr. Barner has served as Vice president of Trusco since July 2000, after serving as a Managing Director of STI since 1994. Mr. Barner has more than 18 years of investment experience. Mr. Wordell has served as a Portfolio Manager since joining Trusco in 1996. He is a member of the Association for Investment Management & Research (AIMR) and the Orlando Society of Financial Analysts and has more than 6 years of investment experience. Mr. Mark D. Garfinkel, CFA, has served as a Portfolio Manager of Trusco since 1994. He has managed the Small Cap Growth Stock Fund since it began operating in October 1998. He has more than 15 years of investment experience. Mr. Brett Barner, CFA, has served as a Vice President of Trusco since July 2000, after serving as a Managing Director of STI since 1994. He has managed the Small Cap Value Equity Fund since it began operating in January 1997. He has more than 18 years of investment experience. Mr. Stuart F. Van Arsdale, CFA, has served as a Managing Director of Trusco since May 2002 and has managed the Tax Sensitive Growth Stock Fund since October 2002. Prior to joining Trusco, Mr. Van Arsdale served as Director of Growth Investments for DePrince, Race and Zollo from October 1998 to April 2002 and Senior Vice President and Managing Director of STI Capital Management from January 1980 to September 1998. He has more than 22 years of investment experience. The Value Income Stock Fund is managed by Mr. Mills Riddick, CFA. Mr. Riddick has served as a Managing Director of Trusco since July 2000, after serving as a Managing Director of STI since 1994. He has managed the Value Income Stock Fund since April 1995. Mr. Riddick has more than 20 years of investment experience. [HANDSHAKE GRAPHIC OMITTED] PURCHASING, SELLING AND EXCHANGING FUND SHARES This section tells you how to purchase, sell (sometimes called "redeem") and exchange Investor Shares and Flex Shares of the Funds. HOW TO PURCHASE FUND SHARES A SunTrust Securities Investment Consultant can assist you in opening a brokerage account which will be used for all transactions regarding the purchase of STI Classic Funds. Once your securities account is established, you may buy shares of the Funds by: o Mail* o Telephone (1-800-874-4770) o Wire o Automated Clearing House (ACH) * THE FUNDS DO NOT ACCEPT CASH AS PAYMENT FOR FUND SHARES. You may also buy shares through Investment Representatives of certain correspondent banks of SunTrust Banks, Inc. (SunTrust) and other financial institutions that are authorized to place transactions in Fund shares for their customers, and potentially through the Investor's Advantage Account (an asset allocation account available through SunTrust). Please contact your financial institution directly and follow its procedures for Fund share transactions. Your institution may charge a fee for its services, in addition to the fees charged by a Fund. You will also generally have to address your correspondence or questions regarding a Fund to your institution. A Fund may reject any purchase order if it is determined that accepting the order would not be in the best interests of STI Classic Funds or its shareholders. WHEN CAN YOU PURCHASE SHARES? You may purchase shares on any day that the New York Stock Exchange is open for business (a Business Day). 44 PROSPECTUS - -------------------------------------------------------------------------------- PURCHASING, SELLING AND EXCHANGING FUND SHARES - -------------------------------------------------------------------------------- The price per share (the offering price) will be the net asset value per share (NAV) next determined after the Funds receive your purchase order. Each Fund calculates its NAV once each Business Day at the regularly-scheduled close of normal trading on the New York Stock Exchange (normally, 4:00 p.m., Eastern Time). So, for you to receive the current Business Day's NAV, generally a Fund must receive your purchase order in proper form before 4:00 p.m., Eastern Time. The Fund will not accept orders that request a particular day or price for the transaction or any other special conditions. FOR CUSTOMERS OF SUNTRUST, ITS AFFILIATES, AND OTHER FINANCIAL INSTITUTIONS YOU MAY HAVE TO TRANSMIT YOUR PURCHASE, SALE AND EXCHANGE REQUESTS TO SUNTRUST OR OTHER FINANCIAL INSTITUTIONS AT AN EARLIER TIME FOR YOUR TRANSACTION TO BECOME EFFECTIVE THAT DAY. THIS ALLOWS THE FINANCIAL INSTITUTION TIME TO PROCESS YOUR REQUEST AND TRANSMIT IT TO THE ADMINISTRATOR OR TRANSFER AGENT IN TIME TO MEET THE ABOVE STATED FUND CUT-OFF TIMES. FOR MORE INFORMATION ABOUT HOW TO PURCHASE, SELL OR EXCHANGE FUND SHARES, INCLUDING SPECIFIC SUNTRUST OR OTHER FINANCIAL INSTITUTIONS' INTERNAL ORDER ENTRY CUT-OFF TIMES, PLEASE CONTACT YOUR FINANCIAL INSTITUTION DIRECTLY. HOW THE FUNDS CALCULATE NAV In calculating NAV, each Fund generally values its investment portfolio at market price. If market prices are unavailable or a Fund thinks that the market price is unreliable, fair value prices may be determined in good faith using methods approved by the Board of Trustees. Some Funds hold securities that are listed on foreign exchanges. These securities may trade on weekends or other days when the Funds do not calculate NAV. As a result, the market value of these Funds' investments may change on days when you cannot purchase or sell Fund shares. NET ASSET VALUE NAV for one Fund share is the value of that share's portion of the net assets of the Fund. MINIMUM PURCHASES To purchase shares for the first time, you must invest in any Fund (with the exception of the Vantage Fund) at least: CLASS DOLLAR AMOUNT - -------------------------------------------------------------------------------- Investor Shares $2,000 - -------------------------------------------------------------------------------- Flex Shares (with the $5,000 ($2,000 for exception of the IRA accounts) Vantage Fund) - -------------------------------------------------------------------------------- To purchase shares of the Vantage Fund for the first time, you must invest at least: CLASS DOLLAR AMOUNT - -------------------------------------------------------------------------------- Flex Shares $25,000 ($2,000 for retirement plans) - -------------------------------------------------------------------------------- Your subsequent investments of shares of any Fund must be made in amounts of at least $1,000 or, if you pay by a statement coupon, $100. The Funds may accept investments of smaller amounts for either class of shares at its discretion. FUNDLINK FUNDLINK is a telephone activated service that allows you to transfer money quickly and easily between the STI Classic Funds and your SunTrust bank account(s). To use FUNDLINK, you must first contact your SunTrust Bank Investment Consultant and complete the FUNDLINK application and authorization agreements. Once you have signed up to use FUNDLINK, simply call SunTrust at 1-800-874-4770 to complete all of your purchase and redemption transactions. SYSTEMATIC INVESTMENT PLAN If you have a checking or savings account with a SunTrust affiliate bank, you may purchase shares of either class automatically through regular deductions from your account. With a $500 minimum initial investment, you may begin regularly-scheduled investments from $50 to $100,000 once or twice a month. If you are buying Flex Shares, you should plan on investing at least $5,000 per Fund ($25,000 for the Vantage Fund) during the first two years. The Distributor may close your account if you do not meet this minimum investment requirement at the end of two years. PROSPECTUS 45 - -------------------------------------------------------------------------------- PURCHASING, SELLING AND EXCHANGING FUND SHARES - -------------------------------------------------------------------------------- [dollar bill graphic omitted] SALES CHARGES FRONT-END SALES CHARGES -- INVESTOR SHARES The offering price of Investor Shares is the NAV next calculated after a Fund receives your request, plus the front-end sales charge. The amount of any front-end sales charge included in your offering price varies, depending on the amount of your investment: YOUR SALES CHARGE YOUR SALES CHARGE AS A PERCENTAGE OF AS A PERCENTAGE OF IF YOUR INVESTMENT IS: OFFERING PRICE* YOUR NET INVESTMENT - -------------------------------------------------------------------------------- LESS THAN $100,000 3.75% 3.90% - -------------------------------------------------------------------------------- $100,000 BUT LESS THAN $250,000 3.25% 3.36% - -------------------------------------------------------------------------------- $250,000 BUT LESS THAN $1,000,000 2.50% 2.56% - -------------------------------------------------------------------------------- $1,000,000 AND OVER NONE NONE * THE DISTRIBUTOR MAY PAY A PERCENTAGE OF THE OFFERING PRICE AS A COMMISSION TO BROKER-DEALERS. INVESTMENTS OF $1,000,000 OR MORE. You do not pay an initial sales charge when you buy $1,000,000 or more of Investor Shares (excluding Investor Shares of STI Classic Money Market Funds) in either a single investment or through our rights of accumulation, letter of intent, or combined purchase/quantity discount programs. However, you will pay a deferred sales charge of 1.00% if you redeem any of these Investor Shares within one year of purchase. The deferred sales charge is calculated based on the lessor of (1) the NAV of the shares at the time of purchase or (2) NAV of the shares next calculated after the Fund receives your sales request. The deferred sales charge does not apply to shares you purchase through the reinvestment of dividends or capital gains distributions. WAIVER OF FRONT-END SALES CHARGE -- INVESTOR SHARES The front-end sales charge will be waived on Investor Shares purchased: o through reinvestment of dividends and distributions; o through a SunTrust Securities, Inc. asset allocation account; o by persons repurchasing shares they redeemed within the last 180 days (see "Repurchase of Investor Shares"); o by employees, and members of their immediate family (spouse, mother, father, mother-in-law, father-in-law, and children (including step-children) under the age of 21 years), of SunTrust and its affiliates; o by persons reinvesting distributions from qualified employee benefit retirement plans and rollovers from individual retirement accounts (IRAs) previously with the Trust department of a bank affiliated with SunTrust; o by persons investing an amount less than or equal to the value of an account distribution when an account for which a bank affiliated with SunTrust acted in a fiduciary, administrative, custodial or investment advisory capacity is closed; or o through dealers, retirement plans, asset allocation programs and financial institutions that, under their dealer agreements with the Distributor or otherwise, do not receive any portion of the front-end sales charge. REPURCHASE OF INVESTOR SHARES You may repurchase any amount of Investor Shares of any Fund at NAV (without the normal front-end sales charge), up to the limit of the value of any amount of Investor Shares (other than those which were purchased with reinvested dividends and distributions) that you redeemed within the past 180 days. In effect, this allows you to reacquire shares that you may have had to redeem, without re-paying the front-end sales charge. Such repurchases may be subject to special tax rules. See the section on Taxes in the SAI for more information. To exercise this privilege, the Funds must receive your purchase order within 180 days of your redemption. IN ADDITION, YOU MUST NOTIFY THE FUND WHEN YOU SEND IN YOUR PURCHASE ORDER THAT YOU ARE REPURCHASING SHARES. REDUCED SALES CHARGES -- INVESTOR SHARES RIGHTS OF ACCUMULATION. In calculating the appropriate sales charge rate, this right allows you to add the value of the Investor Shares you already own to the amount that you are currently purchasing. The Funds will combine the value of your current purchases with the current value of any Investor Shares you purchased previously for (i) your account, (ii) your spouse's account, (iii) a joint account with your spouse, or (iv) your minor children's trust or custodial accounts. A fiduciary purchasing shares for the same fiduciary account, trust or estate may also use this right of accumulation. The Funds will only consider the value of Investor Shares purchased previously that were sold subject to a sales charge. To be entitled to a reduced sales charge based on shares already owned, you must 46 PROSPECTUS - -------------------------------------------------------------------------------- PURCHASING, SELLING AND EXCHANGING FUND SHARES - -------------------------------------------------------------------------------- ask us for the reduction at the time of purchase. You must provide the Funds with your account number(s) and, if applicable, the account numbers for your spouse and/or children (and provide the children's ages). The Fund may amend or terminate this right of accumulation at any time. LETTER OF INTENT. You may purchase Investor Shares at the sales charge rate applicable to the total amount of the purchases you intend to make over a 13-month period. In other words, a Letter of Intent allows you to purchase Investor Shares of a Fund over a 13-month period and receive the same sales charge as if you had purchased all the shares at the same time. The Funds will only consider the value of Investor Shares sold subject to a sales charge. As a result, shares of the Investor Shares purchased with dividends or distributions will not be included in the calculation. To be entitled to a reduced sales charge based on shares you intend to purchase over the 13-month period, you must send the Funds a Letter of Intent. In calculating the total amount of purchases you may include in your letter purchases made up to 90 days before the date of the Letter. The 13-month period begins on the date of the first purchase, including those purchases made in the 90-day period before the date of the Letter. Please note that the purchase price of these prior purchases will not be adjusted. You are not legally bound by the terms of your Letter of Intent to purchase the amount of your shares stated in the Letter. The Letter does, however, authorize the Fund to hold in escrow 3.75% of the total amount you intend to purchase. If you do not complete the total intended purchase at the end of the 13-month period, the Fund's transfer agent will redeem the necessary portion of the escrowed shares to make up the difference between the reduced rate sales charge (based on the amount you intended to purchase) and the sales charge that would normally apply (based on the actual amount you purchased). COMBINED PURCHASE/QUANTITY DISCOUNT PRIVILEGE. When calculating the appropriate sales charge rate, the Fund will combine same day purchases of Investor Shares (that are subject to a sales charge) made by you, your spouse and your minor children (under age 21). This combination also applies to Investor Shares you purchase with a Letter of Intent. CONTINGENT DEFERRED SALES CHARGES (CDSC) -- FLEX SHARES You do not pay a sales charge when you purchase Flex Shares. The offering price of Flex Shares is simply the next calculated NAV. But if you sell your shares within the first year after your purchase, you will pay a CDSC equal to 2.00% for either (1) the NAV of the shares at the time of purchase, or (2) NAV of the shares next calculated after the Fund receives your sale request, whichever is less. The sales charge does not apply to shares you purchase through the reinvestment of dividends or capital gains distributions. So, you never pay a deferred sales charge on any increase in your investment above the initial offering price. This sales charge does not apply to the exchange of Flex Shares of one Fund for Flex Shares of another Fund. IF YOU SELL YOUR FLEX SHARES The CDSC will be waived if you sell your Flex Shares for the following reasons: o to make certain withdrawals from a retirement plan (not including IRAs); o because of death or disability; o for certain payments under the Systematic Withdrawal Plan -- up to 12% annually of the value of your shares held at the time of the withdrawal (the Systematic Withdrawal Plan is discussed later in more detail); or o for exchanges from Trust or Investor Shares to Flex Shares where the total accumulated period from the original date of purchase is at least one year. OFFERING PRICE OF FUND SHARES The offering price of Investor Shares is the NAV next calculated after the transfer agent receives your request, plus the front-end sales load. The offering price of Flex Shares is simply the next calculated NAV. HOW TO SELL YOUR FUND SHARES If you own your shares through a brokerage account with SunTrust Securities, you may sell (sometimes called "redeem") your shares on any Business Day by contacting SunTrust Securities directly by mail or telephone at 1-800-874-4770. The minimum amount for telephone redemptions is $1,000. PROSPECTUS 47 - -------------------------------------------------------------------------------- PURCHASING, SELLING AND EXCHANGING FUND SHARES - -------------------------------------------------------------------------------- If you own your shares through an account with a broker or other institution, contact that broker or institution to sell your shares. Your broker or institution may charge a fee for its services, in addition to the fees charged by the Fund. If you would like to sell $25,000 or more of your shares, please notify the Fund in writing and include a signature guarantee by a bank or other financial institution (a notarized signature is not sufficient). The sale price of each share will be the next NAV determined after the Fund receives your request less, in the case of Flex Shares, any applicable deferred sales charge. SYSTEMATIC WITHDRAWAL PLAN If you have at least $10,000 ($50,000 for the Vantage Fund) in your account, you may use the systematic withdrawal plan. Under the plan you may arrange monthly, quarterly, semi-annual or annual automatic withdrawals of at least $50 from any Fund. The proceeds of each withdrawal will be mailed to you by check or, if you have a checking or savings account with a SunTrust affiliates bank, electronically transferred to your account. RECEIVING YOUR MONEY Normally, the Funds will send your sale proceeds within five Business Days after the Funds receive your request. Your proceeds can be wired to your bank account (subject to a $7.00 fee) or sent to you by check. IF YOU RECENTLY PURCHASED YOUR SHARES BY CHECK OR THROUGH ACH, REDEMPTION PROCEEDS MAY NOT BE AVAILABLE UNTIL YOUR CHECK HAS CLEARED (WHICH MAY TAKE UP TO 15 DAYS FROM YOUR DATE OF PURCHASE). REDEMPTIONS IN KIND The Funds generally pay sale (redemption) proceeds in cash. However, under unusual conditions that make the payment of cash unwise (and for the protection of the Funds' remaining shareholders) the Funds might pay all or part of your redemption proceeds in liquid securities with a market value equal to the redemption price (redemption in kind). It is highly unlikely that your shares would ever be redeemed in kind, but if they were you would probably have to pay transaction costs to sell the securities distributed to you, as well as taxes on any capital gains from the sale as with any redemption. INVOLUNTARY SALES OF YOUR SHARES If your account balance drops below the required minimum you may be required to sell your shares. The account balance minimums (with the exception of the Vantage Fund) are: CLASS DOLLAR AMOUNT - -------------------------------------------------------------------------------- Investor Shares $2,000 - -------------------------------------------------------------------------------- Flex Shares $5,000 ($2,000 for IRA accounts) - -------------------------------------------------------------------------------- The account balance minimum for the Vantage Fund is: CLASS DOLLAR AMOUNT - -------------------------------------------------------------------------------- Flex Shares $50,000 - -------------------------------------------------------------------------------- But, the Funds will always give you at least 60 days written notice to give you time to add to your account and avoid the sale of your shares. SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES A Fund may suspend your right to sell your shares if the New York Stock Exchange restricts trading, the SEC declares an emergency or for other reasons. More information about this is in the SAI. HOW TO EXCHANGE YOUR SHARES You may exchange your shares on any Business Day by contacting SunTrust Securities or your financial institution by mail or telephone. Exchange requests must be for an amount of at least $1,000. Investor Class shares acquired via purchase or exchange of either the International Equity Fund or the International Equity Index Fund may not be exchanged for shares of any other STI Classic Fund within thirty (30) days of purchase or exchange into the Fund. Of course, you may redeem your shares of any STI Classic Fund at any time. The exchange privilege is not intended as a vehicle for short-term trading. Excessive exchange activity may interfere with Fund management and may have an adverse effect on all shareholders. In order to limit excessive exchange activity and in other circumstances where it is in the best interests of a Fund, all Funds reserve the right to revise or terminate the exchange privilege, limit the amount or number of exchanges or reject any exchange or restrict or refuse purchases if (1) 48 PROSPECTUS - -------------------------------------------------------------------------------- DIVIDENDS, DISTRIBUTIONS AND TAXES - -------------------------------------------------------------------------------- a Fund or its manager(s) believes the Fund would be harmed or unable to invest effectively, or (2) a Fund receives or anticipates orders that may dramatically affect the Fund as outlined under "Market Timers" as defined later in this prospectus. IF YOU RECENTLY PURCHASED SHARES BY CHECK, OR THROUGH ACH, YOU MAY NOT BE ABLE TO EXCHANGE YOUR SHARES UNTIL YOUR CHECK HAS CLEARED (WHICH MAY TAKE UP TO 15 DAYS FROM YOUR DATE OF PURCHASE). This exchange privilege may be changed or canceled at any time upon 60 days' notice. EXCHANGES When you exchange shares, you are really selling your shares and buying other Fund shares. So, your sale price and purchase price will be based on the NAV next calculated after the Fund receives your exchange requests. INVESTOR SHARES You may exchange Investor Shares of any Fund for Investor Shares of any other Fund. If you exchange shares that you purchased without a sales charge or with a lower sales charge into a Fund with a sales charge or with a higher sales charge, the exchange is subject to an incremental sales charge (e.g., the difference between the lower and higher applicable sales charges). If you exchange shares into a Fund with the same, lower or no sales charge there is no incremental sales charge for the exchange. FLEX SHARES You may exchange Flex Shares of any Fund for Flex Shares of any other Fund. For purposes of computing the CDSC applicable to Flex Shares, the length of time you have owned your shares will be measured from the original date of purchase and will not be affected by any exchange. However, if you exchange your Flex Shares of a Fixed Income or Equity Fund into any Investor Shares of a Money Market Fund, the time your shares are held in such Money Market Fund will not count towards the CDSC one-year holding period. TELEPHONE TRANSACTIONS Purchasing, selling and exchanging Fund shares over the telephone is extremely convenient, but not without risk. Although the Fund has certain safeguards and procedures to confirm the identity of callers and the authenticity of instructions, the Fund is not responsible for any losses or costs incurred by following telephone instructions the Fund reasonably believes to be genuine. If you or your financial institution transact with the Fund over the telephone, you will generally bear the risk of any loss. The Funds reserve the right to modify, suspend or terminate telephone transaction privileges at any time. MARKET TIMERS Short-term or excessive trading into and out of a Fund may harm the Fund's performance by disrupting the Adviser's investment strategy and by increasing Fund expenses. Accordingly, any Fund may restrict or refuse purchase or exchange requests by Market Timers or investors who seem to follow a short-term trading pattern that may adversely affect a Fund. You may be classified as a Market Timer if you: o Request a substantial exchange out of any Fund within two weeks of a prior substantive exchange request out of any Fund; or o Request a substantial exchange out of any Fund more than twice during any 90 day continuous period. Anyone considered to be a Market Timer by the Fund, its manager(s) or a shareholder servicing agent will be notified in writing of their designation as a Market Timer. Market Timers who redeem or exchange their shares out of any Fund within 90 days of purchase may be charged a redemption fee of up to 2% of redemption proceeds, which will automatically be paid to the Fund. This redemption fee does not apply to 401(k)/403(b) type participant accounts, Systematic Withdrawal Plan accounts, SunTrust Securities asset allocation accounts or accounts held on an omnibus arrangement. Dealers who purchase Flex or Investor shares on behalf of Market Timers, including Market Timers with shares held through an omnibus account, may not be eligible to receive any dealer commissions and also may not be eligible to receive 12b-1 fees from the original date of purchase. Further, all Funds reserve the right to refuse any purchase or exchange requests by any investor at any time. DISTRIBUTION OF FUND SHARES Each Fund has adopted a distribution plan that allows the Fund to pay distribution and service fees for the sale and distribution of its shares, and for services provided to shareholders. Because these fees are paid out of a Fund's assets continuously, over time these fees will increase the cost of your investment and may cost you more than paying other types of sales charges. PROSPECTUS 49 - -------------------------------------------------------------------------------- DIVIDENDS AND DISTRIBUTIONS - -------------------------------------------------------------------------------- Distribution fees, as a percentage of average daily net assets are as follows: FOR INVESTOR SHARES - -------------------------------------------------------------------------------- BALANCED FUND 0.28% CAPITAL APPRECIATION FUND 0.68% GROWTH AND INCOME FUND 0.25% INTERNATIONAL EQUITY FUND 0.33% INTERNATIONAL EQUITY INDEX FUND 0.38% MID-CAP EQUITY FUND 0.43% SMALL CAP GROWTH STOCK FUND 0.50% VALUE INCOME STOCK FUND 0.33% For Flex Shares the maximum distribution fee is 1.00% of the average daily net assets of each Fund. The Distributor may, from time to time in its sole discretion, institute one or more promotional incentive programs for dealers, which will be paid for by the Distributor from any sales charge it receives or from any other source available to it. Under any such program, the Distributor may provide cash or non-cash compensation as recognition for past sales or encouragement for future sales that may include the following: merchandise, travel expenses, prizes, meals, lodgings and gifts that do not exceed $100 per year, per individual. DIVIDENDS AND DISTRIBUTIONS Each Fund distributes its net investment income as follows: QUARTERLY - -------------------------------------------------------------------------------- BALANCED FUND CAPITAL APPRECIATION FUND GROWTH AND INCOME FUND INFORMATION AND TECHNOLOGY FUND MID-CAP EQUITY FUND MID CAP VALUE EQUITY FUND SMALL CAP GROWTH STOCK FUND SMALL CAP VALUE EQUITY FUND TAX SENSITIVE GROWTH STOCK FUND VALUE INCOME STOCK FUND VANTAGE FUND ANNUALLY - -------------------------------------------------------------------------------- INTERNATIONAL EQUITY FUND INTERNATIONAL EQUITY INDEX FUND Each Fund makes distributions of its net realized capital gains, if any, at least annually. If you own Fund shares on a Fund's record date, you will be entitled to receive the distribution. You will receive dividends and distributions in the form of additional Fund shares unless you elect to receive payment in cash. To elect cash payment, you must notify the Fund in writing prior to the date of the distribution. Your election will be effective for dividends and distributions paid after the Fund receives your written notice. To cancel your election, simply send the Fund written notice. TAXES PLEASE CONSULT YOUR TAX ADVISOR REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL, STATE, AND LOCAL INCOME TAXES. Below the Funds have summarized some important tax issues that affect the Funds and their shareholders. This summary is based on current tax laws, which may change. Each Fund will distribute substantially all of its net investment income and its net realized capital gains, if any, at least annually. The dividends and distributions you receive may be subject to federal, state and local taxation, depending upon your tax situation. Distributions you receive from a Fund may be taxable whether or not you reinvest them. Income distributions are generally taxable at ordinary income tax rates. Capital gains distributions are generally taxable at the rates applicable to long-term capital gains. EACH SALE OR EXCHANGE OF FUND SHARES MAY BE A TAXABLE EVENT. FOR TAX PURPOSES, AN EXCHANGE OF FUND SHARES FOR SHARES OF A DIFFERENT STI CLASSIC FUND IS TREATED THE SAME AS A SALE. If you have a tax-advantaged or other retirement account you will generally not be subject to federal taxation on income and capital gain distributions until you begin receiving your distributions from your retirement account. You should consult your tax advisor regarding the rules governing your own retirement plan. The International Equity Fund and International Equity Index Fund may be able to pass along a tax credit for foreign income taxes they pay. In such event, each Fund will provide you with the information necessary to reflect such foreign taxes on your federal income tax return. MORE INFORMATION ABOUT TAXES IS IN THE SAI. 50 PROSPECTUS - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS The financial highlights table is intended to help you understand a Fund's financial performance for the period of the Fund's (and its predecessor's) operations. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). The information provided below for the period ended May 31, 2002 has been audited by PricewaterhouseCoopers LLP. The information for prior periods has been audited by predecessor independent accounting firms. The Reports of Independent Accountants for each such period along with the Fund's financial statements and related notes, are included in the Annual Reports to Shareholders for such periods. The 2002 Annual Report is available upon request and without charge by calling 1-800-428-6970. The 2002 Annual Report is incorporated by reference in the SAI. For the Periods Ended May 31, For a Share Outstanding Throughout the Periods
NET REALIZED NET ASSET NET AND DISTRIBUTIONS VALUE INVESTMENT UNREALIZED FROM NET DISTRIBUTIONS NET ASSET NET ASSETS BEGINNING INCOME GAINS (LOSSES) INVESTMENT FROM REALIZED VALUE END TOTAL END OF OF PERIOD (LOSS) ON INVESTMENTS INCOME CAPITAL GAINS OF PERIOD RETURN (+) PERIOD (000) ---------- ----------- -------------- ------------ ------------- -------- ---------- ------------ - ------------- BALANCED FUND - ------------- Investor Shares 2002 .......... $13.24 $ 0.18 $(0.64) $(0.20) $(0.34) $12.24 (3.57)% $ 9,020 2001 .......... 13.43 0.27 0.11 (0.27) (0.30) 13.24 2.91 7,834 2000 .......... 13.32 0.29 0.31 (0.25) (0.24) 13.43 4.66 9,627 1999 .......... 13.14 0.24 1.10 (0.24) (0.92) 13.32 10.70 14,962 1998 .......... 11.99 0.28 2.19 (0.29) (1.03) 13.14 21.72 8,313 Flex Shares 2002 .......... $13.07 $ 0.10 $(0.65) $(0.11) $(0.34) $12.07 (4.33)% $ 74,880 2001 .......... 13.27 0.16 0.11 (0.17) (0.30) 13.07 2.11 67,824 2000 .......... 13.17 0.17 0.33 (0.16) (0.24) 13.27 3.88 64,322 1999 .......... 13.02 0.16 1.07 (0.16) (0.92) 13.17 9.84 73,526 1998 .......... 11.90 0.20 2.16 (0.21) (1.03) 13.02 20.85 27,625 - ------------------------- CAPITAL APPRECIATION FUND - ------------------------- Investor Shares 2002 .......... $13.59 $(0.10) $(1.48) -- $(0.12) $11.89 (11.68)% $163,155 2001 .......... 16.91 (0.14) (0.38) -- (2.80) 13.59 (4.38) 202,548 2000 .......... 16.53 (0.11) 1.41 -- (0.92) 16.91 8.29 251,421 1999 .......... 16.43 (0.05) 2.70 -- (2.55) 16.53 17.20 311,120 1998 .......... 15.06 (0.01) 3.95 -- (2.57) 16.43 28.71 271,044 Flex Shares 2002 .......... $13.09 $(0.06) $(1.51) -- $(0.12) $11.40 (12.05)% $110,923 2001 .......... 16.45 (0.16) (0.40) -- (2.80) 13.09 (4.79) 112,497 2000 .......... 16.18 (0.24) 1.43 -- (0.92) 16.45 7.77 128,159 1999 .......... 16.22 (0.09) 2.60 -- (2.55) 16.18 16.50 162,100 1998 .......... 14.96 (0.04) 3.87 -- (2.57) 16.22 28.12 106,670
RATIO OF RATIO OF INVESTMENT NET EXPENSES TO INCOME (LOSS) TO RATIO OF INVESTMENT AVERAGE NET AVERAGE NET EXPENSES TO INCOME (LOSS) ASSETS (EXCLUDING ASSETS (EXCLUDING PORTFOLIO AVERAGE TO AVERAGE WAIVERS AND WAIVERS AND TURNOVER NET ASSETS NET ASSETS REIMBURSEMENTS) REIMBURSEMENTS) RATE ----------- ------------ ---------------- ------------------- ---------- - ------------- BALANCED FUND - ------------- Investor Shares 2002 .......... 1.33% 1.46% 1.55% 1.24% 95% 2001 .......... 1.32 1.93 1.54 1.71 99 2000 .......... 1.27 2.07 1.51 1.83 182 1999 .......... 1.27 1.89 1.43 1.73 179 1998 .......... 1.26 2.21 1.59 1.88 154 Flex Shares 2002 .......... 2.09% 0.71% 2.16% 0.64% 95% 2001 .......... 2.07 1.18 2.15 1.10 99 2000 .......... 2.03 1.33 2.18 1.18 182 1999 .......... 2.03 1.13 2.15 1.01 179 1998 .......... 2.02 1.41 2.23 1.20 154 - ------------------------- CAPITAL APPRECIATION FUND - ------------------------- Investor Shares 2002 .......... 1.88% (1.20)% 1.99% (1.31)% 75% 2001 .......... 1.86 (0.94) 1.98 (1.06) 75 2000 .......... 1.82 (0.55) 1.98 (0.71) 129 1999 .......... 1.82 (0.30) 1.96 (0.44) 147 1998 .......... 1.81 (0.03) 2.01 (0.23) 194 Flex Shares 2002 .......... 2.35% (1.67)% 2.39% (1.71)% 75% 2001 .......... 2.33 (1.41) 2.39 (1.47) 75 2000 .......... 2.29 (1.03) 2.39 (1.13) 129 1999 .......... 2.29 (0.86) 2.38 (0.95) 147 1998 .......... 2.26 (0.46) 2.37 (0.57) 194
+ Returns are for the period indicated and have not been annualized. Total return figures do not include applicable sales loads. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Amounts designated as "--" are either $0 or have been rounded to $0. PROSPECTUS 51 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- For the Periods Ended May 31, (unless otherwise indicated) For a Share Outstanding Throughout the Periods
NET REALIZED NET ASSET NET AND DISTRIBUTIONS VALUE INVESTMENT UNREALIZED FROM NET DISTRIBUTIONS NET ASSET NET ASSETS BEGINNING INCOME GAINS (LOSSES) INVESTMENT FROM REALIZED VALUE END TOTAL END OF OF PERIOD (LOSS) ON INVESTMENTS INCOME CAPITAL GAINS OF PERIOD RETURN (+) PERIOD (000) ---------- ----------- -------------- ------------ ------------- -------- ---------- ------------ - -------------------------- GROWTH AND INCOME FUND (A) - -------------------------- Investor Shares 2002 .......... $15.17 $ 0.06 $(1.27) $(0.05) -- $13.91 (7.97)% $36,789 2001 .......... 15.65 0.04 (0.04) (0.05) $(0.43) 15.17 (0.07) 40,174 2000 .......... 16.21 0.09 0.55 (0.08) (1.12) 15.65 3.92 42,666 1999(1) ....... 15.21 0.04 1.99 (0.03) (1.00) 16.21 14.31 36,958 For the years ended November 30: 1998 .......... 16.64 0.10 1.66 (0.10) (3.09) 15.21 13.69 34,434 1997 .......... 13.47 0.13 3.25 (0.14) (0.07) 16.64 25.42 28,112 Flex Shares 2002 .......... $14.96 $(0.02) $(1.28) -- -- $13.66 (8.69)% $94,671 2001 .......... 15.49 (0.05) (0.05) -- $(0.43) 14.96 (0.77) 78,376 2000 .......... 16.10 -- 0.51 -- (1.12) 15.49 3.11 62,462 1999(1) ....... 15.14 (0.01) 1.97 -- (1.00) 16.10 13.85 35,163 For the years ended November 30: 1998 .......... 16.59 (0.01) 1.64 -- (3.08) 15.14 12.78 25,656 1997 .......... 13.44 0.04 3.23 $(0.05) (0.07) 16.59 24.63 13,269 - ------------------------------- INFORMATION AND TECHNOLOGY FUND - ------------------------------- Flex Shares 2002 .......... $13.15 $(0.14) $(5.15) -- -- $ 7.86 (40.23)% $10,851 2001 .......... 15.81 (0.22) (2.44) -- -- 13.15 (16.82) 22,104 2000(2) ....... 18.20 (0.07) (2.32) -- -- 15.81 (13.13) 20,201 - ------------------------- INTERNATIONAL EQUITY FUND - ------------------------- Investor Shares 2002 .......... $10.11 $0.14 $(1.04) -- -- $ 9.21 (8.90)% $ 5,272 2001 .......... 12.47 (0.02) (1.23) -- $(1.11) 10.11 (11.13) 7,517 2000 .......... 12.89 (0.11) 1.37 $(0.02) (1.66) 12.47 10.15 10,462 1999 .......... 14.92 (0.09) (1.10) -- (0.84) 12.89 (7.82) 14,145 1998 .......... 13.58 0.02 2.64 -- (1.32) 14.92 21.39 17,383 Flex Shares 2002 .......... $ 9.68 $0.04 $(0.97) -- -- $ 8.75 (9.61)% $ 6,567 2001 .......... 12.06 (0.16) (1.11) -- $(1.11) 9.68 (11.71) 7,765 2000 .......... 12.58 (0.32) 1.46 -- (1.66) 12.06 9.38 10,891 1999 .......... 14.68 (0.29) (0.97) -- (0.84) 12.58 (8.48) 17,103 1998 .......... 13.47 0.07 2.46 -- (1.32) 14.68 20.54 21,164 - ------------------------------- INTERNATIONAL EQUITY INDEX FUND - ------------------------------- Investor Shares 2002 .......... $11.05 $(0.02) $(1.38) $(0.01) -- $ 9.64 (12.65)% $ 3,222 2001 .......... 13.80 (0.01) (2.65) -- $(0.09) 11.05 (19.31) 3,451 2000 .......... 11.70 (0.11) 2.32 -- (0.11) 13.80 18.86 4,563 1999 .......... 13.20 (0.11) 0.98 (0.18) (2.19) 11.70 7.33 4,909 1998 .......... 11.26 0.16 2.53 (0.07) (0.68) 13.20 25.25 7,141 Flex Shares 2002 .......... $10.93 $(0.12) $(1.33) -- -- $ 9.48 (13.27)% $ 3,505 2001 .......... 13.74 (0.06) (2.66) -- $(0.09) 10.93 (19.84) 4,731 2000 .......... 11.73 0.08 2.04 -- (0.11) 13.74 18.04 5,853 1999 .......... 13.17 (0.15) 0.94 $(0.04) (2.19) 11.73 6.68 1,465 1998 .......... 11.24 0.17 2.44 -- (0.68) 13.17 24.50 1,469
RATIO OF NET RATIO OF RATIO OF INVESTMENT NET EXPENSES TO INCOME (LOSS) TO RATIO OF INVESTMENT AVERAGE NET AVERAGE NET EXPENSES TO INCOME (LOSS) ASSETS (EXCLUDING ASSETS (EXCLUDING PORTFOLIO AVERAGE TO AVERAGE WAIVERS AND WAIVERS AND TURNOVER NET ASSETS NET ASSETS REIMBURSEMENTS) REIMBURSEMENTS) RATE ----------- ------------ ---------------- ------------------- ---------- - -------------------------- GROWTH AND INCOME FUND (A) - -------------------------- Investor Shares 2002 .......... 1.18% 0.44% 1.36% 0.26% 68% 2001 .......... 1.18 0.30 1.35 0.13 73 2000 .......... 1.18 0.58 1.31 0.45 53 1999(1) ....... 1.08 0.54 1.17 0.45 31 For the years ended November 30: 1998 .......... 1.03 0.63 1.18 0.48 71 1997 .......... 1.03 0.89 1.18 0.74 100 Flex Shares 2002 .......... 1.93% (0.29)% 2.16% (0.52)% 68% 2001 .......... 1.93 (0.45) 2.14 (0.66) 73 2000 .......... 1.93 (0.14) 2.18 (0.39) 53 1999(1) ....... 1.83 (0.21) 1.97 (0.35) 31 For the years ended November 30: 1998 .......... 1.78 (0.13) 2.03 (0.38) 71 1997 .......... 1.73 0.15 2.09 (0.20) 100 - ------------------------------- INFORMATION AND TECHNOLOGY FUND - ------------------------------- Flex Shares 2002 .......... 2.25% (1.99)% 2.57% (2.31)% 1,102% 2001 .......... 2.25 (1.50) 2.45 (1.70) 750 2000(2) ....... 2.25 (1.65) 2.40 (1.80) 250 - ------------------------- INTERNATIONAL EQUITY FUND - ------------------------- Investor Shares 2002 .......... 1.83% (0.21)% 2.08%(3) (0.46)%(3) 102% 2001 .......... 1.79 0.18 1.97 .-- 68 2000 .......... 1.83 0.33 1.95 0.21 179 1999 .......... 1.83 0.30 1.93 0.20 161 1998 .......... 1.82 0.24 1.91 0.15 108 Flex Shares 2002 .......... 2.53% (0.73)% 2.93%(3) (1.13)%(3) 102% 2001 .......... 2.48 (0.51) 2.57 (0.60) 68 2000 .......... 2.53 (0.38) 2.74 (0.59) 179 1999 .......... 2.53 (0.40) 2.82 (0.69) 161 1998 .......... 2.52 (0.46) 2.58 (0.52) 108 - --------------------------- INTERNATIONAL EQUITY INDEX - --------------------------- Investor Shares 2002 .......... 1.49% (0.12)% 1.90% (0.53)% 35% 2001 .......... 1.46 0.05 1.83 (0.32) 13 2000 .......... 1.47 0.07 1.79 (0.25) 9 1999 .......... 1.47 0.25 1.71 0.01 32 1998 .......... 1.46 0.50 1.84 0.12 1 Flex Shares 2002 .......... 2.14% (0.68)% 2.62% (1.16)% 35% 2001 .......... 2.10 (0.61) 2.15 (0.66) 13 2000 .......... 2.12 (0.36) 2.61 (0.85) 9 1999 .......... 2.12 (0.30) 2.92 (1.10) 32 1998 .......... 2.11 (0.03) 3.52 (1.44) 1
+ Returns are for the period indicated and have not been annualized. Total return figures do not include applicable sales loads. (1) For the six month period ended May 31, 1999. All ratios for the period have been annualized. (2) Flex Shares were offered beginning January 24, 2000. All ratios for the period have been annualized. (3) This ratio has been changed to reflect the correction of a clerical error contained in the Fund's 2002 Annual Report to Shareholders. (A) On May 24, 1999, the CrestFunds Value Fund exchanged all of its assets and certain liabilities for shares of the Growth and Income Fund. The CrestFunds Value Fund is the accounting survivor in this transaction, and as a result, its basis of accounting for assets and liabilities and its operating results for the periods prior to May 24, 1999 have been carried forward in these financial highlights. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Amounts designated as "--" are either $0 or rounded to $0. 52 PROSPECTUS - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- For the Periods Ended May 31 (unless otherwise indicated) For a Share Outstanding Throughout the Periods
NET REALIZED NET ASSET NET AND DISTRIBUTIONS VALUE INVESTMENT UNREALIZED FROM NET DISTRIBUTIONS NET ASSET NET ASSETS BEGINNING INCOME GAINS (LOSSES) INVESTMENT FROM REALIZED VALUE END TOTAL END OF OF PERIOD (LOSS) ON INVESTMENTS INCOME CAPITAL GAINS OF PERIOD RETURN (+) PERIOD (000) ---------- ----------- -------------- ------------ ------------- -------- ---------- ------------ - ------------------- MID-CAP EQUITY FUND - ------------------- Investor Shares 2002 .......... $10.64 $(0.03) $(1.14) -- -- $ 9.47 (11.00)% $ 10,766 2001 .......... 13.82 (0.05) (0.62) -- $(2.51) 10.64 (7.34) 12,316 2000 .......... 12.50 (0.19) 2.37 -- (0.86) 13.82 18.55 14,513 1999 .......... 13.67 (0.06) 0.08 -- (1.19) 12.50 1.17 19,230 1998 .......... 13.17 (0.03) 2.49 -- (1.96) 13.67 20.56 24,930 Flex Shares 2002 .......... $10.14 $ 0.02(6) $(1.19)(6) -- -- $ 8.97 (11.54)% $ 13,937 2001 .......... 13.35 (0.07) (0.63) -- $(2.51) 10.14 (7.88) 12,910 2000 .......... 12.17 (0.22) 2.26 -- (0.86) 13.35 17.87 14,588 1999 .......... 13.42 (0.14) 0.08 -- (1.19) 12.17 0.56 15,804 1998 .......... 13.04 (0.04) 2.38 -- (1.96) 13.42 19.80 19,042 - ------------------------- MID CAP VALUE EQUITY FUND - ------------------------- Flex Shares 2002(1) ....... $10.00 $(0.01) $ 0.93 -- -- $10.92 9.24% $ 5,465 - --------------------------- SMALL CAP GROWTH STOCK FUND - --------------------------- Investor Shares 2002 .......... $18.26 $(0.17) $(0.90) -- $(0.07) $17.12 (5.86)% $ 24,978 2001 .......... 18.27 (0.59) 2.04 -- (1.46) 18.26 7.89 28,933 2000(2) ....... 16.46 (0.07) 1.88 -- -- 18.27 11.00 39,865 Flex Shares 2002 .......... $17.85 $(0.02) $(1.14) -- $(0.07) $16.62 (6.50)% $ 29,457 2001 .......... 18.00 (0.25) 1.56 -- (1.46) 17.85 7.19 26,941 2000 .......... 14.46 (0.04) 3.77 -- (0.19) 18.00 25.95 23,228 1999(3) ....... 10.00 (0.19) 4.67 -- (0.02) 14.46 44.78 6,158 - --------------------------- SMALL CAP VALUE EQUITY FUND - --------------------------- Flex Shares 2002 .......... $12.15 -- $ 2.29 $(0.01) -- $14.43 18.92% $ 32,708 2001 .......... 9.10 $ 0.07 3.04 (0.06) -- 12.15 34.30 11,167 2000 .......... 9.65 -- (0.54) (0.01) -- 9.10 (5.65) 8,596 1999 .......... 12.80 0.01 (2.53) (0.02) $(0.61) 9.65 (19.52) 19,465 1998(4) ....... 11.28 0.03 2.17 (0.06) (0.62) 12.80 22.29 40,613 - ------------------------------- TAX SENSITIVE GROWTH STOCK FUND - ------------------------------- Flex Shares 2002 .......... $26.10 $(0.41) $(3.24) -- -- $22.45 (13.98)% $167,973 2001 .......... 32.65 (0.36) (6.19) -- -- 26.10 (20.06) 233,496 2000 .......... 29.85 (0.16) 2.96 -- -- 32.65 9.38 290,595 1999(5) ....... 25.52 (0.04) 4.37 -- -- 29.85 16.97 75,875
RATIO OF NET RATIO OF RATIO OF INVESTMENT NET EXPENSES TO INCOME (LOSS) TO RATIO OF INVESTMENT AVERAGE NET AVERAGE NET EXPENSES TO INCOME (LOSS) ASSETS (EXCLUDING ASSETS (EXCLUDING PORTFOLIO AVERAGE TO AVERAGE WAIVERS AND WAIVERS AND TURNOVER NET ASSETS NET ASSETS REIMBURSEMENTS) REIMBURSEMENTS) RATE ----------- ------------ ---------------- ------------------- ---------- - ------------------- MID-CAP EQUITY FUND - ------------------- Investor Shares 2002 .......... $ 1.68% (0.63)% 1.89% (0.84)% 87% 2001 .......... 1.66 (0.69) 1.86 (0.89) 100 2000 .......... 1.62 (0.43) 1.81 (0.62) 131 1999 .......... 1.62 (0.90) 1.76 (1.04) 76 1998 .......... 1.61 (0.75) 1.84 (0.98) 129 Flex Shares 2002 .......... $ 2.28% (1.23)% 2.50% (1.45)% 87% 2001 .......... 2.26 (1.29) 2.46 (1.49) 100 2000 .......... 2.22 (1.05) 2.44 (1.27) 131 1999 .......... 2.22 (1.52) 2.48 (1.78) 76 1998 .......... 2.21 (1.37) 2.47 (1.63) 129 - ------------------------- MID CAP VALUE EQUITY FUND - ------------------------- Flex Shares 2002(1) ....... $ 1.89% (0.31)% 2.72% (1.14)% 30% - --------------------------- SMALL CAP GROWTH STOCK FUND - --------------------------- Investor Shares 2002 .......... $ 1.61% (1.37)% 1.88% (1.64)% 100% 2001 .......... 1.60 (1.33) 1.87 (1.60) 112 2000(2) ....... 1.55 (1.26) 1.79 (1.50) 110 Flex Shares 2002 .......... $ 2.31% (2.07)% 2.41% (2.17)% 100% 2001 .......... 2.29 (2.01) 2.39 (2.11) 112 2000 .......... 2.25 (1.92) 2.42 (2.09) 110 1999(3) ....... 2.25 (1.50) 3.19 (2.44) 75 - --------------------------- SMALL CAP VALUE EQUITY FUND - --------------------------- Flex Shares 2002 .......... $ 2.31% (0.38)% 2.52% (0.59) 29% 2001 .......... 2.30 0.63 2.66 0.27 86 2000 .......... 2.27 0.21 2.56 (0.08) 65 1999 .......... 2.27 0.21 2.55 (0.07) 63 1998(4) ....... 2.06 0.01 2.35 (0.28) 55 - ------------------------------- TAX SENSITIVE GROWTH STOCK FUND - ------------------------------- Flex Shares 2002 .......... $ 2.31% (1.16)% 2.36% (1.21)% 69% 2001 .......... 2.30 (1.15) 2.34 (1.19) 103 2000 .......... 2.25 (0.91) 2.35 (1.01) 30 1999(5) ....... 2.25 (0.80) 2.48 (1.03) 18
+ Returns are for the period indicated and have not been annualized. Total return figures do not include applicable sales loads. (1) Commenced operations on November 30, 2001. All ratios for the period have been annualized. (2) Investors shares were offered beginning on December 12, 1999. All ratios for the period have been annualized. (3) Shares were offered beginning on October 8, 1998. All ratios for the period have been annualized. (4) Flex shares were offered beginning on June 5, 1997. All ratios for the period have been annualized. (5) Flex shares were offered beginning on December 15, 1998. All ratios for the period have been annualized. (6) This amount has been changed to reflect the correction of a clerical error contained in the Fund's 2002 Annual Report to Shareholders. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Amounts designated as "--" are either $0 or rounded to $0. PROSPECTUS 53 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- For the Periods Ended May 31 (unless otherwise indicated) For a Share Outstanding Throughout the Periods
NET REALIZED NET ASSET NET AND DISTRIBUTIONS VALUE INVESTMENT UNREALIZED FROM NET DISTRIBUTIONS NET ASSET NET ASSETS BEGINNING INCOME GAINS (LOSSES) INVESTMENT FROM REALIZED VALUE END TOTAL END OF OF PERIOD (LOSS) ON INVESTMENTS INCOME CAPITAL GAINS OF PERIOD RETURN (+) PERIOD (000) ---------- ----------- -------------- ------------ ------------- -------- ---------- ------------ - ----------------------- VALUE INCOME STOCK FUND - ----------------------- Investor Shares 2002 .......... $11.58 $0.08 $(0.56) $(0.09) -- $11.01 (4.14)% $ 75,697 2001 .......... 10.35 0.14 1.25 (0.16) -- 11.58 13.63 85,584 2000 .......... 12.81 0.19 (1.48) (0.18) $(0.99) 10.35 (10.83) 104,178 1999 .......... 13.87 0.19 1.02 (0.20) (2.07) 12.81 10.71 194,312 1998 .......... 13.68 0.20 2.62 (0.21) (2.42) 13.87 22.71 210,591 Flex Shares 2002 .......... $11.46 -- $(0.55) $(0.01) -- $10.90 (4.82)% $ 59,392 2001 .......... 10.24 $0.04 1.26 (0.08) -- 11.46 12.85 65,895 2000 .......... 12.68 0.08 (1.44) (0.09) $(0.99) 10.24 (11.50) 84,563 1999 .......... 13.75 0.10 1.01 (0.11) (2.07) 12.68 9.91 167,000 1998 .......... 13.61 0.12 2.57 (0.13) (2.42) 13.75 21.76 180,530 - ------------ VANTAGE FUND - ------------ Flex Shares 2002(1) ....... $10.49 $(0.02)(2) $(0.83) --(2) -- $ 9.64 (8.10)%(2) $ 860
RATIO OF NET RATIO OF RATIO OF INVESTMENT NET EXPENSES TO INCOME (LOSS) TO RATIO OF INVESTMENT AVERAGE NET AVERAGE NET EXPENSES TO INCOME (LOSS) ASSETS (EXCLUDING ASSETS (EXCLUDING PORTFOLIO AVERAGE TO AVERAGE WAIVERS AND WAIVERS AND TURNOVER NET ASSETS NET ASSETS REIMBURSEMENTS) REIMBURSEMENTS) RATE ------------ ------------ ---------------- ------------------- ---------- - ----------------------- VALUE INCOME STOCK FUND - ----------------------- Investor Shares 2002 .......... 1.28% 0.74% 1.31% 0.71% 60% 2001 .......... 1.28 1.31 1.31 1.28 77 2000 .......... 1.28 1.64 1.28 1.64 62 1999 .......... 1.28 1.55 1.28 1.55 69 1998 .......... 1.27 1.47 1.27 1.47 99 Flex Shares 2002 .......... 2.02% -- 2.05% (0.03)% 60% 2001 .......... 2.01 0.59% 2.05 0.55 77 2000 .......... 2.02 0.91 2.03 0.90 62 1999 .......... 2.02 0.81 2.03 0.80 69 1998 .......... 2.01 0.78 2.01 0.78 99 - ------------ VANTAGE FUND - ------------ Flex Shares 2002(1) ....... 2.73% (1.44)%(2) 3.32%(2) (2.03)%(2) 1,063%
+ Returns are for the period indicated and have not been annualized. Total return figures do not include applicable sales loads. (1) Flex shares were offered beginning on March 11, 2002. All ratios for the period have been annualized. (2) This amount/ratio has been changed to reflect the correction of a clerical error contained in the Fund's 2002 Annual Report to Shareholders. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Amounts designated as "--" are either $0 or rounded to $0. 54 PROSPECTUS - -------------------------------------------------------------------------------- HOW TO OBTAIN MORE INFORMATION ABOUT THE STI CLASSIC FUNDS - -------------------------------------------------------------------------------- INVESTMENT ADVISER Trusco Capital Management, Inc. 50 Hurt Plaza Suite 1400 Atlanta, Georgia 30303 DISTRIBUTOR SEI Investments Distribution Co. One Freedom Valley Drive Oaks, Pennsylvania 19456 LEGAL COUNSEL Morgan, Lewis & Bockius LLP More information about the Funds is available without charge through the following: STATEMENT OF ADDITIONAL INFORMATION (SAI) The SAI dated October 1, 2002, includes detailed information about the STI Classic Funds. The SAI is on file with the SEC and is incorporated by reference into this prospectus. This means that the SAI, for legal purposes, is a part of this prospectus. ANNUAL AND SEMI-ANNUAL REPORTS These reports list each Fund's holdings and contain information from the Funds' managers about strategies and recent market conditions and trends and their impact on Fund performance. The reports also contain detailed financial information about the Funds. TO OBTAIN AN SAI, ANNUAL OR SEMI-ANNUAL REPORT, OR MORE INFORMATION: BY TELEPHONE: Call 1-800-428-6970 BY MAIL: Write to the Funds c/o SEI Investments Distribution Co. Oaks, Pennsylvania 19456 FROM THE SEC: You can also obtain the SAI or the Annual and Semi-Annual reports, as well as other information about the STI Classic Funds, from the EDGAR Database on the SEC's website ("HTTP://WWW.SEC.GOV"). You may review and copy documents at the SEC Public Reference Room in Washington, DC (for information on the operation of the Public Reference Room, call 202-942-8090). You may request documents by mail from the SEC, upon payment of a duplicating fee, by writing to: Securities and Exchange Commission, Public Reference Section, Washington, DC 20549-0102. You may also obtain this information, upon payment of a duplicating fee, by e-mailing the SEC at the following address: PUBLICINFO@SEC.GOV. The STI Classic Funds' Investment Company Act registration number is 811-06557. STI-PS-007-0300 [GRAPHIC OMITTED] STI CLASSIC FUNDS-BOND AND MONEY MARKET FUNDS-TRUST SHARES PROSPECTUS OCTOBER 1, 2002 BOND FUNDS CLASSIC INSTITUTIONAL SUPER SHORT INCOME PLUS FUND FLORIDA TAX-EXEMPT BOND FUND GEORGIA TAX-EXEMPT BOND FUND HIGH INCOME FUND INVESTMENT GRADE BOND FUND INVESTMENT GRADE TAX-EXEMPT BOND FUND LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND MARYLAND MUNICIPAL BOND FUND SHORT-TERM BOND FUND SHORT-TERM U.S. TREASURY SECURITIES FUND STRATEGIC INCOME FUND U.S. GOVERNMENT SECURITIES FUND VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND VIRGINIA MUNICIPAL BOND FUND MONEY MARKET FUNDS PRIME QUALITY MONEY MARKET FUND TAX-EXEMPT MONEY MARKET FUND U.S. GOVERNMENT SECURITIES MONEY MARKET FUND U.S. TREASURY MONEY MARKET FUND VIRGINIA TAX-FREE MONEY MARKET FUND INVESTMENT ADVISER TO THE FUNDS: TRUSCO CAPITAL MANAGEMENT, INC. (the "Adviser") STI CLASSIC FUNDS THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. PROSPECTUS - --------------------- ABOUT THIS PROSPECTUS - --------------------- The STI Classic Funds is a mutual fund family that offers shares in separate investment portfolios (Funds). The Funds have individual investment goals and strategies. This prospectus gives you important information about the Trust Shares of the Bond and Money Market Funds that you should know before investing. Please read this prospectus and keep it for future reference. THIS PROSPECTUS HAS BEEN ARRANGED INTO DIFFERENT SECTIONS SO THAT YOU CAN EASILY REVIEW THIS IMPORTANT INFORMATION. ON THE NEXT PAGE, THERE IS SOME GENERAL INFORMATION YOU SHOULD KNOW ABOUT RISK AND RETURN THAT IS COMMON TO EACH OF THE FUNDS. FOR MORE DETAILED INFORMATION ABOUT EACH FUND, PLEASE SEE: 2 CLASSIC INSTITUTIONAL SUPER SHORT INCOME PLUS FUND 4 FLORIDA TAX-EXEMPT BOND FUND 7 GEORGIA TAX-EXEMPT BOND FUND 10 HIGH INCOME FUND 13 INVESTMENT GRADE BOND FUND 16 INVESTMENT GRADE TAX-EXEMPT BOND FUND 19 LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND 22 MARYLAND MUNICIPAL BOND FUND 25 SHORT-TERM BOND FUND 28 SHORT-TERM U.S. TREASURY SECURITIES FUND 31 STRATEGIC INCOME FUND 33 U.S. GOVERNMENT SECURITIES FUND 36 VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND 39 VIRGINIA MUNICIPAL BOND FUND 42 PRIME QUALITY MONEY MARKET FUND 44 TAX-EXEMPT MONEY MARKET FUND 46 U.S. GOVERNMENT SECURITIES MONEY MARKET FUND 48 U.S. TREASURY MONEY MARKET FUND 50 VIRGINIA TAX-FREE MONEY MARKET FUND 52 MORE INFORMATION ABOUT RISK 53 MORE INFORMATION ABOUT FUND INVESTMENTS 54 INVESTMENT ADVISER 54 PORTFOLIO MANAGERS 55 PURCHASING AND SELLING FUND SHARES 57 DIVIDENDS AND DISTRIBUTIONS 58 TAXES 59 FINANCIAL HIGHLIGHTS BACK COVER HOW TO OBTAIN MORE INFORMATION ABOUT THE STI CLASSIC FUNDS [ICON OMITTED] FUND SUMMARY [ICON OMITTED] INVESTMENT STRATEGY [ICON OMITTED] WHAT ARE THE RISKS OF INVESTING? [ICON OMITTED] PERFORMANCE INFORMATION [ICON OMITTED] WHAT IS AN INDEX? [ICON OMITTED] FUND FEES AND EXPENSES [ICON OMITTED] MORE INFORMATION ABOUT FUND INVESTMENTS [ICON OMITTED] INVESTMENT ADVISER [ICON OMITTED] PURCHASING AND SELLING FUND SHARES OCTOBER 1, 2002 PROSPECTUS 1
- ------------------------------------------------------------------------------------------------------------------------------------ CUSIP/TICKER SYMBOLS - ------------------------------------------------------------------------------------------------------------------------------------ FUND NAME CLASS INCEPTION* TICKER CUSIP - ------------------------------------------------------------------------------------------------------------------------------------ FIXED INCOME FUNDS Classic Institutional Super Short Income Plus Trust 10/1/02 -- 784767584 FL Tax-Exempt Bond Trust 1/25/94 SCFTX 784766719 GA Tax-Exempt Bond Trust 1/18/94 SGATX 784766685 High Income Trust 10/3/01 STHTX 784767766 Investment Grade Bond Trust 7/16/92 STIGX 784766701 Investment Grade Tax-Exempt Bond Trust 10/21/93 STTBX 784766883 Limited-Term Federal Mortgage Securities Trust 6/6/94 SLMTX 784766628 MD Municipal Bond Trust 3/1/96 CMDTX 784766131 Short-Term Bond Trust 3/15/93 SSBTX 784766826 Short-Term U.S. Treasury Securities Trust 3/15/93 SUSTX 784766792 Strategic Income Trust 11/30/01 STICX 784767691 U.S. Government Securities Trust 8/1/94 SUGTX 784766644 VA Intermediate Municipal Bond Trust 1/11/93 CRVTX 784767105 VA Municipal Bond Trust 4/4/95 CVMTX 784766164 - ------------------------------------------------------------------------------------------------------------------------------------ MONEY MARKET FUNDS Prime Quality Money Market Trust 6/8/92 SQTXX 784766107 Tax-Exempt Money Market Trust 6/8/92 STTXX 784766503 U.S. Government Securities Money Market Trust 6/8/92 STUXX 784766305 U.S. Treasury Money Market Trust 2/18/87 CUSXX 784767402 Virginia Tax-Free Money Market Trust 6/15/89 CFMXX 784767501 - ------------------------------------------------------------------------------------------------------------------------------------ * THE INCEPTION DATE REFLECTS THE BEGINNING OF THE CLASS'S PERFORMANCE HISTORY, WHICH MAY INCLUDE THE PERFORMANCE OF OTHER CLASSES OF THE FUND AND/OR PREDECESSORS OF THE FUND. FOR FURTHER INFORMATION, SEE "PERFORMANCE INFORMATION."
- -------------------------------------------------------------------------------- RISK/RETURN INFORMATION COMMON TO THE FUNDS - -------------------------------------------------------------------------------- Each Fund is a mutual fund. A mutual fund pools shareholders' money and, using professional investment managers, invests it in securities. Each Fund has its own investment goal and strategies for reaching that goal. The Adviser invests Fund assets in a way that it believes will help a Fund achieve its goal. Still, investing in each Fund involves risk and there is no guarantee that a Fund will achieve its goal. The Adviser's judgments about the markets, the economy or companies may not anticipate actual market movements, economic conditions or company performance, and these judgments may affect the return on your investment. In fact, no matter how good a job the Adviser does, you could lose money on your investment in the Fund, just as you could with other investments. A FUND SHARE IS NOT A BANK DEPOSIT AND IT IS NOT INSURED OR GUARANTEED BY THE FDIC OR ANY GOVERNMENT AGENCY. The value of your investment in a Fund (other than a money market fund) is based on the market prices of the securities the Fund holds. These prices change daily due to economic and other events that affect particular companies and other issuers. These price movements, sometimes called volatility, may be greater or lesser depending on the types of securities a Fund owns and the markets in which they trade. The effect on a Fund of a change in the value of a single security will depend on how widely the Fund diversifies its holdings. 2 PROSPECTUS - -------------------------------------------------------------------------------- CLASSIC INSTITUTIONAL SUPER SHORT INCOME PLUS FUND - -------------------------------------------------------------------------------- [ICON OMITTED] FUND SUMMARY INVESTMENT GOAL High current income consistent with preserving capital and maintaining liquidity - -------------------------------------------------------------------------------- INVESTMENT FOCUS Short duration investment grade money market and fixed income securities - -------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Low - -------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify short duration securities that offer a comparably better return potential and yield than money market funds - -------------------------------------------------------------------------------- INVESTOR PROFILE Conservative investors seeking to maximize income consistent with limited share price volatility - -------------------------------------------------------------------------------- [ICON OMITTED] INVESTMENT STRATEGY The Classic Institutional Super Short Income Plus Fund invests at least 80% of its net assets in short duration, investment grade money market and fixed income securities including, but not limited to, U.S. Treasury and Agency securities, obligations of supranational entities and foreign governments, domestic and foreign corporate debt obligations, taxable municipal debt securities, mortgage backed and asset backed securities, repurchase agreements, and other mutual funds. The Fund normally expects to maintain an average effective duration between three months and one year. Individual purchases will generally be limited to securities with a maturity/average life of less than three years. In selecting investments for the Fund, the Adviser attempts to maximize income by identifying securities that offer an acceptable yield for a given level of credit risk and maturity. Most securities are purchased with the intent to hold to maturity. However, circumstances may warrant or require that securities be sold prior to maturity. [ICON OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? The price (NAV) of the Fund will fluctuate depending on general changes in interest rates as well as changes in the yields of the specific securities in the Fund. General (or macro) changes in interest rates may be as a result of economic developments or Federal Reserve policy while issuer specific changes in yield may be as a result of a change in creditworthiness of a particular issuer or industry. In general, the NAV of the Fund will rise when interests rates fall, and likewise, the NAV of the Fund will fall when interest rates rise. An objective of the Fund is to minimize NAV fluctuation by (a) maintaining the Fund's average weighted duration between three months and one year and (b) diversifying the Fund among issuers and industries. The prices of the Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, the Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities are generally more volatile, so the average maturity or duration of these securities affects risk. The Fund is also subject to the risk that short-term U.S. government debt securities may under perform other segments of the fixed income market or the fixed income market as a whole. Mortgage-backed securities are fixed income securities representing an interest in a pool of underlying mortgage loans. Mortgage-backed securities are sensitive to changes in interest rates, but may respond to these changes differently from other fixed income securities due to the possibility of prepayment of the underlying mortgage loans. As a result, it may not be possible to determine in advance the actual maturity date or average life of a mortgage-backed security. Rising interest rates tend to discourage refinancings, with the result that the average life and volatility of the security will increase, exacerbating its decrease in market price. When interest rates fall, however, mortgage-backed securities may not gain as much in market value because of the expectation of additional mortgage prepayments that must be reinvested at lower interest rates. Prepayment risk may make it difficult to calculate the average maturity of the Fund of mortgage-backed securities, and therefore, to assess the volatility risk of the Fund. Investing in foreign countries poses additional risks since political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. In addition, investments in foreign countries are generally PROSPECTUS 3 - -------------------------------------------------------------------------------- CLASSIC INSTITUTIONAL SUPER SHORT INCOME PLUS FUND - -------------------------------------------------------------------------------- denominated in a foreign currency. As a result, changes in the value of those currencies compared to the U.S. dollar may affect (positively or negatively) the value of a Fund's investments. These currency movements may happen separately from and in response to events that do not otherwise affect the value of the security in the issuer's home country. These various risks will be even greater for investments in emerging market countries since political turmoil and rapid changes in economic conditions are more likely to occur in these countries. Although the Fund's U.S. government securities are considered to be among the safest investments, they are not guaranteed against price movements due to changing interest rates. Obligations issued by some U.S. government agencies are backed by the U.S. Treasury, while others are backed solely by the ability of the agency to borrow from the U.S. Treasury or by the agency's own resources. [ICON OMITTED] PERFORMANCE INFORMATION The Classic Institutional Super Short Income Plus Fund commenced operations on October 1, 2002 and therefore does not have a performance history for a full calendar year. [ICON OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 0.50% Other Expenses 0.50%* ----- Total Annual Fund Operating Expenses 1.00%** * OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT YEAR. ** THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR ARE EXPECTED TO BE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER AND THE DISTRIBUTOR INTEND TO WAIVE A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THESE FEE WAIVERS REMAIN IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER AND THE DISTRIBUTOR MAY DISCONTINUE ALL OR PART OF THESE FEE WAIVERS AT ANY TIME. WITH THESE FEE WAIVERS, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES WOULD BE AS FOLLOWS: Classic Institutional Super Short Income Plus Fund - Trust Shares 0.65% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS $102 $318 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." 4 PROSPECTUS - -------------------------------------------------------------------------------- FLORIDA TAX-EXEMPT BOND FUND - -------------------------------------------------------------------------------- [ICON OMITTED] FUND SUMMARY INVESTMENT GOAL Current income exempt from federal income taxes for Florida residents with shares themselves expected to be exempt from the Florida intangible personal property tax - -------------------------------------------------------------------------------- INVESTMENT FOCUS Florida municipal securities - -------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Low - -------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to invest more Fund assets in undervalued sectors and less in overvalued ones - -------------------------------------------------------------------------------- INVESTOR PROFILE Florida residents who want income exempt from federal income taxes - -------------------------------------------------------------------------------- [ICON OMITTED] INVESTMENT STRATEGY The Florida Tax-Exempt Bond Fund invests at least 80% of its net assets in municipal securities with income exempt from federal income taxes, and the shares themselves are expected to be exempt from the Florida intangible personal property tax. Issuers of these securities can be located in Florida, Puerto Rico and other U.S. territories and possessions. In addition, up to 20% of the Fund's assets may be invested in securities subject to the alternative minimum tax or in certain taxable debt securities. In selecting investments for the Fund, the Adviser tries to limit risk as much as possible. Based on the Adviser's analysis of municipalities, credit risk, market trends and investment cycles, the Adviser attempts to invest more of the Fund's assets in undervalued market sectors and less in overvalued sectors. The Adviser also tries to identify and invest in municipal issuers with improving credit and avoid those with deteriorating credit. The Adviser anticipates that the Fund's average weighted maturity will range from 6 to 25 years. Under certain circumstances, such as a national financial emergency or a temporary decline in availability of Florida obligations, up to 20% of the Fund's assets may be invested in securities subject to the Florida intangible personal property tax and/or securities that generate income subject to federal personal income taxes. These securities may include short-term municipal securities outside Florida or certain taxable fixed income securities. [ICON OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? The prices of the Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, the Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities are generally more volatile, so the average maturity or duration of these securities affects risk. There may be economic or political changes that impact the ability of municipal issuers to repay principal and to make interest payments on municipal securities. Changes in the financial condition or credit rating of municipal issuers also may adversely affect the value of the Fund's securities. The Fund's concentration of investments in securities of issuers located in Florida subjects the Fund to economic and government policies within Florida. [ICON OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S TRUST SHARES FROM YEAR TO YEAR.* [BAR GRAPH OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS: 1995 15.85% 1996 3.94% 1997 7.82% 1998 6.24% 1999 -2.31% 2000 11.64% 2001 3.68% BEST QUARTER WORST QUARTER 6.18% -2.30% (3/31/95) (6/30/99) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS 5.10%. PROSPECTUS 5 - -------------------------------------------------------------------------------- FLORIDA TAX-EXEMPT BOND FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE LEHMAN BROTHERS 10-YEAR MUNICIPAL BOND INDEX AND THE LIPPER FLORIDA MUNICIPAL DEBT FUNDS AVERAGE. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. TRUST SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - --------------------------------------------------------------- Fund Returns Before Taxes 3.68% 5.31% 5.59% - --------------------------------------------------------------- Fund Returns After Taxes on Distributions 3.44% 5.15% 5.44% - --------------------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares 3.80% 5.03% 5.29% - --------------------------------------------------------------- Lehman Brothers 10-Year Municipal Bond Index (reflects no deduction for fees, expenses or taxes) 4.63% 5.94% 5.59% - --------------------------------------------------------------- Lipper Florida Municipal Debt Funds Average (reflects no deduction for taxes) 4.23% 4.83% 4.59% - --------------------------------------------------------------- * SINCE INCEPTION OF THE TRUST SHARES ON JANUARY 25, 1994. BENCHMARK RETURNS SINCE JANUARY 31, 1994 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). [ICON OMITTED] - -------------------------------------------------------------------------------- WHAT IS AN INDEX? - -------------------------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Lehman Brothers 10-Year Municipal Bond Index is a widely-recognized index of long-term investment grade tax-exempt bonds. The Index includes general obligation bonds, revenue bonds, insured bonds and prefunded bonds with maturities between 8 and 12 years. The Index represents various market sectors and geographic locations. The Lipper Florida Municipal Debt Funds Average is a composite index of mutual funds with investment goals similar to the Fund's goals. It reports the Average of the Florida intermediate-term municipal bond mutual funds tracked by Lipper Analytical Services, Inc. The number of funds in the Average varies. [ICON OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 0.65% Other Expenses 0.11% ----- Total Annual Fund Operating Expenses 0.76%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THIS FEE WAIVER REMAINS IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: Florida Tax-Exempt Bond Fund - Trust Shares 0.71% 6 PROSPECTUS - -------------------------------------------------------------------------------- FLORIDA TAX-EXEMPT BOND FUND - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $78 $243 $422 $942 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." PROSPECTUS 7 - -------------------------------------------------------------------------------- GEORGIA TAX-EXEMPT BOND FUND - -------------------------------------------------------------------------------- [ICON OMITTED] FUND SUMMARY INVESTMENT GOAL Current income exempt from federal and state income taxes for Georgia residents without undue risk - -------------------------------------------------------------------------------- INVESTMENT FOCUS Georgia municipal securities - -------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Moderate - -------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to invest more Fund assets in undervalued sectors and less in overvalued ones - -------------------------------------------------------------------------------- INVESTOR PROFILE Georgia residents who want income exempt from federal and state income taxes - -------------------------------------------------------------------------------- [ICON OMITTED] INVESTMENT STRATEGY The Georgia Tax-Exempt Bond Fund invests at least 80% of its net assets in municipal securities with income exempt from federal and Georgia income taxes. Issuers of these securities can be located in Georgia, Puerto Rico and other U.S. Territories and possessions. In addition, up to 20% of the Fund's assets may be invested in securities subject to the alternative minimum tax or in certain taxable debt securities. In selecting investments for the Fund, the Adviser tries to limit risk as much as possible. Based on the Adviser's analysis of municipalities, credit risk, market trends and investment cycles, the Adviser attempts to invest more of the Fund's assets in undervalued market sectors and less in overvalued sectors. The Adviser tries to diversify the Fund's holdings within Georgia. The Adviser also tries to identify and invest in municipal issuers with improving credit and avoid those with deteriorating credit. The Adviser anticipates that the Fund's average weighted maturity will range from 6 to 25 years. [ICON OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? The prices of the Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, the Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities are generally more volatile, so the average maturity or duration of these securities affects risk. There may be economic or political changes that impact the ability of municipal issuers to repay principal and to make interest payments on municipal securities. Changes in the financial condition or credit rating of municipal issuers also may adversely affect the value of the Fund's securities. The Fund's concentration of investments in securities of issuers located in Georgia subjects the Fund to economic and government policies within Georgia. [ICON OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S TRUST SHARES FROM YEAR TO YEAR.* [BAR GRAPH OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS: 1995 13.51% 1996 3.53% 1997 8.17% 1998 5.79% 1999 -2.26% 2000 9.43% 2001 4.32% BEST QUARTER WORST QUARTER 5.02% -2.30% (3/31/95) (6/30/99) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS 4.52%. 8 PROSPECTUS - -------------------------------------------------------------------------------- GEORGIA TAX-EXEMPT BOND FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE LEHMAN BROTHERS 10-YEAR MUNICIPAL BOND INDEX AND THE LIPPER GEORGIA MUNICIPAL DEBT FUNDS AVERAGE. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. TRUST SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Fund Returns Before Taxes 4.32% 5.01% 4.55% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions 4.31% 4.96% 4.49% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares 4.17% 4.83% 4.45% - -------------------------------------------------------------------------------- Lehman Brothers 10-Year Municipal Bond Index (reflects no deduction for fees, expenses or taxes) 4.63% 5.94% 5.59% - -------------------------------------------------------------------------------- Lipper Georgia Municipal Debt Funds Average (reflects no deduction for taxes) 4.01% 5.07% 4.48% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE TRUST SHARES ON JANUARY 18, 1994. BENCHMARK RETURNS SINCE JANUARY 31, 1994 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). [ICON OMITTED] - -------------------------------------------------------------------------------- WHAT IS AN INDEX? - -------------------------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Lehman Brothers 10-Year Municipal Bond Index is a widely-recognized index of long-term investment grade tax-exempt bonds. The Index includes general obligation bonds, revenue bonds, insured bonds and prefunded bonds with maturities between 8 and 12 years. The Index represents various market sectors and geographic locations. The Lipper Georgia Municipal Debt Funds Average is a composite index of mutual funds with investment goals similar to the Fund's goals. It reports the Average of the Georgia intermediate-term municipal bond mutual funds tracked by Lipper Analytical Services, Inc. The number of funds in the Average varies. [ICON OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 0.65% Other Expenses 0.11% ----- Total Annual Fund Operating Expenses 0.76%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THIS FEE WAIVER REMAINS IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: Georgia Tax-Exempt Bond Fund - Trust Shares 0.71% PROSPECTUS 9 - -------------------------------------------------------------------------------- GEORGIA TAX-EXEMPT BOND FUND - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $78 $243 $422 $942 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." 10 PROSPECTUS - -------------------------------------------------------------------------------- HIGH INCOME FUND - -------------------------------------------------------------------------------- [ICON OMITTED] FUND SUMMARY INVESTMENT GOAL PRIMARY High current income SECONDARY Total return - -------------------------------------------------------------------------------- INVESTMENT FOCUS High yield corporate, government, and other debt instruments of U.S. and non U.S. issuers - -------------------------------------------------------------------------------- SHARE PRICE VOLATILITY High - -------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify lower-rated securities offering high current income of issuers generating adequate cash flow to meet their obligations - -------------------------------------------------------------------------------- INVESTOR PROFILE Investors who seek high current income and who are willing to accept greater share price volatility through investment in high yield, below investment grade debt instruments - -------------------------------------------------------------------------------- [ICON OMITTED] INVESTMENT STRATEGY The High Income Fund invests primarily in a diversified portfolio of higher yielding, lower rated income producing securities of U.S. and non-U.S. issuers. The Fund will invest at least 65%, and may invest up to 100%, of its assets in securities rated as "non-investment grade" by Moody's Investor Services, Inc. or by Standard & Poor's Rating Services or in unrated securities if, in the Adviser's opinion, they are of comparable quality. Such securities are commonly known as "junk bonds" and offer greater risks than investment grade bonds (i.e., rated BBB- or above by S&P or Baa3 or above by Moody's). In selecting debt securities for the Fund the Adviser seeks out companies with good fundamentals and performing prospects that are currently out of favor with investors. The primary basis for security selection is the potential income offered by the security relative to the Adviser's assessment of the issuer's ability to generate the cash flow required to meet its obligation. The Adviser employs a "bottom-up" approach, identifying investment opportunities based on the underlying financial and economic fundamentals of the specific issuer. Due to its investment strategy, the Fund may buy and sell securities frequently. This may result in higher transaction costs and additional capital gains tax liabilities. [ICON OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? The prices of the Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, the Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities are generally more volatile, so the average maturity or duration of these securities affects risk. High yield securities involve greater risks of default or downgrade and are more volatile than investment grade securities. Junk bonds involve greater risk of default or price declines than investment grade securities due to actual or perceived changes in an issuer's creditworthiness. In addition, issuers of junk bonds may be more susceptible than other issuers to economic downturns. Junk bonds are subject to the risk that the issuer may not be able to pay interest or dividends and ultimately to repay principal upon maturity. Discontinuation of these payments could substantially adversely affect the market value of the security. Investing in foreign countries poses additional risks since political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. In addition, investments in foreign countries are generally denominated in a foreign currency. As a result, changes in the value of those currencies compared to the U.S. dollar may affect (positively or negatively) the value of a Fund's investments. These currency movements may happen separately from and in response to events that do not otherwise affect the value of the security in the issuer's home country. These various risks will be even greater for investments in emerging market countries since political turmoil and rapid changes in economic conditions are more likely to occur in these countries. PROSPECTUS 11 - -------------------------------------------------------------------------------- HIGH INCOME FUND - -------------------------------------------------------------------------------- [ICON OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. Performance prior to March 28, 2000 is that of the ESC Strategic Income Fund, the Fund's predecessor. Trust Shares were offered beginning October 3, 2001. Performance between May 4, 1994 and October 3, 2001 is that of the Flex Shares of the Fund, and has not been adjusted to reflect Trust Share expenses. If it had been, performance would have been higher. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S FLEX SHARES FROM YEAR TO YEAR. SINCE FLEX SHARES ARE INVESTED IN THE SAME PORTFOLIO OF SECURITIES, RETURNS FOR TRUST SHARES WILL BE SUBSTANTIALLY SIMILAR TO THOSE OF THE FLEX SHARES, SHOWN HERE, AND DIFFER ONLY TO THE EXTENT THAT TRUST SHARE EXPENSES ARE LOWER, AND THEREFORE, PERFORMANCE WOULD BE HIGHER THAN THAT OF THE FLEX SHARES.* [BAR GRAPH OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS: 1995 14.91% 1996 5.84% 1997 5.05% 1998 4.43% 1999 1.28% 2000 -9.46% 2001 5.55% BEST QUARTER WORST QUARTER 6.79% -9.92% (3/31/95) (3/31/00) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS -5.51%. THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE LEHMAN BROTHERS U.S. CORPORATE HIGH YIELD BOND INDEX. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only the Flex Shares. After-tax returns for other classes will vary. FLEX SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Fund Returns Before Taxes 3.58% 1.21% 3.21% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions 0.74% -1.59% 0.41% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares 2.16% -0.39% 1.20% - -------------------------------------------------------------------------------- Lehman Brothers U.S. Corporate High Yield Bond Index (reflects no deduction for fees, expenses or taxes) 5.28% 3.11% 6.08% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE FLEX SHARES ON MAY 4, 1994. BENCHMARK RETURNS SINCE APRIL 30, 1994 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). [ICON OMITTED] - -------------------------------------------------------------------------------- WHAT IS AN INDEX? - -------------------------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Lehman Brothers U.S. Corporate High Yield Bond Index is a widely-recognized, market value-weighted (higher market value bonds have more influence than lower market value bonds) index which covers the universe of fixed rate, non-investment grade debt. 12 PROSPECTUS - -------------------------------------------------------------------------------- HIGH INCOME FUND - -------------------------------------------------------------------------------- [ICON OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 0.80% Other Expenses 0.17% ----- Total Annual Fund Operating Expenses 0.97%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES SHOULD BE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER HAS VOLUNTARILY AGREED TO WAIVE A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THIS FEE WAIVER REMAINS IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE EXPECTED TO BE AS FOLLOWS: High Income Fund - Trust Shares 0.82% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return and Fund operating expenses remain the same. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $99 $309 $536 $1,190 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." PROSPECTUS 13 - -------------------------------------------------------------------------------- INVESTMENT GRADE BOND FUND - -------------------------------------------------------------------------------- [ICON OMITTED] FUND SUMMARY INVESTMENT GOAL High total return through current income and capital appreciation, while preserving the principal amount invested - -------------------------------------------------------------------------------- INVESTMENT FOCUS Investment grade U.S. government and corporate debt securities - -------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Moderate - -------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify relatively inexpensive securities in a selected market index - -------------------------------------------------------------------------------- INVESTOR PROFILE Investors who want to receive income from their investment, as well as an increase in the value of the investment - -------------------------------------------------------------------------------- [ICON OMITTED] INVESTMENT STRATEGY The Investment Grade Bond Fund invests at least 80% of its net assets in investment grade fixed income securities. The Adviser focuses on corporate debt securities, U.S. Treasury obligations, and mortgage-backed securities. In selecting investments for the Fund, the Adviser tries to minimize risk while attempting to outperform selected market indices. Currently, the Adviser's selected index is the Lehman Brothers U.S. Government/Credit Index, a widely recognized, unmanaged index of investment grade government and corporate debt securities. The Adviser seeks to invest more in portions of the Index that seem relatively inexpensive, and less in those that seem expensive. The Adviser allocates the Fund's investments among various market sectors based on the Adviser's analysis of historical data, yield information and credit ratings. The Adviser anticipates that the Fund's average weighted maturity will range from 4 to 10 years. Due to its investment strategy, the Fund may buy and sell securities frequently. This may result in higher transaction costs and additional capital gains tax liabilities. [ICON OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? The prices of the Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, the Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities are generally more volatile, so the average maturity or duration of these securities affects risk. Mortgage-backed securities are fixed income securities representing an interest in a pool of underlying mortgage loans. Mortgage-backed securities are sensitive to changes in interest rates, but may respond to these changes differently from other fixed income securities due to the possibility of prepayment of the underlying mortgage loans. As a result, it may not be possible to determine in advance the actual maturity date or average life of a mortgage-backed security. Rising interest rates tend to discourage refinancings, with the result that the average life and volatility of the security will increase, exacerbating its decrease in market price. When interest rates fall, however, mortgage-backed securities may not gain as much in market value because of the expectation of additional mortgage prepayments that must be reinvested at lower interest rates. Prepayment risk may make it difficult to calculate the average maturity of the portfolio of mortgage-backed securities and, therefore, to assess the volatility risk of that portfolio. Although the Fund's U.S. government securities are considered to be among the safest investments, they are not guaranteed against price movements due to changing interest rates. Obligations issued by some U.S. government agencies are backed by the U.S. Treasury, while others are backed solely by the ability of the agency to borrow from the U.S. Treasury or by the agency's own resources. 14 PROSPECTUS - -------------------------------------------------------------------------------- INVESTMENT GRADE BOND FUND - -------------------------------------------------------------------------------- [ICON OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S TRUST SHARES FROM YEAR TO YEAR.* [BAR GRAPH OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS: 1993 10.84% 1994 -3.32% 1995 17.80% 1996 2.34% 1997 9.08% 1998 9.19% 1999 -1.53% 2000 6.57% 2001 9.06% BEST QUARTER WORST QUARTER 6.11% -2.67% (6/30/95) (3/31/94) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS 0.41%. THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE LEHMAN BROTHERS U.S. GOVERNMENT/CREDIT INDEX, LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX AND THE LIPPER INTERMEDIATE INVESTMENT GRADE DEBT FUNDS AVERAGE. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. TRUST SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Fund Returns Before Taxes 9.06% 6.39% 6.44% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions 6.90% 3.93% 4.02% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares 5.49% 3.90% 3.98% - -------------------------------------------------------------------------------- Lehman Brothers U.S. Government/Credit Index (reflects no deduction for fees, expenses or taxes) 8.51% 7.36% 7.17% - -------------------------------------------------------------------------------- Lehman Brothers U.S. Aggregate Bond Index (reflects no deduction for fees, expenses or taxes) 8.42% 7.43% 7.16% - -------------------------------------------------------------------------------- Lipper Intermediate Investment Grade Debt Funds Average (reflects no deduction for taxes) 7.62% 6.44% 6.43% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE TRUST SHARES ON JULY 16, 1992. BENCHMARK RETURNS SINCE JULY 31, 1992 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). PROSPECTUS 15 - -------------------------------------------------------------------------------- INVESTMENT GRADE BOND FUND - -------------------------------------------------------------------------------- [ICON OMITTED] - -------------------------------------------------------------------------------- WHAT IS AN INDEX? - -------------------------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Lehman Brothers U.S. Government/Credit Index is a widely-recognized, market value-weighted (higher market value bonds have more influence than lower market value bonds) index of U.S. Treasury securities, U.S. government agency obligations, corporate debt backed by the U.S. government, fixed-rate nonconvertible corporate debt securities, Yankee bonds, and nonconvertible debt securities issued by or guaranteed by foreign governments and agencies. All securities in the Index are rated investment grade (BBB) or higher, with maturities of at least 1 year. The Lehman Brothers U.S. Aggregate Bond Index is a widely-recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index that combines the Lehman Brothers U.S. Government/Credit Index and the Lehman Brothers Mortgage-Backed Securities Index. The Lehman Brothers U.S. Government/Credit Index consists of U.S. government obligations and corporate debt securities. The Lehman Brothers Mortgage-Backed Securities Index consists of mortgage-backed securities rated AAA. The Lehman Brothers U.S. Aggregate Bond Index includes fixed income securities rated investment grade (BBB) or higher, with maturities of at least one year. The securities in the Index have outstanding par values of at least $100 million for U.S. government obligations and $25 million for the others. The Lipper Intermediate Investment Grade Debt Funds Average is a composite of mutual funds with investment goals similar to the Fund's goals. It reports the Average of the intermediate term investment grade bond mutual funds tracked by Lipper Analytical Services, Inc. The number of funds in the Average varies. [ICON OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 0.74% Other Expenses 0.09% ----- Total Annual Fund Operating Expenses 0.83% * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THIS FEE WAIVER REMAINS IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: Investment Grade Bond Fund - Trust Shares 0.81% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $85 $265 $460 $1,025 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." 16 PROSPECTUS - -------------------------------------------------------------------------------- INVESTMENT GRADE TAX-EXEMPT BOND FUND - -------------------------------------------------------------------------------- [ICON OMITTED] FUND SUMMARY INVESTMENT GOAL High total return through (i) current income that is exempt from federal income taxes and (ii) capital appreciation, while preserving the principal amount invested - -------------------------------------------------------------------------------- INVESTMENT FOCUS Investment grade municipal securities - -------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Moderate - -------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to invest more Fund assets in undervalued sectors and less in overvalued ones - -------------------------------------------------------------------------------- INVESTOR PROFILE Investors who want to receive tax-free current income and an increase in the value of their investment - -------------------------------------------------------------------------------- [ICON OMITTED] INVESTMENT STRATEGY The Investment Grade Tax-Exempt Bond Fund invests at least 80% of its net assets in investment grade tax-exempt obligations, like municipal securities. The issuers of these securities may be located in any U.S. state, territory or possession. In addition, up to 20% of the Fund may be invested in securities subject to the alternative minimum tax or in certain taxable debt securities. In selecting investments for the Fund, the Adviser tries to limit risk as much as possible. Based on the Adviser's analysis of municipalities, credit risk, market trends and investment cycles, the Adviser attempts to invest more of the Fund's assets in undervalued market sectors and less in overvalued sectors. The Adviser also tries to identify and invest in municipal issuers with improving credit and avoid those with deteriorating credit. The Adviser anticipates that the Fund's average weighted maturity will range from 4 to 10 years. Due to its investment strategy, the Fund may buy and sell securities frequently. This may result in higher transaction costs and additional capital gains tax liabilities. [ICON OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? The prices of the Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, the Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities are generally more volatile, so the average maturity or duration of these securities affects risk. There may be economic or political changes that impact the ability of municipal issuers to repay principal and to make interest payments on municipal securities. Changes in the financial condition or credit rating of municipal issuers also may adversely affect the value of the Fund's securities. [ICON OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S TRUST SHARES FROM YEAR TO YEAR.* [BAR GRAPH OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS: 1994 -0.32% 1995 14.97% 1996 5.52% 1997 7.79% 1998 7.06% 1999 -0.26% 2000 10.87% 2001 5.51% BEST QUARTER WORST QUARTER 6.07% -3.14% (3/31/95) (3/31/94) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS 4.44%. PROSPECTUS 17 - -------------------------------------------------------------------------------- INVESTMENT GRADE TAX-EXEMPT BOND FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE LEHMAN BROTHERS 5-YEAR MUNICIPAL BOND INDEX AND THE LIPPER INTERMEDIATE MUNICIPAL DEBT FUNDS AVERAGE. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. TRUST SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Fund Returns Before Taxes 5.51% 6.13% 6.19% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions 4.57% 5.27% 5.14% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares 4.73% 5.23% 5.14% - -------------------------------------------------------------------------------- Lehman Brothers 5-Year Municipal Bond Index (reflects no deduction for fees, expenses or taxes) 6.21% 5.35% 5.10% - -------------------------------------------------------------------------------- Lipper Intermediate Municipal Debt Funds Average (reflects no deduction for taxes) 4.51% 4.83% 4.80% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE TRUST SHARES ON OCTOBER 21, 1993. BENCHMARK RETURNS SINCE OCTOBER 31, 1993 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). [ICON OMITTED] - -------------------------------------------------------------------------------- WHAT IS AN INDEX? - -------------------------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Lehman Brothers 5-Year Municipal Bond Index is a widely-recognized index of intermediate investment grade tax-exempt bonds. The Index includes general obligation bonds, revenue bonds, insured bonds and prefunded bonds with maturities between 4 and 6 years. The Lipper Intermediate Municipal Debt Funds Average is a composite of mutual funds with investment goals similar to the Fund's goals. It reports the Average of intermediate term municipal bond mutual funds tracked by Lipper Analytical Services, Inc. The number of funds in the Average varies. 18 PROSPECTUS - -------------------------------------------------------------------------------- INVESTMENT GRADE TAX-EXEMPT BOND FUND - -------------------------------------------------------------------------------- [ICON OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 0.74% Other Expenses 0.10% ----- Total Annual Fund Operating Expenses 0.84%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THIS FEE WAIVER REMAINS IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: Investment Grade Tax-Exempt Bond Fund - Trust Shares 0.81% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $86 $268 $466 $1,037 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." PROSPECTUS 19 - -------------------------------------------------------------------------------- LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND - -------------------------------------------------------------------------------- [ICON OMITTED] FUND SUMMARY INVESTMENT GOAL High current income, while preserving capital - -------------------------------------------------------------------------------- INVESTMENT FOCUS Mortgage-backed securities - -------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Low - -------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify securities that are less prone to prepayment risk - -------------------------------------------------------------------------------- INVESTOR PROFILE Conservative investors who want to receive income from their investment - -------------------------------------------------------------------------------- [ICON OMITTED] INVESTMENT STRATEGY The Limited-Term Federal Mortgage Securities Fund invests at least 80% of its net assets in U.S. government agency mortgage-backed securities, such as Fannie Mae, GNMA and collateralized mortgage obligations. These securities typically have an effective maturity from 1 to 5 years. In selecting investments for the Fund, the Adviser tries to identify securities that the Adviser expects to perform well in rising and falling markets. The Adviser also attempts to reduce the risk that the underlying mortgages are prepaid by focusing on securities that it believes are less prone to this risk. For example, Fannie Mae or GNMA securities that were issued years ago may be less prone to prepayment risk because there have been many opportunities for prepayment, but few have occurred. Due to its investment strategy, the Fund may buy and sell securities frequently. This may result in higher transaction costs and additional capital gains tax liabilities. [ICON OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? The prices of the Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, the Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities are generally more volatile, so the average maturity or duration of these securities affects risk. The Fund is also subject to the risk that mortgage-backed securities may underperform other segments of the fixed income market or the fixed income market as a whole. Mortgage-backed securities are fixed income securities representing an interest in a pool of underlying mortgage loans. Mortgage-backed securities are sensitive to changes in interest rates, but may respond to these changes differently from other fixed income securities due to the possibility of prepayment of the underlying mortgage loans. As a result, it may not be possible to determine in advance the actual maturity date or average life of a mortgage-backed security. Rising interest rates tend to discourage refinancings, with the result that the average life and volatility of the security will increase, exacerbating its decrease in market price. When interest rates fall, however, mortgage-backed securities may not gain as much in market value because of the expectation of additional mortgage prepayments that must be reinvested at lower interest rates. Prepayment risk may make it difficult to calculate the average maturity of the portfolio of mortgage-backed securities and, therefore, to assess the volatility risk of that portfolio. Although the Fund's U.S. government securities are considered to be among the safest investments, they are not guaranteed against price movements due to changing interest rates. Obligations issued by some U.S. government agencies are backed by the U.S. Treasury, while others are backed solely by the ability of the agency to borrow from the U.S. Treasury or by the agency's own resources. 20 PROSPECTUS - -------------------------------------------------------------------------------- LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND - -------------------------------------------------------------------------------- [ICON OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S TRUST SHARES FROM YEAR TO YEAR.* [BAR GRAPH OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS: 1995 12.14% 1996 4.53% 1997 6.74% 1998 6.90% 1999 1.25% 2000 8.60% 2001 7.41% BEST QUARTER WORST QUARTER 4.36% -0.29% (9/30/01) (6/30/99) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS 3.33%. THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE MERRILL LYNCH 1-5 YEAR U.S. TREASURIES/AGENCIES INDEX AND THE MERRILL LYNCH 1-5 YEAR U.S. TREASURIES INDEX. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. TRUST SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Fund Returns Before Taxes 7.41% 6.15% 6.27% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions 5.54% 3.82% 3.88% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares 4.50% 3.75% 3.82% - -------------------------------------------------------------------------------- Merrill Lynch 1-5 Year U.S. Treasuries/Agencies Index (reflects no deduction for fees, expenses or taxes) 8.53% 6.85% 6.89% - -------------------------------------------------------------------------------- Merrill Lynch 1-5 Year U.S. Treasuries Index (reflects no deduction for fees, expenses or taxes) 8.37% 6.80% 6.84% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE TRUST SHARES ON JUNE 6, 1994. BENCHMARK RETURNS SINCE MAY 31, 1994 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). [ICON OMITTED] - -------------------------------------------------------------------------------- WHAT IS AN INDEX? - -------------------------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Merrill Lynch 1-5 Year U.S. Treasuries/Agencies Index includes U.S. government and agency bonds that have a minimum issue size of $150 million. The current market value of the Index is $1.50 trillion with duration of 2.06 years and yield to maturity of 2.48%. The Merrill Lynch 1-5 Year U.S. Treasury Index is a widely-recognized, capitalization weighted (companies with larger market capitalizations have more influence than those with smaller market capitalizations) index of U.S. Treasury securities with maturities of 1 year or greater and no more than 5 years. PROSPECTUS 21 - -------------------------------------------------------------------------------- LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND - -------------------------------------------------------------------------------- [ICON OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 0.65% Other Expenses 0.10% ----- Total Annual Fund Operating Expenses 0.75%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THIS FEE WAIVER REMAINS IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: Limited-Term Federal Mortgage Securities Fund - Trust Shares 0.70% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $77 $240 $417 $930 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." 22 PROSPECTUS - -------------------------------------------------------------------------------- MARYLAND MUNICIPAL BOND FUND - -------------------------------------------------------------------------------- [ICON OMITTED] FUND SUMMARY INVESTMENT GOAL High current income exempt from federal and Maryland income tax, consistent with preservation of capital - -------------------------------------------------------------------------------- INVESTMENT FOCUS Maryland municipal securities - -------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Moderate - -------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to invest in investment grade municipal securities - -------------------------------------------------------------------------------- INVESTOR PROFILE Maryland residents who want income exempt from federal and state income taxes - -------------------------------------------------------------------------------- [ICON OMITTED] INVESTMENT STRATEGY The Maryland Municipal Bond Fund invests at least 80% of its net assets in municipal securities with income exempt from federal and Maryland income taxes. Issuers of these securities can be located in Maryland, Puerto Rico and other U.S. territories and possessions. In selecting investments for the Fund, the Adviser tries to limit risk by buying investment grade securities. There are no limits on the Fund's average weighted maturity or on the remaining maturities of individual securities. [ICON OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? The prices of the Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, the Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities are generally more volatile, so the average maturity or duration of these securities affects risk. There may be economic or political changes that impact the ability of municipal issuers to repay principal and to make interest payments on municipal securities. Changes in the financial condition or credit rating of municipal issuers also may adversely affect the value of the Fund's securities. The Fund's concentration of investments in securities of issuers located in Maryland subjects the Fund to economic and government policies of Maryland. The Fund is non-diversified, which means that it may invest in the securities of relatively few issuers. As a result, the Fund may be more susceptible to a single adverse economic or regulatory occurrence affecting one or more of these issuers, and may experience increased volatility due to its investments in those securities. [ICON OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S TRUST SHARES FROM YEAR TO YEAR.* [BAR GRAPH OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS: 1997 8.78% 1998 5.87% 1999 -3.33% 2000 11.31% 2001 4.54% BEST QUARTER WORST QUARTER 4.08% -1.52% (12/31/00) (9/30/99) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS 4.41%. PROSPECTUS 23 - -------------------------------------------------------------------------------- MARYLAND MUNICIPAL BOND FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE LEHMAN BROTHERS 10-YEAR MUNICIPAL BOND INDEX AND THE LIPPER MARYLAND MUNICIPAL DEBT FUNDS AVERAGE. PREVIOUSLY, THE FUND'S RETURNS HAD BEEN COMPARED TO THE LEHMAN BROTHERS GENERAL OBLIGATION BOND INDEX, BUT THE ADVISER BELIEVES THAT THE LEHMAN BROTHERS 10-YEAR MUNICIPAL BOND INDEX BETTER ALIGNS WITH THE CURRENT STRATEGY FOR, AND PEER GROUP OF, THE FUND. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. TRUST SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Fund Returns Before Taxes 4.54% 5.31% 4.54% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions 4.54% 5.30% 4.53% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares 4.32% 5.12% 4.48% - -------------------------------------------------------------------------------- Lehman Brothers 10-Year Municipal Bond Index (reflects no deduction for fees, expenses or taxes) 4.63% 5.94% 5.77% - -------------------------------------------------------------------------------- Lipper Maryland Municipal Debt Funds Average (reflects no deduction for taxes) 4.22% 4.76% 4.65% - -------------------------------------------------------------------------------- Lehman Brothers General Obligation Bond Index (reflects no deduction for fees, expenses or taxes) 5.09% 5.92% 5.80% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE TRUST SHARES ON MARCH 1, 1996. BENCHMARK RETURNS SINCE FEBRUARY 29, 1996 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). [ICON OMITTED] - -------------------------------------------------------------------------------- WHAT IS AN INDEX? - -------------------------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Lehman Brothers 10-Year Municipal Bond Index is a widely-recognized index of long-term investment grade tax-exempt bonds. The Index includes general obligation bonds, revenue bonds, insured bonds and prefunded bonds with maturities between 8 and 12 years. The Index represents various market sectors and geographic locations. The Lipper Maryland Municipal Debt Funds Average is an average of funds that limit their assets to those securities that are exempt from taxation in a specified state (double tax-exempt) or city (triple tax-exempt). The number of funds in the Average varies. The Lehman Brothers General Obligation Bond Index is a widely-recognized index of general obligation securities issued in the last 5 years with maturities of over 1 year. 24 PROSPECTUS - -------------------------------------------------------------------------------- MARYLAND MUNICIPAL BOND FUND - -------------------------------------------------------------------------------- [ICON OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 0.65% Other Expenses 0.14% ----- Total Annual Fund Operating Expenses 0.79%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THIS FEE WAIVER REMAINS IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: Maryland Municipal Bond Fund - Trust Shares 0.71% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $81 $252 $439 $978 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." PROSPECTUS 25 - -------------------------------------------------------------------------------- SHORT-TERM BOND FUND - -------------------------------------------------------------------------------- [ICON OMITTED] FUND SUMMARY INVESTMENT GOAL High current income, while preserving capital - -------------------------------------------------------------------------------- INVESTMENT FOCUS Investment grade U.S. government and corporate debt securities - -------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Low - -------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify securities that offer a comparably better return than similar securities for a given level of credit risk - -------------------------------------------------------------------------------- INVESTOR PROFILE Income oriented investors who are willing to accept increased risk for the possibility of returns greater than money market investing - -------------------------------------------------------------------------------- [ICON OMITTED] INVESTMENT STRATEGY The Short-Term Bond Fund invests at least 80% of its net assets in a diversified portfolio of short- to medium-term investment grade U.S. Treasury, corporate debt, mortgage-backed and asset-backed securities. The Fund expects that it will normally maintain an average weighted maturity of approximately 3 years. In selecting investments for the Fund, the Adviser attempts to identify securities that offer a comparably better investment return for a given level of credit risk. For example, short-term bonds generally have better returns than money market instruments, with a fairly modest increase in credit risk and/or volatility. The Adviser manages the Fund from a total return perspective. That is, the Adviser makes day-to-day investment decisions for the Fund with a view towards maximizing returns. The Adviser analyzes yields, market sectors and credit risk in an effort to identify attractive investments with the best risk/reward trade-off. Due to its investment strategy, the Fund may buy and sell securities frequently. This may result in higher transaction costs and additional capital gains tax liabilities. [ICON OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? The prices of the Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, the Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities are generally more volatile, so the average maturity or duration of these securities affects risk. Mortgage-backed and asset-backed securities are fixed income securities representing an interest in a pool of underlying mortgage loans or underlying assets such as truck and auto loans, leases and credit card receivables. Mortgage-backed and asset-backed securities are sensitive to changes in interest rates, but may respond to these changes differently from other fixed income securities due to the possibility of prepayment of the underlying mortgage loan, receivables or other assets underlying these securities. As a result, it may not be possible to determine in advance the actual maturity date or average life of a mortgage-backed or asset-backed security. Rising interest rates tend to discourage refinancings, with the result that the average life and volatility of the security will increase, exacerbating its decrease in the market place. When interest rates fall, however, mortgage-backed and asset-backed securities may not gain as much in market value because of the expectation of additional mortgage prepayment or prepayment of the underlying asset that must be reinvested at lower interest rates. Prepayment risk may make it difficult to calculate the average maturity of the portfolio of mortgage-backed or asset-backed securities and, therefore, to assess the volatility risk of that portfolio. Although the Fund's U.S. government securities are considered to be among the safest investments, they are not guaranteed against price movements due to changing interest rates. Obligations issued by some U.S. government agencies are backed by the U.S. Treasury, while others are backed solely by the ability of the agency to borrow from the U.S. Treasury or by the agency's own resources. 26 PROSPECTUS - -------------------------------------------------------------------------------- SHORT-TERM BOND FUND - -------------------------------------------------------------------------------- [ICON OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S TRUST SHARES FROM YEAR TO YEAR.* [BAR GRAPH OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS: 1994 -0.07% 1995 11.77% 1996 3.90% 1997 6.78% 1998 6.84% 1999 0.92% 2000 7.64% 2001 7.54% BEST QUARTER WORST QUARTER 3.86% -0.75% (9/30/01) (12/31/01) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS -0.35%. THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE SALOMON 1-3 YEAR TREASURY/GOVERNMENT SPONSORED/CORPORATE INDEX. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. TRUST SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Fund Returns Before Taxes 7.54% 5.91% 5.56% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions 5.43% 3.68% 3.38% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares 4.56% 3.62% 3.36% - -------------------------------------------------------------------------------- Salomon 1-3 Year Treasury/ Government Sponsored/ Corporate Index (reflects no deduction for fees, expenses or taxes) 8.87% 6.77% 6.10% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE TRUST SHARES ON MARCH 15, 1993. BENCHMARK RETURNS SINCE FEBRUARY 28, 1993 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). [ICON OMITTED] - -------------------------------------------------------------------------------- WHAT IS AN INDEX? - -------------------------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Salomon 1-3 Year Treasury/Government Sponsored/Corporate Index is a widely-recognized index of U.S. Treasury securities, government agency obligations, and corporate debt securities rated at least investment grade (BBB). The securities in the Index have maturities of 1 year or greater and less than 3 years. PROSPECTUS 27 - -------------------------------------------------------------------------------- SHORT-TERM BOND FUND - -------------------------------------------------------------------------------- [ICON OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 0.65% Other Expenses 0.10% ----- Total Annual Fund Operating Expenses 0.75%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THIS FEE WAIVER REMAINS IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: Short-Term Bond Fund - Trust Shares 0.70% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $77 $240 $417 $930 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." 28 PROSPECTUS - -------------------------------------------------------------------------------- SHORT-TERM U.S. TREASURY SECURITIES FUND - -------------------------------------------------------------------------------- [ICON OMITTED] FUND SUMMARY INVESTMENT GOAL High current income, while preserving capital - -------------------------------------------------------------------------------- INVESTMENT FOCUS Short-term U.S. Treasury securities - -------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Low - -------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify Treasury securities with maturities that offer a comparably better return potential and yield than either shorter maturity or longer maturity securities for a given level of interest rate risk - -------------------------------------------------------------------------------- INVESTOR PROFILE Income oriented investors who are willing to accept increased risk for the possibility of returns greater than money market investing - -------------------------------------------------------------------------------- [ICON OMITTED] INVESTMENT STRATEGY The Short-Term U.S. Treasury Securities Fund invests exclusively in short-term U.S. Treasury securities (those with remaining maturities of 3 years or less). The Fund intends to maintain an average weighted maturity from 1 to 2 years. The Fund offers investors the opportunity to capture the advantage of investing in short-term bonds over money market instruments. Generally, short-term bonds offer a comparably better return than money market instruments, with a modest increase in interest rate risk. The Adviser manages the Fund from a total return perspective. That is, the Adviser makes day-to-day investment decisions for the Fund with a view toward maximizing returns and yield. The Adviser tries to select those U.S. Treasury securities that offer the best risk/reward trade-off. [ICON OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? The prices of the Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, the Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities are generally more volatile, so the average maturity or duration of these securities affects risk. The Fund is also subject to the risk that short-term U.S. Treasury securities may underperform other segments of the fixed income market or the fixed income market as a whole. Although the Fund's U.S. Treasury securities are considered to be among the safest investments, they are not guaranteed against price movements due to changing interest rates. [ICON OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S TRUST SHARES FROM YEAR TO YEAR.* [BAR GRAPH OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS: 1994 1.41% 1995 8.58% 1996 4.52% 1997 5.86% 1998 6.24% 1999 2.71% 2000 6.65% 2001 6.55% BEST QUARTER WORST QUARTER 2.64% -0.10% (9/30/01) (3/31/94) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS 1.89%. PROSPECTUS 29 - -------------------------------------------------------------------------------- SHORT-TERM U.S. TREASURY SECURITIES FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE SALOMON 1-3 YEAR TREASURY INDEX AND THE SALOMON 6 MONTH TREASURY BILL INDEX. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. TRUST SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Fund Returns Before Taxes 6.55% 5.59% 5.14% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions 4.67% 3.58% 3.17% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares 3.96% 3.47% 3.12% - -------------------------------------------------------------------------------- Salomon 1-3 Year Treasury Index (reflects no deduction for fees, expenses or taxes) 8.31% 6.59% 5.95% - -------------------------------------------------------------------------------- Salomon 6 Month Treasury Bill Index (reflects no deduction for fees, expenses or taxes) 4.53% 5.22% 5.02% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE TRUST SHARES ON MARCH 15, 1993. BENCHMARK RETURNS SINCE FEBRUARY 28, 1993 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). [ICON OMITTED] - -------------------------------------------------------------------------------- WHAT IS AN INDEX? - -------------------------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Salomon 1-3 Year Treasury Index is a widely-recognized index of U.S. Treasury securities with maturities of one year or greater and less than three years. The Salomon 6 Month Treasury Bill Index is a widely-recognized index of the 6 month U.S. Treasury Bills. [ICON OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 0.65% Other Expenses 0.11% ----- Total Annual Fund Operating Expenses 0.76%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THIS FEE WAIVER REMAINS IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: Short-Term U.S. Treasury Securities Fund - Trust Shares 0.70% 30 PROSPECTUS - -------------------------------------------------------------------------------- SHORT-TERM U.S. TREASURY SECURITIES FUND - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $78 $243 $422 $942 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." PROSPECTUS 31 - -------------------------------------------------------------------------------- STRATEGIC INCOME FUND - -------------------------------------------------------------------------------- [ICON OMITTED] FUND SUMMARY INVESTMENT GOAL PRIMARY Current income SECONDARY Preservation of capital - -------------------------------------------------------------------------------- INVESTMENT FOCUS High yield corporate, government, and other debt instruments of U.S. and non U.S. issuers - -------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Moderate - -------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to increase income while reducing share price volatility through diversification across three major sectors of the fixed income market - -------------------------------------------------------------------------------- INVESTOR PROFILE Investors who seek high current income with reduced risk of share price volatility - -------------------------------------------------------------------------------- [ICON OMITTED] INVESTMENT STRATEGY The Strategic Income Fund invests primarily in a diversified portfolio of high yield corporate, U.S. government and international bonds. The Fund will maintain a minimum average credit quality rating of BBB. The Fund will invest at least 15%, but not more than 60%, of its assets in a particular sector. In selecting debt securities for the Fund, the Adviser seeks out companies with good fundamentals and performing prospects that are currently out of favor with investors. The primary basis for security selection is the potential income offered by the security relative to the Adviser's assessment of the issuer's ability to generate the cash flow required to meet its obligation. The Adviser employs a "bottom-up" approach, identifying investment opportunities based on the underlying financial and economic fundamentals of the specific issuer. Due to its investment strategy, the Fund may buy and sell securities frequently. This may result in higher transaction costs and additional capital gains tax liabilities. [ICON OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? The prices of the Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, the Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities are generally more volatile, so the average maturity or duration of these securities affects risk. High yield securities involve greater risks of default or downgrade and are more volatile than investment grade securities. Junk bonds involve greater risk of default or price declines than investment grade securities due to actual or perceived changes in an issuer's creditworthiness. In addition, issuers of junk bonds may be more susceptible than other issuers to economic downturns. Junk bonds are subject to the risk that the issuer may not be able to pay interest or dividends and ultimately to repay principal upon maturity. Discontinuation of these payments could substantially adversely affect the market value of the security. Investing in foreign countries poses additional risks since political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. In addition, investments in foreign countries are generally denominated in a foreign currency. As a result, changes in the value of those currencies compared to the U.S. dollar may affect (positively or negatively) the value of a Fund's investments. These currency movements may happen separately from and in response to events that do not otherwise affect the value of the security in the issuer's home country. These various risks will be even greater for investments in emerging market countries since political turmoil and rapid changes in economic conditions are more likely to occur in these countries. 32 PROSPECTUS - -------------------------------------------------------------------------------- STRATEGIC INCOME FUND - -------------------------------------------------------------------------------- [ICON OMITTED] PERFORMANCE INFORMATION The Strategic Income Fund commenced operations on November 30, 2001, and therefore does not have a performance history for a full calendar year. [ICON OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 0.85% Other Expenses 0.19% ----- Total Annual Fund Operating Expenses 1.04%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE CURRENT FISCAL YEAR ARE EXPECTED TO BE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER INTENDS TO WAIVE A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THIS FEE WAIVER REMAINS IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES WOULD BE AS FOLLOWS: Strategic Income Fund - Trust Shares 0.94% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return and Fund operating expenses remain the same. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS $106 $331 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." PROSPECTUS 33 - -------------------------------------------------------------------------------- U.S. GOVERNMENT SECURITIES FUND - -------------------------------------------------------------------------------- [ICON OMITTED] FUND SUMMARY INVESTMENT GOAL High current income, while preserving capital - -------------------------------------------------------------------------------- INVESTMENT FOCUS Mortgage-backed securities and U.S. Treasury obligations - -------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Low to moderate - -------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to increase income without adding undue risk - -------------------------------------------------------------------------------- INVESTOR PROFILE Conservative investors who want to receive income from their investment - -------------------------------------------------------------------------------- [ICON OMITTED] INVESTMENT STRATEGY The U.S. Government Securities Fund invests at least 80% of its net assets in U.S. government debt securities, such as mortgage-backed securities and U.S. Treasury obligations. In an attempt to provide a consistently high dividend without adding undue risk, the Fund focuses its investments in mortgage-backed securities. The average maturity of the Fund's portfolio will typically range from 7 to 14 years. [ICON OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? The prices of the Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, the Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities are generally more volatile, so the average maturity or duration of these securities affects risk. The Fund is also subject to the risk that U.S. government debt securities may underperform other segments of the fixed income market or the fixed income market as a whole. Mortgage-backed securities are fixed income securities representing an interest in a pool of underlying mortgage loans. Mortgage-backed securities are sensitive to changes in interest rates, but may respond to these changes differently from other fixed income securities due to the possibility of prepayment of the underlying mortgage loans. As a result, it may not be possible to determine in advance the actual maturity date or average life of a mortgage-backed security. Rising interest rates tend to discourage refinancings, with the result that the average life and volatility of the security will increase, exacerbating its decrease in market price. When interest rates fall, however, mortgage-backed securities may not gain as much in market value because of the expectation of additional mortgage prepayments that must be reinvested at lower interest rates. Prepayment risk may make it difficult to calculate the average maturity of the portfolio of mortgage-backed securities and, therefore, to assess the volatility risk of that portfolio. Although the Fund's U.S. government securities are considered to be among the safest investments, they are not guaranteed against price movements due to changing interest rates. Obligations issued by some U.S. government agencies are backed by the U.S. Treasury, while others are backed solely by the ability of the agency to borrow from the U.S. Treasury or by the agency's own resources. [ICON OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S TRUST SHARES FROM YEAR TO YEAR.* [BAR GRAPH OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS: 1995 17.33% 1996 2.55% 1997 8.94% 1998 8.16% 1999 -0.97% 2000 10.98% 2001 6.92% BEST QUARTER WORST QUARTER 5.89% -2.24% (6/30/95) (3/31/96) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS 4.00%. 34 PROSPECTUS - -------------------------------------------------------------------------------- U.S. GOVERNMENT SECURITIES FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE MERRILL LYNCH GOVERNMENT/MORTGAGE INDEX AND THE LEHMAN BROTHERS INTERMEDIATE U.S. GOVERNMENT BOND INDEX. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. TRUST SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Fund Returns Before Taxes 6.92% 6.72% 6.89% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions 4.20% 4.24% 4.35% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares 4.26% 4.15% 4.26% - -------------------------------------------------------------------------------- Merrill Lynch Government/ Mortgage Index (reflects no deduction for fees, expenses or taxes) 7.59% 7.44% 7.71% - -------------------------------------------------------------------------------- Lehman Brothers Intermediate U.S. Government Bond Index (reflects no deduction for fees, expenses or taxes) 8.42% 7.06% 7.11% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE TRUST SHARES ON AUGUST 1, 1994. BENCHMARK RETURNS SINCE JULY 31, 1994 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). [ICON OMITTED] - -------------------------------------------------------------------------------- WHAT IS AN INDEX? - -------------------------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Merrill Lynch Government/Mortgage Index is a synthetic index created by combining, at their respective market weights (i) the Merrill Lynch Government Master Index, which is a widely-recognized index comprised of U.S. Treasury securities and U.S. government agency securities with a maturity of at least 1 year; and (ii) the Merrill Lynch Mortgage Master Index, which is a widely-recognized index comprised of mortgage-backed securities including 15 and 30 year single family mortgages in addition to aggregated pooled mortgages. The Lehman Brothers Intermediate U.S. Government Bond Index is a widely-recognized, market value-weighted (higher market value bonds have more influence than lower market value bonds) index of U.S. Treasury securities, U.S. government agency obligations, and corporate debt backed by the U.S. government, fixed-rate nonconvertible corporate debt securities, Yankee bonds, and nonconvertible debt securities issued by or guaranteed by foreign governments and agencies. All securities in the Index are rated investment grade (BBB) or higher, with maturities of at least 1 year. PROSPECTUS 35 - -------------------------------------------------------------------------------- U.S. GOVERNMENT SECURITIES FUND - -------------------------------------------------------------------------------- [ICON OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 0.74% Other Expenses 0.11% ----- Total Annual Fund Operating Expenses 0.85%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THIS FEE WAIVER REMAINS IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: U.S. Government Securities Fund - Trust Shares 0.82% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $87 $271 $471 $1,049 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." 36 PROSPECTUS - -------------------------------------------------------------------------------- VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND - -------------------------------------------------------------------------------- [ICON OMITTED] FUND SUMMARY INVESTMENT GOAL High current income exempt from federal and Virginia income tax, consistent with preservation of capital - -------------------------------------------------------------------------------- INVESTMENT FOCUS Virginia municipal securities - -------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Low - -------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to limit risk by investing in investment grade municipal securities with an intermediate average maturity - -------------------------------------------------------------------------------- INVESTOR PROFILE Virginia residents who want income exempt from federal and state income taxes - -------------------------------------------------------------------------------- [ICON OMITTED] INVESTMENT STRATEGY The Virginia Intermediate Municipal Bond Fund invests at least 80% of its net assets in municipal securities with income exempt from federal and Virginia income taxes. Issuers of these securities can be located in Virginia, Puerto Rico and other U.S. territories and possessions. In selecting investments for the Fund, the Adviser tries to limit risk by buying investment grade securities. The Adviser also considers stability and growth of principal. The Adviser expects that the Fund's average weighted maturity will range from 5 to 10 years but there is no limit on the maturities of individual securities. [ICON OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? The prices of the Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, the Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities are generally more volatile, so the average maturity or duration of these securities affects risk. There may be economic or political changes that impact the ability of municipal issuers to repay principal and to make interest payments on municipal securities. Changes in the financial condition or credit rating of municipal issuers also may adversely affect the value of the Fund's securities. The Fund is non-diversified, which means that it may invest in the securities of relatively few issuers. As a result, the Fund may be more susceptible to a single adverse economic or regulatory occurrence affecting one or more of these issuers, and may experience increased volatility due to its investments in those securities. The Fund's concentration of investments in securities of issuers located in Virginia subjects the Fund to economic and government policies of Virginia. [ICON OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S TRUST SHARES FROM YEAR TO YEAR.* [BAR GRAPH OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS: 1994 -6.45% 1995 14.25% 1996 2.95% 1997 7.25% 1998 5.22% 1999 -2.34% 2000 9.39% 2001 4.44% BEST QUARTER WORST QUARTER 5.99% -6.80% (3/31/95) (3/31/94) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS 4.00%. PROSPECTUS 37 - -------------------------------------------------------------------------------- VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE LEHMAN BROTHERS 5-YEAR MUNICIPAL BOND INDEX AND THE LIPPER OTHER STATES INTERMEDIATE MUNICIPAL DEBT FUNDS OBJECTIVE AVERAGE. PREVIOUSLY, THE FUND'S RETURNS HAD BEEN COMPARED TO THE LEHMAN BROTHER'S 5-YEAR GENERAL OBLIGATION BOND INDEX, BUT THE ADVISER BELIEVES THAT THE LEHMAN BROTHERS 5-YEAR MUNICIPAL BOND INDEX MORE ACCURATELY ALIGNS WITH THE CURRENT STRATEGY FOR, AND PEER GROUP OF, THIS INTERMEDIATE MATURITY FUND. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. TRUST SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Fund Returns Before Taxes 4.44% 4.71% 4.76% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions 4.43% 4.64% 4.71% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares 4.33% 4.64% 4.68% - -------------------------------------------------------------------------------- Lehman Brothers 5-Year Municipal Bond Index (reflects no deduction for fees, expenses or taxes) 6.21% 5.35% 5.48% - -------------------------------------------------------------------------------- Lipper Other States Intermediate Municipal Debt Funds Objective Average (reflects no deduction for taxes) 4.34% 4.48% 4.97% - -------------------------------------------------------------------------------- Lehman Brothers 5-Year General Obligation Bond Index (reflects no deduction for fees, expenses or taxes) 5.98% 5.31% 5.50% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE TRUST SHARES ON JANUARY 11, 1993. BENCHMARK RETURNS SINCE DECEMBER 31, 1992 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). [ICON OMITTED] - -------------------------------------------------------------------------------- WHAT IS AN INDEX? - -------------------------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Lehman Brothers 5-Year Municipal Bond Index is a widely-recognized index composed of tax-exempt bonds with maturities ranging between 4 and 6 years. The Lipper Other States Intermediate Municipal Debt Funds Average is an average of funds that invest in municipal debt issues with dollar-weighted average maturities of five to ten years and are exempt from taxation on a specified city or state basis. The number of funds in the Average varies. The Lehman Brothers 5-year General Obligation Bond Index is a widely-recognized index of municipal bonds with maturities ranging from 4 to 6 years. 38 PROSPECTUS - -------------------------------------------------------------------------------- VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND - -------------------------------------------------------------------------------- [ICON OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 0.65% Other Expenses 0.10% ----- Total Annual Fund Operating Expenses 0.75% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $77 $240 $417 $930 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." PROSPECTUS 39 - -------------------------------------------------------------------------------- VIRGINIA MUNICIPAL BOND FUND - -------------------------------------------------------------------------------- [ICON OMITTED] FUND SUMMARY INVESTMENT GOAL High current income exempt from federal and Virginia income taxes, consistent with preservation of capital - -------------------------------------------------------------------------------- INVESTMENT FOCUS Virginia municipal securities - -------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Moderate - -------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to invest in investment grade municipal securities - -------------------------------------------------------------------------------- INVESTOR PROFILE Virginia residents who want income exempt from federal and state income taxes - -------------------------------------------------------------------------------- [ICON OMITTED] INVESTMENT STRATEGY The Virginia Municipal Bond Fund invests substantially all of its assets in municipal securities with income exempt from federal and Virginia income taxes. Issuers of these securities can be located in Virginia, Puerto Rico and other U.S. territories and possessions. In selecting investments for the Fund, the Adviser tries to limit risk by buying investment grade securities. There are no limits on the Fund's average weighted maturity or on the remaining maturities of individual securities. [ICON OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? The prices of the Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, the Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities are generally more volatile, so the average maturity or duration of these securities affects risk. There may be economic or political changes that impact the ability of municipal issuers to repay principal and to make interest payments on municipal securities. Changes in the financial condition or credit rating of municipal issuers also may adversely affect the value of the Fund's securities. The Fund is non-diversified, which means that it may invest in the securities of relatively few issuers. As a result, the Fund may be more susceptible to a single adverse economic or regulatory occurrence affecting one or more of these issuers, and may experience increased volatility due to its investments in those securities. The Fund's concentration of investments in securities of issuers located in Virginia subjects the Fund to economic and government policies of Virginia. [ICON OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S TRUST SHARES FROM YEAR TO YEAR. [BAR GRAPH OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS: 1996 1.68% 1997 8.82% 1998 5.85% 1999 -4.86% 2000 11.65% 2001 4.23% BEST QUARTER WORST QUARTER 4.36% -2.73% (12/31/00) (3/31/96) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS 4.30%. 40 PROSPECTUS - -------------------------------------------------------------------------------- VIRGINIA MUNICIPAL BOND FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE LEHMAN BROTHERS 10-YEAR MUNICIPAL BOND INDEX AND THE LIPPER VIRGINIA MUNICIPAL DEBT FUNDS AVERAGE. PREVIOUSLY, THE FUND'S RETURNS HAD BEEN COMPARED TO THE LEHMAN BROTHERS GENERAL OBLIGATION BOND INDEX, BUT THE ADVISER BELIEVES THAT THE LEHMAN BROTHERS 10-YEAR MUNICIPAL BOND INDEX BETTER ALIGNS WITH THE CURRENT STRATEGY FOR, AND PEER GROUP OF, THE FUND. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. TRUST SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Fund Returns Before Taxes 4.23% 4.99% 5.24% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions 4.23% 4.94% 5.15% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares 4.20% 4.88% 5.07% - -------------------------------------------------------------------------------- Lehman Brothers 10-Year Municipal Bond Index (reflects no deduction for fees, expenses or taxes) 4.63% 5.94% 6.49% - -------------------------------------------------------------------------------- Lipper Virginia Municipal Debt Funds Average (reflects no deduction for taxes) 4.11% 4.93% 5.60% - -------------------------------------------------------------------------------- Lehman Brothers General Obligation Bond Index (reflects no deduction for fees, expenses or taxes) 5.09% 5.92% 6.43% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE TRUST SHARES ON APRIL 4, 1995. BENCHMARK RETURNS SINCE MARCH 31, 1995 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). [ICON OMITTED] - -------------------------------------------------------------------------------- WHAT IS AN INDEX? - -------------------------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Lehman Brothers 10-Year Municipal Bond Index is a widely-recognized index of long-term investment grade tax-exempt bonds. The Index includes general obligation bonds, revenue bonds, insured bonds and prefunded bonds with maturities between 8 and 12 years. The Index represents various market sectors and geographic locations. The Lipper Virginia Municipal Debt Funds Average is an average of funds that limit their assets to those securities that are exempt from taxation in a specified state (double tax-exempt) or city (triple tax-exempt). The number of funds in the Average varies. The Lehman Brothers General Obligation Bond Index is a widely-recognized index of general obligation securities issued in the last 5 years with maturities of over 1 year. PROSPECTUS 41 - -------------------------------------------------------------------------------- VIRGINIA MUNICIPAL BOND FUND - -------------------------------------------------------------------------------- [ICON OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 0.65% Other Expenses 0.12% ----- Total Annual Fund Operating Expenses 0.77% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $79 $246 $428 $954 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." 42 PROSPECTUS - -------------------------------------------------------------------------------- PRIME QUALITY MONEY MARKET FUND - -------------------------------------------------------------------------------- [ICON OMITTED] FUND SUMMARY INVESTMENT GOAL High current income, while preserving capital and liquidity - -------------------------------------------------------------------------------- INVESTMENT FOCUS Money market instruments - -------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify money market instruments with the most attractive risk/return trade-off - -------------------------------------------------------------------------------- INVESTOR PROFILE Conservative investors who want to receive current income from their investment - -------------------------------------------------------------------------------- [ICON OMITTED] INVESTMENT STRATEGY The Prime Quality Money Market Fund invests exclusively in high quality U.S. money market instruments and foreign money market instruments denominated in U.S. dollars. In selecting investments for the Fund, the Adviser tries to increase income without adding undue risk. The Adviser analyzes maturity, yields, market sectors and credit risk. Investments are made in money market instruments with the most attractive risk/return trade-off. As a money market fund, the Fund follows strict rules about credit risk, maturity and diversification of its investments. [ICON OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? An investment in the Fund is subject to income risk, which is the possibility that the Fund's yield will decline due to falling interest rates. A Fund share is not a bank deposit and is not insured or guaranteed by the FDIC or any government agency. In addition, although a money market fund seeks to keep a constant price per share of $1.00, you may lose money by investing in the Fund. [ICON OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S TRUST SHARES FROM YEAR TO YEAR.* [BAR GRAPH OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS: 1993 2.77% 1994 3.77% 1995 5.47% 1996 4.99% 1997 5.15% 1998 5.10% 1999 4.74% 2000 6.04% 2001 3.72% BEST QUARTER WORST QUARTER 1.55% 0.52% (9/30/00) (12/31/01) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS 0.75%. PROSPECTUS 43 - -------------------------------------------------------------------------------- PRIME QUALITY MONEY MARKET FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE IMONEYNET, INC. FIRST TIER RETAIL AVERAGE. TRUST SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Prime Quality Money Market Fund 3.72% 4.95% 4.54% - -------------------------------------------------------------------------------- iMoneyNet, Inc. First Tier Retail Average 3.54% 4.77% 4.40% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE TRUST SHARES ON JUNE 8, 1992. BENCHMARK RETURNS SINCE MAY 31, 1992 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). To obtain more information about the Fund's current yield, call 1-800-814-3397. [ICON OMITTED] - -------------------------------------------------------------------------------- WHAT IS AN AVERAGE? - -------------------------------------------------------------------------------- An average is a composite of mutual funds with similar investment goals. The iMoneyNet, Inc. First Tier Retail Average is a widely-recognized composite of money market funds, which invest in securities rated in the highest category by at least two recognized rating agencies. The number of funds in the Average varies. [ICON OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 0.65% Other Expenses 0.09% ----- Total Annual Fund Operating Expenses 0.74%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THIS FEE WAIVER REMAINS IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: Prime Quality Money Market Fund - Trust Shares 0.63% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $76 $237 $411 $918 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." 44 PROSPECTUS - -------------------------------------------------------------------------------- TAX-EXEMPT MONEY MARKET FUND - -------------------------------------------------------------------------------- [ICON OMITTED] FUND SUMMARY INVESTMENT GOAL High current interest income exempt from federal income taxes, while preserving capital and liquidity - -------------------------------------------------------------------------------- INVESTMENT FOCUS Municipal money market instruments - -------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to increase income without added risk by analyzing credit quality - -------------------------------------------------------------------------------- INVESTOR PROFILE Conservative investors who want to receive current tax-exempt income from their investment - -------------------------------------------------------------------------------- [ICON OMITTED] INVESTMENT STRATEGY The Tax-Exempt Money Market Fund invests substantially all of its assets in money market instruments issued by municipalities and issuers that pay income exempt from federal income taxes. In selecting investments for the Fund, the Adviser analyzes the credit quality and structure of each security to minimize risk. The Adviser actively manages the Fund's average maturity based on current interest rates and the Adviser's outlook of the market. As a money market fund, the Fund follows strict rules about credit risk, maturity and diversification of its investments. [ICON OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? An investment in the Fund is subject to income risk, which is the possibility that the Fund's yield will decline due to falling interest rates. A Fund share is not a bank deposit and is not insured or guaranteed by the FDIC or any government agency. In addition, although a money market fund seeks to keep a constant price per share of $1.00, you may lose money by investing in the Fund. There may be economic or political changes that impact the ability of municipal issuers to repay principal and to make interest payments on municipal securities. Changes in the financial condition or credit rating of municipal issuers also may adversely affect the value of the Fund's securities. [ICON OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S TRUST SHARES FROM YEAR TO YEAR.* [BAR GRAPH OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS: 1993 2.02% 1994 2.47% 1995 3.48% 1996 3.06% 1997 3.23% 1998 3.02% 1999 2.80% 2000 3.69% 2001 2.26% BEST QUARTER WORST QUARTER 0.98% 0.35% (6/30/00) (12/31/01) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS 0.44%. PROSPECTUS 45 - -------------------------------------------------------------------------------- TAX-EXEMPT MONEY MARKET FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE IMONEYNET, INC. TAX-FREE RETAIL AVERAGE. TRUST SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Tax-Exempt Money Market Fund 2.26% 3.00% 2.86% - -------------------------------------------------------------------------------- iMoneyNet, Inc. Tax-Free Retail Average 2.27% 2.90% 2.76% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE TRUST SHARES ON JUNE 8, 1992. BENCHMARK RETURNS SINCE MAY 31, 1992 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). To obtain more information about the Fund's current yield, call 1-800-814-3397. [ICON OMITTED] - -------------------------------------------------------------------------------- WHAT IS AN AVERAGE? - -------------------------------------------------------------------------------- An average is a composite of mutual funds with similar investment goals. The iMoneyNet, Inc. Tax-Free Retail Average is a widely-recognized composite of money market funds which invest in short-term municipal securities, the income of which is exempt from federal taxation. The number of funds in the Average varies. [ICON OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 0.55% Other Expenses 0.10% ----- Total Annual Fund Operating Expenses 0.65%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THIS FEE WAIVER REMAINS IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: Tax-Exempt Money Market Fund - Trust Shares 0.55% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $66 $208 $362 $810 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." 46 PROSPECTUS - -------------------------------------------------------------------------------- U.S. GOVERNMENT SECURITIES MONEY MARKET FUND - -------------------------------------------------------------------------------- [ICON OMITTED] FUND SUMMARY INVESTMENT GOAL High current income, while preserving capital and liquidity - -------------------------------------------------------------------------------- INVESTMENT FOCUS U.S. Treasury and government agency securities, and repurchase agreements - -------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to increase income without adding undue risk by analyzing yields - -------------------------------------------------------------------------------- INVESTOR PROFILE Conservative investors who want to receive current income - -------------------------------------------------------------------------------- [ICON OMITTED] INVESTMENT STRATEGY The U.S. Government Securities Money Market Fund invests exclusively in U.S. Treasury obligations, obligations issued or guaranteed as to principal and interest by agencies or instrumentalities of the U.S. government, repurchase agreements involving these securities, and shares of registered money market funds that invest in the foregoing. In selecting investments for the Fund, the Adviser tries to increase income without adding undue risk by analyzing yields. The Adviser actively manages the maturity of the Fund and its portfolio to maximize the Fund's yield based on current market interest rates and the Adviser's outlook on the market. As a money market fund, the Fund follows strict rules about credit risk, maturity and diversification of its investments. [ICON OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? An investment in the Fund is subject to income risk, which is the possibility that the Fund's yield will decline due to falling interest rates. A Fund share is not a bank deposit and is not insured or guaranteed by the FDIC or any government agency. In addition, although a money market fund seeks to keep a constant price per share of $1.00, you may lose money by investing in the Fund. Although the Fund's U.S. government securities are considered to be among the safest investments, they are not guaranteed against price movements due to changing interest rates. [ICON OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S TRUST SHARES FROM YEAR TO YEAR.* [BAR GRAPH OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS: 1993 2.67% 1994 3.64% 1995 5.39% 1996 4.81% 1997 4.99% 1998 4.88% 1999 4.41% 2000 5.71% 2001 3.67% BEST QUARTER WORST QUARTER 1.49% 0.48% (12/31/00) (12/31/01) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS 0.75%. PROSPECTUS 47 - -------------------------------------------------------------------------------- U.S. GOVERNMENT SECURITIES MONEY MARKET FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE IMONEYNET, INC. GOVERNMENT & AGENCY RETAIL AVERAGE. TRUST SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- U.S. Government Securities Money Market Fund 3.67% 4.73% 4.37% - -------------------------------------------------------------------------------- iMoneyNet, Inc. Government & Agency Retail Average 3.53% 4.73% 4.34% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE TRUST SHARES ON JUNE 8, 1992. BENCHMARK RETURNS SINCE MAY 31, 1992 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). To obtain more information about the Fund's yield, call 1-800-814-3397. [ICON OMITTED] - -------------------------------------------------------------------------------- WHAT IS AN AVERAGE? - -------------------------------------------------------------------------------- An average is a composite of mutual funds with similar investment goals. The iMoneyNet, Inc. Government & Agency Retail Average is a widely-recognized composite of all money market funds which invest in U.S. Treasury Bills, repurchase agreements or securities issued by agencies of the U.S. government. The number of funds in the Average varies. [ICON OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 0.65% Other Expenses 0.10% ----- Total Annual Fund Operating Expenses 0.75%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THIS FEE WAIVER REMAINS IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: U.S. Government Securities Money Market Fund - Trust Shares 0.66% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $77 $240 $417 $930 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." 48 PROSPECTUS - -------------------------------------------------------------------------------- U.S. TREASURY MONEY MARKET FUND - -------------------------------------------------------------------------------- [ICON OMITTED] FUND SUMMARY INVESTMENT GOAL High current income, while maintaining liquidity - -------------------------------------------------------------------------------- INVESTMENT FOCUS Money market instruments issued and guaranteed by the U.S. Treasury - -------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Investing in U.S. Treasury obligations and repurchase agreements - -------------------------------------------------------------------------------- INVESTOR PROFILE Conservative investors who want to receive current income from their investment - -------------------------------------------------------------------------------- [ICON OMITTED] INVESTMENT STRATEGY The U.S. Treasury Money Market Fund invests solely in U.S. Treasury obligations and repurchase agreements that are collateralized by obligations issued or guaranteed by the U.S. Treasury. The Fund limits its investments so as to obtain the highest investment quality rating by a nationally recognized statistical rating organization (Standard and Poor's Corporation, AAA). As a money market fund, the Fund follows strict rules about credit risk, maturity and diversification of its investments. [ICON OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? An investment in the Fund is subject to income risk, which is the possibility that the Fund's yield will decline due to falling interest rates. A Fund share is not a bank deposit and is not insured or guaranteed by the FDIC or any government agency. In addition, although a money market fund seeks to keep a constant price per share of $1.00, you may lose money by investing in the Fund. Although the Fund's U.S. Treasury securities are considered to be among the safest investments, they are not guaranteed against price movements due to changing interest rates. [ICON OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S TRUST SHARES FROM YEAR TO YEAR.* [BAR GRAPH OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS: 1992 3.40% 1993 2.51% 1994 3.50% 1995 5.33% 1996 4.77% 1997 4.93% 1998 4.82% 1999 4.38% 2000 5.63% 2001 3.32% BEST QUARTER WORST QUARTER 1.46% 0.41% (12/31/00) (12/31/01) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS 0.63%. PROSPECTUS 49 - -------------------------------------------------------------------------------- U.S. TREASURY MONEY MARKET FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE IMONEYNET, INC. TREASURY & REPO RETAIL AVERAGE. TRUST SHARES 1 YEAR 5 YEARS 10 YEARS - -------------------------------------------------------------------------------- U.S. Treasury Money Market Fund 3.32% 4.61% 4.25% - -------------------------------------------------------------------------------- iMoneyNet, Inc. Treasury & Repo Retail Average 3.42% 4.61% 4.24% - -------------------------------------------------------------------------------- To obtain more information about the Fund's current yield, call 1-800-814-3397. [ICON OMITTED] - -------------------------------------------------------------------------------- WHAT IS AN AVERAGE? - -------------------------------------------------------------------------------- An average is a composite of mutual funds with similar investment goals. The iMoneyNet, Inc. Treasury & Repo Retail Average is a widely-recognized composite of money market funds which invest in U.S. Treasury Bills and repurchase agreements backed by these securities. The number of funds in the Average varies. [ICON OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 0.65% Other Expenses 0.09% ----- Total Annual Fund Operating Expenses 0.74%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THIS FEE WAIVER REMAINS IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: U.S. Treasury Money Market Fund - Trust Shares 0.65% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $76 $237 $411 $918 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." 50 PROSPECTUS - -------------------------------------------------------------------------------- VIRGINIA TAX-FREE MONEY MARKET FUND - -------------------------------------------------------------------------------- [ICON OMITTED] FUND SUMMARY INVESTMENT GOAL High current income exempt from federal and Virginia income taxes, while preserving capital and liquidity - -------------------------------------------------------------------------------- INVESTMENT FOCUS Virginia municipal money market instruments - -------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to increase income without added risk by analyzing credit quality - -------------------------------------------------------------------------------- INVESTOR PROFILE Virginia residents who want to receive current income exempt from federal and state income taxes - -------------------------------------------------------------------------------- [ICON OMITTED] INVESTMENT STRATEGY The Virginia Tax-Free Money Market Fund invests substantially all of its assets in money market instruments issued by municipalities and issuers that pay income exempt from federal and Virginia income taxes. Issuers of these securities can be located in Virginia, Puerto Rico and other U.S. territories and possessions. In selecting investments for the Fund, the Adviser analyzes the credit quality and structure of each security to minimize risk. The Adviser actively manages the Fund's average maturity based on current interest rates and the Adviser's outlook of the market. As a money market fund, the Fund follows strict rules about credit risk, maturity and diversification of its investments. [ICON OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? An investment in the Fund is subject to income risk, which is the possibility that the Fund's yield will decline due to falling interest rates. A Fund share is not a bank deposit and is not insured or guaranteed by the FDIC or any government agency. In addition, although a money market fund seeks to keep a constant price per share of $1.00, you may lose money by investing in the Fund. The Fund's concentration of investments in securities of issuers located in Virginia subjects the Fund to economic and government policies within Virginia. There may be economic or political changes that impact the ability of municipal issuers to repay principal and to make interest payments on municipal securities. Changes in the financial condition or credit rating of municipal issuers also may adversely affect the value of the Fund's securities. [ICON OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S TRUST SHARES FROM YEAR TO YEAR.* [BAR GRAPH OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS: 1992 2.86% 1993 1.84% 1994 2.18% 1995 3.28% 1996 3.11% 1997 3.08% 1998 2.93% 1999 2.81% 2000 3.71% 2001 2.31% BEST QUARTER WORST QUARTER 0.97% 0.35% (6/30/00) (12/31/01) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS 0.48%. PROSPECTUS 51 - -------------------------------------------------------------------------------- VIRGINIA TAX-FREE MONEY MARKET FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE IMONEYNET, INC. TAX-FREE RETAIL AVERAGE. TRUST SHARES 1 YEAR 5 YEARS 10 YEARS - -------------------------------------------------------------------------------- Virginia Tax-Free Money Market Fund 2.31% 2.97% 2.81% - -------------------------------------------------------------------------------- iMoneyNet, Inc. Tax-Free Retail Average 2.27% 2.90% 2.76% - -------------------------------------------------------------------------------- To obtain more information about the Fund's current yield, call 1-800-814-3397. [ICON OMITTED] - -------------------------------------------------------------------------------- WHAT IS AN AVERAGE? - -------------------------------------------------------------------------------- An average is a composite of mutual funds with similar investment goals. The iMoneyNet, Inc. Tax-Free Retail Average is a widely-recognized composite of money market funds which invest in short-term municipal securities, the income of which is exempt from federal taxation. The number of funds in the Average varies. [ICON OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 0.40% Other Expenses 0.10% ----- Total Annual Fund Operating Expenses 0.50% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $51 $160 $280 $628 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." 52 PROSPECTUS - -------------------------------------------------------------------------------- MORE INFORMATION ABOUT RISK - -------------------------------------------------------------------------------- [ICON OMITTED] MORE INFORMATION ABOUT RISK DERIVATIVES RISK STRATEGIC INCOME FUND The Fund may use derivatives to attempt to achieve its investment objectives, while at the same time maintaining liquidity. To collateralize (or cover) these derivatives transactions, the Fund holds cash or U.S. government securities. FIXED INCOME RISK CLASSIC INSTITUTIONAL SUPER SHORT INCOME PLUS FUND FLORIDA TAX-EXEMPT BOND FUND GEORGIA TAX-EXEMPT BOND FUND HIGH INCOME FUND INVESTMENT GRADE BOND FUND INVESTMENT GRADE TAX-EXEMPT BOND FUND LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND MARYLAND MUNICIPAL BOND FUND SHORT-TERM BOND FUND SHORT-TERM U.S. TREASURY SECURITIES FUND U.S. GOVERNMENT SECURITIES FUND VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND VIRGINIA MUNICIPAL BOND FUND TAX-EXEMPT MONEY MARKET FUND VIRGINIA TAX-FREE MONEY MARKET FUND The market value of fixed income investments changes in response to interest rate changes and other factors. During periods of falling interest rates, the values of outstanding fixed income securities generally rise. Moreover, while securities with longer maturities tend to produce higher yields, the prices of longer maturity securities are also subject to greater market fluctuations as a result of changes in interest rates. In addition to these fundamental risks, different types of fixed income securities may be subject to the following additional risks: CREDIT RISK CLASSIC INSTITUTIONAL SUPER SHORT INCOME PLUS FUND FLORIDA TAX-EXEMPT BOND FUND GEORGIA TAX-EXEMPT BOND FUND INVESTMENT GRADE BOND FUND INVESTMENT GRADE TAX-EXEMPT BOND FUND MARYLAND MUNICIPAL BOND FUND SHORT-TERM BOND FUND VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND VIRGINIA MUNICIPAL BOND FUND The possibility that an issuer will be unable to make timely payments of either principal or interest. MUNICIPAL ISSUER RISK FLORIDA TAX-EXEMPT BOND FUND GEORGIA TAX-EXEMPT BOND FUND INVESTMENT GRADE TAX-EXEMPT BOND FUND MARYLAND MUNICIPAL BOND FUND TAX-EXEMPT MONEY MARKET FUND VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND VIRGINIA MUNICIPAL BOND FUND VIRGINIA TAX-FREE MONEY MARKET FUND There may be economic or political changes that impact the ability of municipal issuers to repay principal and to make interest payments on municipal securities. Changes to the financial condition or credit rating of municipal issuers may also adversely affect the value of the Fund's municipal securities. Constitutional or legislative limits on borrowing by municipal issuers may result in reduced supplies of municipal securities. Moreover, certain municipal securities are backed only by a municipal issuer's ability to levy and collect taxes. In addition, the Fund's concentration of investments in issuers located in a single state makes the Fund more susceptible to adverse political or economic developments affecting that state. The Fund also may be riskier than mutual funds that buy securities of issuers in numerous states. PROSPECTUS 53 - -------------------------------------------------------------------------------- MORE INFORMATION ABOUT FUND INVESTMENTS - -------------------------------------------------------------------------------- FOREIGN SECURITY RISKS CLASSIC INSTITUTIONAL SUPER SHORT INCOME PLUS FUND HIGH INCOME FUND STRATEGIC INCOME FUND Investments in securities of foreign companies or governments can be more volatile than investments in U.S. companies or governments. Diplomatic, political, or economic developments, including nationalization or appropriation, could affect investments in foreign countries. Foreign securities markets generally have less trading volume and less liquidity than U.S. markets. In addition, the value of securities denominated in foreign currencies, and of dividends from such securities, can change significantly when foreign currencies strengthen or weaken relative to the U.S. dollar. Foreign companies or governments generally are not subject to uniform accounting, auditing, and financial reporting standards comparable to those applicable to domestic U.S. companies or governments. Transaction costs are generally higher than those in the U.S. and expenses for custodial arrangements of foreign securities may be somewhat greater than typical expenses for custodial arrangements of similar U.S. securities. Some foreign governments levy withholding taxes against dividend and interest income. Although in some countries a portion of these taxes are recoverable, the non-recovered portion will reduce the income received from the securities comprising the portfolio. HEDGING RISK STRATEGIC INCOME FUND Hedging is a strategy designed to offset investment risks. There are risks associated with hedging activities, including: o 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 and currency exchange rates. o There may be an imperfect or no correlation between the changes in market value of the securities held by the Fund or the currencies in which those securities are denominated and the prices of forward contracts, futures and options on futures. o There may not be a liquid secondary market for a futures contract or option. o Trading restrictions or limitations may be imposed by an exchange, and government regulations may restrict trading in currencies, futures contracts and options. REGIONAL RISK FLORIDA TAX-EXEMPT BOND FUND GEORGIA TAX-EXEMPT BOND FUND MARYLAND MUNICIPAL BOND FUND VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND VIRGINIA MUNICIPAL BOND FUND VIRGINIA TAX-FREE MONEY MARKET FUND To the extent that the Fund's investments are concentrated in a specific geographic region, the Fund may be subject to the political and other developments affecting that region. Regional economies are often closely interrelated, and political and economic developments affecting one region, country or state often affect other regions, countries or states, thus subjecting a Fund to additional risks. [ICON OMITTED] MORE INFORMATION ABOUT FUND INVESTMENTS This prospectus describes the Funds' primary strategies, and the Funds will normally invest in the types of securities described in this prospectus. However, in addition to the investments and strategies described in this prospectus, each Fund also may invest in other securities, use other strategies and engage in other investment practices. These investments and strategies, as well as those described in this prospectus, are described in detail in the Statement of Additional Information (SAI). The investments and strategies described in this prospectus are those that the Funds use under normal 54 PROSPECTUS - -------------------------------------------------------------------------------- PORTFOLIO MANAGERS - -------------------------------------------------------------------------------- conditions. During unusual economic or market conditions, or for temporary defensive or liquidity purposes, each Bond Fund may invest up to 100% of its assets in cash, money market instruments, repurchase agreements and short-term obligations that would not ordinarily be consistent with a Fund's objectives. In addition, the Florida Tax-Exempt Bond Fund, Georgia Tax-Exempt Bond Fund, Investment Grade Bond Fund, Investment Grade Tax-Exempt Bond Fund, Limited-Term Federal Mortgage Securities Fund, Short-Term Bond Fund, Short-Term U.S. Treasury Securities Bond Fund, Virginia Intermediate Municipal Bond Fund and the U.S. Government Securities Fund each may shorten its average weighted maturity to as little as 90 days. A Bond Fund will do so only if the Adviser believes that the risk of loss outweighs the opportunity for higher income. Of course, a Fund cannot guarantee that it will achieve its investment goal. [ICON OMITTED] INVESTMENT ADVISER The investment adviser (Adviser) makes investment decisions for the Funds and continuously reviews, supervises and administers each Fund's respective investment program. The Board of Trustees supervises the Adviser and establishes policies that the Adviser must follow in its management activities. Trusco Capital Management, Inc. (Trusco or the Adviser), 50 Hurt Plaza, Suite 1400, Atlanta, Georgia 30303, serves as the Adviser to the Funds. As of June 30, 2002, Trusco had $45.5 billion in assets under management. For the fiscal period ended May 31, 2002, the Adviser received advisory fees of: CLASSIC INSTITUTIONAL SUPER SHORT INCOME PLUS FUND 0.20% FLORIDA TAX-EXEMPT BOND FUND 0.60% GEORGIA TAX-EXEMPT BOND FUND 0.60% HIGH INCOME FUND 0.65% INVESTMENT GRADE BOND FUND 0.72% INVESTMENT GRADE TAX-EXEMPT BOND FUND 0.71% LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND 0.60% MARYLAND MUNICIPAL BOND FUND 0.57% SHORT-TERM BOND FUND 0.60% SHORT-TERM U.S. TREASURY SECURITIES FUND 0.59% STRATEGIC INCOME FUND 0.75% U.S. GOVERNMENT SECURITIES FUND 0.71% VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND 0.65% VIRGINIA MUNICIPAL BOND FUND 0.65% PRIME QUALITY MONEY MARKET FUND 0.54% TAX-EXEMPT MONEY MARKET FUND 0.45% U.S. GOVERNMENT SECURITIES MONEY MARKET FUND 0.56% U.S. TREASURY MONEY MARKET FUND 0.56% VIRGINIA TAX-FREE MONEY MARKET FUND 0.40% The Adviser may use its affiliates as brokers for fund transactions. PORTFOLIO MANAGERS Mr. Robert W. Corner has served as a Vice President of Trusco since September 1996. Mr. Corner has managed the Classic Institutional Super Short Income Plus Fund since it began operating in April 2002. He has more than 15 years of investment experience. Mr. Ronald Schwartz, CFA, has served as a Managing Director of Trusco since July 2000, after serving as a Managing Director of STI since 1988. He has managed the Florida Tax-Exempt Bond Fund since it began operating in January 1994, and the Investment Grade Tax-Exempt Bond Fund since it began operating in June 1992. He has more than 21 years of investment experience. Ms. Gay Cash has served as a Vice President of Trusco since July 2000. She has managed the Georgia Tax-Exempt Bond Fund since it began operating in January 1994. Previously, she had served as First Vice President of SunTrust Bank, Atlanta since 1998, and had worked there since 1987. She has more than 23 years of investment experience. The Investment Grade Bond Fund and the Limited-Term Federal Mortgage Securities Fund are co-managed by Mr. L. Earl Denney, CFA, and Mr. Dave E. West, CFA. In January 2000, Mr. Denney was named Managing PROSPECTUS 55 - -------------------------------------------------------------------------------- PURCHASING AND SELLING FUND SHARES - -------------------------------------------------------------------------------- Director of SunTrust Bank and is now Managing Director of Trusco, after serving as Managing Director of STI since 1983. Mr. Denney has co-managed the Investment Grade Bond Fund since it began operating in June 1992 and has co-managed the Limited-Term Federal Mortgage Securities Fund since it began operating in June 1994. Mr. Denney has more than 23 years of investment experience. In January 2000, Mr. West was named Managing Director of SunTrust Bank and is now Managing Director of Trusco, after working at STI since 1985. Mr. West has co-managed the Investment Grade Bond Fund since it began operating in June 1992 and has co-managed the Limited-Term Federal Mortgage Securities Fund since it began operating in June 1994. Mr. West has more than 16 years of investment experience. Mr. George E. Calvert, Jr., has served as Vice President of Trusco since 2000. He has managed the Maryland Municipal Bond Fund since 2000, the Virginia Municipal Bond Fund since 2000, and the Virginia Intermediate Municipal Bond Fund since 2000. Prior to joining Trusco, Mr. Calvert served as a fixed income trader from 1998 to 2000 for Tredegar Trust Company. He also served as Vice President, Investment Division, of Central Fidelity Bank from 1988 to 1998. Mr. Calvert has more than 29 years of investment experience. Ms. Agnes G. Pampush, CFA, has served as a Managing Director of Trusco since July 2000, after serving as a Vice President of Trusco since 1998. Ms. Pampush was employed by Trusco from 1983 to 1996, and rejoined the firm in 1998. She has managed the Short-Term Bond Fund since February 1999, and the High Income Fund since April 2000. She has more than 20 years of investment experience. Mr. David S. Yealy has served as a Managing Director of Trusco since July 2000. He has managed the Prime Quality Money Market Fund since it began operating in June 1992, the Short-Term U.S. Treasury Securities Fund since July 1996, and the U.S. Treasury Money Market Fund since October 2000. Prior to July 2000, Mr. Yealy was a First Vice President of Trusco and has worked there since 1991. He has more than 17 years of investment experience. Mr. Neil J. Powers, CFA, joined Trusco in 1997 and serves as a Managing Director. He has managed the U.S. Government Securities Fund since November 2000 and the Strategic Income Fund since it began operating in November 2001. Prior to joining Trusco, Mr. Powers worked at Putnam Investments, from 1986 to 1997, where he managed multi-sector bond funds and separately managed institutional accounts. He has more than 18 years of investment experience. Mr. Robert S. Bowman, CFA, has served as a Vice President of Trusco since January 1999. He has managed the Virginia Tax-Free Money Market Fund since May 1995, the Tax-Exempt Money Market Fund since July 2000 and the U.S. Government Securities Money Market Fund since October 2000. Prior to joining Trusco, Mr. Bowman served as an assistant trader from 1994 to 1995, and Vice President of Crestar Asset Management Company since 1995. He has more than 8 years of investment experience. [ICON OMITTED] PURCHASING AND SELLING FUND SHARES This section tells you how to purchase and sell (sometimes called "redeem") Trust Shares of the Funds. HOW TO PURCHASE FUND SHARES The Funds offer Trust Shares only to financial institutions or intermediaries, including subsidiaries of SunTrust Banks, Inc. (SunTrust), for their own or their customers' accounts for which they act as fiduciary, agent, investment adviser, or custodian. As a result, you, as a customer of a financial institution may purchase Trust Shares through accounts made with financial institutions and potentially through the Investor's Advantage Account (an asset allocation account available through SunTrust Securities, Inc.). Trust Shares will be held of record by (in the name of) your financial institution. Depending upon the terms of your account, however, you may have, or be given, the right to vote your Trust Shares. The Funds may reject any purchase order if it is determined that accepting the order would not be in the best interests of STI Classic Funds or its shareholders. 56 PROSPECTUS - -------------------------------------------------------------------------------- PURCHASING AND SELLING FUND SHARES - -------------------------------------------------------------------------------- WHEN CAN YOU PURCHASE SHARES? You may purchase shares on any day that the New York Stock Exchange is open for business (a Business Day). But you may not purchase shares of the Money Market Funds on federal holidays. The price per share (the offering price) will be the net asset value per share (NAV) next determined after the Funds receive your purchase order. Each Fund calculates its NAV once each Business Day at the regularly-scheduled close of normal trading on the New York Stock Exchange (normally, 4:00 p.m., Eastern Time). So, for you to receive the current Business Day's NAV for each Fund (except the Money Market Funds), generally a Fund must receive your purchase order in proper form before 4:00 p.m., Eastern Time. The Fund will not accept orders that request a particular day or price for the transaction or any other special conditions. Each Money Market Fund calculates its NAV once each Business Day at the regularly-scheduled close of normal trading on the New York Stock Exchange (normally 4:00 p.m., Eastern Time.) So, for you to be eligible to receive dividends declared on the day you submit your purchase order, the Money Market Funds must generally receive your order before 10:30 a.m., Eastern Time for the Tax-Exempt Money Market Fund and Virginia Tax-Free Money Market Fund or before 2:00 p.m., Eastern Time for the Prime Quality Money Market and U.S. Government Securities Money Market Funds. Also each Money Market Fund must receive federal funds (readily available funds) before 4:00 p.m., Eastern Time. Otherwise, your purchase order will be effective the following Business Day, as long as each Money Market Fund receives federal funds before calculating its NAV the following day. FOR CUSTOMERS OF SUNTRUST, ITS AFFILIATES, AND OTHER FINANCIAL INSTITUTIONS YOU MAY HAVE TO TRANSMIT YOUR PURCHASE AND SALE REQUESTS TO SUNTRUST OR OTHER FINANCIAL INSTITUTIONS AT AN EARLIER TIME FOR YOUR TRANSACTION TO BECOME EFFECTIVE THAT DAY. THIS ALLOWS THE FINANCIAL INSTITUTION TIME TO PROCESS YOUR REQUEST AND TRANSMIT IT TO THE ADMINISTRATOR OR TRANSFER AGENT IN TIME TO MEET THE ABOVE STATED FUND CUT-OFF TIMES. FOR MORE INFORMATION ABOUT HOW TO PURCHASE OR SELL FUND SHARES, INCLUDING SPECIFIC SUNTRUST OR OTHER FINANCIAL INSTITUTIONS' INTERNAL ORDER ENTRY CUT-OFF TIMES, PLEASE CONTACT YOUR FINANCIAL INSTITUTION DIRECTLY. HOW THE FUNDS CALCULATE NAV In calculating NAV, a Fund (except the Money Market Funds) generally values its investment portfolio at market price. In calculating NAV for each Money Market Fund, each Fund generally values its investment portfolio using the amortized cost valuation method, which is described in detail in the SAI. If market prices are unavailable or a Fund thinks that the market price or amortized cost valuation method is unreliable during certain market conditions or for other reasons, fair value prices may be determined in good faith using methods approved by the Board of Trustees. Each Money Market Fund expects its NAV to remain constant at $1.00 per share, although the Fund cannot guarantee this. The Strategic Income Fund may hold securities that are listed on foreign exchanges. These securities may trade on weekends or other days when the Funds do not calculate NAV. As a result, the market value of these investments may change on days when you cannot purchase or sell Fund shares. NET ASSET VALUE NAV for one Fund share is the value of that share's portion of the net assets of the Fund. HOW TO SELL YOUR FUND SHARES You may sell (sometimes called "redeem") your shares on any Business Day by contacting SunTrust or your financial institution. SunTrust or your financial institution will give you information about how to sell your shares including any specific cut-off times required. Holders of Trust Shares may sell shares by following the procedures established when they opened their account or accounts with the Funds or with their financial institution or intermediary. The sale price of each share will be the next NAV determined after the Funds receive your request. PROSPECTUS 57 - -------------------------------------------------------------------------------- DIVIDENDS AND DISTRIBUTIONS - -------------------------------------------------------------------------------- Redemption orders must be received by the Money Market Funds on a Business Day before 10:30 a.m., Eastern Time for the Tax-Exempt Money Market Fund and Virginia Tax-Free Money Market Fund or 2:00 p.m., Eastern Time for the Prime Quality, U.S. Treasury and U.S. Government Securities Money Market Funds. Orders received after these times will be executed the following Business Day. RECEIVING YOUR MONEY Normally, the Funds will send your sales proceeds within five Business Days after a Fund receives your request, but it may take up to seven days. REDEMPTIONS IN KIND The Funds generally pay sale (redemption) proceeds in cash. However, under unusual conditions that make the payment of cash unwise (and for the protection of the Fund's remaining shareholders) a Fund might pay all or part of your redemption proceeds in liquid securities with a market value equal to the redemption price (redemption in kind). It is highly unlikely that your shares would ever be redeemed in kind, but if they were you would probably have to pay transaction costs to sell the securities distributed to you, as well as taxes on any capital gains from the sale as with any redemption. SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES A Fund may suspend your right to sell your shares if the New York Stock Exchange restricts trading, the SEC declares an emergency or for other reasons. More information about this is in the SAI. TELEPHONE TRANSACTIONS Purchasing and selling Fund shares over the telephone is extremely convenient, but not without risk. Although the Funds have certain safeguards and procedures to confirm the identity of callers and the authenticity of instructions, the Funds are not responsible for any losses or costs incurred by following telephone instructions the Fund reasonably believe to be genuine. If you or your financial institution transact with the Fund over the telephone, you will generally bear the risk of any loss. The Funds reserve the right to modify, suspend or terminate telephone transaction privileges at any time. MARKET TIMERS Short-term or excessive trading into and out of a Fund may harm the Fund's performance by disrupting the Adviser's investment strategy and by increasing Fund expenses. Accordingly, any Fund may restrict or refuse purchase or exchange requests by Market Timers or investors who seem to follow a short-term trading pattern that may adversely affect a Fund. You may be classified as a Market Timer if you: o Request a substantial exchange out of any Fund within two weeks of a prior substantive exchange request out of any Fund; or o Request a substantial exchange out of any Fund more than twice during any 90 day continuous period. Anyone considered to be a Market Timer by the Fund, its manager(s) or a shareholder servicing agent will be notified in writing of their designation as a Market Timer. Market Timers who redeem or exchange their shares out of any Fund within 90 days of purchase may be charged a redemption fee of up to 2% of redemption proceeds, which will automatically be paid to the Fund. This redemption fee does not apply to 401(k)/403(b) type participant accounts, Systematic Withdrawal Plan accounts, SunTrust Securities asset allocation accounts or accounts held on an omnibus arrangement. Dealers who purchase Trust shares on behalf of Market Timers, including Market Timers with shares held through an omnibus account, may not be eligible to receive shareholder servicing fees or other contractual concession payments. Further, all Funds reserve the right to refuse any purchase or exchange requests by any investor at any time. DIVIDENDS AND DISTRIBUTIONS Each Fund declares dividends daily and pays these dividends monthly. Each Fund makes distributions of its net realized capital gains, if any, at least annually. If you own Fund shares on a Fund's record date, you will be entitled to receive the distribution. You will receive dividends and distributions in the form of additional Fund shares unless you elect to receive payment in cash. To elect cash payment, you must notify the Funds in writing prior to the date of the distribution. Your election will be effective for dividends and distributions paid after the Funds receive your written notice. To cancel your election, simply send the Funds written notice. 58 PROSPECTUS - -------------------------------------------------------------------------------- TAXES - -------------------------------------------------------------------------------- TAXES PLEASE CONSULT YOUR TAX ADVISOR REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL, STATE AND LOCAL INCOME TAXES. Below the Funds have summarized some important tax issues that affect the Funds and their shareholders. This summary is based on current tax laws, which may change. Each Fund will distribute substantially all of its net investment income and its net realized capital gains, if any, at least annually. The dividends and distributions you receive may be subject to federal, state and local taxation, depending upon your tax situation. Distributions you receive from a Fund may be taxable whether or not you reinvest them. Income distributions are generally taxable at ordinary income tax rates. Capital gains distributions are generally taxable at the rates applicable to long-term capital gains. EACH SALE OR EXCHANGE OF FUND SHARES MAY BE A TAXABLE EVENT. FOR TAX PURPOSES, AN EXCHANGE OF YOUR FUND SHARES FOR SHARES OF ANOTHER STI CLASSIC FUND IS TREATED THE SAME AS A SALE. Shareholders of the Money Market Funds, however, should be aware that because the Funds each expect to maintain a stable $1.00 net asset value per share, they should not expect to realize any gain or loss on the sale or exchange of Money Market Fund shares. The Classic Institutional Super Short Income Plus Fund expects that some portion of the Fund's distributions will represent interest earned on U.S. obligations. The Florida Tax-Exempt Bond Fund, Georgia Tax-Exempt Bond Fund, Investment Grade Tax-Exempt Bond Fund, Maryland Municipal Bond Fund, Tax-Exempt Money Market Fund, Virginia Intermediate Municipal Bond Fund, Virginia Municipal Bond Fund and Virginia Tax-Free Money Market Fund intend to distribute federally tax-exempt income. Each Fund may invest a portion of its assets in securities that generate taxable income for federal or state income taxes. Income exempt from federal tax may be subject to state and local taxes. Any capital gains distributed by these Funds may be taxable. While shareholders of state specific Funds may receive distributions that are exempt from that particular state's income tax, such distributions may be taxable in other states where the shareholder files tax returns. If you have a tax-advantaged or other retirement account you will generally not be subject to federal taxation on income and capital gain distributions until you begin receiving your distributions from your retirement account. You should consult your tax advisor regarding the rules governing your own retirement plan. Except for those certain Funds that expect to distribute federally tax-exempt income (described above), the Funds expect to distribute primarily ordinary income dividends. The Short-Term U.S. Treasury Securities Fund, the U.S. Government Securities Fund, the U.S. Government Securities Money Market Fund and the U.S. Treasury Money Market Fund each expect that a substantial portion of Fund distributions will represent interest earned on U.S. obligations, while the Investment Grade Bond Fund, the Short-Term Bond Fund, and the Prime Quality Money Market Fund expect that some portion of each Fund's distribution will be so derived. Many states grant tax-free status to dividends paid from interest earned on direct obligations of the U.S. government, subject to certain limitations. MORE INFORMATION ABOUT TAXES IS IN THE SAI. PROSPECTUS 59 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS The financial highlights table is intended to help you understand a Fund's financial performance for the period of the Fund's (and its predecessor's) operations. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). The information provided below for the period ended May 31, 2002 has been audited by PricewaterhouseCoopers LLP. The information for prior periods has been audited by predecessor independent accounting firms. The Reports of Independent Accountants for each such period along with the Fund's financial statements and related notes, are included in the Annual Reports to Shareholders for such periods. The 2002 Annual Report is available upon request and without charge by calling 1-800-428-6970. The 2002 Annual Report is incorporated by reference in the SAI. For the Periods Ended May 31, For a Share Outstanding Throughout the Periods
NET REALIZED NET ASSET AND DISTRIBUTIONS DISTRIBUTIONS RATIO OF VALUE NET UNREALIZED FROM NET FROM REALIZED NET ASSET NET ASSETS EXPENSES BEGINNING INVESTMENT GAINS (LOSSES) INVESTMENT CAPITAL VALUE END TOTAL END OF TO AVERAGE OF PERIOD INCOME ON INVESTMENTS INCOME GAINS OF PERIOD RETURN+ PERIOD (000) NET ASSETS ---------- --------- -------------------------- ------------- ---------- -------- ------------ ---------- - ---------------------------- FLORIDA TAX-EXEMPT BOND FUND - ---------------------------- Trust Shares 2002 $10.79 $0.40 $ 0.22 $(0.40) $(0.06) $10.95 5.88% $ 120,885 0.71% 2001 10.06 0.44 0.73 (0.44) -- 10.79 11.84 107,867 0.71 2000 10.59 0.44 (0.49) (0.44) (0.04) 10.06 (0.48) 93,040 0.67 1999 10.72 0.42 (0.02) (0.42) (0.11) 10.59 3.72 118,609 0.67 1998 10.28 0.44 0.45 (0.44) (0.01) 10.72 8.77 93,939 0.66 - ---------------------------- GEORGIA TAX-EXEMPT BOND FUND - ---------------------------- Trust Shares 2002 $10.10 $0.39 $ 0.19 $(0.39) -- $10.29 5.81% $ 91,356 0.71% 2001 9.50 0.40 0.60 (0.40) -- 10.10 10.67 85,880 0.71 2000 10.03 0.40 (0.49) (0.40) $(0.04) 9.50 (0.90) 81,160 0.67 1999 10.11 0.39 (0.06) (0.39) (0.02) 10.03 3.33 87,452 0.67 1998 9.73 0.41 0.39 (0.41) (0.01) 10.11 8.37 62,363 0.66 - ---------------- HIGH INCOME FUND - ---------------- Trust Shares 2002(1) $ 7.37 $0.39 $(0.12) $(0.39) -- $ 7.25 3.70% $ 28,767 0.82% - -------------------------- INVESTMENT GRADE BOND FUND - -------------------------- Trust Shares 2002 $10.23 $0.51 $ 0.01 $(0.51) -- $10.24 5.18% $ 886,471 0.81% 2001 9.58 0.61 0.65 (0.61) -- 10.23 13.55 860,073 0.81 2000 10.36 0.61 (0.78) (0.61) -- 9.58 (1.76) 998,596 0.77 1999 10.65 0.56 (0.11) (0.56) $(0.18) 10.36 4.25 1,149,068 0.77 1998 10.16 0.60 0.49 (0.60) -- 10.65 10.92 793,488 0.76 - ------------------------------------- INVESTMENT GRADE TAX-EXEMPT BOND FUND - ------------------------------------- Trust Shares 2002 $11.38 $0.34 $ 0.46 $(0.34) $(0.27) $11.57 7.15% $ 149,200 0.81% 2001 10.67 0.44 0.71 (0.44) -- 11.38 10.93 134,139 0.81 2000 11.10 0.43 (0.29) (0.43) (0.14) 10.67 1.41 117,384 0.77 1999 11.40 0.43 0.10 (0.43) (0.40) 11.10 4.67 154,123 0.77 1998 11.22 0.44 0.50 (0.44) (0.32) 11.40 8.57 146,606 0.76 RATIO OF NET RATIO OF INVESTMENT EXPENSES TO INCOME TO RATIO OF NET AVERAGE NET AVERAGE INVESTMENT ASSETS NET ASSETS INCOME (EXCLUDING (EXCLUDING PORTFOLIO TO AVERAGE WAIVERS AND WAVIERS AND TURNOVER NET ASSETS REIMBURSEMENTS) REIMBURSEMENTS) RATE ---------- -------------- -------------- --------- - ---------------------------- FLORIDA TAX-EXEMPT BOND FUND - ---------------------------- Trust Shares 2002 3.65% 0.76% 3.60% 91% 2001 4.19 0.76 4.14 59 2000 4.25 0.78 4.14 88 1999 3.90 0.77 3.80 72 1998 4.16 0.80 4.02 69 - ---------------------------- GEORGIA TAX-EXEMPT BOND FUND - ---------------------------- Trust Shares 2002 3.79% 0.76% 3.74% 23% 2001 4.03 0.77 3.97 21 2000 4.13 0.77 4.03 19 1999 3.87 0.78 3.76 12 1998 4.09 0.81 3.94 7 - ---------------- HIGH INCOME FUND - ---------------- Trust Shares 2002(1) 8.27% 0.97% 8.12% 59% - -------------------------- INVESTMENT GRADE BOND FUND - -------------------------- Trust Shares 2002 4.81% 0.83% 4.79% 123% 2001 6.17 0.84 6.14 131 2000 6.05 0.84 5.98 202 1999 5.25 0.85 5.17 221 1998 5.67 0.86 5.57 109 - ------------------------------------- INVESTMENT GRADE TAX-EXEMPT BOND FUND - ------------------------------------- Trust Shares 2002 2.93% 0.84% 2.90% 311% 2001 3.93 0.85 3.89 285 2000 3.98 0.83 3.92 226 1999 3.75 0.87 3.65 224 1998 3.83 0.88 3.71 378 + Returns are for the period indicated and have not been annualized. Returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. (1) Trust shares were offered on October 3, 2001. All ratios for the period have been annualized. Amounts designated as "--" are either $0 or round to $0.
60 PROSPECTUS - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- For the Periods Ended May 31, (unless otherwise noted) For a Share Outstanding Throughout the Periods
NET REALIZED NET ASSET AND DISTRIBUTIONS DISTRIBUTIONS RATIO OF VALUE NET UNREALIZED FROM NET FROM REALIZED NET ASSET NET ASSETS EXPENSES BEGINNING INVESTMENT GAINS (LOSSES) INVESTMENT CAPITAL VALUE END TOTAL END OF TO AVERAGE OF PERIOD INCOME ON INVESTMENTS INCOME GAINS OF PERIOD RETURN+ PERIOD (000) NET ASSETS ---------- --------- -------------- ------------ ------------ ---------- -------- ------------ ---------- - --------------------------------------------- LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND - --------------------------------------------- Trust Shares 2002 $10.01 $0.43 $ 0.32 $(0.43) $(0.02) $10.31 7.53% $164,624 0.70% 2001 9.62 0.55 0.39 (0.55) -- 10.01 10.02 107,674 0.70 2000 9.94 0.55 (0.32) (0.55) -- 9.62 2.33 125,355 0.67 1999 10.12 0.54 (0.06) (0.54) (0.12) 9.94 4.75 135,256 0.67 1998 10.02 0.58 0.11 (0.58) (0.01) 10.12 7.12 137,488 0.66 - -------------------------------- MARYLAND MUNICIPAL BOND FUND (A) - -------------------------------- Trust Shares 2002 $10.12 $0.38 $ 0.20 $(0.38) -- $10.32 5.80% $ 33,668 0.71% 2001 9.46 0.42 0.66 (0.42) -- 10.12 11.59 26,526 0.72 2000 10.06 0.42 (0.60) (0.42) -- 9.46 (1.78) 26,176 0.68 1999(1) 10.22 0.20 (0.15) (0.20) $(0.01) 10.06 0.48 29,658 0.70 For the years ended November 30: 1998 9.95 0.42 0.27 (0.42) -- 10.22 7.03 19,115 0.62 1997 9.76 0.43 0.19 (0.43) -- 9.95 6.50 11,461 0.63 - -------------------- SHORT-TERM BOND FUND - -------------------- Trust Shares 2002 $10.04 $0.46 $(0.03) $(0.46) -- $10.01 4.29% $305,884 0.70% 2001 9.65 0.56 0.39 (0.56) -- 10.04 10.13 215,458 0.70 2000 9.91 0.53 (0.25) (0.53) $(0.01) 9.65 2.87 180,402 0.67 1999 10.05 0.51 (0.10) (0.52) (0.03) 9.91 4.06 209,904 0.67 1998 9.90 0.55 0.16 (0.55) (0.01) 10.05 7.31 120,422 0.66 - ---------------------------------------- SHORT-TERM U.S. TREASURY SECURITIES FUND - ---------------------------------------- Trust Shares 2002 $10.13 $0.37 $ 0.10 $(0.37) $(0.03) $10.20 4.69% $107,169 0.70% 2001 9.85 0.49 0.28 (0.49) -- 10.13 8.02 88,398 0.71 2000 9.95 0.46 (0.10) (0.46) -- 9.85 3.75 72,570 0.67 1999 9.97 0.47 (0.02) (0.47) -- 9.95 4.59 56,027 0.67 1998 9.88 0.51 0.10 (0.52) -- 9.97 6.30 46,920 0.66 - --------------------- STRATEGIC INCOME FUND - --------------------- Trust Shares 2002(2) $10.00 $0.27 $(0.20) $(0.27) -- $ 9.80 0.74% $ 43,717 0.94% - ------------------------------- U.S. GOVERNMENT SECURITIES FUND - ------------------------------- Trust Shares 2002 $10.38 $0.54 $ 0.26 $(0.54) $(0.17) $10.47 7.90% $168,609 0.82% 2001 9.86 0.58 0.52 (0.58) -- 10.38 11.41 148,666 0.81 2000 10.28 0.58 (0.42) (0.58) -- 9.86 1.63 85,420 0.77 1999 10.46 0.59 (0.18) (0.59) -- 10.28 3.90 102,167 0.77 1998 10.02 0.61 0.44 (0.61) -- 10.46 10.76 34,899 0.76 RATIO OF NET RATIO OF INVESTMENT EXPENSES TO INCOME TO RATIO OF NET AVERAGE NET AVERAGE INVESTMENT ASSETS NET ASSETS INCOME (EXCLUDING (EXCLUDING PORTFOLIO TO AVERAGE WAIVERS AND WAVIERS AND TURNOVER NET ASSETS REIMBURSEMENTS) REIMBURSEMENTS) RATE ------------ --------------- --------------- -------- - --------------------------------------------- LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND - --------------------------------------------- Trust Shares 2002 3.72% 0.75% 3.67% 410% 2001 5.62 0.76 5.56 532 2000 5.60 0.79 5.48 384 1999 5.28 0.77 5.18 379 1998 5.75 0.77 5.64 163 - -------------------------------- MARYLAND MUNICIPAL BOND FUND (A) - -------------------------------- Trust Shares 2002 3.69% 0.79% 3.61% 45% 2001 4.16 0.82 4.06 42 2000 4.24 0.80 4.12 14 1999(1) 3.83 1.37 3.16 19 For the years ended November 30: 1998 4.11 1.15 3.58 12 1997 4.38 1.16 3.85 5 - -------------------- SHORT-TERM BOND FUND - -------------------- Trust Shares 2002 4.48% 0.75% 4.43% 142% 2001 5.71 0.76 5.65 87 2000 5.40 0.76 5.31 70 1999 5.12 0.77 5.02 108 1998 5.47 0.79 5.34 87 - ---------------------------------------- SHORT-TERM U.S. TREASURY SECURITIES FUND - ---------------------------------------- Trust Shares 2002 3.57% 0.76% 3.51% 117% 2001 4.95 0.78 4.88 87 2000 4.70 0.79 4.58 50 1999 4.69 0.78 4.58 57 1998 5.19 0.84 5.01 39 - --------------------- STRATEGIC INCOME FUND - --------------------- Trust Shares 2002(2) 6.07% 1.04% 5.97% 43% - ------------------------------- U.S. GOVERNMENT SECURITIES FUND - ------------------------------- Trust Shares 2002 5.09% 0.85% 5.06% 262% 2001 5.66 0.85 5.62 207 2000 5.77 0.84 5.70 29 1999 5.58 0.88 5.47 19 1998 5.93 0.92 5.77 14 (+) Returns are for the period indicated and have not been annualized. Returns shown do not reflect the deduction of taxes the shareholder would pay on fund distributions or redemption of fund shares. (1) For the six month period ended May 31, 1999. All ratios for the period have been annualized. (2) Commenced operations on November 30, 2001. All ratios for the period have been annualized. (A) On May 24, 1999, the CrestFunds Maryland Municipal Bond Fund exchanged all of its assets and certain liabilities for shares of the Maryland Municipal Bond Fund. The CrestFunds Maryland Municipal Bond Fund is the accounting survivor in this transaction, and as a result, its basis of accounting for assets and liabilities and its operating results for the periods prior to May 24, 1999 have been carried forward in these financial highlights. Amounts designated as "--" are either $0 or round to $0.
PROSPECTUS 61 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- For the Periods Ended May 31, (unless otherwise noted) For a Share Outstanding Throughout the Periods
NET REALIZED NET ASSET AND DISTRIBUTIONS DISTRIBUTIONS RATIO OF VALUE NET UNREALIZED FROM NET FROM REALIZED NET ASSET NET ASSETS EXPENSES BEGINNING INVESTMENT GAINS (LOSSES) INVESTMENT CAPITAL VALUE END TOTAL END OF TO AVERAGE OF PERIOD INCOME ON INVESTMENTS INCOME GAINS OF PERIOD RETURN+ PERIOD (000) NET ASSETS ---------- ---------- -------------- ---------- ------------- ---------- -------- ------------ ---------- - --------------------------------------------- VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND (A) - --------------------------------------------- Trust Shares 2002 $10.14 $0.40 $ 0.15 $(0.40) -- $10.29 5.52% $191,406 0.75% 2001 9.58 0.42 0.56 (0.42) -- 10.14 10.39 194,849 0.73 2000 10.20 0.43 (0.57) (0.43) $(0.05) 9.58 (1.31) 202,209 0.76 1999(1) 10.44 0.21 (0.17) (0.21) (0.07) 10.20 0.42 240,083 0.84 For years ended November 30: 1998 10.31 0.45 0.17 (0.45) (0.04) 10.44 6.10 243,606 0.79 1997 10.22 0.46 0.09 (0.46) -- 10.31 5.55 237,096 0.78 - -------------------------------- VIRGINIA MUNICIPAL BOND FUND (A) - -------------------------------- Trust Shares 2002 $10.29 $0.41 $ 0.19 $(0.41) -- $10.48 5.90% $ 56,586 0.77% 2001 9.64 0.45 0.65 (0.45) -- 10.29 11.51 56,573 0.77 2000 10.43 0.45 (0.78) (0.45) $(0.01) 9.64 (3.18) 48,980 0.74 1999(1) 10.68 0.22 (0.19) (0.22) (0.06) 10.43 0.27 31,939 0.76 For years ended November 30: 1998 10.44 0.47 0.27 (0.47) (0.03) 10.68 7.19 29,252 0.69 1997 10.28 0.48 0.17 (0.48) (0.01) 10.44 6.46 20,044 0.69 RATIO OF NET RATIO OF INVESTMENT EXPENSES TO INCOME TO RATIO OF NET AVERAGE NET AVERAGE INVESTMENT ASSETS NET ASSETS INCOME (EXCLUDING (EXCLUDING PORTFOLIO TO AVERAGE WAIVERS AND WAVIERS AND TURNOVER NET ASSETS REIMBURSEMENTS) REIMBURSEMENTS) RATE ----------- -------------- --------------- -------- - --------------------------------------------- VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND (A) - --------------------------------------------- Trust Shares 2002 3.86% 0.75% 3.86% 33% 2001 4.23 0.75 4.21 32 2000 4.35 0.76 4.35 18 1999(1) 4.12 1.18 3.78 19 For years ended November 30: 1998 4.33 0.97 4.15 24 1997 4.57 0.93 4.42 30 - -------------------------------- VIRGINIA MUNICIPAL BOND FUND (A) - -------------------------------- Trust Shares 2002 3.90% 0.77% 3.90% 38 2001 4.40 0.78 4.39 60 2000 4.53 0.79 4.48 19 1999(1) 4.20 1.30 3.66 7 For years ended November 30: 1998 4.41 1.10 4.00 28 1997 4.65 1.09 4.25 39 (+) Returns are for the period indicated and have not been annualized. Returns shown do not reflect the deduction of taxes the shareholder would pay on fund distributions or redemption of fund shares. (1) For the six month period ended May 31, 1999. All ratios for the period have been annualized. (A) On May 24, 1999, the CrestFunds Virginia Intermediate Municipal Bond and CrestFunds Virginia Municipal Bond Funds exchanged all of their assets and certain liabilities for shares of the Virginia Intermediate Municipal Bond and Virginia Municipal Bond Funds, respectively. The CrestFunds Virginia Intermediate Municipal Bond and CrestFunds Virginia Municipal Bond Funds are the accounting survivors in this transaction, and as a result, their basis of accounting for assets and liabilities and their operating results for the periods prior to May 24, 1999 have been carried forward in these financial highlights. Amounts designated as "--" are either $0 or round to $0.
62 PROSPECTUS - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- For the Periods Ended May 31, (unless otherwise noted) For a Share Outstanding Throughout the Periods
RATIO OF RATIO OF NET EXPENSES TO NET ASSET DISTRIBUTIONS RATIO OF INVESTMENT AVERAGE NET VALUE NET FROM NET NET ASSET NET ASSETS EXPENSES TO INCOME ASSETS (EXCLUDING BEGINNING INVESTMENT INVESTMENT VALUE END TOTAL END OF AVERAGE TO AVERAGE WAIVERS AND OF PERIOD INCOME INCOME OF PERIOD RETURN (+) PERIOD (000) NET ASSETS NET ASSETS REIMBURSEMENTS) --------- ---------- ----------- ---------- ---------- ------------ ---------- ----------- ----------------- - ------------------------------- PRIME QUALITY MONEY MARKET FUND - ------------------------------- Trust Shares 2002 $1.00 $0.02 $(0.02) $1.00 2.29% $3,907,203 0.63% 2.22% 0.74% 2001 1.00 0.06 (0.06) 1.00 5.75 3,728,371 0.63 5.57 0.75 2000 1.00 0.05 (0.05) 1.00 5.20 3,311,229 0.60 5.06 0.75 1999 1.00 0.05 (0.05) 1.00 4.83 3,903,232 0.60 4.69 0.77 1998 1.00 0.05 (0.05) 1.00 5.22 1,880,229 0.59 5.10 0.77 - ---------------------------- TAX-EXEMPT MONEY MARKET FUND - ---------------------------- Trust Shares 2002 $1.00 $0.01 $(0.01) $1.00 1.38% $ 907,827 0.55% 1.39% 0.65% 2001 1.00 0.03 (0.03) 1.00 3.47 1,080,362 0.54 3.40 0.65 2000 1.00 0.03 (0.03) 1.00 3.19 755,858 0.52 3.16 0.66 1999 1.00 0.03 (0.03) 1.00 2.81 641,640 0.52 2.75 0.66 1998 1.00 0.03 (0.03) 1.00 3.21 448,023 0.51 3.14 0.67 - -------------------------------------------- U.S. GOVERNMENT SECURITIES MONEY MARKET FUND - -------------------------------------------- Trust Shares 2002 $1.00 $0.02 $(0.02) $1.00 2.25% $ 997,759 0.66% 2.17% 0.75% 2001 1.00 0.05 (0.05) 1.00 5.56 805,285 0.65 5.29 0.75 2000 1.00 0.05 (0.05) 1.00 4.86 468,568 0.63 4.80 0.74 1999 1.00 0.04 (0.04) 1.00 4.57 404,459 0.63 4.47 0.76 1998 1.00 0.05 (0.05) 1.00 5.04 377,490 0.62 4.92 0.78 - ----------------------------------- U.S. TREASURY MONEY MARKET FUND (A) - ----------------------------------- Trust Shares 2002 $1.00 $0.02 $(0.02) $1.00 1.96% $ 871,946 0.65% 1.90% 0.74% 2001 1.00 0.05 (0.05) 1.00 5.36 733,768 0.66 5.23 0.76 2000 1.00 0.05 (0.05) 1.00 4.81 723,277 0.63 4.71 0.74 1999* 1.00 0.02 (0.02) 1.00 2.08 760,833 0.68 4.10 0.83 For the Year Ended November 30: 1998 1.00 0.05 (0.05) 1.00 4.89 699,923 0.66 4.77 0.81 1997 1.00 0.05 (0.05) 1.00 4.91 632,381 0.65 4.82 0.80 - --------------------------------------- VIRGINIA TAX-FREE MONEY MARKET FUND (A) - --------------------------------------- Trust Shares 2002 $1.00 $0.01 $(0.01) $1.00 1.44% $ 240,681 0.50% 1.45% 0.50% 2001 1.00 0.03 (0.03) 1.00 3.51 226,188 0.50 3.45 0.50 2000 1.00 0.03 (0.03) 1.00 3.23 245,243 0.51 3.19 0.51 1999* 1.00 0.01 (0.01) 1.00 1.27 270,431 0.67 2.51 0.82 For the Year Ended November 30: 1998 1.00 0.03 (0.03) 1.00 2.97% 270,899 0.66 2.92 0.81 1997 1.00 0.03 (0.03) 1.00 3.06 226,837 0.66 3.02 0.81 RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS (EXCLUDING WAIVERS AND REIMBURSEMENTS) ---------------- - ------------------------------- PRIME QUALITY MONEY MARKET FUND - ------------------------------- Trust Shares 2002 2.11% 2001 5.45 2000 4.91 1999 4.52 1998 4.92 - ---------------------------- TAX-EXEMPT MONEY MARKET FUND - ---------------------------- Trust Shares 2002 1.29% 2001 3.29 2000 3.02 1999 2.61 1998 2.98 - -------------------------------------------- U.S. GOVERNMENT SECURITIES MONEY MARKET FUND - -------------------------------------------- Trust Shares 2002 2.08% 2001 5.19 2000 4.69 1999 4.34 1998 4.76 - ----------------------------------- U.S. TREASURY MONEY MARKET FUND (A) - ----------------------------------- Trust Shares 2002 1.81% 2001 5.13 2000 4.60 1999* 3.95 For the Year Ended November 30: 1998 4.62 1997 4.67 - --------------------------------------- VIRGINIA TAX-FREE MONEY MARKET FUND (A) - --------------------------------------- Trust Shares 2002 1.45% 2001 3.45 2000 3.19 1999* 2.36 For the Year Ended November 30: 1998 2.77 1997 2.57 (+) Returns are for the period indicated and have not been annualized. The performance in the above table does not reflect the deduction of taxes the shareholder would pay on fund distributions or redemption of fund shares. * For the period December 1, 1998 to May 31, 1999. All ratios for the period have been annualized. (A) On May 24, 1999, the CrestFunds U.S. Treasury Money and CrestFunds Tax Free Money Funds exchanged all of their assets and certain liabilities for shares of the U.S. Treasury Money Market and Virginia Tax-Free Money Market Funds, respectively. The CrestFunds U.S. Treasury Money and CrestFunds Tax Free Money Funds are the accounting survivors in this transaction, and as a result, their basis of accounting for assets and liabilities and their operating results for the periods prior to May 24, 1999 have been carried forward in these financial highlights.
PROSPECTUS 63 - -------------------------------------------------------------------------------- NOTES - -------------------------------------------------------------------------------- 64 PROSPECTUS - -------------------------------------------------------------------------------- NOTES - -------------------------------------------------------------------------------- PROSPECTUS 65 - -------------------------------------------------------------------------------- NOTES - -------------------------------------------------------------------------------- 66 PROSPECTUS - -------------------------------------------------------------------------------- HOW TO OBTAIN MORE INFORMATION ABOUT THE STI CLASSIC FUNDS - -------------------------------------------------------------------------------- INVESTMENT ADVISER Trusco Capital Management, Inc. 50 Hurt Plaza Suite 1400 Atlanta, Georgia 30303 DISTRIBUTOR SEI Investments Distribution Co. One Freedom Valley Drive Oaks, Pennsylvania 19456 LEGAL COUNSEL Morgan, Lewis & Bockius LLP More information about the Funds is available without charge through the following: STATEMENT OF ADDITIONAL INFORMATION (SAI) The SAI dated October 1, 2002, includes detailed information about the STI Classic Funds. The SAI is on file with the SEC and is incorporated by reference into this prospectus. This means that the SAI, for legal purposes, is a part of this prospectus. ANNUAL AND SEMI-ANNUAL REPORTS These reports list each Fund's holdings and contain information from the Funds' managers about strategies and recent market conditions and trends and their impact on Fund performance. The reports also contain detailed financial information about the Funds. TO OBTAIN AN SAI, ANNUAL OR SEMI-ANNUAL REPORT, OR MORE INFORMATION: BY TELEPHONE: Call 1-800-428-6970 BY MAIL: Write to the Funds c/o SEI Investments Distribution Co. Oaks, Pennsylvania 19456 FROM THE SEC: You can also obtain the SAI or the Annual and Semi-Annual reports, as well as other information about the STI Classic Funds, from the EDGAR Database on the SEC's website ("HTTP://WWW.SEC.GOV"). You may review and copy documents at the SEC Public Reference Room in Washington, DC (for information on the operation of the Public Reference Room, call 202-942-8090). You may request documents by mail from the SEC, upon payment of a duplicating fee, by writing to: Securities and Exchange Commission, Public Reference Section, Washington, DC 20549-0102. You may also obtain this information, upon payment of a duplicating fee, by e-mailing the SEC at the following address: PUBLICINFO@SEC.GOV. The STI Classic Funds' Investment Company Act registration number is 811-06557. STI-PS-014-0200 [COMPASS GRAPHIC OMITTED] STI CLASSIC FUNDS-BOND FUNDS FLEX AND INVESTOR SHARES PROSPECTUS OCTOBER 1, 2002 FLORIDA TAX-EXEMPT BOND FUND GEORGIA TAX-EXEMPT BOND FUND HIGH INCOME FUND INVESTMENT GRADE BOND FUND INVESTMENT GRADE TAX-EXEMPT BOND FUND LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND MARYLAND MUNICIPAL BOND FUND SHORT-TERM BOND FUND SHORT-TERM U.S. TREASURY SECURITIES FUND STRATEGIC INCOME FUND U.S. GOVERNMENT SECURITIES FUND VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND VIRGINIA MUNICIPAL BOND FUND INVESTMENT ADVISER TO THE FUNDS: TRUSCO CAPITAL MANAGEMENT, INC. (the "Adviser") [STI CLASSIC LOGO OMITTED] THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. PROSPECTUS - --------------------- ABOUT THIS PROSPECTUS - --------------------- CHOOSING INVESTOR OR FLEX SHARES The STI Classic Funds is a mutual fund family that offers shares in separate investment portfolios (Funds). The Funds have individual investment goals and strategies. This prospectus gives you important information about the Investor Shares and Flex Shares of the Bond Funds that you should know before investing. Please read this prospectus and keep it for future reference. Investor Shares and Flex Shares have different expenses and other characteristics, allowing you to choose the class that best suits your needs. You should consider the amount you want to invest, how long you plan to have it invested, and whether you plan to make additional investments. INVESTOR SHARES FLEX SHARES o Front-end sales charge o Contingent deferred sales charge o 12b-1 fees o Higher 12b-1 fees o $2,000 minimum initial investment o $5,000 minimum initial investment THIS PROSPECTUS HAS BEEN ARRANGED INTO DIFFERENT SECTIONS SO THAT YOU CAN EASILY REVIEW THIS IMPORTANT INFORMATION. ON THE NEXT PAGE, THERE IS SOME GENERAL INFORMATION YOU SHOULD KNOW ABOUT RISK AND RETURN THAT IS COMMON TO EACH OF THE FUNDS. FOR MORE DETAILED INFORMATION ABOUT EACH FUND, PLEASE SEE: 2 FLORIDA TAX-EXEMPT BOND FUND 5 GEORGIA TAX-EXEMPT BOND FUND 8 HIGH INCOME FUND 11 INVESTMENT GRADE BOND FUND 15 INVESTMENT GRADE TAX-EXEMPT BOND FUND 18 LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND 21 MARYLAND MUNICIPAL BOND FUND 24 SHORT-TERM BOND FUND 27 SHORT-TERM U.S. TREASURY SECURITIES FUND 30 STRATEGIC INCOME FUND 32 U.S. GOVERNMENT SECURITIES FUND 35 VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND 38 VIRGINIA MUNICIPAL BOND FUND 41 MORE INFORMATION ABOUT RISK 42 MORE INFORMATION ABOUT FUND INVESTMENTS 43 INVESTMENT ADVISER 43 PORTFOLIO MANAGERS 44 PURCHASING, SELLING AND EXCHANGING FUND SHARES 50 DIVIDENDS AND DISTRIBUTIONS 50 TAXES 52 FINANCIAL HIGHLIGHTS [Back ] HOW TO OBTAIN MORE INFORMATION ABOUT [Cover] THE STI CLASSIC FUNDS - -------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY [TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING? [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION [CHART GRAPHIC OMITTED] WHAT IS AN INDEX? [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES [MOUNTAIN GRAPHIC OMITTED] MORE INFORMATION ABOUT FUND INVESTMENTS [MAGNIFIER GRAPHIC OMITTED] INVESTMENT ADVISER [HANDSHAKE GRAPHIC OMITTED] PURCHASING, SELLING AND EXCHANGING FUND SHARES [MONEY GRAPHIC OMITTED]SALES CHARGES - -------------------------------------------------------------------------------- OCTOBER 1, 2002 PROSPECTUS 1
- ------------------------------------------------------------------------------------------------------------------------------------ CUSIP/TICKER SYMBOLS - ------------------------------------------------------------------------------------------------------------------------------------ FUND NAME CLASS INCEPTION* TICKER CUSIP - --------------------------------------------------------------------------------------------------------------------------- FIXED INCOME FUNDS FL Tax-Exempt Bond Flex 6/1/95 SCFEX 784766511 FL Tax-Exempt Bond Investor 1/18/94 SFLTX 784766693 GA Tax-Exempt Bond Flex 6/6/95 SCGTX 784766495 GA Tax-Exempt Bond Investor 1/19/94 SGTEX 784766677 High Income Flex 5/4/94 STHIX 784767741 Investment Grade Bond Flex 6/7/95 SCIGX 784766578 Investment Grade Bond Investor 6/11/92 STGIX 784766800 Investment Grade Tax-Exempt Bond Flex 6/1/95 SCITX 784766560 Investment Grade Tax-Exempt Bond Investor 6/9/92 SISIX 784766875 Limited-Term Federal Mortgage Securities Flex 6/7/95 SCLFX 784766545 Limited-Term Federal Mortgage Securities Investor 7/18/94 SLTMX 784766610 MD Municipal Bond Flex 4/25/96 CMDBX 784766115 Short-Term Bond Flex 6/20/95 SCBSX 784766537 Short-Term Bond Investor 3/22/93 STSBX 784766818 Short-Term U.S. Treasury Securities Flex 6/22/95 SSUSX 784766529 Short-Term U.S. Treasury Securities Investor 3/18/93 STSFX 784766784 Strategic Income Flex 11/30/01 STIFX 784767683 U.S. Government Securities Flex 6/7/95 SGUSX 784766552 U.S. Government Securities Investor 6/6/94 SCUSX 784766636 VA Intermediate Municipal Bond Investor 5/5/93 CVIAX 784767204 VA Municipal Bond Flex 4/14/95 CVMBX 784766149 - --------------------------------------------------------------------------------------------------------------------------- * THE INCEPTION DATE REFLECTS THE BEGINNING OF THE CLASS'S PERFORMANCE HISTORY, WHICH MAY INCLUDE THE PERFORMANCE OF OTHER CLASSES OF THE FUND AND/OR PREDECESSORS OF THE FUND. FOR FURTHER INFORMATION, SEE "PERFORMANCE INFORMATION."
- -------------------------------------------------------------------------------- RISK/RETURN INFORMATION COMMON TO THE FUNDS - -------------------------------------------------------------------------------- Each Fund is a mutual fund. A mutual fund pools shareholders' money and, using professional investment managers, invests it in securities. Each Fund has its own investment goal and strategies for reaching that goal. The Adviser invests Fund assets in a way that it believes will help a Fund achieve its goal. Still, investing in each Fund involves risk and there is no guarantee that a Fund will achieve its goal. The Adviser's judgments about the markets, the economy or companies may not anticipate actual market movements, economic conditions or company performance, and these judgments may affect the return on your investment. In fact, no matter how good a job the Adviser does, you could lose money on your investment in the Fund, just as you could with other investments. A FUND SHARE IS NOT A BANK DEPOSIT AND IT IS NOT INSURED OR GUARANTEED BY THE FDIC OR ANY GOVERNMENT AGENCY. The value of your investment in a Fund is based on the market prices of the securities the Fund holds. These prices change daily due to economic and other events that affect particular companies and other issuers. These price movements, sometimes called volatility, may be greater or lesser depending on the types of securities a Fund owns and the markets in which they trade. The effect on a Fund of a change in the value of a single security will depend on how widely the Fund diversifies its holdings. 2 PROSPECTUS - -------------------------------------------------------------------------------------------------------------------------
FLORIDA TAX-EXEMPT BOND FUND - ------------------------------------------------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOAL Current income exempt from federal income taxes for Florida residents with shares themselves expected to be exempt from the Florida intangible personal property tax - ------------------------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS Florida municipal securities - ------------------------------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Moderate - ------------------------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to invest more Fund assets in undervalued sectors and less in overvalued ones - ------------------------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Florida residents who want income exempt from federal income taxes - -------------------------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Florida Tax-Exempt Bond Fund invests at least 80% of its net assets in municipal securities with income exempt from federal income taxes, and the shares themselves are expected to be exempt from the Florida intangible personal property tax. Issuers of these securities can be located in Florida, Puerto Rico and other U.S. territories and possessions. In addition, up to 20% of the Fund's assets may be invested in securities subject to the alternative minimum tax or in certain taxable debt securities. In selecting investments for the Fund, the Adviser tries to limit risk as much as possible. Based on the Adviser's analysis of municipalities, credit risk, market trends and investment cycles, the Adviser attempts to invest more of the Fund's assets in undervalued market sectors and less in overvalued sectors. The Adviser also tries to identify and invest in municipal issuers with improving credit and avoid those with deteriorating credit. The Adviser anticipates that the Fund's average weighted maturity will range from 6 to 25 years. Under certain circumstances, such as a national financial emergency or a temporary decline in availability of Florida obligations, up to 20% of the Fund's assets may be invested in securities subject to the Florida intangible personal property tax and/or securities that generate income subject to federal personal income taxes. These securities may include short-term municipal securities outside Florida or certain taxable fixed income securities. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? The prices of the Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, the Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities are generally more volatile, so the average maturity or duration of these securities affects risk. There may be economic or political changes that impact the ability of municipal issuers to repay principal and to make interest payments on municipal securities. Changes in the financial condition or credit rating of municipal issuers also may adversely affect the value of the Fund's securities. The Fund's concentration of investments in securities of issuers located in Florida subjects the Fund to economic and government policies of Florida. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S INVESTOR SHARES FROM YEAR TO YEAR. THE CHART DOES NOT REFLECT SALES CHARGES. IF SALES CHARGES HAD BEEN REFLECTED, RETURNS WOULD BE LESS THAN THOSE SHOWN.* [BAR CHART OMITTED] Plot points are as follows: 1995 15.70% 1996 3.73% 1997 7.60% 1998 5.94% 1999 -2.41% 2000 11.30% 2001 3.56% BEST QUARTER WORST QUARTER 6.13% -2.35% (3/31/95) (6/30/99) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS 4.90%. PROSPECTUS 3 - -------------------------------------------------------------------------------- FLORIDA TAX-EXEMPT BOND FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE LEHMAN BROTHERS 10-YEAR MUNICIPAL BOND INDEX AND THE LIPPER FLORIDA MUNICIPAL DEBT FUNDS AVERAGE. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only the Investor Shares. After-tax returns for other classes will vary. INVESTOR SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Fund Returns Before Taxes -0.32% 4.31% 4.88% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions -0.54% 4.15% 4.73% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares 1.23% 4.16% 4.65% - -------------------------------------------------------------------------------- Lehman Brothers 10-Year Municipal Bond Index (reflects no deduction for fees, expenses or taxes) 4.63% 5.94% 5.59% - -------------------------------------------------------------------------------- Lipper Florida Municipal Debt Funds Average (reflects no deduction for taxes) 4.23% 4.83% 4.59% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF INVESTOR SHARES ON JANUARY 18, 1994. BENCHMARK RETURNS SINCE JANUARY 31, 1994 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). FLEX SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Fund Returns Before Taxes 1.08% 4.61% 4.85% - -------------------------------------------------------------------------------- Lehman Brothers 10-Year Municipal Bond Index (reflects no deduction for fees, expenses or taxes) 4.63% 5.94% 6.14% - -------------------------------------------------------------------------------- Lipper Florida Municipal Debt Funds Average (reflects no deduction for taxes) 4.23% 4.83% 5.13% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF FLEX SHARES ON JUNE 1, 1995. BENCHMARK RETURNS SINCE MAY 31, 1995 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). -------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? -------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Lehman Brothers 10-Year Municipal Bond Index is a widely-recognized index of long-term investment grade tax-exempt bonds. The Index includes general obligation bonds, revenue bonds, insured bonds and prefunded bonds with maturities between 8 and 12 years. The Index represents various market sectors and geographic locations. The Lipper Florida Municipal Debt Funds Average is a composite index of mutual funds with investment goals similar to the Fund's goals. It reports the average return of the Florida intermediate-term municipal bond mutual funds tracked by Lipper Analytical Services, Inc. The number of funds in the Average varies. 4 PROSPECTUS - -------------------------------------------------------------------------------- FLORIDA TAX-EXEMPT BOND FUND - -------------------------------------------------------------------------------- [COINS LOGO OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - ------------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - ------------------------------------------------------------------------------------------------------------------------------------ INVESTOR SHARES FLEX SHARES Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)* 3.75% None Maximum Deferred Sales Charge (Load) (as a percentage of net asset value)** None 2.00% * THIS SALES CHARGE VARIES DEPENDING UPON HOW MUCH YOU INVEST. YOU MAY BUY INVESTOR SHARES IN AMOUNTS OF $1,000,000 OR MORE AT NET ASSET VALUE (WITHOUT AN INITIAL SALES CHARGE), BUT IF YOU REDEEM THOSE SHARES WITHIN ONE YEAR OF YOUR PURCHASE, YOU WILL PAY A DEFERRED SALES CHARGE OF 1.00%. SEE "SALES CHARGES." ** THIS SALES CHARGE IS IMPOSED IF YOU SELL FLEX SHARES WITHIN ONE YEAR OF YOUR PURCHASE. SEE "SALES CHARGES."
- ------------------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - ------------------------------------------------------------------------------------------------------------------------------------ INVESTOR SHARES FLEX SHARES Investment Advisory Fees 0.65% 0.65% Distribution and Service (12b-1) Fees 0.18% 1.00% Other Expenses 0.54% 0.19% ----- ----- Total Annual Fund Operating Expenses 1.37%* 1.84%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER AND THE DISTRIBUTOR WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THESE FEE WAIVERS REMAIN IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER AND THE DISTRIBUTOR MAY DISCONTINUE ALL OR PART OF THESE FEE WAIVERS AT ANY TIME. WITH THESE FEE WAIVERS, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: Florida Tax-Exempt Bond Fund - Investor Shares 0.92% Florida Tax-Exempt Bond Fund - Flex Shares 1.42%
- -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: IF YOU SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS Investor Shares $509 $793 $1,097 $1,960 Flex Shares $387 $579 $995 $2,159 IF YOU DO NOT SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS Investor Shares $509 $793 $1,097 $1,960 Flex Shares $187 $579 $995 $2,159 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." PROSPECTUS 5 - -------------------------------------------------------------------------------------------------------------------------
GEORGIA TAX-EXEMPT BOND FUND - ------------------------------------------------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOAL Current income exempt from federal and state income taxes for Georgia residents without undue risk - ------------------------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS Georgia municipal securities - ------------------------------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Moderate - ------------------------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to invest more Fund assets in undervalued sectors and less in overvalued ones - ------------------------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Georgia residents who want income exempt from federal and state income taxes - -------------------------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Georgia Tax-Exempt Bond Fund invests at least 80% of its net assets in municipal securities with income exempt from federal and Georgia income taxes. Issuers of these securities can be located in Georgia, Puerto Rico and other U.S. territories and possessions. In addition, up to 20% of the Fund's assets may be invested in securities subject to the alternative minimum tax or in certain taxable debt securities. In selecting investments for the Fund, the Adviser tries to limit risk as much as possible. Based on the Adviser's analysis of municipalities, credit risk, market trends and investment cycles, the Adviser attempts to invest more of the Fund's assets in undervalued market sectors and less in overvalued sectors. The Adviser tries to diversify the Fund's holdings within Georgia. The Adviser also tries to identify and invest in municipal issuers with improving credit and avoid those with deteriorating credit. The Adviser anticipates that the Fund's average weighted maturity will range from 6 to 25 years. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? The prices of the Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, the Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities are generally more volatile, so the average maturity or duration of these securities affects risk. There may be economic or political changes that impact the ability of municipal issuers to repay principal and to make interest payments on municipal securities. Changes in the financial condition or credit rating of municipal issuers also may adversely affect the value of the Fund's securities. The Fund's concentration of investments in securities of issuers located in Georgia subjects the Fund to economic conditions and government policies within Georgia. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S INVESTOR SHARES FROM YEAR TO YEAR. THE CHART DOES NOT REFLECT SALES CHARGES. IF SALES CHARGES HAD BEEN REFLECTED, RETURNS WOULD BE LESS THAN THOSE SHOWN.* [BAR CHART OMITTED] Plot points are as follows: 1995 13.13% 1996 3.43% 1997 7.96% 1998 5.47% 1999 -2.49% 2000 9.30% 2001 4.00% BEST QUARTER WORST QUARTER 4.84% -2.35% (3/31/95) (6/30/99) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS 4.51%. 6 PROSPECTUS - -------------------------------------------------------------------------------- GEORGIA TAX-EXEMPT BOND FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE LEHMAN BROTHERS 10-YEAR MUNICIPAL BOND INDEX AND THE LIPPER GEORGIA MUNICIPAL DEBT FUNDS AVERAGE. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only the Investor Shares. After-tax returns for other classes will vary. INVESTOR SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Fund Returns Before Taxes 0.13% 3.97% 3.85% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions 0.13% 3.92% 3.79% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares 1.48% 3.92% 3.82% - -------------------------------------------------------------------------------- Lehman Brothers 10-Year Municipal Bond Index (reflects no deduction for fees, expenses or taxes) 4.63% 5.94% 5.59% - -------------------------------------------------------------------------------- Lipper Georgia Municipal Debt Funds Average (reflects no deduction for taxes) 4.01% 5.07% 4.48% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF INVESTOR SHARES ON JANUARY 19, 1994. BENCHMARK RETURNS SINCE JANUARY 31, 1994 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). FLEX SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Fund Returns Before Taxes 1.50% 4.27% 4.32% - -------------------------------------------------------------------------------- Lehman Brothers 10-Year Municipal Bond Index (reflects no deduction for fees, expenses or taxes) 4.63% 5.94% 6.14% - -------------------------------------------------------------------------------- Lipper Georgia Municipal Debt Funds Average (reflects no deduction for taxes) 4.01% 5.07% 5.35% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF FLEX SHARES ON JUNE 6, 1995. BENCHMARK RETURNS SINCE MAY 31, 1995 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). -------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? -------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Lehman Brothers 10-Year Municipal Bond Index is a widely-recognized index of long-term investment grade tax-exempt bonds. The Index includes general obligation bonds, revenue bonds, insured bonds and prefunded bonds with maturities between 8 and 12 years. The Index represents various market sectors and geographic locations. The Lipper Georgia Municipal Debt Funds Average is a composite index of mutual funds with investment goals similar to the Fund's goals. It reports the average return of the Georgia intermediate-term municipal bond mutual funds tracked by Lipper Analytical Services, Inc. The number of funds in the Average varies. PROSPECTUS 7 - -------------------------------------------------------------------------------- GEORGIA TAX-EXEMPT BOND FUND - -------------------------------------------------------------------------------- [COINS LOGO OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - ------------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - ------------------------------------------------------------------------------------------------------------------------------------ INVESTOR SHARES FLEX SHARES Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)* 3.75% None Maximum Deferred Sales Charge (Load) (as a percentage of net asset value)** None 2.00% * THIS SALES CHARGE VARIES DEPENDING UPON HOW MUCH YOU INVEST. YOU MAY BUY INVESTOR SHARES IN AMOUNTS OF $1,000,000 OR MORE AT NET ASSET VALUE (WITHOUT AN INITIAL SALES CHARGE), BUT IF YOU REDEEM THOSE SHARES WITHIN ONE YEAR OF YOUR PURCHASE, YOU WILL PAY A DEFERRED SALES CHARGE OF 1.00%. SEE "SALES CHARGES." ** THIS SALES CHARGE IS IMPOSED IF YOU SELL FLEX SHARES WITHIN ONE YEAR OF YOUR PURCHASE. SEE "SALES CHARGES."
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ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - ------------------------------------------------------------------------------------------------------------------------------------ INVESTOR SHARES FLEX SHARES Investment Advisory Fees 0.65% 0.65% Distribution and Service (12b-1) Fees 0.18% 1.00% Other Expenses 0.53% 0.19% ----- ----- Total Annual Fund Operating Expenses 1.36%* 1.84%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER AND THE DISTRIBUTOR WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THESE FEE WAIVERS REMAIN IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER AND THE DISTRIBUTOR MAY DISCONTINUE ALL OR PART OF THESE FEE WAIVERS AT ANY TIME. WITH THESE FEE WAIVERS, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: Georgia Tax-Exempt Bond Fund - Investor Shares 0.92% Georgia Tax-Exempt Bond Fund - Flex Shares 1.42%
- -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: IF YOU SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS Investor Shares $508 $790 $1,092 $1,949 Flex Shares $387 $579 $995 $2,159 IF YOU DO NOT SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS Investor Shares $508 $790 $1,092 $1,949 Flex Shares $187 $579 $995 $2,159 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." 8 PROSPECTUS - -------------------------------------------------------------------------------------------------------------------------
HIGH INCOME FUND - ------------------------------------------------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOALS PRIMARY High current income SECONDARY Total return - ------------------------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS High yield corporate, government, and other debt instruments of U.S. and non U.S. issuers - ------------------------------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY High - ------------------------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify lower-rated securities offering high current income of issuers generating adequate cash flow to meet their obligations - ------------------------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Investors who seek high current income and who are willing to accept greater share price volatility through investment in high yield, below investment grade debt instruments - -------------------------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The High Income Fund invests primarily in a diversified portfolio of higher yielding, lower rated income producing securities of U.S. and non-U.S. issuers. The Fund will invest at least 65%, and may invest up to 100%, of its assets in securities rated as "non-investment grade" by Moody's Investor Services, Inc. or by Standard & Poor's Rating Services or in unrated securities if, in the Adviser's opinion, they are of comparable quality. Such securities are commonly known as "junk bonds" and offer greater risks than investment grade bonds (i.e., rated BBB- or above by S&P or Baa3 or above by Moody's). In selecting debt securities for the Fund the Adviser seeks out companies with good fundamentals and performing prospects that are currently out of favor with investors. The primary basis for security selection is the potential income offered by the security relative to the Adviser's assessment of the issuer's ability to generate the cash flow required to meet its obligation. The Adviser employs a "bottom-up" approach, identifying investment opportunities based on the underlying financial and economic fundamentals of the specific issuer. Due to its investment strategy, the Fund may buy and sell securities frequently. This may result in higher transaction costs and additional capital gains tax liabilities. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? The prices of the Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, the Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities are generally more volatile, so the average maturity or duration of these securities affects risk. High yield securities involve greater risks of default or downgrade and are more volatile than investment grade securities. Junk bonds involve greater risk of default or price declines than investment grade securities due to actual or perceived changes in an issuer's creditworthiness. In addition, issuers of junk bonds may be more susceptible than other issuers to economic downturns. Junk bonds are subject to the risk that the issuer may not be able to pay interest or dividends and ultimately to repay principal upon maturity. Discontinuation of these payments could substantially adversely affect the market value of the security. Investing in foreign countries poses additional risks since political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. In addition, investments in foreign countries are generally denominated in a foreign currency. As a result, changes in the value of those currencies compared to the U.S. dollar may affect (positively or negatively) the value of a Fund's investments. These currency movements may happen separately from and in response to events that do not otherwise affect the value of the security in the issuer's home country. These various risks will be even greater for investments in emerging market countries since political turmoil and rapid changes in economic conditions are more likely to occur in these countries. PROSPECTUS 9 - -------------------------------------------------------------------------------- HIGH INCOME FUND - -------------------------------------------------------------------------------- [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. The periods prior to March 28, 2000 represent the performance of the ESC Strategic Income Fund, the Fund's predecessor. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S FLEX SHARES FROM YEAR TO YEAR. THE CHART DOES NOT REFLECT SALES CHARGES. IF SALES CHARGES HAD BEEN REFLECTED, RETURNS WOULD BE LESS THAN THOSE SHOWN.* [BAR CHART OMITTED] Plot points are as follows: 1995 14.91% 1996 5.84% 1997 5.05% 1998 4.43% 1999 1.28% 2000 -9.46% 2001 5.55% BEST QUARTER WORST QUARTER 6.79% -9.92% (3/31/95) (3/31/00) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS -5.51%. THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE LEHMAN BROTHERS U.S. CORPORATE HIGH YIELD BOND INDEX. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only the Flex Shares. After-tax returns for other classes will vary. FLEX SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Fund Returns Before Taxes 3.58% 1.21% 3.21% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions 0.74% -1.59% 0.41% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares 2.16% -0.39% 1.20% - -------------------------------------------------------------------------------- Lehman Brothers U.S. Corporate High Yield Bond Index (reflects no deduction for fees, expenses or taxes) 5.28% 3.11% 6.08% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF FLEX SHARES ON MAY 4, 1994. BENCHMARK RETURNS SINCE APRIL 30, 1994 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). -------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? -------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Lehman Brothers U.S. Corporate High Yield Bond Index is a widely-recognized, market value-weighted (higher market value bonds have more influence than lower market value bonds) index which covers the universe of fixed rate, non-investment grade debt. 10 PROSPECTUS - -------------------------------------------------------------------------------- HIGH INCOME FUND - -------------------------------------------------------------------------------- [COINS LOGO OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - ------------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - ------------------------------------------------------------------------------------------------------------------------------------ FLEX SHARES Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None Maximum Deferred Sales Charge (Load) (as a percentage of net asset value)* 2.00% * THIS SALES CHARGE IS IMPOSED IF YOU SELL FLEX SHARES WITHIN ONE YEAR OF YOUR PURCHASE. SEE "SALES CHARGES."
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ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - ------------------------------------------------------------------------------------------------------------------------------------ FLEX SHARES Investment Advisory Fees 0.80% Distribution and Service (12b-1) Fees 1.00% Other Expenses 0.22% ----- Total Annual Fund Operating Expenses 2.02%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER AND THE DISTRIBUTOR WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THESE FEE WAIVERS REMAIN IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER AND THE DISTRIBUTOR MAY DISCONTINUE ALL OR PART OF THESE FEE WAIVERS AT ANY TIME. WITH THESE FEE WAIVERS, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: High Income Fund - Flex Shares 1.40%
- -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return and Fund operating expenses remain the same. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: IF YOU SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS Flex Shares $405 $634 $1,088 $2,348 IF YOU DO NOT SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS Flex Shares $205 $634 $1,088 $2,348 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." PROSPECTUS 11 - -------------------------------------------------------------------------------------------------------------------------
INVESTMENT GRADE BOND FUND - ------------------------------------------------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY Investment Goal High total return through current income and capital appreciation, while preserving the principal amount invested - ------------------------------------------------------------------------------------------------------------------------- Investment Focus Investment grade U.S. government and corporate debt securities - ------------------------------------------------------------------------------------------------------------------------- Share Price Volatility Moderate - ------------------------------------------------------------------------------------------------------------------------- Principal Investment Strategy Attempts to identify relatively inexpensive securities in a selected market index - ------------------------------------------------------------------------------------------------------------------------- Investor Profile Investors who want to receive income from their investment, as well as an increase in the value of the investment - -------------------------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Investment Grade Bond Fund invests at least 80% of its net assets in investment grade fixed income securities. The Adviser focuses on corporate debt securities, U.S. Treasury obligations, and mortgage-backed securities. In selecting investments for the Fund, the Adviser tries to minimize risk while attempting to outperform selected market indices. Currently, the Adviser's selected index is the Lehman Brothers U.S. Government/Credit Index, a widely recognized, unmanaged index of investment grade government and corporate debt securities. The Adviser seeks to invest more in portions of the Index that seem relatively inexpensive, and less in those that seem expensive. The Adviser allocates the Fund's investments among various market sectors based on the Adviser's analysis of historical data, yield information and credit ratings. The Adviser anticipates that the Fund's average weighted maturity will range from 4 to 10 years. Due to its investment strategy, the Fund may buy and sell securities frequently. This may result in higher transaction costs and additional capital gains tax liabilities. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? The prices of the Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, the Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities are generally more volatile, so the average maturity or duration of these securities affects risk. Mortgage-backed securities are fixed income securities representing an interest in a pool of underlying mortgage loans. Mortgage-backed securities are sensitive to changes in interest rates, but may respond to these changes differently from other fixed income securities due to the possibility of prepayment of the underlying mortgage loans. As a result, it may not be possible to determine in advance the actual maturity date or average life of a mortgage-backed security. Rising interest rates tend to discourage refinancings, with the result that the average life and volatility of the security will increase, exacerbating its decrease in market price. When interest rates fall, however, mortgage-backed securities may not gain as much in market value because of the expectation of additional mortgage prepayments that must be reinvested at lower interest rates. Prepayment risk may make it difficult to calculate the average maturity of the portfolio of mortgage-backed securities and, therefore, to assess the volatility risk of that portfolio. Although the Fund's U.S. government securities are considered to be among the safest investments, they are not guaranteed against price movements due to changing interest rates. Obligations issued by some U.S. government agencies are backed by the U.S. Treasury, while others are backed solely by the ability of the agency to borrow from the U.S. Treasury or by the agency's own resources. 12 PROSPECTUS - -------------------------------------------------------------------------------- INVESTMENT GRADE BOND FUND - -------------------------------------------------------------------------------- [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S INVESTOR SHARES FROM YEAR TO YEAR. THE CHART DOES NOT REFLECT SALES CHARGES. IF SALES CHARGES HAD BEEN REFLECTED, RETURNS WOULD BE LESS THAN THOSE SHOWN.* [BAR CHART OMITTED] Plot points are as follows: 1993 10.42% 1994 -3.57% 1995 17.26% 1996 1.93% 1997 8.64% 1998 8.79% 1999 -1.93% 2000 6.13% 2001 8.68% BEST QUARTER WORST QUARTER 6.02% -2.67% (6/30/95) (3/31/94) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS 0.12%. THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE LEHMAN BROTHERS U.S. GOVERNMENT/CREDIT INDEX, THE LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX AND THE LIPPER INTERMEDIATE INVESTMENT GRADE DEBT FUNDS AVERAGE. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only the Investor Shares. After-tax returns for other classes will vary. INVESTOR SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Fund Returns Before Taxes 4.59% 5.17% 5.68% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions 2.66% 2.90% 3.44% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares 2.78% 3.00% 3.44% - -------------------------------------------------------------------------------- Lehman Brothers U.S. Government/Credit Index (reflects no deduction for fees, expenses or taxes) 8.51% 7.36% 7.49% - -------------------------------------------------------------------------------- Lehman Brothers U.S. Aggregate Bond Index (reflects no deduction for fees, expenses or taxes) 8.42% 7.43% 7.41% - -------------------------------------------------------------------------------- Lipper Intermediate Investment Grade Debt Funds Average (reflects no deduction for taxes) 7.62% 6.44% 6.74% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE INVESTOR SHARES ON JUNE 11, 1992. BENCHMARK RETURNS SINCE MAY 31, 1992 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). FLEX SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Fund Returns Before Taxes 6.14% 5.47% 5.29% - -------------------------------------------------------------------------------- Lehman Brothers U.S. Government/Credit Index (reflects no deduction for fees, expenses or taxes) 8.51% 7.36% 7.18% - -------------------------------------------------------------------------------- Lehman Brothers U.S. Aggregate Bond Index (reflects no deduction for fees, expenses or taxes) 8.42% 7.43% 7.27% - -------------------------------------------------------------------------------- Lipper Intermediate Investment Grade Debt Funds Average (reflects no deduction for taxes) 7.62% 6.44% 6.37% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE FLEX SHARES ON JUNE 7, 1995. BENCHMARK RETURNS SINCE MAY 31, 1995 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). PROSPECTUS 13 - -------------------------------------------------------------------------------- INVESTMENT GRADE BOND FUND - -------------------------------------------------------------------------------- -------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? -------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Lehman Brothers U.S. Government/Credit Index is a widely-recognized, market value-weighted (higher market value bonds have more influence than lower market value bonds) index of U.S. Treasury securities, U.S. government agency obligations, corporate debt backed by the U.S. government, fixed rate nonconvertible corporate debt securities, Yankee bonds, and nonconvertible debt securities issued by or guaranteed by foreign governments and agencies. All securities in the Index are rated investment grade (BBB) or higher, with maturities of at least 1 year. The Lehman Brothers U.S. Aggregate Bond Index is a widely-recognized, market value- weighted (higher market value stocks have more influence than lower market value stocks) index that combines the Lehman Brothers U.S. Government/ Credit Index and the Lehman Brothers Mortgage-Backed Securities Index. The Lehman Brothers U.S. Government/ Credit Index consists of U.S. government obligations and corporate debt securities. The Lehman Brothers Mortgage-Backed Securities Index consists of mortgage-backed securities rated AAA. The Lehman Brothers U.S. Aggregate Bond Index includes fixed income securities rated investment grade (BBB) or higher, with maturities of at least one year. The securities in the Index have outstanding par values of at least $100 million for U. S. government obligations and $25 million for the others. The Lipper Intermediate Investment Grade Debt Funds Average is a composite of mutual funds with investment goals similar to the Fund's goals. It reports the average return of the intermediate term investment grade bond mutual funds tracked by Lipper Analytical Services, Inc. The number of funds in the Average varies. [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - ------------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - ------------------------------------------------------------------------------------------------------------------------------------ INVESTOR SHARES FLEX SHARES Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)* 3.75% None Maximum Deferred Sales Charge (Load) (as a percentage of net asset value)** None 2.00% * THIS SALES CHARGE VARIES DEPENDING UPON HOW MUCH YOU INVEST. YOU MAY BUY INVESTOR SHARES IN AMOUNTS OF $1,000,000 OR MORE AT NET ASSET VALUE (WITHOUT AN INITIAL SALES CHARGE), BUT IF YOU REDEEM THOSE SHARES WITHIN ONE YEAR OF YOUR PURCHASE, YOU WILL PAY A DEFERRED SALES CHARGE OF 1.00%. SEE "SALES CHARGES." ** THIS SALES CHARGE IS IMPOSED IF YOU SELL FLEX SHARES WITHIN ONE YEAR OF YOUR PURCHASE. SEE "SALES CHARGES."
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ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - ------------------------------------------------------------------------------------------------------------------------------------ INVESTOR SHARES FLEX SHARES Investment Advisory Fees 0.74% 0.74% Distribution and Service (12b-1) Fees 0.43% 1.00% Other Expenses 0.23% 0.22% ----- ----- Total Annual Fund Operating Expenses 1.40%* 1.96%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER AND THE DISTRIBUTOR WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THESE FEE WAIVERS REMAIN IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER AND THE DISTRIBUTOR MAY DISCONTINUE ALL OR PART OF THESE FEE WAIVERS AT ANY TIME. WITH THESE FEE WAIVERS, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: Investment Grade Bond Fund - Investor Shares 1.22% Investment Grade Bond Fund - Flex Shares 1.71%
14 PROSPECTUS - -------------------------------------------------------------------------------- INVESTMENT GRADE BOND FUND - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: IF YOU SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS Investor Shares $512 $802 $1,112 $1,992 Flex Shares $399 $615 $1,057 $2,285 IF YOU DO NOT SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS Investor Shares $512 $802 $1,112 $1,992 Flex Shares $199 $615 $1,057 $2,285 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." PROSPECTUS 15 - -------------------------------------------------------------------------------------------------------------------------
INVESTMENT GRADE TAX-EXEMPT BOND FUND - ------------------------------------------------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOAL High total return through (i) current income that is exempt from federal income taxes and (ii) capital appreciation, while preserving the principal amount invested - ------------------------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS Investment grade municipal securities - ------------------------------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Moderate - ------------------------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to invest more Fund assets in undervalued sectors and less in overvalued ones - ------------------------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Investors who want to receive tax-free current income and an increase in the value of their investment - -------------------------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Investment Grade Tax-Exempt Bond Fund invests at least 80% of its net assets in investment grade tax-exempt obligations, like municipal securities. The issuers of these securities may be located in any U.S. state, territory or possession. In addition, up to 20% of the Fund may be invested in securities subject to the alternative minimum tax or in certain taxable debt securities. In selecting investments for the Fund, the Adviser tries to limit risk as much as possible. Based on the Adviser's analysis of municipalities, credit risk, market trends and investment cycles, the Adviser attempts to invest more of the Fund's assets in undervalued market sectors and less in overvalued sectors. The Adviser also tries to identify and invest in municipal issuers with improving credit and avoid those with deteriorating credit. The Adviser anticipates that the Fund's average weighted maturity will range from 4 to 10 years. Due to its investment strategy, the Fund may buy and sell securities frequently. This may result in higher transaction costs and additional capital gains tax liabilities. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? The prices of the Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, the Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities are generally more volatile, so the average maturity or duration of these securities affects risk. There may be economic or political changes that impact the ability of municipal issuers to repay principal and to make interest payments on municipal securities. Changes in the financial condition or credit rating of municipal issuers also may adversely affect the value of the Fund's securities. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S INVESTOR SHARES FROM YEAR TO YEAR. THE CHART DOES NOT REFLECT SALES CHARGES. IF SALES CHARGES HAD BEEN REFLECTED, RETURNS WOULD BE LESS THAN THOSE SHOWN.* [BAR CHART OMITTED] Plot points are as follows: 1993 14.35% 1994 -0.60% 1995 14.51% 1996 4.99% 1997 7.36% 1998 6.73% 1999 -0.75% 2000 10.41% 2001 5.09% BEST QUARTER WORST QUARTER 5.87% -3.14% (3/31/95) (3/31/94) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS 4.22%. 16 PROSPECTUS - -------------------------------------------------------------------------------- INVESTMENT GRADE TAX-EXEMPT BOND FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE LEHMAN BROTHERS 5-YEAR MUNICIPAL BOND INDEX AND THE LIPPER INTERMEDIATE MUNICIPAL DEBT FUNDS AVERAGE. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only the Investor Shares. After-tax returns for other classes will vary. INVESTOR SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Fund Returns Before Taxes 1.17% 4.89% 6.44% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions 0.27% 4.05% 5.55% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares 1.88% 4.15% 5.42% - -------------------------------------------------------------------------------- Lehman Brothers 5-Year Municipal Bond Index (reflects no deduction for fees, expenses or taxes) 6.21% 5.35% 5.74% - -------------------------------------------------------------------------------- Lipper Intermediate Municipal Debt Funds Average (reflects no deduction for taxes) 4.51% 4.83% 5.59% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE INVESTOR SHARES ON JUNE 9, 1992. BENCHMARK RETURNS SINCE MAY 31, 1992 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). FLEX SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Fund Returns Before Taxes 2.70% 5.20% 5.42% - -------------------------------------------------------------------------------- Lehman Brothers 5-Year Municipal Bond Index (reflects no deduction for fees, expenses or taxes) 6.21% 5.35% 5.42% - -------------------------------------------------------------------------------- Lipper Intermediate Municipal Debt Funds Average (reflects no deduction for taxes) 4.51% 4.83% 5.02% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE FLEX SHARES ON JUNE 1, 1995. BENCHMARK RETURNS SINCE MAY 31, 1995 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). -------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? -------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Lehman Brothers 5-Year Municipal Bond Index is a widely-recognized index of intermediate investment grade tax-exempt bonds. The Index includes general obligation bonds, revenue bonds, insured bonds and prefunded bonds with maturities between 4 and 6 years. The Lipper Intermediate Municipal Debt Funds Average is a composite of mutual funds with investment goals similar to the Fund's goals. It reports the average return of the intermediate term municipal bond mutual funds tracked by Lipper Analytical Services, Inc. The number of funds in the Average varies. PROSPECTUS 17 - -------------------------------------------------------------------------------- INVESTMENT GRADE TAX-EXEMPT BOND FUND - -------------------------------------------------------------------------------- [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - ------------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - ------------------------------------------------------------------------------------------------------------------------------------ INVESTOR SHARES FLEX SHARES Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)* 3.75% None Maximum Deferred Sales Charge (Load) (as a percentage of net asset value)** None 2.00% * THIS SALES CHARGE VARIES DEPENDING UPON HOW MUCH YOU INVEST. YOU MAY BUY INVESTOR SHARES IN AMOUNTS OF $1,000,000 OR MORE AT NET ASSET VALUE (WITHOUT AN INITIAL SALES CHARGE), BUT IF YOU REDEEM THOSE SHARES WITHIN ONE YEAR OF YOUR PURCHASE, YOU WILL PAY A DEFERRED SALES CHARGE OF 1.00%. SEE "SALES CHARGES." ** THIS SALES CHARGE IS IMPOSED IF YOU SELL FLEX SHARES WITHIN ONE YEAR OF YOUR PURCHASE. SEE "SALES CHARGES."
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ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - ------------------------------------------------------------------------------------------------------------------------------------ INVESTOR SHARES FLEX SHARES Investment Advisory Fees 0.74% 0.74% Distribution and Service (12b-1) Fees 0.43% 1.00% Other Expenses 0.19% 0.18% ----- ----- Total Annual Fund Operating Expenses 1.36%* 1.92%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER AND THE DISTRIBUTOR WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THESE FEE WAIVERS REMAIN IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER AND THE DISTRIBUTOR MAY DISCONTINUE ALL OR PART OF THESE FEE WAIVERS AT ANY TIME. WITH THESE FEE WAIVERS, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: Investment Grade Tax-Exempt Bond Fund - Investor Shares 1.22% Investment Grade Tax-Exempt Bond Fund - Flex Shares 1.70%
- -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: IF YOU SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS Investor Shares $508 $790 $1,092 $1,949 Flex Shares $395 $603 $1,037 $2,243 IF YOU DO NOT SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS Investor Shares $508 $790 $1,092 $1,949 Flex Shares $195 $603 $1,037 $2,243 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." 18 PROSPECTUS - -------------------------------------------------------------------------------------------------------------------------
LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND - ------------------------------------------------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOAL High current income, while preserving capital - ------------------------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS Mortgage-backed securities - ------------------------------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Low - ------------------------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify securities that are less prone to prepayment risk - ------------------------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Conservative investors who want to receive income from their investment - -------------------------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Limited-Term Federal Mortgage Securities Fund invests at least 80% of its net assets in U.S. government agency mortgage-backed securities, such as Fannie Mae, GNMA and collateralized mortgage obligations. These securities typically have an effective maturity from 1 to 5 years. In selecting investments for the Fund, the Adviser tries to identify securities that the Adviser expects to perform well in rising and falling markets. The Adviser also attempts to reduce the risk that the underlying mortgages are prepaid by focusing on securities that it believes are less prone to this risk. For example, Fannie Mae or GNMA securities that were issued years ago may be less prone to prepayment risk because there have been many opportunities for prepayment, but few have occurred. Due to its investment strategy, the Fund may buy and sell securities frequently. This may result in higher transaction costs and additional capital gains tax liabilities. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? The prices of the Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, the Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities are generally more volatile, so the average maturity or duration of these securities affects risk. The Fund is also subject to the risk that mortgage-backed securities may underperform other segments of the fixed income market or the fixed income market as a whole. Mortgage-backed securities are fixed income securities representing an interest in a pool of underlying mortgage loans. Mortgage-backed securities are sensitive to changes in interest rates, but may respond to these changes differently from other fixed income securities due to the possibility of prepayment of the underlying mortgage loans. As a result, it may not be possible to determine in advance the actual maturity date or average life of a mortgage-backed security. Rising interest rates tend to discourage refinancings, with the result that the average life and volatility of the security will increase, exacerbating its decrease in market price. When interest rates fall, however, mortgage-backed securities may not gain as much in market value because of the expectation of additional mortgage prepayments that must be reinvested at lower interest rates. Prepayment risk may make it difficult to calculate the average maturity of the portfolio of mortgage-backed securities and, therefore, to assess the volatility risk of that portfolio. Although the Fund's U.S. government securities are considered to be among the safest investments, they are not guaranteed against price movements due to changing interest rates. Obligations issued by some U.S. government agencies are backed by the U.S. Treasury, while others are backed solely by the ability of the agency to borrow from the U.S. Treasury or by the agency's own resources. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. PROSPECTUS 19 - -------------------------------------------------------------------------------- LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND - -------------------------------------------------------------------------------- THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S INVESTOR SHARES FROM YEAR TO YEAR. THE CHART DOES NOT REFLECT SALES CHARGES. IF SALES CHARGES HAD BEEN REFLECTED, RETURNS WOULD BE LESS THAN THOSE SHOWN.* [BAR CHART OMITTED] Plot points are as follows: 1995 12.02% 1996 4.29% 1997 6.37% 1998 6.73% 1999 0.96% 2000 8.29% 2001 7.14% BEST QUARTER WORST QUARTER 4.20% -0.26% (9/30/01) (6/30/99) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS 3.21%. THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE MERRILL LYNCH 1-5 YEAR U.S. TREASURIES/AGENCIES INDEX AND THE MERRILL LYNCH 1-5 YEAR U.S. TREASURY INDEX. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only the Investor Shares. After-tax returns for other classes will vary. INVESTOR SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Fund Returns Before Taxes 4.41% 5.33% 5.77% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions 2.69% 3.12% 3.45% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares 2.68% 3.14% 3.44% - -------------------------------------------------------------------------------- Merrill Lynch 1-5 Year U.S. Treasuries/Agencies Index (reflects no deduction for fees, expenses or taxes) 8.53% 6.85% 6.87% - -------------------------------------------------------------------------------- Merrill Lynch 1-5 Year U.S. Treasury Index (reflects no deduction for fees, expenses or taxes) 8.37% 6.80% 6.82% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE INVESTOR SHARES ON JULY 18, 1994. BENCHMARK RETURNS SINCE JULY 31, 1994 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). FLEX SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Fund Returns Before Taxes 4.93% 5.55% 5.45% - -------------------------------------------------------------------------------- Merrill Lynch 1-5 Year U.S. Treasuries/Agencies Index (reflects no deduction for fees, expenses or taxes) 8.53% 6.85% 6.68% - -------------------------------------------------------------------------------- Merrill Lynch 1-5 Year U.S. Treasury Index (reflects no deduction for fees, expenses or taxes) 8.37% 6.80% 6.63% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE FLEX SHARES ON JUNE 7, 1995. BENCHMARK RETURNS SINCE MAY 31, 1995 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). -------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? -------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Merrill Lynch 1-5 Year U.S. Treasuries/Agencies Index includes U.S. government and agency bonds that have a minimum issue size of $150 million. The current market value of the Index is $1.50 trillion with duration of 2.06 years and yield to maturity of 2.48%. The Merrill Lynch 1-5 Year U.S. Treasury Index is a widely-recognized, capitalization-weighted (companies with larger market capitalizations have more influence than those with smaller market capitalizations) index of U.S. Treasury securities with maturities of 1 year or greater and no more than 5 years. 20 PROSPECTUS - -------------------------------------------------------------------------------- LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND - -------------------------------------------------------------------------------- [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - ------------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - ------------------------------------------------------------------------------------------------------------------------------------ INVESTOR SHARES FLEX SHARES Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)* 2.50% None Maximum Deferred Sales Charge (Load) (as a percentage of net asset value)** None 2.00% * THIS SALES CHARGE VARIES DEPENDING UPON HOW MUCH YOU INVEST. YOU MAY BUY INVESTOR SHARES IN AMOUNTS OF $1,000,000 OR MORE AT NET ASSET VALUE (WITHOUT AN INITIAL SALES CHARGE), BUT IF YOU REDEEM THOSE SHARES WITHIN ONE YEAR OF YOUR PURCHASE, YOU WILL PAY A DEFERRED SALES CHARGE OF 1.00%. SEE "SALES CHARGES." ** THIS SALES CHARGE IS IMPOSED IF YOU SELL FLEX SHARES WITHIN ONE YEAR OF YOUR PURCHASE. SEE "SALES CHARGES."
- ------------------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - ------------------------------------------------------------------------------------------------------------------------------------ INVESTOR SHARES FLEX SHARES Investment Advisory Fees 0.65% 0.65% Distribution and Service (12b-1) Fees 0.23% 1.00% Other Expenses 1.18% 0.33% ----- ----- Total Annual Fund Operating Expenses 2.06%* 1.98%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER AND THE DISTRIBUTOR WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THESE FEE WAIVERS REMAIN IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER AND THE DISTRIBUTOR MAY DISCONTINUE ALL OR PART OF THESE FEE WAIVERS AT ANY TIME. WITH THESE FEE WAIVERS, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: Limited-Term Federal Mortgage Securities Fund - Investor Shares 0.96% Limited-Term Federal Mortgage Securities Fund - Flex Shares 1.31%
- -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: IF YOU SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS Investor Shares $454 $880 $1,331 $2,580 Flex Shares $401 $621 $1,068 $2,306 IF YOU DO NOT SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS Investor Shares $454 $880 $1,331 $2,580 Flex Shares $201 $621 $1,068 $2,306 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." PROSPECTUS 21 - -------------------------------------------------------------------------------------------------------------------------
MARYLAND MUNICIPAL BOND FUND - ------------------------------------------------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOAL High current income exempt from federal and Maryland income tax, consistent with preservation of capital - ------------------------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS Maryland municipal securities - ------------------------------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Moderate - ------------------------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to invest in investment grade municipal securities - ------------------------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Maryland residents who want income exempt from federal and state income taxes - -------------------------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Maryland Municipal Bond Fund invests at least 80% of its net assets in municipal securities with income exempt from federal and Maryland income taxes. Issuers of these securities can be located in Maryland, Puerto Rico and other U.S. territories and possessions. In selecting investments for the Fund, the Adviser tries to limit risk by buying investment grade securities. There are no limits on the Fund's average weighted maturity or on the remaining maturities of individual securities. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? The prices of the Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, the Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities are generally more volatile, so the average maturity or duration of these securities affects risk. There may be economic or political changes that impact the ability of municipal issuers to repay principal and to make interest payments on municipal securities. Changes in the financial condition or credit rating of municipal issuers also may adversely affect the value of the Fund's securities. The Fund's concentration of investments in securities of issuers located in Maryland subjects the Fund to economic and government policies of Maryland. The Fund is non-diversified, which means that it may invest in the securities of relatively few issuers. As a result, the Fund may be more susceptible to a single adverse economic or regulatory occurrence affecting one or more of these issuers, and may experience increased volatility due to its investments in those securities. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S FLEX SHARES FROM YEAR TO YEAR. THE CHART DOES NOT REFLECT SALES CHARGES. IF SALES CHARGES HAD BEEN REFLECTED, RETURNS WOULD BE LESS THAN THOSE SHOWN.* [BAR CHART OMITTED] Plot points are as follows: 1997 7.90% 1998 4.91% 1999 -4.17% 2000 10.29% 2001 3.62% BEST QUARTER WORST QUARTER 3.84% -1.74% (12/31/00) (9/30/99) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS 3.93%. 22 PROSPECTUS - -------------------------------------------------------------------------------- MARYLAND MUNICIPAL BOND FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE LEHMAN BROTHERS 10-YEAR MUNICIPAL BOND INDEX AND THE LIPPER MARYLAND MUNICIPAL DEBT FUNDS AVERAGE. PREVIOUSLY, THE FUND'S RETURNS HAD BEEN COMPARED TO THE LEHMAN BROTHERS GENERAL OBLIGATION BOND INDEX, BUT THE ADVISER BELIEVES THAT THE LEHMAN BROTHERS 10-YEAR MUNICIPAL BOND INDEX BETTER ALIGNS WITH THE CURRENT STRATEGY FOR, AND PEER GROUP OF, THE FUND. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only the Flex Shares. After-tax returns for other classes will vary. FLEX SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Fund Returns Before Taxes 1.62% 4.39% 4.53% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions 1.62% 4.38% 4.52% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares 2.18% 4.19% 4.32% - -------------------------------------------------------------------------------- Lehman Brothers 10-Year Municipal Bond Index (reflects no deduction for fees, expenses or taxes) 4.63% 5.94% 6.24% - -------------------------------------------------------------------------------- Lipper Maryland Municipal Debt Funds Average (reflects no deduction for taxes) 4.22% 4.76% 5.11% - -------------------------------------------------------------------------------- Lehman Brothers General Obligation Bond Index (reflects no deduction for fees, expenses or taxes) 5.09% 5.92% 6.25% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE FLEX SHARES ON APRIL 25, 1996. BENCHMARK RETURNS SINCE APRIL 30, 1996 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). -------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? -------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Lehman Brothers 10-Year Municipal Bond Index is a widely-recognized index of long-term investment grade tax-exempt bonds. The Index includes general obligation bonds, revenue bonds, insured bonds and prefunded bonds with maturities between 8 and 12 years. The Index represents various market sectors and geographic locations. The Lipper Maryland Municipal Debt Funds Average is an average of funds that limit their assets to those securities that are exempt from taxation in a specified state (double tax-exempt) or city (triple tax-exempt). The number of funds in the Average varies. The Lehman Brothers General Obligation Bond Index is a widely-recognized index of general obligation securities issued in the last 5 years with maturities of over 1 year. PROSPECTUS 23 - -------------------------------------------------------------------------------- MARYLAND MUNICIPAL BOND FUND - -------------------------------------------------------------------------------- [COINS LOGO OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - ------------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - ------------------------------------------------------------------------------------------------------------------------------------ FLEX SHARES Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None Maximum Deferred Sales Charge (Load) (as a percentage of net asset value)* 2.00% * THIS SALES CHARGE IS IMPOSED IF YOU SELL FLEX SHARES WITHIN ONE YEAR OF YOUR PURCHASE. SEE "SALES CHARGES."
- ------------------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - ------------------------------------------------------------------------------------------------------------------------------------ FLEX SHARES Investment Advisory Fees 0.65% Distribution and Service (12b-1) Fees 1.00% Other Expenses 0.18% ----- Total Annual Fund Operating Expenses 1.83%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER AND THE DISTRIBUTOR WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THESE FEE WAIVERS REMAIN IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER AND THE DISTRIBUTOR MAY DISCONTINUE ALL OR PART OF THESE FEE WAIVERS AT ANY TIME. WITH THESE FEE WAIVERS, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: Maryland Municipal Bond Fund - Flex Shares 1.64%
- -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: IF YOU SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS Flex Shares $386 $576 $990 $2,148 IF YOU DO NOT SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS Flex Shares $186 $576 $990 $2,148 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." 24 PROSPECTUS - -------------------------------------------------------------------------------------------------------------------------
SHORT-TERM BOND FUND - ------------------------------------------------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOAL High current income, while preserving capital - ------------------------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS Investment grade U.S. government and corporate debt securities - ------------------------------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Low - ------------------------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify securities that offer a comparably better return than similar securities for a given level of credit risk - ------------------------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Income oriented investors who are willing to accept increased risk for the possibility of returns greater than money market investing - -------------------------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Short-Term Bond Fund invests at least 80% of its net assets in a diversified portfolio of short- to medium-term investment grade U.S. Treasury, corporate debt, mortgage-backed and asset-backed securities with an average weighted maturity of approximately 3 years. In selecting investments for the Fund, the Adviser attempts to identify securities that offer a comparably better investment return for a given level of credit risk. For example, short-term bonds generally have better returns than money market instruments, with a fairly modest increase in credit risk and/or volatility. The Adviser manages the Fund from a total return perspective. That is, the Adviser makes day-to-day investment decisions for the Fund with a view towards maximizing returns. The Adviser analyzes yields, market sectors and credit risk in an effort to identify attractive investments with the best risk/reward trade-off. Due to its investment strategy, the Fund may buy and sell securities frequently. This may result in higher transaction costs and additional capital gains tax liabilities. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? The prices of the Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, the Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities are generally more volatile, so the average maturity or duration of these securities affects risk. Mortgage-backed and asset-backed securities are fixed income securities representing an interest in a pool of underlying mortgage loans or underlying assets such as truck and auto loans, leases and credit card receivables. Mortgage-backed and asset-backed securities are sensitive to changes in interest rates, but may respond to these changes differently from other fixed income securities due to the possibility of prepayment of the underlying mortgage loan, receivables or other assets underlying these securities. As a result, it may not be possible to determine in advance the actual maturity date or average life of a mortgage-backed or asset-backed security. Rising interest rates tend to discourage refinancings, with the result that the average life and volatility of the security will increase, exacerbating its decrease in the market place. When interest rates fall, however, mortgage-backed and asset-backed securities may not gain as much in market value because of the expectation of additional mortgage prepayment or prepayment of the underlying asset that must be reinvested at lower interest rates. Prepayment risk may make it difficult to calculate the average maturity of the portfolio of mortgage-backed or asset-backed securities and, therefore, to assess the volatility risk of that portfolio. Although the Fund's U.S. government securities are considered to be among the safest investments, they are not guaranteed against price movements due to changing interest rates. Obligations issued by some U.S. government agencies are backed by the U.S. Treasury, while others are backed solely by the ability of the agency to borrow from the U.S. Treasury or by the agency's own resources. PROSPECTUS 25 - -------------------------------------------------------------------------------- SHORT-TERM BOND FUND - -------------------------------------------------------------------------------- [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S INVESTOR SHARES FROM YEAR TO YEAR. THE CHART DOES NOT REFLECT SALES CHARGES. IF SALES CHARGES HAD BEEN REFLECTED, RETURNS WOULD BE LESS THAN THOSE SHOWN.* [BAR CHART OMITTED] Plot points are as follows: 1994 -0.33% 1995 11.68% 1996 3.66% 1997 6.46% 1998 6.73% 1999 0.76% 2000 7.39% 2001 7.33% BEST QUARTER WORST QUARTER 3.81% -0.79% (6/30/95) (12/31/01) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 -0.35%. THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE SALOMON 1-3 YEAR TREASURY/GOVERNMENT SPONSORED/CORPORATE INDEX. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only the Investor Shares. After-tax returns for other classes will vary. INVESTOR SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Fund Returns Before Taxes 5.20% 5.29% 5.05% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions 3.22% 3.15% 2.97% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares 3.14% 3.15% 2.99% - -------------------------------------------------------------------------------- Salomon 1-3 Year Treasury/ Government Sponsored Corporate Index (reflects no deduction for fees, expenses or taxes) 8.87% 6.77% 6.12% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE INVESTOR SHARES ON MARCH 22, 1993. BENCHMARK RETURNS SINCE MARCH 31, 1993 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). FLEX SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Fund Returns Before Taxes 5.04% 5.38% 5.27% - -------------------------------------------------------------------------------- Salomon 1-3 Year Treasury/ Government Sponsored Corporate Index (reflects no deduction for fees, expenses or taxes) 8.87% 6.77% 6.63% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE FLEX SHARES ON JUNE 20, 1995. BENCHMARK RETURNS SINCE JUNE 30, 1995 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). -------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? -------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Salomon 1-3 Year Treasury/Government Sponsored/ Corporate Index is a widely-recognized index of U.S. Treasury securities, government agency obligations, and corporate debt securities rated at least investment grade (BBB). The securities in the Index have maturities of 1 year or greater and less than 3 years. 26 PROSPECTUS - -------------------------------------------------------------------------------- SHORT-TERM BOND FUND - -------------------------------------------------------------------------------- [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - ------------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - ------------------------------------------------------------------------------------------------------------------------------------ INVESTOR SHARES FLEX SHARES Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)* 2.00% None Maximum Deferred Sales Charge (Load) (as a percentage of net asset value)** None 2.00% * THIS SALES CHARGE VARIES DEPENDING UPON HOW MUCH YOU INVEST. YOU MAY BUY INVESTOR SHARES IN AMOUNTS OF $1,000,000 OR MORE AT NET ASSET VALUE (WITHOUT AN INITIAL SALES CHARGE), BUT IF YOU REDEEM THOSE SHARES WITHIN ONE YEAR OF YOUR PURCHASE, YOU WILL PAY A DEFERRED SALES CHARGE OF 1.00%. SEE "SALES CHARGES." ** THIS SALES CHARGE IS IMPOSED IF YOU SELL FLEX SHARES WITHIN ONE YEAR OF YOUR PURCHASE. SEE "SALES CHARGES."
- ------------------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - ------------------------------------------------------------------------------------------------------------------------------------ INVESTOR SHARES FLEX SHARES Investment Advisory Fees 0.65% 0.65% Distribution and Service (12b-1) Fees 0.23% 1.00% Other Expenses 0.38% 0.22% ----- ----- Total Annual Fund Operating Expenses 1.26%* 1.87%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER AND THE DISTRIBUTOR WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THESE FEE WAIVERS REMAIN IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER AND THE DISTRIBUTOR MAY DISCONTINUE ALL OR PART OF THESE FEE WAIVERS AT ANY TIME. WITH THESE FEE WAIVERS, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: Short-Term Bond Fund - Investor Shares 0.91% Short-Term Bond Fund - Flex Shares 1.26%
- -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: IF YOU SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS Investor Shares $326 $592 $878 $1,692 Flex Shares $390 $588 $1,011 $2,190 IF YOU DO NOT SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS Investor Shares $326 $592 $878 $1,692 Flex Shares $190 $588 $1,011 $2,190 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." PROSPECTUS 27 - -------------------------------------------------------------------------------------------------------------------------
SHORT-TERM U.S. TREASURY SECURITIES FUND - ------------------------------------------------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOAL High current income, while preserving capital - ------------------------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS Short-term U.S. Treasury securities - ------------------------------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Low - ------------------------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify Treasury securities with maturities that offer a comparably better return potential and yield than either shorter maturity or longer maturity securities for a given level of interest rate risk - ------------------------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Income oriented investors who are willing to accept increased risk for the possibility of returns greater than money market investing - -------------------------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Short-Term U.S. Treasury Securities Fund invests exclusively in short-term U.S. Treasury securities (those with remaining maturities of 3 years or less). The Fund intends to maintain an average weighted maturity from 1 to 2 years. The Fund offers investors the opportunity to capture the advantage of investing in short-term bonds over money market instruments. Generally, short-term bonds offer a comparably better return than money market instruments, with a modest increase in interest rate risk. The Adviser manages the Fund from a total return perspective. That is, the Adviser makes day-to-day investment decisions for the Fund with a view toward maximizing returns and yield. The Adviser tries to select those U.S. Treasury securities that offer the best risk/reward trade-off. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? The prices of the Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, the Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities are generally more volatile, so the average maturity or duration of these securities affects risk. The Fund is also subject to the risk that short-term U.S. Treasury securities may underperform other segments of the fixed income market or the fixed income market as a whole. Although the Fund's U.S. Treasury securities are considered to be among the safest investments, they are not guaranteed against price movements due to changing interest rates. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S INVESTOR SHARES FROM YEAR TO YEAR. THE CHART DOES NOT REFLECT SALES CHARGES. IF SALES CHARGES HAD BEEN REFLECTED, RETURNS WOULD BE LESS THAN THOSE SHOWN.* [BAR CHART OMITTED] Plot points are as follows: 1994 1.28% 1995 8.39% 1996 4.38% 1997 5.70% 1998 6.09% 1999 2.55% 2000 6.48% 2001 6.39% BEST QUARTER WORST QUARTER 2.60% -0.13% (3/31/95) (3/31/94) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS 1.73%. 28 PROSPECTUS - -------------------------------------------------------------------------------- SHORT-TERM U.S. TREASURY SECURITIES FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE SALOMON 1-3 YEAR TREASURY INDEX AND THE SALOMON 6 MONTH TREASURY BILL INDEX. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only the Investor Shares. After-tax returns for other classes will vary. INVESTOR SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Fund Returns Before Taxes 5.34% 5.22% 4.86% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions 3.54% 3.28% 2.96% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares 3.23% 3.20% 2.93% - -------------------------------------------------------------------------------- Salomon 1-3 Year Treasury Index (reflects no deduction for fees, expenses or taxes) 8.31% 6.59% 5.97% - -------------------------------------------------------------------------------- Salomon 6 Month Treasury Bill Index (reflects no deduction for fees, expenses or taxes) 4.53% 5.22% 5.03% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE INVESTOR SHARES ON MARCH 18, 1993. BENCHMARK RETURNS SINCE MARCH 31, 1993 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). FLEX SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Fund Returns Before Taxes 4.20% 5.20% 5.07% - -------------------------------------------------------------------------------- Salomon 1-3 Year Treasury Index (reflects no deduction for fees, expenses or taxes) 8.31% 6.59% 6.47% - -------------------------------------------------------------------------------- Salomon 6 Month Treasury Bill Index (reflects no deduction for fees, expenses or taxes) 4.53% 5.22% 5.27% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE FLEX SHARES ON JUNE 22, 1995. BENCHMARK RETURNS SINCE JUNE 30, 1995 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). -------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? -------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Salomon 1-3 Year Treasury Index is a widely-recognized index of U.S. Treasury securities with maturities of one year or greater and less than three years. The Salomon 6 Month Treasury Bill Index is a widely-recognized index of the 6 month U.S. Treasury Bills. PROSPECTUS 29 - -------------------------------------------------------------------------------- SHORT-TERM U.S. TREASURY SECURITIES FUND - -------------------------------------------------------------------------------- [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - ------------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - ------------------------------------------------------------------------------------------------------------------------------------ INVESTOR SHARES FLEX SHARES Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)* 1.00% None Maximum Deferred Sales Charge (Load) (as a percentage of net asset value)** None 2.00% * THIS SALES CHARGE VARIES DEPENDING UPON HOW MUCH YOU INVEST. YOU MAY BUY INVESTOR SHARES IN AMOUNTS OF $1,000,000 OR MORE AT NET ASSET VALUE (WITHOUT AN INITIAL SALES CHARGE), BUT IF YOU REDEEM THOSE SHARES WITHIN ONE YEAR OF YOUR PURCHASE, YOU WILL PAY A DEFERRED SALES CHARGE OF 1.00%. SEE "SALES CHARGES." ** THIS SALES CHARGE IS IMPOSED IF YOU SELL FLEX SHARES WITHIN ONE YEAR OF YOUR PURCHASE. SEE "SALES CHARGES."
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ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - ------------------------------------------------------------------------------------------------------------------------------------ INVESTOR SHARES FLEX SHARES Investment Advisory Fees 0.65% 0.65% Distribution and Service (12b-1) Fees 0.18% 1.00% Other Expenses 0.58% 0.16% ----- ----- Total Annual Fund Operating Expenses 1.41%* 1.81%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER AND THE DISTRIBUTOR WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THESE FEE WAIVERS REMAIN IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER AND THE DISTRIBUTOR MAY DISCONTINUE ALL OR PART OF THESE FEE WAIVERS AT ANY TIME. WITH THESE FEE WAIVERS, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: Short-Term U.S. Treasury Securities Fund - Investor Shares 0.86% Short-Term U.S. Treasury Securities Fund - Flex Shares 1.11%
- -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: IF YOU SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS Investor Shares $242 $542 $863 $1,774 Flex Shares $384 $569 $980 $2,127 IF YOU DO NOT SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS Investor Shares $242 $542 $863 $1,774 Flex Shares $184 $569 $980 $2,127 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." 30 PROSPECTUS - -------------------------------------------------------------------------------------------------------------------------
STRATEGIC INCOME FUND - ------------------------------------------------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOALS PRIMARY Current income SECONDARY Preservation of capital - ------------------------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS High yield corporate, government, and other debt instruments of U.S. and non U.S. issuers - ------------------------------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Moderate - ------------------------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to increase income while reducing share price volatility through diversification across three major sectors of the fixed income market - ------------------------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Investors who seek high current income with reduced risk of share price volatility - -------------------------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Strategic Income Fund invests primarily in a diversified portfolio of high yield corporate, U.S. government and international bonds. The Fund will maintain a minimum average credit quality rating of BBB. The Fund will invest at least 15%, but not more than 60%, of its assets in a particular sector. In selecting debt securities for the Fund the Adviser seeks out companies with good fundamentals and performing prospects that are currently out of favor with investors. The primary basis for security selection is the potential income offered by the security relative to the Adviser's assessment of the issuer's ability to generate the cash flow required to meet its obligation. The Adviser employs a "bottom-up" approach, identifying investment opportunities based on the underlying financial and economic fundamentals of the specific issuer. Due to its investment strategy, the Fund may buy and sell securities frequently. This may result in higher transaction costs and additional capital gains tax liabilities. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? The prices of the Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, the Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities are generally more volatile, so the average maturity or duration of these securities affects risk. High yield securities involve greater risks of default or downgrade and are more volatile than investment grade securities. Junk bonds involve greater risk of default or price declines than investment grade securities due to actual or perceived changes in an issuer's creditworthiness. In addition, issuers of junk bonds may be more susceptible than other issuers to economic downturns. Junk bonds are subject to the risk that the issuer may not be able to pay interest or dividends and ultimately to repay principal upon maturity. Discontinuation of these payments could substantially adversely affect the market value of the security. Investing in foreign countries poses additional risks since political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. In addition, investments in foreign countries are generally denominated in a foreign currency. As a result, changes in the value of those currencies compared to the U.S. dollar may affect (positively or negatively) the value of a Fund's investments. These currency movements may happen separately from and in response to events that do not otherwise affect the value of the security in the issuer's home country. These various risks will be even greater for investments in emerging market countries since political turmoil and rapid changes in economic conditions are more likely to occur in these countries. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The Strategic Income Fund commenced operations on November 30, 2001, and therefore does not have a performance history for a full calendar year. PROSPECTUS 31 - -------------------------------------------------------------------------------- STRATEGIC INCOME FUND - -------------------------------------------------------------------------------- [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - ------------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - ------------------------------------------------------------------------------------------------------------------------------------ FLEX SHARES Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None Maximum Deferred Sales Charge (Load) (as a percentage of net asset value)* 2.00% * THIS SALES CHARGE IS IMPOSED IF YOU SELL YOUR FLEX SHARES WITHIN ONE YEAR OF YOUR PURCHASE. SEE "SALES CHARGES."
- ------------------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - ------------------------------------------------------------------------------------------------------------------------------------ FLEX SHARES Investment Advisory Fees 0.85% Distribution and Service (12b-1) Fees 1.00% Other Expenses 0.22% ----- Total Annual Fund Operating Expenses 2.07%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE CURRENT FISCAL YEAR ARE EXPECTED TO BE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER AND THE DISTRIBUTOR INTEND TO WAIVE A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THESE FEE WAIVERS REMAIN IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER AND THE DISTRIBUTOR MAY DISCONTINUE ALL OR PART OF THESE FEE WAIVERS AT ANY TIME. WITH THESE FEE WAIVERS, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES WOULD BE AS FOLLOWS: Strategic Income Fund - Flex Shares 1.53%
- -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return and Fund operating expenses remain the same. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: IF YOU SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS Flex Shares $410 $649 IF YOU DO NOT SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS Flex Shares $210 $649 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." 32 PROSPECTUS - -------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENTS SECURITIES FUND - ------------------------------------------------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOAL High current income, while preserving capital - ------------------------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS Mortgage-backed securities and U.S. Treasury obligations - ------------------------------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Low to moderate - ------------------------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to increase income without adding undue risk - ------------------------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Conservative investors who want to receive income from their investment - -------------------------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The U.S. Government Securities Fund invests at least 80% of its net assets in U.S. government debt securities, such as mortgage-backed securities and U.S. Treasury obligations. In an attempt to provide a consistently high dividend without adding undue risk, the Fund focuses its investments in mortgage-backed securities. The average maturity of the Fund's portfolio will typically range from 7 to 14 years. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? The prices of the Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, the Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities are generally more volatile, so the average maturity or duration of these securities affects risk. The Fund is also subject to the risk that U.S. government debt securities may underperform other segments of the fixed income market or the fixed income market as a whole. Mortgage-backed securities are fixed income securities representing an interest in a pool of underlying mortgage loans. Mortgage-backed securities are sensitive to changes in interest rates, but may respond to these changes differently from other fixed income securities due to the possibility of prepayment of the underlying mortgage loans. As a result, it may not be possible to determine in advance the actual maturity date or average life of a mortgage-backed security. Rising interest rates tend to discourage refinancings, with the result that the average life and volatility of the security will increase, exacerbating its decrease in market price. When interest rates fall, however, mortgage-backed securities may not gain as much in market value because of the expectation of additional mortgage prepayments that must be reinvested at lower interest rates. Prepayment risk may make it difficult to calculate the average maturity of the portfolio of mortgage-backed securities and, therefore, to assess the volatility risk of that portfolio. Although the Fund's U.S. government securities are considered to be among the safest investments, they are not guaranteed against price movements due to changing interest rates. Obligations issued by some U.S. government agencies are backed by the U.S. Treasury, while others are backed solely by the ability of the agency to borrow from the U.S. Treasury or by the agency's own resources. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S INVESTOR SHARES FROM YEAR TO YEAR. THE CHART DOES NOT REFLECT SALES CHARGES. IF SALES CHARGES HAD BEEN REFLECTED, RETURNS WOULD BE LESS THAN THOSE SHOWN.* [BAR CHART OMITTED] Plot points are as follows: 1995 16.95% 1996 2.08% 1997 8.60% 1998 7.74% 1999 -1.49% 2000 10.50% 2001 6.61% BEST QUARTER WORST QUARTER 5.81% -2.31% (6/30/95) (3/31/96) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS 3.80%. PROSPECTUS 33 - -------------------------------------------------------------------------------- U.S. GOVERNMENT SECURITIES FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE MERRILL LYNCH GOVERNMENT/MORTGAGE INDEX AND THE LEHMAN BROTHERS INTERMEDIATE U.S. GOVERNMENT BOND INDEX. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After- tax returns are shown for only the Investor Shares. After-tax returns for other classes will vary. INVESTOR SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Fund Returns Before Taxes 2.66% 5.51% 5.86% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions 0.20% 3.22% 3.52% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares 1.66% 3.25% 3.51% - -------------------------------------------------------------------------------- Merrill Lynch Government/Mortgage Index (reflects no deduction for fees, expenses or taxes) 7.59% 7.44% 7.76% - -------------------------------------------------------------------------------- Lehman Brothers Intermediate U.S. Government Bond Index (reflects no deduction for fees, expenses or taxes) 8.42% 7.06% 7.13% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE INVESTOR SHARES ON JUNE 6, 1994. BENCHMARK RETURNS SINCE MAY 31, 1994 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). FLEX SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Fund Returns Before Taxes 4.02% 5.78% 5.45% - -------------------------------------------------------------------------------- Merrill Lynch Government/Mortgage Index (reflects no deduction for fees, expenses or taxes) 7.59% 7.44% 7.25% - -------------------------------------------------------------------------------- Lehman Brothers Intermediate U.S. Government Bond Index (reflects no deduction for fees, expenses or taxes) 8.42% 7.06% 6.84% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE FLEX SHARES ON JUNE 7, 1995. BENCHMARK RETURNS SINCE MAY 31, 1995 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). -------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? -------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Merrill Lynch Government/Mortgage Index is a synthetic index created by combining, at their respective market weights (i) the Merrill Lynch Government Master Index, which is a widely-recognized index comprised of U.S. Treasury securities and U.S. government agency securities with a maturity of at least 1 year; and (ii) the Merrill Lynch Mortgage Master Index, which is a widely-recognized index comprised of mortgage-backed securities including 15 and 30 year single family mortgages in addition to aggregated pooled mortgages. The Lehman Brothers Intermediate U.S. Government Bond Index is a widely-recognized, market value-weighted (higher market value bonds have more influence than lower market value bonds) index of U.S. Treasury securities, U.S. government agency obligations, and corporate debt backed by the U.S. government, fixed-rate nonconvertible corporate debt securities, Yankee bonds, and nonconvertible debt securities issued by or guaranteed by foreign governments and agencies. All securities in the Index are rated investment grade (BBB) or higher, with maturities of at least 1 year. 34 PROSPECTUS - -------------------------------------------------------------------------------- U.S. GOVERNMENT SECURITIES FUND - -------------------------------------------------------------------------------- [COINS LOGO OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - ------------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - ------------------------------------------------------------------------------------------------------------------------------------ INVESTOR SHARES FLEX SHARES Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)* 3.75% None Maximum Deferred Sales Charge (Load) (as a percentage of net asset value)** None 2.00% * THIS SALES CHARGE VARIES DEPENDING UPON HOW MUCH YOU INVEST. YOU MAY BUY INVESTOR SHARES IN AMOUNTS OF $1,000,000 OR MORE AT NET ASSET VALUE (WITHOUT AN INITIAL SALES CHARGE), BUT IF YOU REDEEM THOSE SHARES WITHIN ONE YEAR OF YOUR PURCHASE, YOU WILL PAY A DEFERRED SALES CHARGE OF 1.00%. SEE "SALES CHARGES." ** THIS SALES CHARGE IS IMPOSED IF YOU SELL FLEX SHARES WITHIN ONE YEAR OF YOUR PURCHASE. SEE "SALES CHARGES."
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ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - ------------------------------------------------------------------------------------------------------------------------------------ INVESTOR SHARES FLEX SHARES Investor Shares Flex Shares Investment Advisory Fees 0.74% 0.74% Distribution and Service (12b-1) Fees 0.38% 1.00% Other Expenses 0.28% 0.19% ----- ----- Total Annual Fund Operating Expenses 1.40%* 1.93%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER AND THE DISTRIBUTOR WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THESE FEE WAIVERS REMAIN IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER AND THE DISTRIBUTOR MAY DISCONTINUE ALL OR PART OF THESE FEE WAIVERS AT ANY TIME. WITH THESE FEE WAIVERS, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: U.S. Government Securities Fund - Investor Shares 1.22% U.S. Government Securities Fund - Flex Shares 1.73%
- -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: IF YOU SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS Investor Shares $512 $802 $1,112 $1,992 Flex Shares $396 $606 $1,042 $2,254 IF YOU DO NOT SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS Investor Shares $512 $802 $1,112 $1,992 Flex Shares $196 $606 $1,042 $2,254 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." PROSPECTUS 35 - -------------------------------------------------------------------------------------------------------------------------
VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND - ------------------------------------------------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOAL High current income exempt from federal and Virginia income tax, consistent with preservation of capital - ------------------------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS Virginia municipal securities - ------------------------------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Low - ------------------------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to limit risk by investing in investment grade municipal securities with an intermediate average maturity - ------------------------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Virginia residents who want income exempt from federal and state income taxes - -------------------------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Virginia Intermediate Municipal Bond Fund invests at least 80% of its net assets in municipal securities with income exempt from federal and Virginia income taxes. Issuers of these securities can be located in Virginia, Puerto Rico and other U.S. territories and possessions. In selecting investments for the Fund, the Adviser tries to limit risk by buying investment grade securities. The Adviser also considers stability and growth of principal. The Adviser expects that the Fund's average weighted maturity will range from 5 to 10 years but there is no limit on the maturities of individual securities. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? The prices of the Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, the Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities are generally more volatile, so the average maturity or duration of these securities affects risk. There may be economic or political changes that impact the ability of municipal issuers to repay principal and to make interest payments on municipal securities. Changes in the financial condition or credit rating of municipal issuers also may adversely affect the value of the Fund's securities. The Fund is non-diversified, which means that it may invest in the securities of relatively few issuers. As a result, the Fund may be more susceptible to a single adverse economic or regulatory occurrence affecting one or more of these issuers, and may experience increased volatility due to its investments in those securities. The Fund's concentration of investments in securities of issuers located in Virginia subjects the Fund to economic and government policies of Virginia. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S INVESTOR SHARES FROM YEAR TO YEAR. THE CHART DOES NOT REFLECT SALES CHARGES. IF SALES CHARGES HAD BEEN REFLECTED, RETURNS WOULD BE LESS THAN THOSE SHOWN.* [BAR CHART OMITTED] Plot points are as follows: 1994 -6.47% 1995 14.37% 1996 2.94% 1997 7.24% 1998 5.32% 1999 -2.43% 2000 9.35% 2001 4.50% BEST QUARTER WORST QUARTER 6.10% -6.72% (3/31/95) (3/31/94) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS 3.88%. 36 PROSPECTUS - -------------------------------------------------------------------------------- VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE LEHMAN BROTHERS 5-YEAR MUNICIPAL BOND INDEX AND THE LIPPER OTHER STATES INTERMEDIATE MUNICIPAL DEBT FUNDS OBJECTIVE AVERAGE. PREVIOUSLY, THE FUND'S RETURNS HAD BEEN COMPARED TO THE LEHMAN BROTHERS 5-YEAR GENERAL OBLIGATION BOND INDEX, BUT THE ADVISER BELIEVES THAT THE LEHMAN BROTHERS 5-YEAR MUNICIPAL BOND INDEX MORE ACCURATELY ALIGNS WITH THE CURRENT STRATEGY FOR, AND PEER GROUP OF, THIS INTERMEDIATE MATURITY FUND. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only the Investor Shares. After-tax returns for other classes will vary. INVESTOR SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Fund Returns Before Taxes 0.62% 3.91% 4.04% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions 0.61% 3.83% 3.98% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares 1.93% 3.96% 4.06% - -------------------------------------------------------------------------------- Lehman Brothers 5-Year Municipal Bond Index (reflects no deduction for fees, expenses or taxes) 6.21% 5.35% 5.31% - -------------------------------------------------------------------------------- Lipper Other States Intermediate Municipal Debt Funds Objective Average (reflects no deduction for taxes) 4.34% 4.48% 4.71% - -------------------------------------------------------------------------------- Lehman Brothers 5-Year General Obligation Bond Index (reflects no deduction for fees, expenses or taxes) 5.98% 5.31% 5.34% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE INVESTOR SHARES ON MAY 5, 1993. BENCHMARK RETURNS SINCE APRIL 30, 1993 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). --------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? --------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Lehman Brothers 5-Year Municipal Bond Index is a widely-recognized index composed of tax-exempt bonds with maturities ranging between 4 and 6 years. The Lipper Other States Intermediate Municipal Debt Funds Average is an average of funds that invest in municipal debt issues with dollar-weighted average maturities of five to ten years and are exempt from taxation on a specified city or state basis. The number of funds in the Average varies. The Lehman Brothers 5-year General Obligation Bond Index is a widely-recognized index of municipal bonds with maturities ranging from 4 to 6 years. PROSPECTUS 37 - -------------------------------------------------------------------------------- VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND - -------------------------------------------------------------------------------- [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - ------------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - ------------------------------------------------------------------------------------------------------------------------------------ INVESTOR SHARES Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)* 3.75% Maximum Deferred Sales Charge (Load) (as a percentage of net asset value) None * THIS SALES CHARGE VARIES DEPENDING UPON HOW MUCH YOU INVEST. YOU MAY BUY INVESTOR SHARES IN AMOUNTS OF $1,000,000 OR MORE AT NET ASSET VALUE (WITHOUT AN INITIAL SALES CHARGE), BUT IF YOU REDEEM THOSE SHARES WITHIN ONE YEAR OF YOUR PURCHASE, YOU WILL PAY A DEFERRED SALES CHARGE OF 1.00%. SEE "SALES CHARGES."
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ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - ------------------------------------------------------------------------------------------------------------------------------------ INVESTOR SHARES Investment Advisory Fees 0.65% Distribution and Service (12b-1) Fees 0.15% Other Expenses 0.31% ----- Total Annual Fund Operating Expenses 1.11%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE DISTRIBUTOR WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THIS FEE WAIVER REMAINS IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE DISTRIBUTOR MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: Virginia Intermediate Municipal Bond Fund - Investor Shares 0.79%
- -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $484 $715 $964 $1,676 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." 38 PROSPECTUS - -------------------------------------------------------------------------------------------------------------------------
VIRGINIA MUNICIPAL BOND FUND - ------------------------------------------------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOAL High current income exempt from federal and Virginia income taxes, consistent with preservation of capital - ------------------------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS Virginia municipal securities - ------------------------------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Moderate - ------------------------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to invest in investment grade municipal securities - ------------------------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Virginia residents who want income exempt from federal and state income taxes - -------------------------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Virginia Municipal Bond Fund invests substantially all of its assets in municipal securities with income exempt from federal and Virginia income taxes. Issuers of these securities can be located in Virginia, Puerto Rico and other U.S. territories and possessions. In selecting investments for the Fund, the Adviser tries to limit risk by buying investment grade securities. There are no limits on the Fund's average weighted maturity or on the remaining maturities of individual securities. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? The prices of the Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, the Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities are generally more volatile, so the average maturity or duration of these securities affects risk. There may be economic or political changes that impact the ability of municipal issuers to repay principal and to make interest payments on municipal securities. Changes in the financial condition or credit rating of municipal issuers also may adversely affect the value of the Fund's securities. The Fund is non-diversified, which means that it may invest in the securities of relatively few issuers. As a result, the Fund may be more susceptible to a single adverse economic or regulatory occurrence affecting one or more of these issuers, and may experience increased volatility due to its investments in those securities. The Fund's concentration of investments in securities of issuers located in Virginia subjects the Fund to economic conditions and government policies of Virginia. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S FLEX SHARES FROM YEAR TO YEAR. THE CHART DOES NOT REFLECT SALES CHARGES. IF SALES CHARGES HAD BEEN REFLECTED, RETURNS WOULD BE LESS THAN THOSE SHOWN.* [BAR CHART OMITTED] Plot points are as follows: 1996 0.81% 1997 7.91% 1998 4.83% 1999 -5.68% 2000 10.72% 2001 3.30% BEST QUARTER WORST QUARTER 4.21% -2.93% (12/31/00) (3/31/96) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS 3.81%. PROSPECTUS 39 - -------------------------------------------------------------------------------- VIRGINIA MUNICIPAL BOND FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE LEHMAN BROTHERS 10-YEAR MUNICIPAL BOND INDEX, THE LIPPER VIRGINIA MUNICIPAL DEBT FUNDS AVERAGE, AND THE LEHMAN BROTHERS GENERAL OBLIGATION BOND INDEX. PREVIOUSLY, THE FUND'S RETURNS HAD BEEN COMPARED TO THE LEHMAN BROTHERS GENERAL OBLIGATION BOND INDEX, BUT THE ADVISER BELIEVES THAT THE LEHMAN BROTHERS 10-YEAR MUNICIPAL BOND INDEX BETTER ALIGNS WITH THE CURRENT STRATEGY FOR, AND PEER GROUP OF, THE FUND. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only the Flex Shares. After-tax returns for other classes will vary. FLEX SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Fund Returns Before Taxes 1.30% 4.06% 4.26% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions 1.29% 4.02% 4.17% - -------------------------------------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares 2.05% 3.96% 4.10% - -------------------------------------------------------------------------------- Lehman Brothers 10-Year Municipal Bond Index (reflects no deduction for fees, expenses or taxes) 4.63% 5.94% 6.49% - -------------------------------------------------------------------------------- Lipper Virginia Municipal Debt Funds Average (reflects no deduction for taxes) 4.11% 4.93% 5.60% - -------------------------------------------------------------------------------- Lehman Brothers General Obligation Bond Index (reflects no deduction for fees, expenses or taxes) 5.09% 5.92% 6.43% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE FLEX SHARES ON APRIL 14, 1995. BENCHMARK RETURNS SINCE MARCH 31, 1995 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). --------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? --------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Lehman Brothers 10-Year Municipal Bond Index is a widely-recognized index of long-term investment grade tax-exempt bonds. The Index includes general obligation bonds, revenue bonds, insured bonds and prefunded bonds with maturities between 8 and 12 years. The Index represents various market sectors and geographic locations. The Lipper Virginia Municipal Debt Funds Average is a composite index of mutual funds with investment goals similar to the Fund's goals. It reports the average return of the Virginia intermediate-term municipal bond mutual funds tracked by Lipper Analytical Services, Inc. The number of funds in the Average varies. The Lehman Brothers General Obligation Bond Index is a widely-recognized index of general obligation securities issued in the last 5 years with maturities of over 1 year. 40 PROSPECTUS - -------------------------------------------------------------------------------- VIRGINIA MUNICIPAL BOND FUND - -------------------------------------------------------------------------------- [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - ------------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - ------------------------------------------------------------------------------------------------------------------------------------ FLEX SHARES Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None Maximum Deferred Sales Charge (Load) (as a percentage of net asset value)* 2.00% * THIS SALES CHARGE IS IMPOSED IF YOU SELL FLEX SHARES WITHIN ONE YEAR OF YOUR PURCHASE. SEE "SALES CHARGES."
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ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - ------------------------------------------------------------------------------------------------------------------------------------ FLEX SHARES Investment Advisory Fees 0.65% Distribution and Service (12b-1) Fees 1.00% Other Expenses 0.23% ----- Total Annual Fund Operating Expenses 1.88%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE DISTRIBUTOR WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THIS FEE WAIVER REMAINS IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE DISTRIBUTOR MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: Virginia Municipal Bond Fund - Flex Shares 1.70%
- -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: IF YOU SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS Flex Shares $391 $591 $1,016 $2,201 IF YOU DO NOT SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS Flex Shares $191 $591 $1,016 $2,201 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." PROSPECTUS 41 - -------------------------------------------------------------------------------- MORE INFORMATION ABOUT RISK - -------------------------------------------------------------------------------- [LIFE PRESERVER GRAPHIC OMITTED] MORE INFORMATION ABOUT RISK DERIVATIVES RISK STRATEGIC INCOME FUND The Fund may use derivatives to attempt to achieve its investment objectives, while at the same time maintaining liquidity. To collateralize (or cover) these derivatives transactions, the Fund holds cash or U.S. government securities. FIXED INCOME RISK FLORIDA TAX-EXEMPT BOND FUND GEORGIA TAX-EXEMPT BOND FUND HIGH INCOME FUND INVESTMENT GRADE BOND FUND INVESTMENT GRADE TAX-EXEMPT BOND FUND LIMITED-TERM FEDERAL MORTGAGES SECURITIES FUND MARYLAND MUNICIPAL BOND FUND SHORT-TERM BOND FUND SHORT-TERM U.S. TREASURY SECURITIES FUND STRATEGIC INCOME FUND U.S. GOVERNMENT SECURITIES FUND VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND VIRGINIA MUNICIPAL BOND FUND The market value of fixed income investments changes in response to interest rate changes and other factors. During periods of falling interest rates, the values of outstanding fixed income securities generally rise. Moreover, while securities with longer maturities tend to produce higher yields, the prices of longer maturity securities are also subject to greater market fluctuations as a result of changes in interest rates. In addition to these fundamental risks, different types of fixed income securities may be subject to the following additional risks: CREDIT RISK FLORIDA TAX-EXEMPT BOND FUND GEORGIA TAX-EXEMPT BOND FUND INVESTMENT GRADE BOND FUND INVESTMENT GRADE TAX-EXEMPT BOND FUND MARYLAND MUNICIPAL BOND FUND SHORT-TERM BOND FUND VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND VIRGINIA MUNICIPAL BOND FUND The possibility that an issuer will be unable to make timely payments of either principal or interest. MUNICIPAL ISSUER RISK FLORIDA TAX-EXEMPT BOND FUND GEORGIA TAX-EXEMPT BOND FUND INVESTMENT GRADE TAX-EXEMPT BOND FUND MARYLAND MUNICIPAL BOND FUND VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND VIRGINIA MUNICIPAL BOND FUND There may be economic or political changes that impact the ability of municipal issuers to repay principal and to make interest payments on municipal securities. Changes to the financial condition or credit rating of municipal issuers may also adversely affect the value of the Fund's municipal securities. Constitutional or legislative limits on borrowing by municipal issuers may result in reduced supplies of municipal securities. Moreover, certain municipal securities are backed only by a municipal issuer's ability to levy and collect taxes. In addition, the Fund's concentration of investments in issuers located in a single state makes the Fund more susceptible to adverse political or economic developments affecting that state. The Fund also may be riskier than mutual funds that buy securities of issuers in numerous states. FOREIGN SECURITY RISKS HIGH INCOME FUND STRATEGIC INCOME FUND Investments in securities of foreign companies or governments can be more volatile than investments in U.S. companies or governments. Diplomatic, political, or economic developments, including nationalization or appropriation, could affect investments in foreign countries. Foreign securities markets generally have less trading volume and less liquidity than U.S. markets. In addition, the value of securities denominated in foreign currencies, and of dividends from such securities, can change significantly when foreign currencies strengthen or 42 PROSPECTUS - -------------------------------------------------------------------------------- MORE INFORMATION ABOUT FUND INVESTMENTS - -------------------------------------------------------------------------------- weaken relative to the U.S. dollar. Foreign companies or governments generally are not subject to uniform accounting, auditing, and financial reporting standards comparable to those applicable to domestic U.S. companies or governments. Transaction costs are generally higher than those in the U.S. and expenses for custodial arrangements of foreign securities may be somewhat greater than typical expenses for custodial arrangements of similar U.S. securities. Some foreign governments levy withholding taxes against dividend and interest income. Although in some countries a portion of these taxes are recoverable, the non-recovered portion will reduce the income received from the securities comprising the portfolio. HEDGING RISK STRATEGIC INCOME FUND Hedging is a strategy designed to offset investment risks. There are risks associated with hedging activities, including: o 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 and currency exchange rates. o There may be an imperfect or no correlation between the changes in market value of the securities held by a Fund or the currencies in which those securities are denominated and the prices of forward contracts, futures and options on futures. o There may not be a liquid secondary market for a futures contract or option. o Trading restrictions or limitations may be imposed by an exchange, and government regulations may restrict trading in currencies, futures contracts and options. REGIONAL RISK FLORIDA TAX-EXEMPT BOND FUND GEORGIA TAX-EXEMPT BOND FUND MARYLAND MUNICIPAL BOND FUND VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND VIRGINIA MUNICIPAL BOND FUND To the extent that the Fund's investments are concentrated in a specific geographic region, the Fund may be subject to the political and other developments affecting that region. Regional economies are often closely interrelated, and political and economic developments affecting one region, country or state often affect other regions, countries or states, thus subjecting a Fund to additional risks. [MOUNTAIN GRAPHIC OMITTED] MORE INFORMATION ABOUT FUND INVESTMENTS This prospectus describes the Funds' primary strategies, and the Funds will normally invest in the types of securities described in this prospectus. However, in addition to the investments and strategies described in this prospectus, each Fund also may invest in other securities, use other strategies and engage in other investment practices. These investments and strategies, as well as those described in this prospectus, are described in detail in the Statement of Additional Information (SAI). The investments and strategies described in this prospectus are those that the Funds use under normal conditions. During unusual economic or market conditions, or for temporary defensive or liquidity purposes, each Fund may invest up to 100% of its assets in cash, money market instruments, repurchase agreements and short-term obligations that would not ordinarily be consistent with a Fund's objectives. In addition, the Florida Tax-Exempt Bond Fund, Georgia Tax-Exempt Bond Fund, Investment Grade Bond Fund, Investment Grade Tax-Exempt Bond Fund, Limited-Term Federal Mortgage Securities Fund, Short-Term Bond Fund, Short-Term U.S. Treasury Securities Fund, Virginia Intermediate Municipal Bond Fund and the U.S. Government Securities Fund each may shorten its average weighted maturity to as little as 90 days. A Fund will do so only if the Adviser believes that the risk of loss outweighs the opportunity for higher income. Of course, a Fund cannot guarantee that it will achieve its investment goal. PROSPECTUS 43 - -------------------------------------------------------------------------------- INVESTMENT ADVISER - -------------------------------------------------------------------------------- [MAGNIFIER GRAPHIC OMITTED] INVESTMENT ADVISER The investment adviser (Adviser) makes investment decisions for the Funds and continuously reviews, supervises and administers each Fund's respective investment program. The Board of Trustees supervises the Adviser and establishes policies that the Adviser must follow in its management activities. Trusco Capital Management, Inc. (Trusco or the Adviser), 50 Hurt Plaza, Suite 1400, Atlanta, Georgia 30303, serves as the Adviser to the Funds. As of June 30, 2002, Trusco had $45.5 billion in assets under management. For the fiscal period ended May 31, 2002, the Adviser received advisory fees of: FLORIDA TAX-EXEMPT BOND FUND 0.60% GEORGIA TAX-EXEMPT BOND FUND 0.60% HIGH INCOME FUND 0.65% INVESTMENT GRADE BOND FUND 0.72% INVESTMENT GRADE TAX-EXEMPT BOND FUND 0.71% LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND 0.60% MARYLAND MUNICIPAL BOND FUND 0.57% SHORT-TERM BOND FUND 0.60% SHORT-TERM U.S. TREASURY SECURITIES FUND 0.59% STRATEGIC INCOME FUND 0.75% U.S. GOVERNMENT SECURITIES FUND 0.71% VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND 0.65% VIRGINIA MUNICIPAL BOND FUND 0.65% The Adviser may use its affiliates as brokers for Fund transactions. PORTFOLIO MANAGERS Mr. Ronald Schwartz, CFA, has served as a Managing Director of Trusco since July 2000, after serving as a Managing Director of STI since 1988. He has managed the Florida Tax-Exempt Bond Fund since it began operating in January 1994, and the Investment Grade Tax-Exempt Bond Fund since it began operating in June 1992. He has more than 21 years of investment experience. Ms. Gay Cash has served as a Vice President of Trusco since July 2000. She has managed the Georgia Tax-Exempt Bond Fund since it began operating in January 1994. Previously, she had served as First Vice President of SunTrust Bank, Atlanta since 1998, and had worked there since 1987. She has more than 23 years of investment experience. The Investment Grade Bond Fund and the Limited-Term Federal Mortgage Securities Fund are co-managed by Mr. L. Earl Denney, CFA, and Mr. Dave E. West, CFA. In January 2000 he was named Managing Director of SunTrust Bank and is now Managing Director of Trusco, after serving as Managing Director of STI since 1983. Mr. Denney has co-managed the Investment Grade Bond Fund since it began operating in June 1992 and has co-managed the Limited-Term Federal Mortgage Securities Fund since it began operating in June 1994. Mr. Denney has more than 23 years of investment experience. In January 2000, Mr. West was named Managing Director of SunTrust Bank, and is now a Managing Director of Trusco, after working at STI since 1985. Mr. West has co-managed the Investment Grade Bond Fund since it began operating in June 1992 and has co-managed the Limited-Term Federal Mortgage Securities Fund since it began operating in June 1994. Mr. West has more than 16 years of investment experience. Mr. George E. Calvert, Jr., has served as Vice President of Trusco since 2000. He has managed the Maryland Municipal Bond Fund since 2000, the Virginia Municipal Bond Fund since 2000, and the Virginia Intermediate Municipal Bond Fund since 2000. Prior to joining Trusco, Mr. Calvert served as a fixed income trader from 1998 to 2000 for Tredegar Trust Company. He also served as Vice President, Investment Division, of Central Fidelity Bank from 1988 to 1998. Mr. Calvert has more than 29 years of investment experience. Ms. Agnes G. Pampush, CFA, has served as a Managing Director of Trusco since July 2000, after serving as a Vice President of Trusco since 1998. Ms. Pampush was employed by Trusco from 1988 to 1996, and rejoined the firm in 1998. She has managed the Short-Term Bond Fund since February 1999, and the High Income Fund since April 2000. She has more than 20 years of investment experience. Mr. David S. Yealy has served as a Managing Director of Trusco since July 2000. He has managed the Short-Term U.S. Treasury Securities Fund since July 1996. Prior to July 2000, Mr. Yealy was a First Vice President of Trusco and has worked there since 1991. He has more than 17 years of investment experience. 44 PROSPECTUS - -------------------------------------------------------------------------------- PURCHASING, SELLING AND EXCHANGING FUND SHARES - -------------------------------------------------------------------------------- Mr. Neil J. Powers, CFA, joined Trusco in 1997 and serves as a Managing Director. He has managed the U.S. Government Securities Fund since November 2000 and the Strategic Income Fund since it began operating in November 2001. Prior to joining Trusco, Mr. Powers worked at Putnam Investments, from 1986 to 1997, where he managed multi-sector bond funds and separately managed institutional accounts. He has more than 18 years of investment experience. [HANDSHAKE GRAPHIC OMITTED] PURCHASING, SELLING AND EXCHANGING FUND SHARES This section tells you how to purchase, sell (sometimes called "redeem") or exchange Investor Shares and Flex Shares of the Funds. HOW TO PURCHASE FUND SHARES A SunTrust Securities Investment Consultant can assist you in opening a brokerage account which will be used for all transactions regarding the purchase of STI Classic Funds. Once your account is established, you may buy shares of the Funds by: o Mail* o Telephone (1-800-874-4770) o Wire o Automated Clearing House (ACH) * THE FUNDS DO NOT ACCEPT CASH AS PAYMENT FOR FUND SHARES. You may also buy shares through investment representatives of certain correspondent banks of SunTrust Banks, Inc. (SunTrust) and other financial institutions that are authorized to place transactions in Fund shares for their customers, and potentially through the investor's Advantage Account (an asset allocation account available through SunTrust Securities, Inc.). Please contact your financial institution directly and follow its procedures for Fund share transactions. Your broker or institution may charge a fee for its services, in addition to the fees charged by a Fund. You will also generally have to address your correspondence or questions regarding a Fund to your institution. A Fund may reject any purchase order if it is determined that accepting the order would not be in the best interests of STI Classic Funds or its shareholders. WHEN CAN YOU PURCHASE SHARES? You may purchase shares on any day that the New York Stock Exchange is open for business (a Business Day). The price per share (the offering price) will be the net asset value per share (NAV) next determined after the Funds receive your purchase order. Each Fund calculates its NAV once each Business Day at the regularly-scheduled close of normal trading on the New York Stock Exchange (normally, 4:00 p.m., Eastern time). So, for you to receive the current Business Day's NAV, generally a Fund must receive your purchase order in proper form before 4:00 p.m., Eastern time. The Fund will not accept orders that request a particular day or price for the transaction or any other special conditions. FOR CUSTOMERS OF SUNTRUST, ITS AFFILIATES, AND OTHER FINANCIAL INSTITUTIONS YOU MAY HAVE TO TRANSMIT YOUR PURCHASE, SALE AND EXCHANGE REQUESTS TO SUNTRUST OR OTHER FINANCIAL INSTITUTIONS AT AN EARLIER TIME FOR YOUR TRANSACTION TO BECOME EFFECTIVE THAT DAY. THIS ALLOWS THE FINANCIAL INSTITUTION TIME TO PROCESS YOUR REQUEST AND TRANSMIT IT TO THE ADMINISTRATOR OR TRANSFER AGENT IN TIME TO MEET THE ABOVE STATED FUND CUT-OFF TIMES. FOR MORE INFORMATION ABOUT HOW TO PURCHASE, SELL OR EXCHANGE FUND SHARES, INCLUDING SPECIFIC SUNTRUST OR OTHER FINANCIAL INSTITUTIONS' INTERNAL ORDER ENTRY CUT-OFF TIMES, PLEASE CONTACT YOUR FINANCIAL INSTITUTION DIRECTLY. HOW THE FUNDS CALCULATE NAV In calculating NAV, a Fund generally values its investment portfolio at market price. If market prices are unavailable or a Fund thinks that they are unreliable, fair value prices may be determined in good faith using methods approved by the Board of Trustees. The Strategic Income Fund may hold securities that are listed on foreign exchanges. These securities may trade on weekends or other days when the Fund does not calculate NAV. As a result, the market value of these investments may change on days when you cannot purchase or sell Fund shares. PROSPECTUS 45 - -------------------------------------------------------------------------------- PURCHASING, SELLING AND EXCHANGING FUND SHARES - -------------------------------------------------------------------------------- NET ASSET VALUE NAV for one Fund share is the value of that share's portion of the net assets of the Fund. MINIMUM PURCHASES To purchase shares for the first time, you must invest in any Fund at least: CLASS DOLLAR AMOUNT - -------------------------------------------------------------------------------- Investor Shares $2,000 Flex Shares $5,000 ($2,000 for IRA or other tax qualified accounts) - -------------------------------------------------------------------------------- Your subsequent investments in any Fund must be made in amounts of at least $1,000 or, if you pay by a statement coupon, $100. A Fund may accept investments of smaller amounts for either class of shares at its discretion. FUNDLINK FUNDLINK is a telephone activated service that allows you to transfer money quickly and easily between the STI Classic Funds and your SunTrust bank account(s). To use FUNDLINK, you must first contact your SunTrust Bank Investment Consultant and complete the FUNDLINK application and authorization agreements. Once you have signed up to use FUNDLINK, simply call SunTrust at 1-800-874-4770 to complete all of your purchase and redemption transactions. SYSTEMATIC INVESTMENT PLAN If you have a checking or savings account with a SunTrust affiliate bank, you may purchase shares of either class automatically through regular deductions from your account. With a $500 minimum initial investment, you may begin regularly-scheduled investments from $50 to $100,000 once or twice a month. If you are buying Flex Shares, you should plan on investing at least $5,000 per Fund during the first two years. The Distributor may close your account if you do not meet this minimum investment requirement at the end of two years. [DOLLAR GRAPHIC OMITTED]SALES CHARGES FRONT-END SALES CHARGES -- INVESTOR SHARES The offering price of Investor Shares is the NAV next calculated after a Fund receives your request, plus the front-end sales charge. The amount of any front-end sales charge included in your offering price varies, depending on the amount of your investment: Florida Tax-Exempt Bond Fund Georgia Tax-Exempt Bond Fund Investment Grade Bond Fund Investment Grade Tax-Exempt Bond Fund U.S. Government Securities Fund Virginia Intermediate Municipal Bond Fund YOUR SALES CHARGE YOUR SALES CHARGE AS A PERCENTAGE OF AS A PERCENTAGE OF IF YOUR INVESTMENT IS: OFFERING PRICE* YOUR NET INVESTMENT - -------------------------------------------------------------------------------- Less than $100,000 3.75% 3.90% - -------------------------------------------------------------------------------- $100,000 but less than $250,000 3.25% 3.36% - -------------------------------------------------------------------------------- $250,000 but less than $1,000,000 2.50% 2.56% - -------------------------------------------------------------------------------- $1,000,000 and over None None - -------------------------------------------------------------------------------- * THE DISTRIBUTOR MAY PAY A PERCENTAGE OF THE OFFERING PRICE AS A COMMISSION TO BROKER-DEALERS. Limited-Term Federal Mortgage Securities Fund YOUR SALES CHARGE YOUR SALES CHARGE AS A PERCENTAGE OF AS A PERCENTAGE OF IF YOUR INVESTMENT IS: OFFERING PRICE* YOUR NET INVESTMENT - -------------------------------------------------------------------------------- Less than $100,000 2.50% 2.50% - -------------------------------------------------------------------------------- $100,000 but less than $250,000 1.75% 1.78% - -------------------------------------------------------------------------------- $250,000 but less than $1,000,000 1.25% 1.27% - -------------------------------------------------------------------------------- $1,000,000 and over None None - -------------------------------------------------------------------------------- * THE DISTRIBUTOR MAY PAY A PERCENTAGE OF THE OFFERING PRICE AS A COMMISSION TO BROKER-DEALERS. 46 PROSPECTUS - -------------------------------------------------------------------------------- PURCHASING, SELLING AND EXCHANGING FUND SHARES - -------------------------------------------------------------------------------- Short-Term Bond Fund YOUR SALES CHARGE YOUR SALES CHARGE AS A PERCENTAGE OF AS A PERCENTAGE OF IF YOUR INVESTMENT IS: OFFERING PRICE* YOUR NET INVESTMENT - -------------------------------------------------------------------------------- Less than $100,000 2.00% 2.04% - -------------------------------------------------------------------------------- $100,000 but less than $250,000 1.50% 1.52% - -------------------------------------------------------------------------------- $250,000 but less than $1,000,000 1.00% 1.01% - -------------------------------------------------------------------------------- $1,000,000 and over None None - -------------------------------------------------------------------------------- * THE DISTRIBUTOR MAY PAY A PERCENTAGE OF THE OFFERING PRICE AS A COMMISSION TO BROKER-DEALERS. Short-Term U.S. Treasury Securities Fund YOUR SALES CHARGE YOUR SALES CHARGE AS A PERCENTAGE OF AS A PERCENTAGE OF IF YOUR INVESTMENT IS: OFFERING PRICE* YOUR NET INVESTMENT - -------------------------------------------------------------------------------- Less than $100,000 1.00% 1.01% - -------------------------------------------------------------------------------- $100,000 but less than $250,000 0.75% 0.76% - -------------------------------------------------------------------------------- $250,000 but less than $1,000,000 0.50% 0.50% - -------------------------------------------------------------------------------- $1,000,000 and over None None * THE DISTRIBUTOR MAY PAY A PERCENTAGE OF THE OFFERING PRICE AS A COMMISSION TO BROKER-DEALERS. INVESTMENTS OF $1,000,000 OR MORE. You do not pay an initial sales charge when you buy $1,000,000 or more of Investor Shares (excluding Investor Shares of STI Classic Money Market Funds) in either a single investment or through our rights of accumulation, letter of intent, or combined purchase/quantity discount programs. However, you will pay a deferred sales charge of 1.00% if you redeem any of these Investor Shares within one year of purchase. The deferred sales charge is calculated based on the lessor of (1) the NAV of the shares at the time of purchase or (2) NAV of the shares next calculated after the Fund receives your sales request. The deferred sales charge does not apply to shares you purchase through the reinvestment of dividends or capital gains distributions. WAIVER OF FRONT-END SALES CHARGE -- INVESTOR SHARES The front-end sales charge will be waived on Investor Shares purchased: o through reinvestment of dividends and distributions; o through a SunTrust Securities, Inc. asset allocation account; o by persons repurchasing shares they redeemed within the last 180 days (see "Repurchase of Investor Shares"); o by employees, and members of their immediate family (spouse, mother, father, mother-in-law, father-in-law, and children (including step-children) under the age of 21 years), of SunTrust and its affiliates; o by persons reinvesting distributions from qualified employee benefit retirement plans and rollovers from individual retirement accounts (IRAs) previously with the Trust department of a bank affiliated with SunTrust; o by persons investing an amount less than or equal to the value of an account distribution when an account for which a bank affiliated with SunTrust acted in a fiduciary, administrative, custodial or investment advisory capacity is closed; or o through dealers, retirement plans, asset allocation programs and financial institutions that, under their dealer agreements with the Distributor or otherwise, do not receive any portion of the front-end sales charge. REPURCHASE OF INVESTOR SHARES You may repurchase any amount of Investor Shares of any Fund at NAV (without the normal front-end sales charge), up to the limit of the value of any amount of Investor Shares (other than those which were purchased with reinvested dividends and distributions) that you redeemed within the past 180 days. In effect, this allows you to reacquire shares that you may have had to redeem, without re-paying the front-end sales charge. Such repurchases may be subject to special tax rules. See the section on Taxes in the SAI for more information. To exercise this privilege, the Funds must receive your purchase order within 180 days of your redemption. IN ADDITION, YOU MUST NOTIFY THE FUND WHEN YOU SEND IN YOUR PURCHASE ORDER THAT YOU ARE REPURCHASING SHARES. PROSPECTUS 47 - -------------------------------------------------------------------------------- PURCHASING, SELLING AND EXCHANGING FUND SHARES - -------------------------------------------------------------------------------- REDUCED SALES CHARGES -- INVESTOR SHARES RIGHTS OF ACCUMULATION. In calculating the appropriate sales charge rate, this right allows you to add the value of the Investor Shares you already own to the amount that you are currently purchasing. The Funds will combine the value of your current purchases with the current value of any Investor Shares you purchased previously for (i) your account, (ii) your spouse's account, (iii) a joint account with your spouse, or (iv) your minor children's trust or custodial accounts. A fiduciary purchasing shares for the same fiduciary account, trust or estate may also use this right of accumulation. The Funds will only consider the value of Investor Shares purchased previously that were sold subject to a sales charge. To be entitled to a reduced sales charge based on shares already owned, you must ask the funds for the reduction at the time of purchase. You must provide the Funds with your account number(s) and, if applicable, the account numbers for your spouse and/or children (and provide the children's ages). The Funds may amend or terminate this right of accumulation at any time. LETTER OF INTENT. You may purchase Investor Shares at the sales charge rate applicable to the total amount of the purchases you intend to make over a 13-month period. In other words, a Letter of Intent allows you to purchase Investor Shares of a Fund over a 13-month period and receive the same sales charge as if you had purchased all the shares at the same time. The Funds will only consider the value of Investor Shares sold subject to a sales charge. As a result, shares of the Investor Shares purchased with dividends or distributions will not be included in the calculation. To be entitled to a reduced sales charge based on shares you intend to purchase over the 13-month period, you must send the Funds a Letter of Intent. In calculating the total amount of purchases you may include in your letter purchases made up to 90 days before the date of the Letter. The 13-month period begins on the date of the first purchase, including those purchases made in the 90-day period before the date of the Letter. Please note that the purchase price of these prior purchases will not be adjusted. You are not legally bound by the terms of your Letter of Intent to purchase the amount of your shares stated in the Letter. The Letter does, however, authorize the Fund to hold in escrow 3.75% of the total amount you intend to purchase. If you do not complete the total intended purchase at the end of the 13-month period, the Fund's transfer agent will redeem the necessary portion of the escrowed shares to make up the difference between the reduced rate sales charge (based on the amount you intended to purchase) and the sales charge that would normally apply (based on the actual amount you purchased). COMBINED PURCHASE/QUANTITY DISCOUNT PRIVILEGE. When calculating the appropriate sales charge rate, the Fund will combine same day purchases of Investor Shares (that are subject to a sales charge) made by you, your spouse and your minor children (under age 21). This combination also applies to Investor Shares you purchase with a Letter of Intent. CONTINGENT DEFERRED SALES CHARGES (CDSC) -- FLEX SHARES You do not pay a sales charge when you purchase Flex Shares. The offering price of Flex Shares is simply the next calculated NAV. But if you sell your shares within the first year after your purchase, you will pay a CDSC equal to 2.00% for either (1) the NAV of the shares at the time of purchase, or (2) NAV of the shares next calculated after the Fund receives your sale request, whichever is less. The sales charge does not apply to shares you purchase through the reinvestment of dividends or capital gains distributions. So, you never pay a deferred sales charge on any increase in your investment above the initial offering price. This sales charge does not apply to the exchange of Flex Shares of one Fund for Flex Shares of another Fund. IF YOU SELL YOUR FLEX SHARES The CDSC will be waived if you sell your Flex Shares for the following reasons: o to make certain withdrawals from a retirement plan (not including IRAs); o because of death or disability; o for certain payments under the Systematic Withdrawal Plan -- up to 12% annually of the value of your shares held at the time of the withdrawal (the Systematic Withdrawal Plan is discussed later in more detail); or 48 PROSPECTUS - -------------------------------------------------------------------------------- PURCHASING, SELLING AND EXCHANGING FUND SHARES - -------------------------------------------------------------------------------- o for exchanges from Trust or Investor Shares to Flex Shares where the total accumulated period from the original date of purchase is at least one year. OFFERING PRICE OF FUND SHARES The offering price of Investor Shares is the NAV next calculated after the transfer agent receives your request, plus the front-end sales load. The offering price of Flex Shares is simply the next calculated NAV. HOW TO SELL YOUR FUND SHARES If you own your shares through a brokerage account with SunTrust, you may sell (sometimes called "redeem") your shares on any Business Day by contacting SunTrust Securities directly by mail or telephone at 1-800-874-4770. The minimum amount for telephone redemptions is $1,000. If you own your shares through an account with a broker or other institution, contact that broker or institution to sell your shares. Your broker or institution may charge a fee for its services, in addition to the fees charged by the Fund. If you would like to sell $25,000 or more of your shares, please notify the Fund in writing and include a signature guarantee by a bank or other financial institution (a notarized signature is not sufficient). The sale price of each share will be the next NAV determined after the Fund receives your request less, in the case of Flex Shares, any applicable deferred sales charge. SYSTEMATIC WITHDRAWAL PLAN If you have at least $10,000 in your account, you may use the systematic withdrawal plan. Under the plan you may arrange monthly, quarterly, semi-annual or annual automatic withdrawals of at least $50 from any Fund. The proceeds of each withdrawal will be mailed to you by check or, if you have a checking or savings account with a SunTrust affiliates bank, electronically transferred to your account. RECEIVING YOUR MONEY Normally, the Funds will send your sale proceeds within five Business Days after a Fund receives your request, but may take up to seven days. Your proceeds can be wired to your bank account (subject to a $7.00 fee) or sent to you by check. IF YOU RECENTLY PURCHASED YOUR SHARES BY CHECK OR THROUGH ACH, REDEMPTION PROCEEDS MAY NOT BE AVAILABLE UNTIL YOUR CHECK HAS CLEARED (WHICH MAY TAKE UP TO 15 BUSINESS DAYS). REDEMPTIONS IN KIND The Funds generally pay sale (redemption) proceeds in cash. However, under unusual conditions that make the payment of cash unwise (and for the protection of the Funds' remaining shareholders) the Funds might pay all or part of your redemption proceeds in liquid securities with a market value equal to the redemption price (redemption in kind). It is highly unlikely that your shares would ever be redeemed in kind, but if they were you would probably have to pay transaction costs to sell the securities distributed to you, as well as taxes on any capital gains from the sale as with any redemption. INVOLUNTARY SALES OF YOUR SHARES If your account balance drops below the required minimum you may be required to sell your shares. The account balance minimums are: CLASS DOLLAR AMOUNT - -------------------------------------------------------------------------------- Investor Shares $2,000 ($5,000 for Strategic Income Fund) Flex Shares $5,000 ($2,000 for IRA or other tax qualified accounts) - -------------------------------------------------------------------------------- But, the Funds will always give you at least 60 days written notice to give you time to add to your account and avoid the sale of your shares. SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES A Fund may suspend your right to sell your shares if the New York Stock Exchange restricts trading, the SEC declares an emergency or for other reasons. More information about this is in the SAI. PROSPECTUS 49 - -------------------------------------------------------------------------------- PURCHASING, SELLING AND EXCHANGING FUND SHARES - -------------------------------------------------------------------------------- HOW TO EXCHANGE YOUR SHARES You may exchange your shares on any Business Day by contacting SunTrust Securities or your financial institution by mail or telephone. Exchange requests must be for an amount of at least $1,000. The exchange privilege is not intended as a vehicle for short-term trading. Excessive exchange activity may interfere with Fund management and may have an adverse effect on all shareholders. In order to limit excessive exchange activity and in other circumstances where it is in the best interests of a Fund, all Funds reserve the right to revise or terminate the exchange privilege, limit the amount or number of exchanges or reject any exchange or restrict or refuse purchases if (1) a Fund or its manager(s) believes the Fund would be harmed or unable to invest effectively, or (2) a Fund receives or anticipates orders that may dramatically affect the Fund as outlined under "Market Timers" as defined later in this prospectus. IF YOU RECENTLY PURCHASED SHARES BY CHECK OR THROUGH ACH, YOU MAY NOT BE ABLE TO EXCHANGE YOUR SHARES UNTIL YOUR CHECK HAS CLEARED (WHICH MAY TAKE UP TO 15 BUSINESS DAYS). This exchange privilege may be changed or canceled at any time upon 60 days notice. EXCHANGES When you exchange shares, you are really selling your shares and buying other Fund shares. So, your sale price and purchase price will be based on the NAV next calculated after the Fund(s) receives your exchange request. INVESTOR SHARES You may exchange Investor Shares of any Fund for Investor Shares of any other Fund. If you exchange shares that you purchased without a sales charge or with a lower sales charge into a Fund with a sales charge or with a higher sales charge, the exchange is subject to an incremental sales charge (e.g., the difference between the lower and higher applicable sales charges). If you exchange shares into a Fund with the same, lower or no sales charge there is no incremental sales charge for the exchange. FLEX SHARES You may exchange Flex Shares of any Fund for Flex Shares of any other Fund. For purposes of computing the CDSC applicable to Flex Shares, the length of time you have owned your shares will be measured from the original date of purchase and will not be affected by any exchange. However, if you exchange your Flex Shares of a Fixed Income or Equity Fund into any Investor Shares of a Money Market Fund, the time your shares are held in such Money Market Fund will not count towards the CDSC one-year holding period. TELEPHONE TRANSACTIONS Purchasing, selling and exchanging Fund shares over the telephone is extremely convenient, but not without risk. Although the Fund has certain safeguards and procedures to confirm the identity of callers and the authenticity of instructions, the Fund is not responsible for any losses or costs incurred by following telephone instructions the Fund reasonably believes to be genuine. If you or your financial institution transact with the Fund over the telephone, you will generally bear the risk of any loss. The Funds reserve the right to modify, suspend or terminate telephone transaction privileges at any time. MARKET TIMERS Short-term or excessive trading into and out of a Fund may harm the Fund's performance by disrupting the Adviser's investment strategy and by increasing Fund expenses. Accordingly, any Fund may restrict or refuse purchase or exchange requests by Market Timers or investors who seem to follow a short-term trading pattern that may adversely affect a Fund. You may be classified as a Market Timer if you: o Request a substantial exchange out of any Fund within two weeks of a prior substantive exchange request out of any Fund; or o Request a substantial exchange out of any Fund more than twice during any 90 day continuous period. Anyone considered to be a Market Timer by the Fund, its manager(s) or a shareholder servicing agent will be notified in writing of their designation as a Market Timer. Market Timers who redeem or exchange their shares out of any Fund within 90 days of purchase may be charged a redemption fee of up to 2% of redemption proceeds, which will automatically be paid to the Fund. This redemption fee does not apply to 401(k)/403(b) type participant accounts, Systematic Withdrawal Plan accounts, SunTrust Securities asset allocation accounts or accounts held on an omnibus arrangement. Dealers who purchase Flex or Investor shares on behalf of Market Timers, including Market Timers with shares held through an omnibus account, may not be eligible to receive any dealer commissions and also may not be eligible to receive 12b-1 fees from the original date of purchase. Further, all Funds reserve the right to refuse any purchase or exchange requests by any investor at any time. 50 PROSPECTUS - -------------------------------------------------------------------------------- DIVIDENDS, DISTRIBUTIONS AND TAXES - -------------------------------------------------------------------------------- DISTRIBUTION OF FUND SHARES Each Fund has adopted a distribution plan that allows the Fund to pay distribution and service fees for the sale and distribution of its shares, and for services provided to shareholders. Because these fees are paid out of a Fund's assets continuously, over time these fees will increase the cost of your investment and may cost you more than paying other types of sales charges. Distribution fees, as a percentage of average daily net assets are as follows: For Investor Shares FLORIDA TAX-EXEMPT BOND FUND 0.18% GEORGIA TAX-EXEMPT BOND FUND 0.18% INVESTMENT GRADE BOND FUND 0.43% INVESTMENT GRADE TAX-EXEMPT BOND FUND 0.43% LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND 0.23% SHORT-TERM BOND FUND 0.23% SHORT-TERM U.S. TREASURY SECURITIES FUND 0.18% U.S. GOVERNMENT SECURITIES FUND 0.38% VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND 0.15% For Flex Shares, the maximum distribution fee is 1.00% of the average daily net assets of each Fund. The Distributor may, from time to time in its sole discretion, institute one or more promotional incentive programs for dealers, which will be paid for by the Distributor from any sales charge it receives or from any other source available to it. Under any such program, the Distributor may provide cash or non-cash compensation as recognition for past sales or encouragement for future sales that may include the following: merchandise, travel expenses, prizes, meals, lodgings, and gifts that do not exceed $100 per year, per individual. DIVIDENDS AND DISTRIBUTIONS Each Fund declares dividends daily and pays these dividends monthly. Each Fund makes distributions of its net realized capital gains, if any, at least annually. If you own Fund shares on a Fund's record date, you will be entitled to receive the distribution. You will receive dividends and distributions in the form of additional Fund shares unless you elect to receive payment in cash. To elect cash payment, you must notify the Fund in writing prior to the date of the distribution. Your election will be effective for dividends and distributions paid after the Fund receives your written notice. To cancel your election, simply send the Fund written notice. TAXES PLEASE CONSULT YOUR TAX ADVISOR REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL, STATE AND LOCAL INCOME TAXES. Below the Funds have summarized some important tax issues that affect the Funds and their shareholders. This summary is based on current tax laws, which may change. Each Fund will distribute substantially all of its net investment income and its net realized capital gains, if any, at least annually. The dividends and distributions you receive may be subject to federal, state and local taxation, depending upon your tax situation. Distributions you receive from a Fund may be taxable whether or not you reinvest them. Income distributions are generally taxable at ordinary income tax rates. Capital gains distributions are generally taxable at the rates applicable to long-term capital gains. EACH SALE OR EXCHANGE OF FUND SHARES MAY BE A TAXABLE EVENT. FOR TAX PURPOSES, AN EXCHANGE OF YOUR FUND SHARES FOR SHARES OF ANOTHER STI CLASSIC FUND IS THE SAME AS A SALE. If you have a tax-advantaged or other retirement account you will generally not be subject to federal taxation on income and capital gain distributions until you begin receiving your distributions from your retirement account. You should consult your tax advisor regarding the rules governing your own retirement plan. PROSPECTUS 51 - -------------------------------------------------------------------------------- TAXES - -------------------------------------------------------------------------------- The Florida Tax-Exempt Bond Fund, Georgia Tax-Exempt Bond Fund, Maryland Municipal Bond Fund, Virginia Intermediate Municipal Bond Fund and Virginia Municipal Bond Fund intend to distribute federally tax-exempt income. Each Fund may invest a portion of its assets in securities that generate taxable income for federal or state income taxes. Income exempt from federal tax may be subject to state and local taxes. Any capital gains distributed by these Funds may be taxable. While shareholders of state specific Funds may receive distributions that are exempt from that particular state's income tax, such distributions may be taxable in other states where the shareholder files tax returns. Except for those certain Funds that expect to distribute federally tax-exempt income (described above), the Funds expect to distribute primarily ordinary income dividends. The Short-term U.S. Treasury Securities Fund and the U.S. Government Securities Fund each expect that a substantial portion of Fund distributions will represent interest earned on U.S. obligations, while the Investment Grade Bond Fund and the Short-Term Bond Fund expect that some portion of each Fund's distribution will be so derived. Many states grant tax-free status to dividends paid from interest earned on direct obligations of the U.S. government, subject to certain limitations. MORE INFORMATION ABOUT TAXES IS IN THE SAI. 52 PROSPECTUS - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS The financial highlights table is intended to help you understand a Fund's financial performance for the period of the Fund's (and its predecessor's) operations. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). The information provided below for the period ended May 31, 2002 has been audited by PricewaterhouseCoopers LLP. The information for prior periods has been audited by predecessor independent accounting firms. The Reports of Independent Accountants for each such period along with the Fund's financial statements and related notes, are included in the Annual Reports to Shareholders for such periods. The 2002 Annual Report is available upon request and without charge by calling 1-800-428-6970. The 2002 Annual Report is incorporated by reference in the SAI. For the Periods Ended May 31, (unless otherwise indicated) For a Share Outstanding Throughout the Periods
DISTRIBUTIONS NET REALIZED FROM NET ASSET AND DISTRIBUTIONS TAX VALUE NET UNREALIZED FROM NET DISTRIBUTIONS RETURN NET ASSET BEGINNING INVESTMENT GAINS (LOSSES) INVESTMENT FROM REALIZED OF VALUE END TOTAL OF PERIOD INCOME ON INVESTMENTS INCOME CAPITAL GAINS CAPITAL OF PERIOD RETURN (+) --------- ---------- -------------- ------------- ------------- ------------ --------- ---------- - ---------------------------- FLORIDA TAX-EXEMPT BOND FUND - ---------------------------- Investor Shares 2002 ..... $10.79 $0.38 $ 0.22 $(0.38) $(0.06) -- $10.95 5.66% 2001 ..... 10.07 0.42 0.72 (0.42) -- -- 10.79 11.50 2000 ..... 10.60 0.42 (0.49) (0.42) (0.04) -- 10.07 (0.68) 1999 ..... 10.72 0.40 (0.01) (0.40) (0.11) -- 10.60 3.62 1998 ..... 10.29 0.42 0.44 (0.42) (0.01) -- 10.72 8.46 Flex Shares 2002 ..... $10.81 $0.32 $ 0.22 $(0.32) $(0.06) -- $10.97 5.15% 2001 ..... 10.09 0.37 0.72 (0.37) -- -- 10.81 10.95 2000 ..... 10.62 0.36 (0.49) (0.36) (0.04) -- 10.09 (1.17) 1999 ..... 10.74 0.35 (0.01) (0.35) (0.11) -- 10.62 3.13 1998 ..... 10.30 0.37 0.45 (0.37) (0.01) -- 10.74 8.04 - ---------------------------- GEORGIA TAX-EXEMPT BOND FUND - ---------------------------- Investor Shares 2002 ..... $10.12 $0.37 $ 0.19 $(0.37) -- -- $10.31 5.58% 2001 ..... 9.51 0.38 0.61 (0.38) -- -- 10.12 10.56 2000 ..... 10.05 0.38 (0.50) (0.38) $(0.04) -- 9.51 (1.26) 1999 ..... 10.13 0.37 (0.06) (0.37) (0.02) -- 10.05 3.13 1998 ..... 9.74 0.39 0.40 (0.39) (0.01) -- 10.13 8.26 Flex Shares 2002 ..... $10.11 $0.32 $ 0.19 $(0.32) -- -- $10.30 5.07% 2001 ..... 9.51 0.33 0.60 (0.33) -- -- 10.11 9.92 2000 ..... 10.04 0.33 (0.49) (0.33) $(0.04) -- 9.51 (1.59) 1999 ..... 10.12 0.32 (0.06) (0.32) (0.02) -- 10.04 2.63 1998 ..... 9.73 0.34 0.40 (0.34) (0.01) -- 10.12 7.74 - -------------------- HIGH INCOME FUND (A) - -------------------- Flex Shares 2002 ..... $ 7.69 $0.55 $(0.44) $(0.55) -- -- $ 7.25 1.46% 2001 ..... 7.88 0.55 (0.19) (0.55) -- -- 7.69 4.74 2000(1) .. 7.98 0.09 (0.10) (0.09) -- -- 7.88 (0.13) For the years ended March 31: 2000 ..... 9.77 0.87 (1.85) (0.81) -- -- 7.98 (10.84) 1999 ..... 9.99 0.51 0.04 (0.57) $(0.15) $(0.05) 9.77 5.64 1998 ..... 9.73 0.34 0.44 (0.52) -- -- 9.99 8.18 (+) Returns are for the period indicated and have not been annualized. Total return figures do not reflect applicable sales loads. Returns shown do not reflect the deduction of taxes the shareholder would pay on fund distributions or redemption of fund shares. (1) For the two month period ended May 31, 2000. All ratios for the period have been annualized. (A) On March 28, 2000, the ESC Strategic Income Fund exchanged all of its assets and certain liabilities for shares of the High Income Fund. The ESC Strategic Income Fund is the accounting survivor in this transaction, and as a result, its basis of accounting for assets and liabilities and its operating results for the periods prior to March 28, 2000 have been carried forward in these financial highlights. Subsequent to the merger, the High Income Fund changed its fiscal year end to May 31. Amounts designated as "__" are either $0 or round to $0.
RATIO OF NET RATIO OF RATIO OF INVESTMENT NET EXPENSES TO INCOME TO RATIO OF INVESTMENT AVERAGE NET AVERAGE NET NET ASSETS EXPENSES TO INCOME ASSETS (EXCLUDING ASSETS (EXCLUDING PORTFOLIO END OF AVERAGE TO AVERAGE WAIVERS AND WAIVERS AND TURNOVER PERIOD (000) NET ASSETS NET ASSETS REIMBURSEMENTS) REIMBURSEMENTS) RATE ------------ ----------- ---------- ----------------- ----------------- --------- - ---------------------------- FLORIDA TAX-EXEMPT BOND FUND - ---------------------------- Investor Shares 2002 ..... $ 2,935 0.92% 3.44% 1.37% 2.99% 91% 2001 ..... 2,747 0.91 4.00 1.38 3.53 59 2000 ..... 2,875 0.87 4.05 1.36 3.56 88 1999 ..... 3,799 0.87 3.71 1.31 3.27 72 1998 ..... 3,381 0.86 3.98 1.34 3.50 69 Flex Shares 2002 ..... $21,897 1.42% 2.93% 1.84% 2.51% 91% 2001 ..... 12,806 1.41 3.49 1.89 3.01 59 2000 ..... 9,791 1.37 3.54 1.89 3.02 88 1999 ..... 14,762 1.37 3.21 1.88 2.70 72 1998 ..... 8,160 1.36 3.45 2.01 2.80 69 - ---------------------------- GEORGIA TAX-EXEMPT BOND FUND - ---------------------------- Investor Shares 2002 ..... $ 2,844 0.92% 3.58% 1.36% 3.14% 23% 2001 ..... 2,901 0.91 3.83 1.42 3.32 21 2000 ..... 2,458 0.87 3.93 1.40 3.40 19 1999 ..... 3,676 0.87 3.67 1.25 3.29 12 1998 ..... 3,975 0.86 3.89 1.30 3.45 7 Flex Shares 2002 ..... $14,269 1.42% 3.08% 1.84% 2.66% 23% 2001 ..... 14,079 1.41 3.33 1.89 2.85 21 2000 ..... 8,827 1.37 3.43 1.95 2.85 19 1999 ..... 13,358 1.37 3.19 1.89 2.67 12 1998 ..... 8,264 1.36 3.39 2.02 2.73 7 - -------------------- HIGH INCOME FUND (A) - -------------------- Flex Shares 2002 ..... $46,864 1.40% 7.35% 2.02% 6.73% 59% 2001 ..... 19,875 1.40 6.88 2.13 6.15 10 2000(1) .. 3,075 1.40 6.57 2.83 5.14 -- For the years ended March 31: 2000 ..... 2,032 1.73 8.94 2.95 7.72 24 1999 ..... 7,230 1.91 5.09 2.22 4.78 95 1998 ..... 24,413 1.87 5.27 1.87 5.27 130
PROSPECTUS 53 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- For the Periods Ended May 31, (unless otherwise indicated) For a Share Outstanding Throughout the Periods
NET REALIZED NET ASSET AND DISTRIBUTIONS VALUE NET UNREALIZED FROM NET DISTRIBUTIONS NET ASSET BEGINNING INVESTMENT GAINS (LOSSES) INVESTMENT FROM REALIZED VALUE END TOTAL OF PERIOD INCOME ON INVESTMENTS INCOME CAPITAL GAINS OF PERIOD RETURN (+) --------- --------- -------------- ------------- ------------- --------- ---------- - -------------------------- INVESTMENT GRADE BOND FUND - -------------------------- Investor Shares 2002 ..... $10.23 $0.48 $ 0.01 $(0.48) -- $10.24 4.81% 2001 ..... 9.58 0.57 0.65 (0.57) -- 10.23 13.09 2000 ..... 10.36 0.57 (0.78) (0.57) -- 9.58 (2.17) 1999 ..... 10.65 0.52 (0.11) (0.52) $(0.18) 10.36 3.86 1998 ..... 10.16 0.55 0.49 (0.55) -- 10.65 10.49 Flex Shares 2002 ..... $10.24 $0.42 $ 0.01 $(0.42) -- $10.25 4.27% 2001 ..... 9.59 0.53 0.65 (0.53) -- 10.24 12.54 2000 ..... 10.37 0.52 (0.78) (0.52) -- 9.59 (2.63) 1999 ..... 10.66 0.47 (0.11) (0.47) $(0.18) 10.37 3.35 1998 ..... 10.17 0.51 0.49 (0.51) -- 10.66 9.99 - ------------------------------------- INVESTMENT GRADE TAX-EXEMPT BOND FUND - ------------------------------------- Investor Shares 2002 ..... $11.39 $0.29 $ 0.46 $(0.29) $(0.27) $11.58 6.71% 2001 ..... 10.68 0.40 0.71 (0.40) -- 11.39 10.48 2000 ..... 11.12 0.39 (0.30) (0.39) (0.14) 10.68 0.90 1999 ..... 11.41 0.38 0.11 (0.38) (0.40) 11.12 4.35 1998 ..... 11.24 0.39 0.49 (0.39) (0.32) 11.41 8.05 Flex Shares 2002 ..... $11.38 $0.24 $ 0.46 $(0.24) $(0.27) $11.57 6.21% 2001 ..... 10.67 0.34 0.71 (0.34) -- 11.38 9.97 2000 ..... 11.10 0.34 (0.29) (0.34) (0.14) 10.67 0.52 1999 ..... 11.40 0.33 0.10 (0.33) (0.40) 11.10 3.78 1998 ..... 11.23 0.33 0.49 (0.33) (0.32) 11.40 7.50 - --------------------------------------------- LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND - --------------------------------------------- Investor Shares 2002 ..... $10.00 $0.40 $ 0.31 $(0.40) $(0.02) $10.29 7.16% 2001 ..... 9.60 0.53 0.40 (0.53) -- 10.00 9.84 2000 ..... 9.93 0.52 (0.33) (0.52) -- 9.60 1.93 1999 ..... 10.11 0.51 (0.06) (0.51) (0.12) 9.93 4.47 1998 ..... 10.00 0.56 0.12 (0.56) (0.01) 10.11 6.95 Flex Shares 2002 ..... $10.02 $0.37 $ 0.31 $(0.37) $(0.02) $10.31 6.83% 2001 ..... 9.62 0.50 0.40 (0.50) -- 10.02 9.50 2000 ..... 9.94 0.49 (0.32) (0.49) -- 9.62 1.71 1999 ..... 10.12 0.48 (0.06) (0.48) (0.12) 9.94 4.14 1998 ..... 10.02 0.52 0.11 (0.52) (0.01) 10.12 6.49 - -------------------------------- MARYLAND MUNICIPAL BOND FUND (A) - -------------------------------- Flex Shares 2002 ..... $10.14 $0.29 $0.20 $(0.29) -- $10.34 4.84% 2001 ..... 9.48 0.33 0.66 (0.33) -- 10.14 10.59 2000 ..... 10.08 0.33 (0.60) (0.33) -- 9.48 (2.66) 1999(1) .. 10.24 0.15 (0.15) (0.15) $(0.01) 10.08 0.05 For the years ended November 30: 1998 ..... $ 9.96 $0.33 $0.28 $(0.33) -- $10.24 6.17% 1997 ..... 9.76 0.34 0.20 (0.34) -- 9.96 5.64 (+) Returns are for the period indicated and have not been annualized. Total return figures do not reflect applicable sales loads. Returns shown do not reflect the deduction of taxes the shareholder would pay on fund distributions or redemption of fund shares. (1) For the six month period ended May 31, 1999. All ratios for the period have been annualized. (A) On May 24, 1999, the CrestFunds Maryland Municipal Bond Fund exchanged all of its assets and certain liabilities for shares of the Maryland Municipal Bond Fund. The CrestFunds Maryland Municipal Bond Fund is the accounting survivor in this transaction, and as a result, its basis of accounting for assets and liabilities and its operating results for the periods prior to May 24, 1999 have been carried forward in these financial highlights. Amounts designated as "__" are either $0 or round to $0.
RATIO OF NET RATIO OF RATIO OF INVESTMENT NET EXPENSES TO INCOME TO RATIO OF INVESTMENT AVERAGE NET AVERAGE NET NET ASSETS EXPENSES TO INCOME ASSETS (EXCLUDING ASSETS (EXCLUDING PORTFOLIO END OF AVERAGE TO AVERAGE WAIVERS AND WAIVERS AND TURNOVER PERIOD (000) NET ASSETS NET ASSETS REIMBURSEMENTS) REIMBURSEMENTS) RATE ------------ ----------- ----------- --------------- ----------------- --------- - -------------------------- INVESTMENT GRADE BOND FUND - -------------------------- Investor Shares 2002 ..... $20,825 1.22% 4.40% 1.40% 4.22% 123% 2001 ..... 21,244 1.21 5.77 1.42 5.56 131 2000 ..... 22,553 1.17 5.60 1.37 5.40 202 1999 ..... 34,913 1.17 4.87 1.36 4.68 221 1998 ..... 33,269 1.14 5.29 1.38 5.05 109 Flex Shares 2002 ..... $36,200 1.71% 3.90% 1.96% 3.65% 123% 2001 ..... 25,791 1.70 5.24 1.99 4.95 131 2000 ..... 20,056 1.66 5.14 1.99 4.81 202 1999 ..... 26,020 1.66 4.40 2.00 4.06 221 1998 ..... 13,111 1.65 4.76 2.11 4.30 109 - ------------------------------------- INVESTMENT GRADE TAX-EXEMPT BOND FUND - ------------------------------------- Investor Shares 2002 ..... $20,436 1.22% 2.51% 1.36% 2.37% 311% 2001 ..... 18,601 1.21 3.54 1.37 3.38 285 2000 ..... 19,443 1.17 3.59 1.33 3.43 226 1999 ..... 25,195 1.17 3.36 1.32 3.21 224 1998 ..... 28,159 1.16 3.43 1.43 3.16 378 Flex Shares 2002 ..... $24,587 1.70% 2.03% 1.92% 1.81% 311% 2001 ..... 20,010 1.69 3.04 1.96 2.77 285 2000 ..... 14,678 1.65 3.11 1.95 2.81 226 1999 ..... 16,518 1.65 2.86 2.03 2.48 224 1998 ..... 8,399 1.64 2.95 2.10 2.49 378 - --------------------------------------------- LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND - --------------------------------------------- Investor Shares 2002 ..... $ 1,578 0.96% 3.50% 2.06% 2.40% 410% 2001 ..... 849 0.95 5.39 2.28 4.06 532 2000 ..... 1,194 0.92 5.31 1.09 5.14 384 1999 ..... 2,214 0.92 5.03 1.52 4.43 379 1998 ..... 2,705 0.91 5.50 1.51 4.90 163 Flex Shares 2002 ..... $15,930 1.31% 2.88% 1.98% 2.21% 410% 2001 ..... 3,452 1.30 4.99 2.60 3.69 532 2000 ..... 1,706 1.27 4.97 2.38 3.86 384 1999 ..... 2,119 1.27 4.69 2.42 3.54 379 1998 ..... 1,543 1.26 5.16 2.72 3.70 163 - -------------------------------- MARYLAND MUNICIPAL BOND FUND (A) - -------------------------------- Flex Shares 2002 ..... $23,215 1.64% 2.75% 1.83% 2.56% 45% 2001 ..... 12,090 1.63 3.24 1.97 2.90 42 2000 ..... 6,212 1.59 3.34 1.95 2.98 14 1999(1) .. 7,723 1.59 2.94 1.98 2.55 19 For the years ended November 30: 1998 ..... $ 3,246 1.57% 3.16% 1.96% 2.77% 12% 1997 ..... 561 1.54 3.43 2.00 2.97 5
54 PROSPECTUS - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- For the Periods Ended May 31, (unless otherwise indicated) For a Share Outstanding Throughout the Periods
NET REALIZED NET ASSET AND DISTRIBUTIONS VALUE NET UNREALIZED FROM NET DISTRIBUTIONS NET ASSET BEGINNING INVESTMENT GAINS (LOSSES) INVESTMENT FROM REALIZED VALUE END TOTAL OF PERIOD INCOME ON INVESTMENTS INCOME CAPITAL GAINS OF PERIOD RETURN (+) --------- --------- -------------- ------------- ------------- --------- ---------- - -------------------- SHORT-TERM BOND FUND - -------------------- Investor Shares 2002 ..... $10.06 $0.44 $(0.02) $(0.44) -- $10.04 4.19% 2001 ..... 9.67 0.54 0.39 (0.54) -- 10.06 9.90 2000 ..... 9.93 0.51 (0.25) (0.51) $(0.01) 9.67 2.67 1999 ..... 10.07 0.49 (0.10) (0.50) (0.03) 9.93 3.88 1998 ..... 9.91 0.53 0.17 (0.53) (0.01) 10.07 7.19 Flex Shares 2002 ..... $10.06 $0.40 $(0.03) $(0.40) -- $10.03 3.75% 2001 ..... 9.67 0.52 0.39 (0.52) -- 10.06 9.60 2000 ..... 9.93 0.48 (0.25) (0.48) $(0.01) 9.67 2.31 1999 ..... 10.07 0.47 (0.11) (0.47) (0.03) 9.93 3.50 1998 ..... 9.91 0.50 0.17 (0.50) (0.01) 10.07 6.84 - ---------------------------------------- SHORT-TERM U.S. TREASURY SECURITIES FUND - ---------------------------------------- Investor Shares 2002 ..... $10.13 $0.35 $ 0.08 $(0.35) $(0.03) $10.19 4.44% 2001 ..... 9.85 0.48 0.28 (0.48) -- 10.13 7.87 2000 ..... 9.95 0.45 (0.10) (0.45) -- 9.85 3.58 1999 ..... 9.96 0.46 (0.01) (0.46) -- 9.95 4.54 1998 ..... 9.88 0.49 0.09 (0.50) -- 9.96 6.04 Flex Shares 2002 ..... $10.11 $0.33 $ 0.10 $(0.33) $(0.03) $10.18 4.29% 2001 ..... 9.83 0.46 0.28 (0.46) -- 10.11 7.67 2000 ..... 9.93 0.42 (0.10) (0.42) -- 9.83 3.34 1999 ..... 9.94 0.44 (0.02) (0.43) -- 9.93 4.32 1998 ..... 9.85 0.47 0.10 (0.48) -- 9.94 5.90 - --------------------- STRATEGIC INCOME FUND - --------------------- Flex Shares 2002(1) .. $10.00 $0.25 $(0.20) $(0.25) -- $ 9.80 0.55% - ------------------------------- U.S. GOVERNMENT SECURITIES FUND - ------------------------------- Investor Shares 2002 ..... $10.38 $0.50 $ 0.26 $(0.50) $(0.17) $10.47 7.47% 2001 ..... 9.86 0.54 0.52 (0.54) -- 10.38 10.95 2000 ..... 10.28 0.54 (0.42) (0.54) -- 9.86 1.19 1999 ..... 10.45 0.54 (0.17) (0.54) -- 10.28 3.56 1998 ..... 10.02 0.57 0.43 (0.57) -- 10.45 10.23 Flex Shares 2002 ..... $10.38 $0.45 $ 0.27 $(0.45) $(0.17) $10.48 7.06% 2001 ..... 9.86 0.49 0.52 (0.49) -- 10.38 10.45 2000 ..... 10.28 0.49 (0.42) (0.49) -- 9.86 0.70 1999 ..... 10.46 0.49 (0.18) (0.49) -- 10.28 2.99 1998 ..... 10.02 0.52 0.44 (0.52) -- 10.46 9.78 (+) Returns are for the period indicated and have not been annualized. Total return figures do not reflect applicable sales loads. Returns shown do not reflect the deduction of taxes the shareholder would pay on fund distributions or redemption of fund shares. (1) Commenced operations on November 30, 2001. All ratios for the period have been annualized. Amounts designated as "__" are either $0 or round to $0.
RATIO OF NET RATIO OF RATIO OF INVESTMENT NET EXPENSES TO INCOME TO RATIO OF INVESTMENT AVERAGE NET AVERAGE NET NET ASSETS EXPENSES TO INCOME ASSETS (EXCLUDING ASSETS (EXCLUDING PORTFOLIO END OF AVERAGE TO AVERAGE WAIVERS AND WAIVERS AND TURNOVER PERIOD (000) NET ASSETS NET ASSETS REIMBURSEMENTS) REIMBURSEMENTS) RATE ------------ ----------- ----------- --------------- ----------------- --------- - -------------------- SHORT-TERM BOND FUND - -------------------- Investor Shares 2002 ..... $ 5,767 0.91% 4.28% 1.26% 3.93% 142% 2001 ..... 4,176 0.90 5.47 1.71 4.66 87 2000 ..... 1,446 0.87 5.20 1.75 4.32 70 1999 ..... 1,825 0.87 4.92 1.59 4.20 108 1998 ..... 1,949 0.86 5.27 1.71 4.42 87 Flex Shares 2002 ..... $26,392 1.26% 3.89% 1.87% 3.28% 142% 2001 ..... 10,682 1.25 5.09 2.17 4.17 87 2000 ..... 2,065 1.22 4.85 2.41 3.66 70 1999 ..... 2,341 1.22 4.55 2.33 3.44 108 1998 ..... 2,110 1.21 4.93 2.85 3.29 87 - ---------------------------------------- SHORT-TERM U.S. TREASURY SECURITIES FUND - ---------------------------------------- Investor Shares 2002 ..... $ 4,735 0.86% 3.36% 1.41% 2.81% 117% 2001 ..... 2,179 0.85 4.81 1.56 4.10 87 2000 ..... 2,066 0.82 4.50 1.44 3.88 50 1999 ..... 2,799 0.82 4.54 1.34 4.02 57 1998 ..... 3,277 0.81 5.07 1.33 4.55 39 Flex Shares 2002 ..... $70,720 1.11% 3.09% 1.81% 2.39% 117% 2001 ..... 27,861 1.10 4.45 1.96 3.59 87 2000 ..... 5,391 1.07 4.26 2.04 3.29 50 1999 ..... 4,931 1.07 4.22 2.25 3.04 57 1998 ..... 1,413 1.06 4.81 2.87 3.00 39 - --------------------- STRATEGIC INCOME FUND - --------------------- Flex Shares 2002(1) .. $39,490 1.53% 5.49% 2.07% 4.95% 43% - ------------------------------- U.S. GOVERNMENT SECURITIES FUND - ------------------------------- Investor Shares 2002 ..... $ 8,483 1.22% 4.70% 1.40% 4.52% 262% 2001 ..... 6,617 1.21 5.21 1.83 4.59 207 2000 ..... 1,407 1.17 5.34 2.14 4.37 29 1999 ..... 2,534 1.17 5.17 1.60 4.74 19 1998 ..... 3,225 1.16 5.53 1.76 4.93 14 Flex Shares 2002 ..... $31,922 1.73% 4.17% 1.93% 3.97% 262% 2001 ..... 21,617 1.72 4.71 2.04 4.39 207 2000 ..... 7,750 1.68 4.85 2.28 4.25 29 1999 ..... 11,520 1.68 4.66 2.08 4.26 19 1998 ..... 4,022 1.67 5.02 2.32 4.37 14
PROSPECTUS 55 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- For the Periods Ended May 31, (unless otherwise indicated) For a Share Outstanding Throughout the Periods
NET REALIZED NET ASSET AND DISTRIBUTIONS VALUE NET UNREALIZED FROM NET DISTRIBUTIONS NET ASSET BEGINNING INVESTMENT GAINS (LOSSES) INVESTMENT FROM REALIZED VALUE END TOTAL OF PERIOD INCOME ON INVESTMENTS INCOME CAPITAL GAINS OF PERIOD RETURN (+) --------- --------- -------------- ------------- ------------- --------- ---------- - --------------------------------------------- VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND (A) - --------------------------------------------- Investor Shares 2002 ..... $10.14 $0.39 $ 0.16 $(0.40) -- $10.29 5.47% 2001 ..... 9.59 0.42 0.55 (0.42) -- 10.14 10.23 2000 ..... 10.20 0.42 (0.56) (0.42) $(0.05) 9.59 (1.24) 1999(1) .. 10.45 0.22 (0.18) (0.22) (0.07) 10.20 0.35 For years ended November 30: 1998 ..... 10.31 0.46 0.17 (0.45) (0.04) 10.45 6.19 1997 ..... 10.21 0.47 0.09 (0.46) -- 10.31 5.65 - -------------------------------- VIRGINIA MUNICIPAL BOND FUND (A) - -------------------------------- Flex Shares 2002 ..... $10.34 $0.31 $ 0.19 $(0.31) -- $10.53 4.93% 2001 ..... 9.68 0.35 0.66 (0.35) -- 10.34 10.58 2000 ..... 10.48 0.36 (0.79) (0.36) $(0.01) 9.68 (4.13) 1999(1) .. 10.73 0.17 (0.18) (0.18) (0.06) 10.48 (0.16) For years ended November 30: 1998 ..... 10.48 0.37 0.28 (0.37) (0.03) 10.73 6.24 1997 ..... 10.31 0.39 0.18 (0.39) (0.01) 10.48 5.58 (+) Returns are for the period indicated and have not been annualized. Total return figures do not reflect applicable sales loads. The performance in the above table does not reflect the deduction of taxes the shareholder would pay on fund distributions or redemption of fund shares. (1) For the six month period ended May 31, 1999. All ratios for the period have been annualized. (A) On May 24, 1999, the CrestFunds Virginia Intermediate Municipal Bond and CrestFunds Virginia Municipal Bond Funds exchanged all of their assets and certain liabilities for shares of the Virginia Intermediate Municipal Bond and Virginia Municipal Bond Funds, respectively. The CrestFunds Virginia Intermediate Municipal Bond and CrestFunds Virginia Municipal Bond Funds are the accounting survivors in this transaction, and as a result, their basis of accounting for assets and liabilities and their operating results for the periods prior to May 24, 1999 have been carried forward in these financial highlights. Amounts designated as "__" are either $0 or round to $0.
RATIO OF NET RATIO OF RATIO OF INVESTMENT NET EXPENSES TO INCOME TO RATIO OF INVESTMENT AVERAGE NET AVERAGE NET NET ASSETS EXPENSES TO INCOME ASSETS (EXCLUDING ASSETS (EXCLUDING PORTFOLIO END OF AVERAGE TO AVERAGE WAIVERS AND WAIVERS AND TURNOVER PERIOD (000) NET ASSETS NET ASSETS REIMBURSEMENTS) REIMBURSEMENTS) RATE ------------ ----------- ----------- --------------- ----------------- --------- - --------------------------------------------- VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND (A) - --------------------------------------------- Investor Shares 2002 ..... $ 7,257 0.79% 3.82% 1.11% 3.50% 33% 2001 ..... 6,197 0.76 4.20 1.11 3.85 32 2000 ..... 6,808 0.79 4.33 0.94 4.18 18 1999(1) .. 7,706 0.79 4.17 0.93 4.03 19 For years ended November 30: 1998 ..... 7,899 0.79 4.33 0.94 4.18 24 1997 ..... 7,826 0.79 4.56 0.94 4.41 30 - -------------------------------- VIRGINIA MUNICIPAL BOND FUND (A) - -------------------------------- Flex Shares 2002 ..... $13,428 1.70% 2.97% 1.88% 2.79% 38% 2001 ..... 7,983 1.69 3.47 2.00 3.16 60 2000 ..... 5,367 1.65 3.61 2.08 3.18 19 1999(1) .. 6,939 1.65 3.32 1.91 3.06 7 For years ended November 30: 1998 ..... 3,697 1.64 3.46 1.92 3.18 28 1997 ..... 1,476 1.60 3.73 2.00 3.33 39
56 PROSPECTUS - -------------------------------------------------------------------------------- NOTES - -------------------------------------------------------------------------------- PROSPECTUS 57 - -------------------------------------------------------------------------------- NOTES - -------------------------------------------------------------------------------- 58 PROSPECTUS - -------------------------------------------------------------------------------- HOW TO OBTAIN MORE INFORMATION ABOUT THE STI CLASSIC FUNDS - -------------------------------------------------------------------------------- INVESTMENT ADVISER Trusco Capital Management, Inc. 50 Hurt Plaza Suite 1400 Atlanta, Georgia 30303 DISTRIBUTOR SEI Investments Distribution Co. One Freedom Valley Drive Oaks, Pennsylvania 19456 LEGAL COUNSEL Morgan, Lewis & Bockius LLP More information about the Funds is available without charge through the following: STATEMENT OF ADDITIONAL INFORMATION (SAI) The SAI dated October 1, 2002, includes detailed information about the STI Classic Funds. The SAI is on file with the SEC and is incorporated by reference into this prospectus. This means that the SAI, for legal purposes, is a part of this prospectus. ANNUAL AND SEMI-ANNUAL REPORTS These reports list each Fund's holdings and contain information from the Funds' managers about strategies and recent market conditions and trends and their impact on Fund performance. The reports also contain detailed financial information about the Funds. TO OBTAIN AN SAI, ANNUAL OR SEMI-ANNUAL REPORT, OR MORE INFORMATION: BY TELEPHONE: Call 1-800-428-6970 BY MAIL: Write to the Funds c/o SEI Investments Distribution Co. Oaks, Pennsylvania 19456 FROM THE SEC: You can also obtain the SAI or the Annual and Semi-Annual reports, as well as other information about the STI Classic Funds, from the EDGAR Database on the SEC's website ("HTTP://WWW.SEC.GOV"). You may review and copy documents at the SEC Public Reference Room in Washington, DC (for information on the operation of the Public Reference Room, call 202-942-8090). You may request documents by mail from the SEC, upon payment of a duplicating fee, by writing to: Securities and Exchange Commission, Public Reference Section, Washington, DC 20549-0102. You may also obtain this information, upon payment of a duplicating fee, by emailing the SEC at the following address: PUBLICINFO@SEC.GOV. The STI Classic Funds' Investment Company Act registration number is 811-06557. STI-PS-008-0300 [COVER GRAPHIC OMITTED] STI CLASSIC FUNDS-MONEY MARKET FUNDS-FLEX AND INVESTOR SHARES PROSPECTUS OCTOBER 1, 2002 PRIME QUALITY MONEY MARKET FUND TAX-EXEMPT MONEY MARKET FUND U.S. GOVERNMENT SECURITIES MONEY MARKET FUND VIRGINIA TAX-FREE MONEY MARKET FUND INVESTMENT ADVISER TO THE FUNDS: TRUSCO CAPITAL MANAGEMENT, INC. (the "Adviser") [STI CLASSIC LOGO OMITTED] THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. PROSPECTUS ABOUT THIS PROSPECTUS The STI Classic Funds is a mutual fund family that offers shares in separate investment portfolios (Funds). The Funds have individual investment goals and strategies. This prospectus gives you important information about the Investor and Flex Shares of the Money Market Funds that you should know before investing. Please read this prospectus and keep it for future reference. THIS PROSPECTUS HAS BEEN ARRANGED INTO DIFFERENT SECTIONS SO THAT YOU CAN EASILY REVIEW THIS IMPORTANT INFORMATION. ON THE NEXT PAGE, THERE IS SOME GENERAL INFORMATION YOU SHOULD KNOW ABOUT RISK AND RETURN THAT IS COMMON TO EACH OF THE FUNDS. FOR MORE DETAILED INFORMATION ABOUT EACH FUND, PLEASE SEE: 2 PRIME QUALITY MONEY MARKET FUND 4 TAX-EXEMPT MONEY MARKET FUND 6 U.S. GOVERNMENT SECURITIES MONEY MARKET FUND 8 VIRGINIA TAX-FREE MONEY MARKET FUND 10 MORE INFORMATION ABOUT RISK 10 MORE INFORMATION ABOUT FUND INVESTMENTS 10 INVESTMENT ADVISER 11 PORTFOLIO MANAGERS 11 PURCHASING, SELLING AND EXCHANGING FUND SHARES 16 DIVIDENDS AND DISTRIBUTIONS 16 TAXES 17 FINANCIAL HIGHLIGHTS BACK HOW TO OBTAIN MORE INFORMATION COVER ABOUT THE STI CLASSIC FUNDS - -------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY [TELESCOPE GRAPIC OMITTED] INVESTMENT STRATEGY [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING? [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION [INDEX CHART GRAPHIC OMITTED] WHAT IS AN AVERAGE? [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES [MOUNTAIN GRAPHIC OMITTED] MORE INFORMATION ABOUT FUND INVESTMENTS [MAGNIFIER GRAPHIC OMITTED] INVESTMENT ADVISER [HANDSHAKE GRAPHIC OMITTED] PURCHASING, SELLING AND EXCHANGING FUND SHARES [DOLLAR BILL GRAPHIC OMITTED]SALES CHARGES - -------------------------------------------------------------------------------- OCTOBER 1, 2002 PROSPECTUS 1 - -------------------------------------------------------------------------------- CUSIP/TICKER SYMBOLS - --------------------------------------------------------------------------------
FUND NAME CLASS INCEPTION* TICKER CUSIP - ------------------------------------------------------------------------------------------------------------------------------------ MONEY MARKET FUNDS Prime Quality Money Market Flex 10/4/99 SQFXX 784767774 Prime Quality Money Market Investor 6/8/92 SQIXX 784766206 Tax-Exempt Money Market Investor 6/8/92 SEIXX 784766602 U.S. Government Securities Money Market Investor 6/8/92 SUIXX 784766404 Virginia Tax-Free Money Market Investor 5/5/93 CIAXX 784767600 - ------------------------------------------------------------------------------------------------------------------------------------ * THE INCEPTION DATE REFLECTS THE BEGINNING OF THE CLASS'S PERFORMANCE HISTORY, WHICH MAY INCLUDE THE PERFORMANCE OF OTHER CLASSES OF THE FUND AND/OR PREDECESSORS OF THE FUND. FOR FURTHER INFORMATION, SEE "PERFORMANCE INFORMATION."
- -------------------------------------------------------------------------------- RISK/RETURN INFORMATION COMMON TO THE FUNDS - -------------------------------------------------------------------------------- Each Fund is a mutual fund. A mutual fund pools shareholders' money and, using professional investment managers, invests it in securities. Each Fund has its own investment goal and strategies for reaching that goal. The Adviser invests Fund assets in a way that it believes will help a Fund achieve its goal. Still, investing in each Fund involves risk and there is no guarantee that a Fund will achieve its goal. The Adviser's judgments about the markets, the economy or companies may not anticipate actual market movements, economic conditions or company performance, and these judgments may affect the return on your investment. In fact, no matter how good a job the Adviser does, you could lose money on your investment in the Fund, just as you could with other investments. A FUND SHARE IS NOT A BANK DEPOSIT AND IT IS NOT INSURED OR GUARANTEED BY THE FDIC OR ANY GOVERNMENT AGENCY. 2 PROSPECTUS - -------------------------------------------------------------------------------- PRIME QUALITY MONEY MARKET FUND - -------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOAL High current income, while preserving capital and liquidity - -------------------------------------------------------------------------------- INVESTMENT FOCUS Money market instruments - -------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify money market instruments with the most attractive risk/return trade-off - -------------------------------------------------------------------------------- INVESTOR PROFILE Conservative investors who want to receive current income from their investment - -------------------------------------------------------------------------------- [TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Prime Quality Money Market Fund invests exclusively in high quality U.S. money market instruments and foreign money market instruments denominated in U.S. dollars. In selecting investments for the Fund, the Adviser tries to increase income without adding undue risk. The Adviser analyzes maturity, yields, market sectors and credit risk. Investments are made in money market instruments with the most attractive risk/return trade-off. As a money market fund, the Fund follows strict rules about credit risk, maturity and diversification of its investments. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? An investment in the Fund is subject to income risk, which is the possibility that the Fund's yield will decline due to falling interest rates. A Fund share is not a bank deposit and is not insured or guaranteed by the FDIC or any government agency. In addition, although a money market fund seeks to keep a constant price per share of $1.00, you may lose money by investing in the Fund. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S INVESTOR SHARES FROM YEAR TO YEAR.* [PRIME QUAL GRAPHIC OMITTED] 1993 2.60% 1994 3.60% 1995 5.30% 1996 4.82% 1997 4.97% 1998 4.92% 1999 4.56% 2000 5.86% 2001 3.54% BEST QUARTER WORST QUARTER 1.51% 0.48% (9/30/00) (12/31/01) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS 0.66%. THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE IMONEYNET, INC. FIRST TIER RETAIL AVERAGE. INVESTOR SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - ---------------------------------------------------------------- Prime Quality Money Market Fund 3.54% 4.77% 4.36% - ---------------------------------------------------------------- iMoneyNet, Inc. First Tier Retail Average 3.54% 4.77% 4.40% - ---------------------------------------------------------------- * SINCE INCEPTION OF THE INVESTOR SHARES ON JUNE 8, 1992. BENCHMARK RETURNS SINCE MAY 31, 1992 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). FLEX SHARES 1 YEAR SINCE INCEPTION* - --------------------------------------------------------------- Prime Quality Money Market Fund 2.77% 3.93% - --------------------------------------------------------------- iMoneyNet, Inc. First Tier Retail Average 3.54% 4.71% - --------------------------------------------------------------- * SINCE INCEPTION OF THE FLEX SHARES ON OCTOBER 4, 1999. BENCHMARK RETURNS SINCE SEPTEMBER 30, 1999 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). To obtain more information about the Fund's current yield, call 1-800-814-3397. PROSPECTUS 3 - -------------------------------------------------------------------------------- PRIME QUALITY MONEY MARKET FUND - -------------------------------------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN AVERAGE? An average is a composite of mutual funds with similar investment goals. The iMoneyNet, Inc. First Tier Retail Average is a widely-recognized composite of money market funds which invest in securities rated in the highest category by at least two of the recognized rating agencies. The number of funds in the Average varies. [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares.
- ----------------------------------------------------------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - ----------------------------------------------------------------------------------------------------------------------------------- INVESTOR SHARES FLEX SHARES Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None None Maximum Deferred Sales Charge (Load) (as a percentage of net asset value)* None 2.00% * THIS SALES CHARGE IS IMPOSED IF YOU SELL FLEX SHARES WITHIN ONE YEAR OF YOUR PURCHASE. SEE "SALES CHARGES."
- ------------------------------------------------------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - ------------------------------------------------------------------------------------------------------------------------------- INVESTOR SHARES FLEX SHARES Investment Advisory Fees 0.65% 0.65% Distribution and Service (12b-1) Fees 0.20% 0.75% Other Expenses 0.09% 0.30% ----- ----- Total Annual Fund Operating Expenses 0.94%* 1.70%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER AND THE DISTRIBUTOR WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THESE FEE WAIVERS REMAIN IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER AND THE DISTRIBUTOR MAY DISCONTINUE ALL OR PART OF THESE FEE WAIVERS AT ANY TIME. WITH THESE FEE WAIVERS, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: Prime Quality Money Market Fund - Investor Shares 0.81% Prime Quality Money Market Fund - Flex Shares 1.54%
- -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: IF YOU SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS Investor Shares $ 96 $300 $520 $1,155 Flex Shares $373 $536 $923 $2,009 IF YOU DO NOT SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS 5 YEARS 10 YEARS Investor Shares $ 96 $300 $520 $1,155 Flex Shares $173 $536 $923 $2,009 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." 4 PROSPECTUS - -------------------------------------------------------------------------------- TAX-EXEMPT MONEY MARKET FUND - -------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOAL High current interest income exempt from federal income taxes, while preserving capital and liquidity - -------------------------------------------------------------------------------- INVESTMENT FOCUS Municipal money market instruments - -------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to increase income without added risk by analyzing credit quality - -------------------------------------------------------------------------------- INVESTOR PROFILE Conservative investors who want to receive current tax-exempt income from their investment - -------------------------------------------------------------------------------- [TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Tax-Exempt Money Market Fund invests substantially all of its assets in money market instruments issued by municipalities and issuers that pay income exempt from federal income taxes. In selecting investments for the Fund, the Adviser analyzes the credit quality and structure of each security to minimize risk. The Adviser actively manages the Fund's average maturity based on current interest rates and the Adviser's outlook of the market. As a money market fund, the Fund follows strict rules about credit risk, maturity and diversification of its investments. [LIFE PRESERVER OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? An investment in the Fund is subject to income risk, which is the possibility that the Fund's yield will decline due to falling interest rates. A Fund share is not a bank deposit and is not insured or guaranteed by the FDIC or any government agency. In addition, although a money market fund seeks to keep a constant price per share of $1.00, you may lose money by investing in the Fund. There may be economic or political changes that impact the ability of municipal issuers to repay principal and to make interest payments on municipal securities. Changes in the financial condition or credit rating of municipal issuers also may adversely affect the value of the Fund's securities. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S INVESTOR SHARES FROM YEAR TO YEAR.* [TAX EXEMPT GRAPHIC OMITTED] 1993 1.90% 1994 2.37% 1995 3.36% 1996 2.94% 1997 3.11% 1998 2.90% 1999 2.69% 2000 3.57% 2001 2.13% BEST QUARTER WORST QUARTER 0.95% 0.32% (6/30/00) (12/31/01) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS 0.38%. PROSPECTUS 5 - -------------------------------------------------------------------------------- TAX-EXEMPT MONEY MARKET FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE IMONEYNET, INC. TAX-FREE RETAIL AVERAGE. INVESTOR SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - ---------------------------------------------------------------- Tax-Exempt Money Market Fund 2.13% 2.88% 2.74% - ---------------------------------------------------------------- iMoneyNet, Inc. Tax-Free Retail Average 2.27% 2.90% 2.76% - ---------------------------------------------------------------- * SINCE INCEPTION OF THE INVESTOR SHARES ON JUNE 8, 1992. BENCHMARK RETURNS SINCE MAY 31, 1992 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). To obtain more information about the Fund's current yield, call 1-800-814-3397. - -------------------------------------------------------------------------------- [CHART INDEX GRAPHIC OMITTED] WHAT IS AN AVERAGE? - -------------------------------------------------------------------------------- An average is a composite of mutual funds with similar investment goals. The iMoneyNet, Inc. Tax-Free Retail Average is a widely-recognized composite of money market funds which invest in short-term municipal securities, the income of which is exempt from federal taxation. The number of funds in the Average varies. [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- INVESTOR SHARES Investment Advisory Fees 0.55% Distribution and Service (12b-1) Fees 0.15% Other Expenses 0.10% ----- Total Annual Fund Operating Expenses 0.80%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER AND THE DISTRIBUTOR WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THESE FEE WAIVERS REMAIN IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER AND THE DISTRIBUTOR MAY DISCONTINUE ALL OR PART OF THESE FEE WAIVERS AT ANY TIME. WITH THESE FEE WAIVERS, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: Tax-Exempt Money Market Fund - Investor Shares 0.67% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $82 $255 $444 $990 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." 6 PROSPECTUS - -------------------------------------------------------------------------------- U.S. GOVERNMENT SECURITIES MONEY MARKET FUND - -------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOAL High current income, while preserving capital and liquidity - -------------------------------------------------------------------------------- INVESTMENT FOCUS U.S. Treasury and government agency securities, and repurchase agreements - -------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to increase income without adding undue risk by analyzing yields - -------------------------------------------------------------------------------- INVESTOR PROFILE Conservative investors who want to receive current income - -------------------------------------------------------------------------------- [TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The U.S. Government Securities Money Market Fund invests exclusively in U.S. Treasury obligations, obligations issued or guaranteed as to principal and interest by agencies or instrumentalities of the U.S. government, repurchase agreements involving these securities, and shares of registered money market funds that invest in the foregoing. In selecting investments for the Fund, the Adviser tries to increase income without adding undue risk by analyzing yields. The Adviser actively manages the maturity of the Fund and its portfolio to maximize the Fund's yield based on current market interest rates and the Adviser's outlook on the market. As a money market fund, the Fund follows strict rules about credit risk, maturity and diversification of its investments. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? An investment in the Fund is subject to income risk, which is the possibility that the Fund's yield will decline due to falling interest rates. A Fund share is not a bank deposit and is not insured or guaranteed by the FDIC or any government agency. In addition, although a money market fund seeks to keep a constant price per share of $1.00, you may lose money by investing in the Fund. Although the Fund's U.S. government securities are considered to be among the safest investments, they are not guaranteed against price movements due to changing interest rates. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S INVESTOR SHARES FROM YEAR TO YEAR.* [US GOVT SECURITY MM GRAPHIC OMITTED] 1993 2.52% 1994 3.48% 1995 5.25% 1996 4.66% 1997 4.85% 1998 4.73% 1999 4.26% 2000 5.56% 2001 3.52% BEST QUARTER WORST QUARTER 1.46% 0.44% (12/31/00) (12/31/01) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS 0.68%. PROSPECTUS 7 - -------------------------------------------------------------------------------- U.S. GOVERNMENT SECURITIES MONEY MARKET FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE IMONEYNET, INC. GOVERNMENT & AGENCY RETAIL AVERAGE. INVESTOR SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - ---------------------------------------------------------------- U.S. Government Securities Money Market Fund 3.52% 4.58% 4.22% - ---------------------------------------------------------------- iMoneyNet, Inc. Government & Agency Retail Average 3.53% 4.73% 4.34% - ---------------------------------------------------------------- * SINCE INCEPTION OF THE INVESTOR SHARES ON JUNE 8, 1992. BENCHMARK RETURNS SINCE MAY 31, 1992 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). To obtain more information about the Fund's current yield, call 1-800-814-3397. - -------------------------------------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN AVERAGE? - -------------------------------------------------------------------------------- An average is a composite of mutual funds with similar investment goals. The iMoneyNet, Inc. Government & Agency Retail Average is a widely-recognized composite of money market funds which invest in U.S. Treasury Bills, repurchase agreements or securities issued by agencies of the U.S. government. The number of funds in the Average varies. [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- INVESTOR SHARES Investment Advisory Fees 0.65% Distribution and Service (12b-1) Fees 0.17% Other Expenses 0.10% ----- Total Annual Fund Operating Expenses 0.92%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER AND THE DISTRIBUTOR WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THESE FEE WAIVERS REMAIN IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER AND THE DISTRIBUTOR MAY DISCONTINUE ALL OR PART OF THESE FEE WAIVERS AT ANY TIME. WITH THESE FEE WAIVERS, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: U.S. Government Securities Money Market Fund - Investor Shares 0.80% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $94 $293 $509 $1,131 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." 8 PROSPECTUS - -------------------------------------------------------------------------------- VIRGINIA TAX-FREE MONEY MARKET FUND - -------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOAL High current income exempt from federal and Virginia income taxes, while preserving capital and liquidity - -------------------------------------------------------------------------------- INVESTMENT FOCUS Virginia municipal money market instruments - -------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to increase income without added risk by analyzing credit quality - -------------------------------------------------------------------------------- INVESTOR PROFILE Virginia residents who want to receive current income exempt from federal and state income taxes - -------------------------------------------------------------------------------- [TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Virginia Tax-Free Money Market Fund invests substantially all of its assets in money market instruments issued by municipalities and issuers that pay income exempt from federal and Virginia income taxes. Issuers of these securities can be located in Virginia, Puerto Rico and other U.S. territories and possessions. In selecting investments for the Fund, the Adviser analyzes the credit quality and structure of each security to minimize risk. The Adviser actively manages the Fund's average maturity based on current interest rates and the Adviser's outlook of the market. As a money market fund, the Fund follows strict rules about credit risk, maturity and diversification of its investments. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? An investment in the Fund is subject to income risk, which is the possibility that the Fund's yield will decline due to falling interest rates. A Fund share is not a bank deposit and is not insured or guaranteed by the FDIC or any government agency. In addition, although a money market fund seeks to keep a constant price per share of $1.00, you may lose money by investing in the Fund. The Fund's concentration of investments in securities of issuers located in Virginia subjects the Fund to economic and government policies within Virginia. There may be economic or political changes that impact the ability of municipal issuers to repay principal and to make interest payments on municipal securities. Changes in the financial condition or credit rating of municipal issuers also may adversely affect the value of the Fund's securities. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table below illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S INVESTOR SHARES FROM YEAR TO YEAR.* [VIRGINIA TAX FREE MM GRAPHIC OMITTED] 1994 2.11% 1995 3.27% 1996 3.10% 1997 3.07% 1998 2.92% 1999 2.71% 2000 3.55% 2001 2.14% BEST QUARTER WORST QUARTER 0.93% 0.31% (6/30/00) (12/31/01) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS 0.39%. PROSPECTUS 9 - -------------------------------------------------------------------------------- VIRGINIA TAX-FREE MONEY MARKET FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE IMONEYNET, INC. TAX-FREE RETAIL AVERAGE. INVESTOR SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - ---------------------------------------------------------------- Virginia Tax-Free Money Market Fund 2.14% 2.88% 2.76% - ---------------------------------------------------------------- iMoneyNet, Inc. Tax-Free Retail Average 2.27% 2.90% 2.82% - ---------------------------------------------------------------- * SINCE INCEPTION OF THE INVESTOR SHARES ON MAY 5, 1993. BENCHMARK RETURNS SINCE APRIL 30, 1993 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). To obtain more information about the Fund's current yield, call 1-800-814-3397. - -------------------------------------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN AVERAGE? - -------------------------------------------------------------------------------- An average is a composite of mutual funds with similar investment goals. The iMoneyNet, Inc. Tax-Free Retail Average is a widely-recognized composite of money market funds which invest in short-term municipal securities, the income of which is exempt from federal taxation. The number of funds in the Average varies. [COINS GRAPHIC OMITTED]FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- INVESTOR SHARES Investment Advisory Fees 0.40% Distribution and Service (12b-1) Fees 0.40% Other Expense 0.10% ----- Total Annual Fund Operating Expenses 0.90%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER AND THE DISTRIBUTOR WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THESE FEE WAIVERS REMAIN IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER AND THE DISTRIBUTOR MAY DISCONTINUE ALL OR PART OF THESE FEE WAIVERS AT ANY TIME. WITH THESE FEE WAIVERS, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: Virginia Tax-Free Money Market Fund - Investor Shares 0.67% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $92 $287 $498 $1,108 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." 10 PROSPECTUS - -------------------------------------------------------------------------------- MORE INFORMATION ABOUT RISK - -------------------------------------------------------------------------------- [LIFE PRESERVER GRAPHIC OMITTED] MORE INFORMATION ABOUT RISK FIXED INCOME RISK TAX-EXEMPT MONEY MARKET FUND VIRGINIA TAX-FREE MONEY MARKET FUND The market value of fixed income investments changes in response to interest rate changes and other factors. During periods of falling interest rates, the values of outstanding fixed income securities generally rise. Moreover, while securities with longer maturities tend to produce higher yields, the prices of longer maturity securities are also subject to greater market fluctuations as a result of changes in interest rates. In addition to these fundamental risks, different types of fixed income securities may be subject to the following additional risks: MUNICIPAL ISSUER RISK TAX-EXEMPT MONEY MARKET FUND VIRGINIA TAX-FREE MONEY MARKET FUND There may be economic or political changes that impact the ability of municipal issuers to repay principal and to make interest payments on municipal securities. Changes to the financial condition or credit rating of municipal issuers may also adversely affect the value of the Fund's municipal securities. Constitutional or legislative limits on borrowing by municipal issuers may result in reduced supplies of municipal securities. Moreover, certain municipal securities are backed only by a municipal issuer's ability to levy and collect taxes. In addition, the Fund's concentration of investments in issuers located in a single state makes the Fund more susceptible to adverse political or economic developments affecting that state. The Fund also may be riskier than mutual funds that buy securities of issuers in numerous states. REGIONAL RISK VIRGINIA TAX-FREE MONEY MARKET FUND To the extent that the Fund's investments are concentrated in a specific geographic region, the Fund may be subject to the political and other developments affecting that region. Regional economies are often closely interrelated, and political and economic developments affecting one region, country or state often affect other regions, countries or states, thus subjecting a Fund to additional risks. [MOUNTAIN GRAPHIC OMITTED] MORE INFORMATION ABOUT FUND INVESTMENTS This prospectus describes the Funds' primary strategies, and the Funds will normally invest in the types of securities described in this prospectus. However, in addition to the investments and strategies described in this prospectus, each Fund also may invest in other securities, use other strategies and engage in other investment practices. These investments and strategies, as well as those described in this prospectus, are described in detail in the Statement of Additional Information (SAI). Of course, a Fund cannot guarantee that it will achieve its investment goal. [MAGNIFIER GRAPHIC OMITTED] INVESTMENT ADVISER The investment adviser (Adviser) makes investment decisions for the Funds and continuously reviews, supervises and administers each Fund's respective investment program. The Board of Trustees supervises the Adviser and establishes policies that the Adviser must follow in its management activities. Trusco Capital Management, Inc. (Trusco or the Adviser), 50 Hurt Plaza, Suite 1400, Atlanta, Georgia 30303, serves as the Adviser to the Funds. As of PROSPECTUS 11 - -------------------------------------------------------------------------------- PORTFOLIO MANAGERS - -------------------------------------------------------------------------------- June 30, 2002, Trusco had $45.5 billion in assets under management. For the fiscal period ended May 31, 2002, the Adviser received advisory fees of: PRIME QUALITY MONEY MARKET FUND 0.54% TAX-EXEMPT MONEY MARKET FUND 0.45% U.S. GOVERNMENT SECURITIES MONEY MARKET FUND 0.56% VIRGINIA TAX-FREE MONEY MARKET FUND 0.40% The Adviser may use its affiliates as brokers for Fund transactions. PORTFOLIO MANAGERS Mr. David S. Yealy has served as a Managing Director of Trusco since July 2000. He has managed the Prime Quality Money Market Fund since it began operating in June 1992. Prior to July 2000, Mr. Yealy was a First Vice President of Trusco and has worked there since 1991. He has more than 17 years of investment experience. Mr. Robert S. Bowman, CFA, has served as a Vice President of Trusco since January 1999. He has managed the Virginia Tax-Free Money Market Fund since May 1995, the Tax-Exempt Money Market Fund since July 2000 and the U.S. Government Securities Money Market Fund since October 2000. Prior to joining Trusco, Mr. Bowman served as an assistant trader from 1994 to 1995, and Vice President of Crestar Asset Management Company since 1995. He has more than 8 years of investment experience. [HANDSHAKE GRAPHIC OMITTED] PURCHASING, SELLING AND EXCHANGING FUND SHARES This section tells you how to purchase, sell (sometimes called "redeem") and exchange Investor Shares and Flex Shares of the Funds. Flex Shares of the Prime Quality Money Market Fund are available only through exchanges of Flex Shares of other STI Classic Funds or, potentially, in the future, Flex Shares of the Prime Quality Money Market Fund may be used to set up a systematic exchange program to purchase Flex Shares of other STI Classic Funds. Currently no such exchange program is available. Flex Shares of the Prime Quality Money Market Fund (i) are subject to a 2% contingent deferred sales charge (CDSC) if you redeem your shares within one year of the date you purchased the original STI Classic Fund Flex Shares; and (ii) have higher annual expenses than Investor Shares of the Prime Quality Money Market Fund. HOW TO PURCHASE FUND SHARES A SunTrust Securities Investment Consultant can assist you in opening a brokerage account which will be used for all transactions regarding the purchase of STI Classic Funds. Once your account is established, you may buy shares of the Funds by: o Mail* o Telephone (1-800-874-4770) o Wire o Automated Clearing House (ACH) * THE FUNDS DO NOT ACCEPT CASH AS A PAYMENT FOR FUND SHARES. You may also buy shares through investment representatives of certain correspondent banks of SunTrust Banks, Inc. (SunTrust) and other financial institutions that are authorized to place transactions in Fund shares for their customers, and potentially through the Investor's Advantage Account (an asset allocation account available through SunTrust Securities, Inc.). Please contact your financial institution directly and follow its procedures for fund share transactions. Your institution may charge a fee for its services, in addition to the fees charged by a Fund. You will also generally have to address your correspondence or questions regarding a Fund to your institution. A Fund may reject any purchase order if it is determined that accepting the order would not be in the best interests of STI Classic Funds or its shareholders. WHEN CAN YOU PURCHASE SHARES? You may purchase shares on any day that the New York Stock Exchange and the Federal Reserve are open for business (a Business Day). 12 PROSPECTUS - -------------------------------------------------------------------------------- PURCHASING, SELLING AND EXCHANGING FUND SHARES - -------------------------------------------------------------------------------- The price per share (the offering price) will be the net asset value per share (NAV) next determined after the Funds receive your purchase order. Each Fund calculates its NAV once each Business Day at the regularly-scheduled close of normal trading on the New York Stock Exchange (normally 4:00 p.m., Eastern Time.) So, for you to be eligible to receive dividends declared on the day you submit your purchase order, the Funds must generally receive your order before 10:30 a.m., Eastern Time for the Tax-Exempt Money Market Fund and Virginia Tax-Free Money Market Fund or before 2:00 p.m., Eastern Time for the Prime Quality Money Market Fund and U.S. Government Securities Money Market Fund. Also each Fund must receive federal funds (readily available funds) before 4:00 p.m., Eastern Time. Otherwise, your purchase order will be effective the following Business Day, as long as each Fund receives federal funds before the Funds calculate their NAV the following day. FOR CUSTOMERS OF SUNTRUST, ITS AFFILIATES, AND OTHER FINANCIAL INSTITUTIONS YOU MAY HAVE TO TRANSMIT YOUR PURCHASE, SALE AND EXCHANGE REQUESTS TO SUNTRUST OR OTHER FINANCIAL INSTITUTIONS AT AN EARLIER TIME FOR YOUR TRANSACTION TO BECOME EFFECTIVE THAT DAY. THIS ALLOWS THE FINANCIAL INSTITUTION TIME TO PROCESS YOUR REQUEST AND TRANSMIT IT TO THE ADMINISTRATOR OR TRANSFER AGENT IN TIME TO MEET THE ABOVE STATED FUND CUT-OFF TIMES. FOR MORE INFORMATION ABOUT HOW TO PURCHASE, SELL OR EXCHANGE FUND SHARES, INCLUDING SPECIFIC SUNTRUST OR OTHER FINANCIAL INSTITUTIONS' INTERNAL ORDER ENTRY CUT-OFF TIMES, PLEASE CONTACT YOUR FINANCIAL INSTITUTION DIRECTLY. HOW THE FUNDS CALCULATE NAV In calculating NAV, a Fund generally values its investment portfolio using the amortized cost valuation method, which is described in detail in the SAI. If this method is determined to be unreliable during certain market conditions or for other reasons, a Fund may value its portfolio at market price or fair value prices may be determined in good faith using methods approved by the Board of Trustees. NET ASSET VALUE NAV for one Fund share is the value of that share's portion of the net assets of the Fund. MINIMUM PURCHASES To purchase Investor shares for the first time, you must invest at least $2,000 in any Fund. Your subsequent investments in any Fund must be made in amounts of at least $1,000 or, if you pay by a statement coupon, $100. A Fund may accept investments of smaller amounts at its discretion. FUNDLINK FUNDLINK is a telephone activated service that allows you to transfer money quickly and easily between the STI Classic Funds and your SunTrust bank account(s). To use FUNDLINK, you must first contact your SunTrust Bank Investment Consultant and complete the FUNDLINK application and authorization agreements. Once you have signed up to use FUNDLINK, simply call the Funds at 1-800-874-4770 to complete all of your purchase and redemption transactions. SYSTEMATIC INVESTMENT PLAN If you have a checking or savings account with a SunTrust affiliate bank, you may purchase Investor Shares automatically through regular deductions from your account. With a $500 minimum initial investment, you may begin regularly- scheduled investments from $50 up to $100,000 once or twice a month. The Distributor may close your account if you do not meet this minimum investment requirement at the end of two years. PROSPECTUS 13 - -------------------------------------------------------------------------------- PURCHASING, SELLING AND EXCHANGING FUND SHARES - -------------------------------------------------------------------------------- [DOLLAR BILL GRAPHIC OMITTED] SALES CHARGES CONTINGENT DEFERRED SALES CHARGES (CDSC) -- FLEX SHARES You do not pay a sales charge when you purchase Flex Shares. The offering price of Flex Shares is simply the next calculated NAV. But if you sell your shares within the first year after your purchase, you will pay a CDSC equal to 2.00% for either (1) the NAV of the shares at the time of purchase, or (2) NAV of the shares next calculated after the Fund receives your sale request, whichever is less. The sales charge does not apply to shares you purchase through the reinvestment of dividends or capital gains distributions. So, you never pay a deferred sales charge on any increase in your investment above the initial offering price. This sales charge does not apply to the exchange of Flex Shares of one Fund for Flex Shares of another Fund. IF YOU SELL YOUR FLEX SHARES The CDSC will be waived if you sell your Flex Shares for the following reasons: o to make certain withdrawals from a retirement plan (not including IRAs); o because of death or disability; o for certain payments under the Systematic Withdrawal Plan - up to 12% annually of the value of your shares held at the time of the withdrawal (the Systematic Withdrawal Plan is discussed later in more detail); or o for exchanges from Trust or Investor Shares to Flex Shares where the total accumulated period from the original date of purchase is at least one year. OFFERING PRICE OF FUND SHARES The offering price of Investor and Flex Shares is the NAV next calculated after the transfer agent receives your request. HOW TO SELL YOUR FUND SHARES If you own your shares through a brokerage account with SunTrust Securities, you may sell (sometimes called "redeem") your shares on any Business Day by contacting SunTrust Securities directly by mail or telephone at 1-800-874-4770. The minimum amount for telephone redemptions is $1,000. If you own your shares through an account with a broker or other institution, contact that broker or institution to sell your shares. If you would like to sell $25,000 or more of your shares, please notify the Fund in writing and include a signature guarantee by a bank or other financial institution (a notarized signature is not sufficient). The sale price of each share will be the next NAV determined after the Fund receives your request less, in the case of Flex Shares of the Prime Quality Money Market Fund, any applicable deferred sales charge. Redemption orders must be received by the Funds on a Business Day before 10:30 a.m., Eastern Time for the Tax-Exempt Money Market Fund and Virginia Tax-Free Money Market Fund or 2:00 p.m., Eastern Time for the Prime Quality Money Market Fund and U.S. Government Securities Money Market Fund. Orders received after these times will be executed the following Business Day. 14 PROSPECTUS - -------------------------------------------------------------------------------- PURCHASING, SELLING AND EXCHANGING FUND SHARES - -------------------------------------------------------------------------------- SYSTEMATIC WITHDRAWAL PLAN If you have at least $10,000 in your account, you may use the systematic withdrawal plan. Under the plan you may arrange monthly, quarterly, semi-annual or annual automatic withdrawals of at least $50 from any Fund. The proceeds of each withdrawal will be mailed to you by check or, if you have a checking or savings account with a bank, electronically transferred to your account. RECEIVING YOUR MONEY Normally, the Funds will send your sale proceeds within five Business Days after the Fund receives your request, but it may take up to seven days. Your proceeds can be wired to your bank account (subject to a $7.00 fee) or sent to you by check. IF YOU RECENTLY PURCHASED YOUR SHARES BY CHECK OR THROUGH ACH, REDEMPTION PROCEEDS MAY NOT BE AVAILABLE UNTIL YOUR CHECK HAS CLEARED (WHICH MAY TAKE UP TO 15 DAYS FROM YOUR DATE OF PURCHASE). REDEMPTIONS IN KIND The Funds generally pay sale (redemption) proceeds in cash. However, under unusual conditions that make the payment of cash unwise (and for the protection of the Funds' remaining shareholders) the Funds might pay all or part of your redemption proceeds in liquid securities with a market value equal to the redemption price (redemption in kind).It is highly unlikely that your shares would ever be redeemed in kind, but if they were you would probably have to pay transaction costs to sell the securities distributed to you, as well as taxes on any capital gains from the sale as with any redemption. INVOLUNTARY SALES OF YOUR SHARES If your account balance drops below the required $2,000 because of redemptions you may be required to sell your shares. But, the Funds will always give you at least 60 days written notice to give you time to add to your account and avoid the sale of your shares. SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES A Fund may suspend your right to sell your shares if the New York Stock Exchange restricts trading, the SEC declares an emergency or for other reasons. More information about this is in the SAI. HOW TO EXCHANGE YOUR SHARES You may exchange your shares on any Business Day by contacting SunTrust Securities or your financial institution by mail or telephone. Exchange requests must be for an amount of at least $1,000. The exchange privilege is not intended as a vehicle for short-term trading. Excessive exchange activity may interfere with Fund management and may have an adverse effect on all shareholders. In order to limit excessive exchange activity and in other circumstances where it is in the best interests of a Fund, all Funds reserve the right to revise or terminate the exchange privilege, limit the amount or number of exchanges or reject any exchange or restrict or refuse purchases if (1) a Fund or its manager(s) believes the Fund would be harmed or unable to invest effectively, or (2) a Fund receives or anticipates orders that may dramatically affect the Fund. IF YOU RECENTLY PURCHASED SHARES BY CHECK OR THROUGH ACH, YOU MAY NOT BE ABLE TO EXCHANGE YOUR SHARES UNTIL YOUR CHECK HAS CLEARED (WHICH MAY TAKE UP TO 15 DAYS FROM YOUR DATE OF PURCHASE). This exchange privilege may be changed or canceled at any time upon 60 days notice. PROSPECTUS 15 - -------------------------------------------------------------------------------- PURCHASING, SELLING AND EXCHANGING FUND SHARES - -------------------------------------------------------------------------------- EXCHANGES When you exchange shares, you are really selling your shares and buying other Fund shares. So, your sale price and purchase price will be based on the NAV next calculated after the Fund receives your exchange request. INVESTOR SHARES You may exchange Investor Shares of any Fund for Investor Shares of any other Fund. If you exchange shares that you purchased without a sales charge or with a lower sales charge into a Fund with a sales charge or with a higher sales charge, the exchange is subject to an incremental sales charge (e.g., the difference between the lower and higher applicable sales charges). If you exchange shares into a Fund with the same, lower or no sales charge, there is no incremental sales charge for the exchange. FLEX SHARES You may exchange Flex Shares of any Fund for Flex Shares of any other Fund. For purposes of computing the CDSC applicable to Flex Shares, the length of time you have owned your shares will be measured from the original date of purchase and will not be affected by any exchange. However, if you exchange your Flex Shares of a Fixed Income or Equity Fund into any Investor Shares of a Money Market Fund, the time your shares are held in such Money Market Fund will not count towards the CDSC one-year holding period. TELEPHONE TRANSACTIONS Purchasing, selling and exchanging Fund shares over the telephone is extremely convenient, but not without risk. Although the Fund has certain safeguards and procedures to confirm the identity of callers and the authenticity of instructions, the Fund is not responsible for any losses or costs incurred by following telephone instructions the Fund reasonably believes to be genuine. If you or your financial institution transact with the Fund over the telephone, you will generally bear the risk of any loss. The Funds reserve the right to modify, suspend or terminate telephone transaction privileges at any time. DISTRIBUTION OF FUND SHARES Each Fund has adopted a distribution plan that allows the Fund to pay distribution and service fees for the sale and distribution of its shares, and for services provided to shareholders. Because these fees are paid out of a Fund's assets continuously, over time these fees will increase the cost of your investment and may cost you more than paying other types of sales charges. Distribution fees, as a percentage of average daily net assets are as follows: For Investor Shares PRIME QUALITY MONEY MARKET FUND 0.20% TAX-EXEMPT MONEY MARKET FUND 0.15% U.S. GOVERNMENT SECURITIES MONEY MARKET FUND 0.17% VIRGINIA TAX-FREE MONEY MARKET FUND 0.40% For Flex Shares of the Prime Quality Money Market Fund, the maximum distribution fee is 0.75% of the average daily net assets of the Fund. The Distributor may, from time to time in its sole discretion, institute one or more promotional incentive programs for dealers, which will be paid for by the Distributor from any sales charge it receives or from any other source available to it. Under any such program, the Distributor may provide cash or non-cash compensation as recognition for past sales or encouragement for future sales that may include the following: merchandise, travel expenses, prizes, meals, lodgings and gifts that do not exceed $100 per year, per individual. 16 PROSPECTUS - -------------------------------------------------------------------------------- DIVIDENDS, DISTRIBUTIONS AND TAXES - -------------------------------------------------------------------------------- DIVIDENDS AND DISTRIBUTIONS Each Fund declares dividends daily and pays these dividends monthly. Each Fund makes distributions of its net realized capital gains, if any, at least annually. If you own Fund shares on a Fund's record date, you will be entitled to receive the distribution. You will receive dividends and distributions in the form of additional Fund shares unless you elect to receive payment in cash. To elect cash payment, you must notify the Fund in writing prior to the date of the distribution. Your election will be effective for dividends and distributions paid after the Fund receives your written notice. To cancel your election, simply send the Fund written notice. TAXES PLEASE CONSULT YOUR TAX ADVISOR REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL, STATE AND LOCAL INCOME TAXES. Below the Funds have summarized some important tax issues that affect the Funds and their shareholders. This summary is based on current tax laws, which may change. Each Fund will distribute substantially all of its net investment income and its net realized capital gains, if any, at least annually. The dividends and distributions you receive may be subject to federal, state and local taxation, depending upon your tax situation. Distributions you receive from the Fund may be taxable whether or not you reinvest them. Income distributions are generally taxable at ordinary income tax rates. Capital gains distributions, if any, are generally taxable at the rates applicable to long-term capital gains. EACH SALE OR EXCHANGE OF FUND SHARES MAY BE A TAXABLE EVENT; HOWEVER, BECAUSE THE FUND EXPECTS TO MAINTAIN A STABLE $1.00 NET ASSET VALUE PER SHARE, YOU SHOULD NOT EXPECT TO REALIZE ANY GAIN OR LOSS ON THE SALE OR EXCHANGE OF YOUR FUND SHARES. If you have a tax-advantaged or other retirement account you will generally not be subject to federal taxation on income and capital gain distributions until you begin receiving your distributions from your retirement account. You should consult your tax advisor regarding the rules governing your own retirement plan. The Tax-Exempt Money Market Fund and Virginia Tax-Free Money Market Fund intend to distribute federally tax-exempt income. Both of these Funds may invest a portion of their assets in securities that generate taxable income for federal or state income taxes. Income exempt from federal tax may be subject to state and local taxes. Any capital gains distributed by the Funds may be taxable. The Prime Quality Money Market Fund and the U.S. Government Securities Money Market Fund expect to distribute primarily ordinary income. In addition, a significant portion of each of these two Funds' distributions may represent interest earned on U.S. obligations. Many states grant tax-free status to dividends paid from interest earned on direct obligations of the U.S. government, subject to certain limitations. MORE INFORMATION ABOUT TAXES IS IN THE SAI. PROSPECTUS 17 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS The financial highlights table is intended to help you understand a Fund's financial performance for the period of the Fund's (and its predecessor's) operations. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). The information provided below for the period ended May 31, 2002 has been audited by PricewaterhouseCoopers LLP. The information for prior periods has been audited by predecessor independent accounting firms. The Reports of Independent Accountants for each such period, along with the Fund's financial statements and related notes, are included in the Annual Reports to Shareholders for such periods. The 2002 Annual Report is available upon request and without charge by calling 1-800-428-6970. The 2002 Annual Report is incorporated by reference in the SAI. For the Periods Ended May 31, (unless otherwise noted) For a Share Outstanding Throughout the Periods
NET ASSET DISTRIBUTIONS VALUE NET FROM NET NET ASSET NET ASSETS BEGINNING INVESTMENT INVESTMENT VALUE END TOTAL END OF OF PERIOD INCOME INCOME OF PERIOD RETURN (+) PERIOD (000) --------- ---------- ------------- --------- ---------- ------------ - ------------------------------- PRIME QUALITY MONEY MARKET FUND - ------------------------------- Investor Shares 2002 .......... $1.00 $0.02 $(0.02) $1.00 2.11% $1,887,033 2001 .......... 1.00 0.05 (0.05) 1.00 5.57 1,927,309 2000 .......... 1.00 0.05 (0.05) 1.00 5.02 1,312,653 1999 .......... 1.00 0.05 (0.05) 1.00 4.66 918,100 1998 .......... 1.00 0.05 (0.05) 1.00 5.04 411,821 Flex Shares 2002 .......... $1.00 $0.01 $(0.01) $1.00 1.36% $ 12,302 2001 .......... 1.00 0.05 (0.05) 1.00 4.75 4,051 2000(A) ....... 1.00 0.03 (0.03) 1.00 2.93 3,445 - ---------------------------- TAX-EXEMPT MONEY MARKET FUND - ---------------------------- Investor Shares 2002 .......... $1.00 $0.01 $(0.01) $1.00 1.26% $ 218,048 2001 .......... 1.00 0.03 (0.03) 1.00 3.35 256,894 2000 .......... 1.00 0.03 (0.03) 1.00 3.07 125,500 1999 .......... 1.00 0.03 (0.03) 1.00 2.69 128,854 1998 .......... 1.00 0.03 (0.03) 1.00 3.09 134,538 - -------------------------------------------- U.S. GOVERNMENT SECURITIES MONEY MARKET FUND - -------------------------------------------- Investor Shares 2002 .......... $1.00 $0.02 $(0.02) $1.00 2.11% $ 210,004 2001 .......... 1.00 0.05 (0.05) 1.00 5.41 158,087 2000 .......... 1.00 0.05 (0.05) 1.00 4.71 79,311 1999 .......... 1.00 0.04 (0.04) 1.00 4.41 61,472 1998 .......... 1.00 0.05 (0.05) 1.00 4.90 58,753 - --------------------------------------- VIRGINIA TAX-FREE MONEY MARKET FUND (B) - --------------------------------------- Investor Shares 2002 .......... $1.00 $0.01 $(0.01) $1.00 1.27% $ 99,141 2001 .......... 1.00 0.03 (0.03) 1.00 3.35 93,004 2000 .......... 1.00 0.03 (0.03) 1.00 3.07 62,878 1999** ........ 1.00 0.01 (0.01) 1.00 1.27 5,955 For the Year Ended November 30: 1998 .......... 1.00 0.03 (0.03) 1.00 2.96 8,851 1997 .......... 1.00 0.03 (0.03) 1.00 3.05 7,634
RATIO OF NET RATIO OF RATIO OF INVESTMENT NET EXPENSES TO INCOME TO RATIO OF INVESTMENT AVERAGE NET AVERAGE NET EXPENSES TO INCOME ASSETS (EXCLUDING ASSETS (EXCLUDING AVERAGE TO AVERAGE WAIVERS AND WAIVERS AND NET ASSETS NET ASSETS REIMBURSEMENTS) REIMBURSEMENTS) ----------- ---------- ----------------- ----------------- - ------------------------------- PRIME QUALITY MONEY MARKET FUND - ------------------------------- Investor Shares 2002 .......... 0.81% 2.09% 0.94% 1.96% 2001 .......... 0.80 5.36 0.95 5.21 2000 .......... 0.77 4.94 0.95 4.76 1999 .......... 0.77 4.52 0.97 4.32 1998 .......... 0.76 4.93 0.98 4.71 Flex Shares 2002 .......... 1.54% 1.04% 1.70% 0.88% 2001 .......... 1.53 4.54 1.92 4.15 2000(A) ....... 1.50* 4.46* 1.99* 3.97* - ---------------------------- TAX-EXEMPT MONEY MARKET FUND - ---------------------------- Investor Shares 2002 .......... 0.67% 1.25% 0.80% 1.12% 2001 .......... 0.67 3.22 0.80 3.09 2000 .......... 0.64 3.01 0.82 2.83 1999 .......... 0.64 2.66 0.82 2.48 1998 .......... 0.62 3.04 0.83 2.83 - -------------------------------------------- U.S. GOVERNMENT SECURITIES MONEY MARKET FUND - -------------------------------------------- Investor Shares 2002 .......... 0.80% 2.02% 0.92% 1.90% 2001 .......... 0.79 5.14 0.93 5.00 2000 .......... 0.77 4.62 0.93 4.46 1999 .......... 0.77 4.32 0.98 4.11 1998 .......... 0.76 4.79 0.96 4.59 - --------------------------------------- VIRGINIA TAX-FREE MONEY MARKET FUND (B) - --------------------------------------- Investor Shares 2002 .......... 0.67% 1.22% 0.90% 0.99% 2001 .......... 0.66 3.28 0.91 3.03 2000 .......... 0.67 3.17 0.73 3.11 1999** ........ 0.67 2.52 1.06 2.13 For the Year Ended November 30: 1998 .......... 0.67 2.92 1.07 2.52 1997 .......... 0.68 3.42 1.08 3.02 (+) Total return is for the period indicated and has not been annualized. * Annualized. ** For the period December 1, 1998 to May 31, 1999. All ratios for the period have been annualized. (A) Flex shares were offered beginning October 4, 1999. (B) On May 24, 1999, the CrestFunds Tax Free Money Fund exchanged all of its assets and certain liabilities for shares of the Virginia Tax-Free Money Market Fund. The CrestFunds Tax Free Money Fund was the accounting survivor in this transaction and, as a result, its basis of accounting for assets and liabilities and its operating results for the periods prior to May 24, 1999 have been carried forward in these financial highlights.
18 PROSPECTUS - -------------------------------------------------------------------------------- HOW TO OBTAIN MORE INFORMATION ABOUT THE STI CLASSIC FUNDS - -------------------------------------------------------------------------------- INVESTMENT ADVISER Trusco Capital Management, Inc. 50 Hurt Plaza Suite 1400 Atlanta, Georgia 30303 DISTRIBUTOR SEI Investments Distribution Co. One Freedom Valley Drive Oaks, Pennsylvania 19456 LEGAL COUNSEL Morgan, Lewis & Bockius LLP More information about the Funds is available without charge through the following: STATEMENT OF ADDITIONAL INFORMATION (SAI) The SAI dated October 1, 2002 includes detailed information about the STI Classic Funds. The SAI is on file with the SEC and is incorporated by reference into this prospectus. This means that the SAI, for legal purposes, is a part of this prospectus. ANNUAL AND SEMI-ANNUAL REPORTS These reports list each Fund's holdings and contain information from the Funds' managers about strategies and recent market conditions and trends and their impact on Fund performance. The reports also contain detailed financial information about the Funds. TO OBTAIN AN SAI, ANNUAL OR SEMI-ANNUAL REPORT OR MORE INFORMATION: BY TELEPHONE: Call 1-800-428-6970 BY MAIL: Write to the Funds c/o SEI Investments Distribution Co. Oaks, Pennsylvania 19456 FROM THE SEC: You can also obtain the SAI or the Annual and Semi-Annual reports, as well as other information about the STI Classic Funds, from the EDGAR Database on the SEC's website ("HTTP://WWW.SEC.GOV"). You may review and copy documents at the SEC Public Reference Room in Washington, DC (for information on the operation of the Public Reference Room, call 202-942-8090). You may request documents by mail from the SEC, upon payment of a duplicating fee, by writing to: Securities and Exchange Commission, Public Reference Section, Washington, DC 20549-0102. You may also obtain this information, upon payment of a duplicating fee, by e-mailing the SEC at the following address: PUBLICINFO@SEC.GOV. The STI Classic Funds' Investment Company Act registration number is 811-06557. STI-PS-001-0300 [COVER GRAPHIC OMITTED] STI CLASSIC FUNDS-FOR PARTICIPANTS OF SUNTRUST BANKS SPONSORED RETIREMENT PLANS PROSPECTUS OCTOBER 1, 2002 BALANCED FUND CAPITAL APPRECIATION FUND CLASSIC INSTITUTIONAL SUPER SHORT INCOME PLUS FUND GROWTH AND INCOME FUND HIGH INCOME FUND INFORMATION AND TECHNOLOGY FUND INTERNATIONAL EQUITY FUND INTERNATIONAL EQUITY INDEX FUND INVESTMENT GRADE BOND FUND LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND MID-CAP EQUITY FUND MID CAP VALUE EQUITY FUND SHORT-TERM BOND FUND SHORT-TERM U.S. TREASURY SECURITIES FUND SMALL CAP GROWTH STOCK FUND SMALL CAP VALUE EQUITY FUND STRATEGIC INCOME FUND TAX SENSITIVE GROWTH STOCK FUND U.S. GOVERNMENT SECURITIES FUND VALUE INCOME STOCK FUND VANTAGE FUND PRIME QUALITY MONEY MARKET FUND U.S. GOVERNMENT SECURITIES MONEY MARKET FUND U.S. TREASURY MONEY MARKET FUND LIFE VISION AGGRESSIVE GROWTH FUND LIFE VISION GROWTH AND INCOME FUND LIFE VISION MODERATE GROWTH FUND INVESTMENT ADVISER TO THE FUNDS: TRUSCO CAPITAL MANAGEMENT, INC. (the "Adviser") [STI Logo Omitted] THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. PROSPECTUS - --------------------- ABOUT THIS PROSPECTUS - --------------------- The STI Classic Funds is a mutual fund family that offers shares in separate investment portfolios (Funds). The Funds have individual investment goals and strategies. This prospectus gives you important information about the Trust Shares of each Fund that you should know before investing. Please read this prospectus and keep it for future reference. THIS PROSPECTUS HAS BEEN ARRANGED INTO DIFFERENT SECTIONS SO THAT YOU CAN EASILY REVIEW THIS IMPORTANT INFORMATION. ON THE NEXT PAGE, THERE IS SOME GENERAL INFORMATION YOU SHOULD KNOW ABOUT RISK AND RETURN THAT IS COMMON TO EACH OF THE FUNDS. FOR MORE DETAILED INFORMATION ABOUT EACH FUND, PLEASE SEE: 2 BALANCED FUND 4 CAPITAL APPRECIATION FUND 6 CLASSIC INSTITUTIONAL SUPER SHORT INCOME PLUS FUND 8 GROWTH AND INCOME FUND 10 HIGH INCOME FUND 12 INFORMATION AND TECHNOLOGY FUND 14 INTERNATIONAL EQUITY FUND 17 INTERNATIONAL EQUITY INDEX FUND 19 INVESTMENT GRADE BOND FUND 22 LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND 24 MID-CAP EQUITY FUND 26 MID CAP VALUE EQUITY FUND 28 SHORT-TERM BOND FUND 31 SHORT-TERM U.S. TREASURY SECURITIES FUND 33 SMALL CAP GROWTH STOCK FUND 35 SMALL CAP VALUE EQUITY FUND 37 STRATEGIC INCOME FUND 39 TAX SENSITIVE GROWTH STOCK FUND 41 U.S. GOVERNMENT SECURITIES FUND 43 VALUE INCOME STOCK FUND 45 VANTAGE FUND 48 PRIME QUALITY MONEY MARKET FUND 50 U.S. GOVERNMENT SECURITIES MONEY MARKET FUND 52 U.S. TREASURY MONEY MARKET FUND 54 LIFE VISION AGGRESSIVE GROWTH FUND 57 LIFE VISION GROWTH AND INCOME FUND 60 LIFE VISION MODERATE GROWTH FUND 64 MORE INFORMATION ABOUT RISK 66 MORE INFORMATION ABOUT FUND INVESTMENTS 67 INVESTMENT ADVISER 67 PORTFOLIO MANAGERS 69 PURCHASING AND SELLING FUND SHARES 71 DIVIDENDS AND DISTRIBUTIONS 72 TAXES 73 FINANCIAL HIGHLIGHTS BACK HOW TO OBTAIN MORE INFORMATION ABOUT COVER THE STI CLASSIC FUNDS - -------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY [TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING? [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES [MOUNTAIN GRAPHIC OMITTED] MORE INFORMATION ABOUT FUND INVESTMENTS [MAGNIFIER GRAPHIC OMITTED] INVESTMENT ADVISER [HANDSHAKE GRAPHIC OMITTED] PURCHASING AND SELLING FUND SHARES - -------------------------------------------------------------------------------- OCTOBER 1, 2002 PROSPECTUS 1 - -------------------------------------------------------------------------------- CUSIP/TICKER SYMBOLS - --------------------------------------------------------------------------------
FUND NAME CLASS INCEPTION* TICKER CUSIP - ------------------------------------------------------------------------------------------------------------------------- EQUITY FUNDS Balanced Trust 1/3/94 SBATX 784766735 Capital Appreciation Trust 7/1/92 STCAX 784766867 Growth and Income Trust 9/26/92 CRVAX 784766198 Information & Technology Trust 9/30/99 STECX 784767840 International Equity Trust 1/31/95 STITX 784766388 International Equity Index Trust 6/6/94 SIEIX 784766594 Mid-Cap Equity Trust 2/2/94 SAGTX 784766750 Mid Cap Value Equity Trust 11/30/01 SMVTX 784767725 Small Cap Growth Stock Trust 10/8/98 SSCTX 784766263 Small Cap Value Equity Trust 8/31/94 SCETX 784766370 Tax Sensitive Growth Stock Trust 12/31/95 STTAX 784766230 Value Income Stock Trust 10/31/89 STVTX 784766834 Vantage Trust 11/29/01 STVNX 784767675 - ------------------------------------------------------------------------------------------------------------------------- FIXED INCOME FUNDS Classic Institutional Super Short Income Plus Trust 10/1/02 SISSX 784767584 High Income Trust 10/3/01 STHTX 784767766 Investment Grade Bond Trust 7/16/92 STIGX 784766701 Limited-Term Federal Mortgage Securities Trust 6/6/94 SLMTX 784766628 Short-Term Bond Trust 3/15/93 SSBTX 784766826 Short-Term U.S. Treasury Securities Trust 3/15/93 SUSTX 784766792 Strategic Income Trust 11/30/01 STICX 784767691 U.S. Government Securities Trust 8/1/94 SUGTX 784766644 - ------------------------------------------------------------------------------------------------------------------------- MONEY MARKET FUNDS Prime Quality Money Market Trust 6/8/92 SQTXX 784766107 U.S. Government Securities Money Market Trust 6/8/92 STUXX 784766305 U.S. Treasury Money Market Trust 2/18/87 CUSXX 784767402 - ------------------------------------------------------------------------------------------------------------------------- LIFE VISION FUNDS Life Vision Aggressive Growth Trust 12/31/92 CVMGX 784767881 Life Vision Growth and Income Trust 12/31/92 CLVGX 784767873 Life Vision Moderate Growth Trust 12/31/92 CLVBX 784767865 - ------------------------------------------------------------------------------------------------------------------------- * THE INCEPTION DATE REFLECTS THE BEGINNING OF THE CLASS'S PERFORMANCE HISTORY, WHICH MAY INCLUDE THE PERFORMANCE OF OTHER CLASSES OF THE FUND AND/OR PREDECESSORS OF THE FUND. FOR FURTHER INFORMATION, SEE "PERFORMANCE INFORMATION."
- -------------------------------------------------------------------------------- RISK/RETURN INFORMATION COMMON TO THE FUNDS - -------------------------------------------------------------------------------- Each Fund is a mutual fund. A mutual fund pools shareholders' money and, using professional investment managers, invests it in securities. Each Fund has its own investment goal and strategies for reaching that goal. The Adviser invests Fund assets in a way that it believes will help a Fund achieve its goal. Still, investing in each Fund involves risk and there is no guarantee that a Fund will achieve its goal. The Adviser's judgments about the markets, the economy or companies may not anticipate actual market movements, economic conditions or company performance, and these judgments may affect the return on your investment. In fact, no matter how good a job the Adviser does, you could lose money on your investment in a Fund, just as you could with other investments. A FUND SHARE IS NOT A BANK DEPOSIT AND IT IS NOT INSURED OR GUARANTEED BY THE FDIC OR ANY GOVERNMENT AGENCY. The value of your investment in a Fund (other than a money market fund) is based on the market prices of the securities the Fund holds. These prices change daily due to economic and other events that affect particular companies and other issuers. These price movements, sometimes called volatility, may be greater or lesser depending on the types of securities a Fund owns and the markets in which they trade. The effect on a Fund of a change in the value of a single security will depend on how widely the Fund diversifies its holdings. 2 PROSPECTUS - -------------------------------------------------------------------------------- BALANCED FUND - --------------------------------------------------------------------------------
[SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOAL Capital appreciation and current income - ----------------------------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS PRIMARY U.S. common stocks SECONDARY Bonds - ----------------------------------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Moderate - ----------------------------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify companies with a history of earnings growth and bonds with minimal risk - ----------------------------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Investors who want income from their investment, as well as an increase in its value - -----------------------------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Balanced Fund invests in common and preferred stocks, convertible securities, U.S. government obligations and investment grade corporate bonds. In selecting stocks for the Fund, the Adviser attempts to identify high-quality companies with a history of above average earnings growth. In selecting bonds, the Adviser tries to minimize risk while attempting to outperform selected market indices. Due to its investment strategy, the Fund may buy and sell securities frequently. This may result in higher transaction costs and additional capital gains tax liabilities. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The prices of the Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, the Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities are generally more volatile, so the average maturity or duration of these securities affects risk. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S TRUST SHARES FROM YEAR TO YEAR.* [Bar Chart Omitted] Plot points are as follows: 1995 25.51% 1996 12.13% 1997 21.14% 1998 19.55% 1999 4.66% 2000 4.79% 2001 0.23% BEST QUARTER WORST QUARTER 12.57% -5.89% (12/31/98) (9/30/01) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS -6.64%. PROSPECTUS 3 - -------------------------------------------------------------------------------- BALANCED FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF A HYBRID 60/40 BLEND OF THE S&P 500(R) INDEX AND THE LEHMAN BROTHERS U.S. GOVERNMENT/CREDIT INDEX. TRUST SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Balanced Fund 0.23% 9.75% 10.00% - -------------------------------------------------------------------------------- Hybrid 60/40 Blend of the Following Benchmarks -3.67% 9.79% 11.35% - -------------------------------------------------------------------------------- S&P 500(R)Index -11.88% 10.70% 13.98% - -------------------------------------------------------------------------------- Lehman Brothers U.S. Government/ Credit Index 8.51% 7.36% 6.77% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE TRUST SHARES ON JANUARY 3, 1994. BENCHMARK RETURNS SINCE DECEMBER 31, 1993 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). - -------------------------------------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? - -------------------------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The S&P 500(R) Index is a widely-recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index of 500 stocks designed to mimic the overall U.S. equity market's industry weightings.The Lehman Brothers U.S. Government/Credit Index is a widely-recognized, market value-weighted (higher market value bonds have more influence than lower market value bonds) index of U.S. Treasury securities, U.S. government agency obligations, corporate debt backed by the U.S. government, fixed-rate nonconvertible corporate debt securities, Yankee bonds, and nonconvertible debt securities issued by or guaranteed by foreign governments and agencies. All securities in the Index are rated investment grade (BBB) or higher, with maturities of at least 1 year. [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 0.95% Other Expenses 0.10% ----- Total Annual Fund Operating Expenses 1.05%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THIS FEE WAIVER REMAINS IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: Balanced Fund - Trust Shares 1.02% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $107 $334 $579 $1,283 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. In addition, the Fund may enter into arrangements with broker-dealers who have agreed to pay certain Fund expenses in return for executing Fund transactions through that broker-dealer. For more information about these fees, see "Investment Adviser." 4 PROSPECTUS - -------------------------------------------------------------------------------- CAPITAL APPRECIATION FUND - --------------------------------------------------------------------------------
[SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOAL Capital appreciation - ----------------------------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS U.S. common stocks - ----------------------------------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Moderate - ----------------------------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify companies with above average growth potential - ----------------------------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Investors who want the value of their investment to grow, but do not need to receive income on their investment - -----------------------------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Capital Appreciation Fund invests primarily in U.S. common stocks and other equity securities that the Adviser believes have strong business fundamentals, such as revenue growth, cash flows and earnings trends. In selecting investments for the Fund, the Adviser chooses companies that it believes have above average growth potential. The Adviser uses a "bottom-up" process based on individual company earnings trends and fundamentals to determine the weighting of the Fund's investments in various equity market sectors. The Adviser's strategy focuses primarily on large-cap stocks, but will also utilize mid-cap stocks. Due to its investment strategy, the Fund may buy and sell securities frequently. This may result in higher transaction costs and additional capital gains tax liabilities. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S TRUST SHARES FROM YEAR TO YEAR.* [Bar Chart Omitted] Plot points are as follows: 1993 9.89% 1994 -7.41% 1995 31.15% 1996 20.31% 1997 31.13% 1998 28.06% 1999 9.71% 2000 1.62% 2001 -6.49% BEST QUARTER WORST QUARTER 22.93% -14.98% (12/31/98) (9/30/01) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS -13.00%. PROSPECTUS 5 - -------------------------------------------------------------------------------- CAPITAL APPRECIATION FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE S&P 500(R) INDEX. TRUST SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Capital Appreciation Fund -6.49% 11.85% 12.91% - -------------------------------------------------------------------------------- S&P 500(R) Index -11.88% 10.70% 13.73% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE TRUST SHARES ON JULY 1, 1992. BENCHMARK RETURNS SINCE JUNE 30, 1992 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). - -------------------------------------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? - -------------------------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The S&P 500(R) Index is a widely-recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index of 500 stocks designed to mimic the overall U.S. equity market's industry weightings. [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 1.15% Other Expenses 0.09% ----- Total Annual Fund Operating Expenses 1.24%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THIS FEE WAIVER REMAINS IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: Capital Appreciation Fund - Trust Shares 1.22% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $126 $393 $681 $1,500 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. In addition, the Fund may enter into arrangements with broker-dealers who have agreed to pay certain Fund expenses in return for executing Fund transactions through that broker-dealer. For more information about these fees, see "Investment Adviser." 6 PROSPECTUS - -------------------------------------------------------------------------------- CLASSIC INSTITUTIONAL SUPER SHORT INCOME PLUS FUND - --------------------------------------------------------------------------------
[SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOAL High current income consistent with preserving capital and maintaining liquidity - ----------------------------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS Short duration investment grade money market and fixed income securities - ----------------------------------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Low - ----------------------------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify short duration securities that offer a comparably better return potential and yield than money market funds - ----------------------------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Conservative investors seeking to maximize income consistent with limited share price volatility - -----------------------------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Classic Institutional Super Short Income Plus Fund invests at least 80% of its net assets in short duration, investment grade money market and fixed income securities including, but not limited to, U.S. Treasury and Agency securities, obligations of supranational entities and foreign governments, domestic and foreign corporate debt obligations, taxable municipal debt securities, mortgage-backed and asset-backed securities, repurchase agreements, and other mutual funds. The Fund normally expects to maintain an average effective duration between three months and one year. Individual purchases will generally be limited to securities with a maturity/average life of less than three years. In selecting investments for the Fund, the Adviser attempts to maximize income by identifying securities that offer an acceptable yield for a given level of credit risk and maturity. Most securities are purchased with the intent to hold to maturity. However, circumstances may warrant or require that securities be sold prior to maturity. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? The price (NAV) of the Fund will fluctuate depending on general changes in interest rates as well as changes in the yields of the specific securities in the Fund. General (or macro) changes in interest rates may be as a result of economic developments or Federal Reserve policy while issuer specific changes in yield may be as a result of a change in creditworthiness of a particular issuer or industry. In general, the NAV of the Fund will rise when interests rates fall, and likewise, the NAV of the Fund will fall when interest rates rise. An objective of the Fund is to minimize NAV fluctuation by (a) maintaining the Fund average weighted duration between three months and one year and (b) diversifying the Fund among issuers and industries. The prices of the Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, the Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities are generally more volatile, so the average maturity or duration of these securities affects risk. The Fund is also subject to the risk that short-term U.S. government debt securities may underperform other segments of the fixed income market or the fixed income market as a whole. Mortgage-backed securities are fixed income securities representing an interest in a pool of underlying mortgage loans. Mortgage-backed securities are sensitive to changes in interest rates, but may respond to these changes differently from other fixed income securities due to the possibility of prepayment of the underlying mortgage loans. As a result, it may not be possible to determine in advance the actual maturity date or average life of a mortgage-backed security. Rising interest rates tend to discourage refinancings, with the result that the average life and volatility of the security will increase, exacerbating its decrease in market price. When interest rates fall, however, mortgage-backed securities may not gain as much in market value because of the expectation of additional mortgage prepayments that must be reinvested at lower interest rates. Prepayment risk may make it difficult to calculate the average maturity of the Fund of mortgage-backed securities, and therefore, to assess the volatility risk of the Fund. Investing in foreign countries poses additional risks since political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United PROSPECTUS 7 - -------------------------------------------------------------------------------- CLASSIC INSTITUTIONAL SUPER SHORT INCOME PLUS FUND - -------------------------------------------------------------------------------- States. In addition, investments in foreign countries are generally denominated in a foreign currency. As a result, changes in the value of those currencies compared to the U.S. dollar may affect (positively or negatively) the value of a Fund's investments. These currency movements may happen separately from and in response to events that do not otherwise affect the value of the security in the issuer's home country. These various risks will be even greater for investments in emerging market countries since political turmoil and rapid changes in economic conditions are more likely to occur in these countries. Although the Fund's U.S. government securities are considered to be among the safest investments, they are not guaranteed against price movements due to changing interest rates. Obligations issued by some U.S. government agencies are backed by the U.S. Treasury, while others are backed solely by the ability of the agency to borrow from the U.S. Treasury or by the agency's own resources. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The Classic Institutional Super Short Income Plus Fund commenced operations on October 1, 2002, and therefore does not have a performance history for a full calendar year. [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 0.50% Other Expenses 0.50%* ----- Total Annual Fund Operating Expenses 1.00%** * OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT YEAR. ** THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR ARE EXPECTED TO BE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER AND THE DISTRIBUTOR INTEND TO WAIVE A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THESE FEE WAIVERS REMAIN IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER AND THE DISTRIBUTOR MAY DISCONTINUE ALL OR PART OF THESE FEE WAIVERS AT ANY TIME. WITH THESE FEE WAIVERS, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES WOULD BE AS FOLLOWS: Classic Institutional Super Short Income Plus Fund - Trust Shares 0.65% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS $102 $318 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." 8 PROSPECTUS - -------------------------------------------------------------------------------- GROWTH AND INCOME FUND - --------------------------------------------------------------------------------
[SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOALS PRIMARY Long-term capital appreciation SECONDARY Current income - ------------------------------------------------------------------------------------------------------------------------------ INVESTMENT FOCUS Equity securities - ------------------------------------------------------------------------------------------------------------------------------ SHARE PRICE VOLATILITY Moderate - ------------------------------------------------------------------------------------------------------------------------------ PRINCIPAL INVESTMENT STRATEGY Attempts to identify securities of companies with market capitalizations of at least $1 billion with attractive valuation and/or above average earnings potential relative either to their sectors or the market as a whole - ------------------------------------------------------------------------------------------------------------------------------ INVESTOR PROFILE Investors who are looking for capital appreciation potential and some income with less volatility than the equity market as a whole - ------------------------------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Growth and Income Fund invests primarily in equity securities, including common stocks of domestic companies and listed American Depositary Receipts (ADRs) of foreign companies, all with market capitalizations of at least $1 billion. However, the average market capitalization can vary throughout a full market cycle and will be flexible to allow the Adviser to capture market opportunities. The Adviser uses a quantitative screening process to identify companies with attractive fundamental profiles. The portfolio management team selects stocks of companies with strong financial quality and above average earnings potential to secure the best relative values in each economic sector. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. Investing in foreign countries poses additional risks since political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. In addition, investments in foreign countries are generally denominated in a foreign currency. As a result, changes in the value of those currencies compared to the U.S. dollar may affect (positively or negatively) the value of a Fund's investments. These currency movements may happen separately from and in response to events that do not otherwise affect the value of the security in the issuer's home country. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S TRUST SHARES FROM YEAR TO YEAR.* [Bar Chart Omitted] Plot points are as follows: 1993 10.20% 1994 -0.81% 1995 29.38% 1996 19.06% 1997 27.69% 1998 18.20% 1999 14.17% 2000 1.43% 2001 -6.60% BEST QUARTER WORST QUARTER 17.38% -10.84% (6/30/97) (9/30/01) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS -8.67%. PROSPECTUS 9 - -------------------------------------------------------------------------------- GROWTH AND INCOME FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE S&P 500(R)/BARRA VALUE INDEX. TRUST SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Growth and Income Fund -6.60% 10.30% 12.32% - -------------------------------------------------------------------------------- S&P 500(R)/BARRA Value Index -11.71% 9.49% 13.46% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE TRUST SHARES ON SEPTEMBER 26, 1992. BENCHMARK RETURNS SINCE SEPTEMBER 30, 1992 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). - -------------------------------------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? - -------------------------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The S&P 500(R)/BARRA Value Index is a widely-recognized index of the stocks in the S&P 500(R) Index that have lower price-to-book ratios. The S&P 500(R) Index is a widely-recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index of 500 stocks designed to mimic the overall U.S. equity market's industry weightings. [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 0.90% Other Expenses 0.09% ----- Total Annual Fund Operating Expenses 0.99% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $101 $315 $547 $1,213 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. In addition, the Fund may enter into arrangements with broker-dealers who have agreed to pay certain Fund expenses in return for executing Fund transactions through that broker-dealer. For more information about these fees, see "Investment Adviser." 10 PROSPECTUS - -------------------------------------------------------------------------------- HIGH INCOME FUND - --------------------------------------------------------------------------------
[SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOALS PRIMARY High current income SECONDARY Total return - ----------------------------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS High yield corporate, government, and other debt instruments of U.S. and non-U.S. issuers - ----------------------------------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY High - ----------------------------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify lower-rated securities offering high current income of issuers generating adequate cash flow to meet their obligations - ----------------------------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Investors who seek high current income and who are willing to accept greater share price volatility through investment in high yield, below investment grade debt instruments - -----------------------------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The High Income Fund invests primarily in a diversified portfolio of higher yielding, lower-rated income producing securities of U.S. and non-U.S. issuers. The Fund will invest at least 65%, and may invest up to 100%, of its assets in securities rated as "non-investment grade" by Moody's Investor Services, Inc. or by Standard & Poor's Rating Services or in unrated securities if, in the Adviser's opinion, they are of comparable quality. Such securities are commonly known as "junk bonds" and offer greater risks than investment grade bonds (I.E., rated BBB- or above by S&P or Baa3 or above by Moody's). In selecting debt securities for the Fund the Adviser seeks out companies with good fundamentals and performing prospects that are currently out of favor with investors. The primary basis for security selection is the potential income offered by the security relative to the Adviser's assessment of the issuer's ability to generate the cash flow required to meet its obligation. The Adviser employs a "bottom-up" approach, identifying investment opportunities based on the underlying financial and economic fundamentals of the specific issuer. Due to its investment strategy, the Fund may buy and sell securities frequently. This may result in higher transaction costs and additional capital gains tax liabilities. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? The prices of the Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, the Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities are generally more volatile, so the average maturity or duration of these securities affects risk. High yield securities involve greater risks of default or downgrade and are more volatile than investment grade securities. Junk bonds involve greater risk of default or price declines than investment grade securities due to actual or perceived changes in an issuer's creditworthiness. In addition, issuers of junk bonds may be more susceptible than other issuers to economic downturns. Junk bonds are subject to the risk that the issuer may not be able to pay interest or dividends and ultimately to repay principal upon maturity. Discontinuation of these payments could substantially adversely affect the market value of the security. Investing in foreign countries poses additional risks since political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. In addition, investments in foreign countries are generally denominated in a foreign currency. As a result, changes in the value of those currencies compared to the U.S. dollar may affect (positively or negatively) the value of a Fund's investments. These currency movements may happen separately from and in response to events that do not otherwise affect the value of the security in the issuer's home country. These various risks will be even greater for investments in emerging market countries since political turmoil and rapid changes in economic conditions are more likely to occur in these countries. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. Performance prior to March 28, 2000 is that of the ESC Strategic Income Fund, the Fund's predecessor. Trust Shares were offered beginning October 3, 2001. Performance between May 4, 1994 and October 3, 2001 is that of the Flex Shares of the Fund, and has not been adjusted to reflect Trust Shares expenses. If it had been, performance would have been higher. PROSPECTUS 11 - -------------------------------------------------------------------------------- HIGH INCOME FUND - -------------------------------------------------------------------------------- THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S FLEX SHARES FROM YEAR TO YEAR. SINCE FLEX SHARES ARE INVESTED IN THE SAME PORTFOLIO OF SECURITIES, RETURNS FOR TRUST SHARES WILL BE SUBSTANTIALLY SIMILAR TO THOSE OF THE FLEX SHARES, SHOWN HERE, AND DIFFER ONLY TO THE EXTENT THAT TRUST SHARE EXPENSES ARE LOWER AND, THEREFORE, PERFORMANCE WOULD BE HIGHER THAN THAT OF FLEX SHARES.* [Bar Chart Omitted] Plot points are as follows: 1995 14.91% 1996 5.84% 1997 5.05% 1998 4.43% 1999 1.28% 2000 -9.46% 2001 5.55% BEST QUARTER WORST QUARTER 6.79% -9.92% (3/31/95) (3/31/00) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS -5.51%. THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE LEHMAN BROTHERS U.S. CORPORATE HIGH YIELD BOND INDEX. FLEX SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- High Income Fund 3.58% 1.21% 3.21% - -------------------------------------------------------------------------------- Lehman Brothers U.S. Corporate High Yield Bond Index 5.28% 3.11% 6.08% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE FLEX SHARES ON MAY 4, 1994. BENCHMARK RETURNS SINCE APRIL 30, 1994 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). - -------------------------------------------------------------------------------- [INDEX CHART GRAPHIC OMITTED]WHAT IS AN INDEX? - -------------------------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Lehman Brothers U.S. Corporate High Yield Bond Index is a widely-recognized, market value-weighted (higher market value bonds have more influence than lower market value bonds) index which covers the universe of fixed rate, non-investment grade debt. [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 0.80% Other Expenses 0.17% ----- Total Annual Fund Operating Expenses 0.97%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES SHOULD BE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER HAS VOLUNTARILY AGREED TO WAIVE A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THIS FEE WAIVER REMAINS IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE EXPECTED TO BE AS FOLLOWS: High Income Fund - Trust Shares 0.82% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return and Fund operating expenses remain the same. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $99 $309 $536 $1,190 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." 12 PROSPECTUS - -------------------------------------------------------------------------------- INFORMATION AND TECHNOLOGY FUND - --------------------------------------------------------------------------------
[SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOAL Long-term capital growth - ----------------------------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS Common stocks of companies benefiting from information and technology - ----------------------------------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Very high - ----------------------------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify companies benefiting from technology and information to achieve above average growth - ----------------------------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Aggressive investors with long-term investment goals who are willing to accept significant volatility for the possibility of higher returns - -----------------------------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Information and Technology Fund invests at least 80% of its net assets in common stocks of U.S. companies that are expected to benefit substantially from information and technology and achieve above average growth. The Fund believes that information-oriented companies and technology-oriented companies offer the potential for significant long-term growth. The Fund's holdings are generally diversified across three market segments. The first segment is comprised of corporations whose core line of business focuses on an emerging information-related or technology-related market. The second segment consists of established technology companies that provide the infrastructure to support the transfer of information. The third segment includes established, non-tech corporations from multiple industries that are harnessing the power of information to drive company growth. In selecting investments for the Fund, the Adviser uses a "bottom-up" analysis that evaluates the competitive advantages and market sustainability of individual companies. The Fund invests primarily in companies with market capitalizations over $1 billion, but may invest a portion of its assets in smaller companies. Due to its investment strategy, the Fund may buy and sell securities frequently. This may result in higher transaction costs and additional capital gains tax liabilities. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The smaller capitalization companies the Fund invests in may be more vulnerable to adverse business or economic events than larger, more established companies. In particular, these small companies may have limited product lines, markets and financial resources, and may depend upon a relatively small management group. Therefore, small cap stocks may be more volatile than those of larger companies. These securities may be traded over-the-counter or listed on an exchange. Due to the focus of the Fund, many holdings share similar risk factors. Many companies in the portfolio have limited operating histories, function in rapidly changing business environments and trade at valuations which are significantly higher than average. As a result, the Fund's net asset value (NAV) may be more volatile than other, broadly diversified equity funds. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S TRUST SHARES FROM YEAR TO YEAR.* [Bar Chart Omitted] Plot points are as follows: 2000 -16.75% 2001 -26.65% BEST QUARTER WORST QUARTER 27.45% -32.91% (12/31/01) (9/30/01) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS -37.17%. PROSPECTUS 13 - -------------------------------------------------------------------------------- INFORMATION AND TECHNOLOGY FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE GOLDMAN SACHS TECHNOLOGY COMPOSITE INDEX AND THE LIPPER SCIENCE & TECHNOLOGY FUNDS AVERAGE. PREVIOUSLY, THE FUND'S RETURNS HAD BEEN COMPARED TO THE GOLDMAN SACHS E-COMMERCE INDEX, BUT THE ADVISER BELIEVES THAT THE GOLDMAN SACHS TECHNOLOGY COMPOSITE INDEX MORE ACCURATELY REFLECTS THE INCLUSION OF COMPANIES THAT ARE NOT FOCUSED ON ACHIEVING GROWTH THROUGH E-COMMERCE INITIATIVES. TRUST SHARES 1 YEAR SINCE INCEPTION* - -------------------------------------------------------------------------------- Information and Technology Fund -26.65% 2.97% - -------------------------------------------------------------------------------- Goldman Sachs Technology Composite Index -28.56% -18.53% - -------------------------------------------------------------------------------- Lipper Science & Technology Funds Average -36.74% -15.99% - -------------------------------------------------------------------------------- Goldman Sachs E-Commerce Index -33.35% -19.99% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE TRUST SHARES ON SEPTEMBER 30, 1999. - -------------------------------------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? - -------------------------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Goldman Sachs Technology Composite Index is a modified capitalization-weighted index of selected technology funds. The Lipper Science and Technology Funds Average is an average of funds that invest 65% of their equity portfolio in science and technology stocks. The number of funds in the Average varies. Developed jointly by the Goldman Sachs E-Commerce research team and Goldman Sachs Index Services, the Goldman Sachs E-Commerce Index is built from a universe of 39 stocks. To be included in the index, firms must generate a majority of their revenues online, operate as virtual companies outside the traditional "bricks and mortar" framework or be key e-commerce infrastructure providers. [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 1.10% Other Expenses 0.09% ----- Total Annual Fund Operating Expenses 1.19% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $121 $378 $654 $1,443 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. In addition, the Fund may enter into arrangements with broker-dealers who have agreed to pay certain Fund expenses in return for executing Fund transactions through that broker-dealer. For more information about these fees, see "Investment Adviser." 14 PROSPECTUS - -------------------------------------------------------------------------------- INTERNATIONAL EQUITY FUND - --------------------------------------------------------------------------------
[SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOAL Long-term capital appreciation - ----------------------------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS Foreign common stocks - ----------------------------------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY High - ----------------------------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify companies with good fundamentals or a history of consistent growth - ----------------------------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Investors who want an increase in the value of their investment without regard to income, are willing to accept the increased risks of international investing for the possibility of higher returns, and want exposure to a diversified portfolio of international stocks - -----------------------------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The International Equity Fund invests at least 80% of its net assets in common stocks and other equity securities of foreign companies. The Fund invests primarily in developed countries, but may invest in countries with emerging markets. The Adviser's "bottom-up" approach to stock selection focuses on individual stocks and fundamental characteristics of companies. The Adviser's goal is to find companies with top management, quality products and sound financial positions, or a history of consistent growth in cash flows, sales, operating profits, returns on equity and returns on invested capital. In selecting investments for the Fund, the Adviser diversifies the Fund's investments among at least three foreign countries. Due to its investment strategy, the Fund may buy and sell securities frequently. This may result in higher transaction costs and additional capital gains tax liabilities. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The Fund is also subject to the risk that foreign common stocks may underperform other segments of the fixed income market or the fixed income market as a whole. Investing in foreign countries poses additional risks since political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. In addition, investments in foreign countries are generally denominated in a foreign currency. As a result, changes in the value of those currencies compared to the U.S. dollar may affect (positively or negatively) the value of a Fund's investments. These currency movements may happen separately from and in response to events that do not otherwise affect the value of the security in the issuer's home country. Emerging market countries are countries that the World Bank or the United Nations considers to be emerging or developing. Emerging markets may be more likely to experience political turmoil or rapid changes in market or economic conditions than more developed countries. In addition, the financial stability of issuers (including governments) in emerging market countries may be more precarious than in other countries. As a result, there will tend to be an increased risk of price volatility associated with the Fund's investments in emerging market countries, which may be magnified by currency fluctuations relative to the U.S. dollar. PROSPECTUS 15 - -------------------------------------------------------------------------------- INTERNATIONAL EQUITY FUND - -------------------------------------------------------------------------------- [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. The Fund began operating as a registered mutual fund on December 1, 1995. Performance prior to December 1, 1995 is that of the Adviser's similarly managed collective investment fund, which began operations on January 31, 1995. The collective investment fund's performance has been adjusted to reflect the fees and expenses for Trust Shares of the Fund. As a collective investment fund, rather than a registered mutual fund, it was not subject to the same investment and tax restrictions. If it had been, the collective fund's performance would have been lower. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S TRUST SHARES FROM YEAR TO YEAR.* [Bar Chart Omitted] Plot points are as follows: 1996 22.08% 1997 13.35% 1998 11.22% 1999 9.47% 2000 -3.46% 2001 -17.71% BEST QUARTER WORST QUARTER 16.88% -18.28% (12/31/98) (9/30/98) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS -1.43%. THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE, AUSTRALASIA AND FAR EAST (MSCI EAFE) INDEX. TRUST SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- International Equity Fund -17.71% 1.86% 9.32% - -------------------------------------------------------------------------------- MSCI EAFE Index -21.44% 0.89% 3.66% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE COLLECTIVE INVESTMENT FUND ON JANUARY 31, 1995. - -------------------------------------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? - -------------------------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The MSCI EAFE Index is a widely-recognized, capitalization-weighted (companies with larger market capitalizations have more influence than smaller market capitalizations) index of over 900 securities listed on the stock exchanges in Europe, Australasia and the Far East. The country weighting of the Index is calculated using the market capitalization of each of the various countries, and then with respect to the market capitalization of the various companies operating in each country. [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 1.25% Other Expenses 0.23% ----- Total Annual Fund Operating Expenses 1.48% 16 PROSPECTUS - -------------------------------------------------------------------------------- INTERNATIONAL EQUITY FUND - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $151 $468 $808 $1,768 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. In addition, the Fund may enter into arrangements with broker-dealers who have agreed to pay certain Fund expenses in return for executing Fund transactions through that broker-dealer. For more information about these fees, see "Investment Adviser." PROSPECTUS 17 - -------------------------------------------------------------------------------- INTERNATIONAL EQUITY INDEX FUND - --------------------------------------------------------------------------------
[SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOAL Investment results that correspond to the performance of the MSCI EAFE-GDP Weighted Index - ----------------------------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS Foreign equity securities in the MSCI EAFE-GDP Weighted Index - ----------------------------------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY High - ----------------------------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Statistical analysis to track the Index - ----------------------------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Aggressive investors who want exposure to foreign markets and are willing to accept the increased risks of foreign investing for the possibility of higher returns - -----------------------------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The International Equity Index Fund invests at least 80% of its net assets in equity securities of foreign companies. In selecting investments for the Fund, the Adviser chooses companies included in the MSCI EAFE-GDP Weighted Index, an index of equity securities of companies located in Europe, Australasia and the Far East. While the Fund is structured to have overall investment characteristics similar to those of the Index, it selects a sample of securities within the Index using a statistical process. So, the Fund will not hold all securities included in the Index. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The Fund is also subject to the risk that foreign equity securities may underperform other segments of the equity market or the equity market as a whole. Investing in foreign countries poses additional risks since political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. In addition, investments in foreign countries are generally denominated in a foreign currency. As a result, changes in the value of those currencies compared to the U.S. dollar may affect (positively or negatively) the value of a Fund's investments. These currency movements may happen separately from and in response to events that do not otherwise affect the value of the security in the issuer's home country. In addition to the above mentioned risks, the Adviser may not be able to match the performance of the Fund's benchmark. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S TRUST SHARES FROM YEAR TO YEAR.* [Bar Chart Omitted] Plot points are as follows: 1995 10.73% 1996 6.04% 1997 8.99% 1998 30.02% 1999 30.66% 2000 -17.06% 2001 -23.47% BEST QUARTER WORST QUARTER 21.26% -15.46% (12/31/98) (9/30/01) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS -0.63%. 18 PROSPECTUS - -------------------------------------------------------------------------------- INTERNATIONAL EQUITY INDEX FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE MORGAN STANLEY CAPITAL, INTERNATIONAL EUROPE, AUSTRALASIA AND FAR EAST--GROSS DOMESTIC PRODUCT (MSCI EAFE-GDP) WEIGHTED INDEX. TRUST SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- International Equity Index Fund -23.47% 3.28% 4.00% - -------------------------------------------------------------------------------- MSCI EAFE-GDP Weighted Index -23.26% 1.63% 2.91% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE TRUST SHARES ON JUNE 6, 1994. BENCHMARK RETURNS SINCE MAY 31, 1994 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). - -------------------------------------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? - -------------------------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The MSCI EAFE-GDP Weighted Index is a widely-recognized, capitalization-weighted (companies with larger market capitalizations have more influence than smaller market capitalizations) index of over 900 securities listed on the stock exchanges in Europe, Australasia and the Far East. The country weighting of the Index is calculated using the gross domestic product of each of the various countries and then with respect to the market capitalization of the various companies operating in each country. [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 0.90% Other Expenses 0.22% ----- Total Annual Fund Operating Expenses 1.12%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THIS FEE WAIVER REMAINS IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: International Equity Index Fund - Trust Shares 1.04% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $114 $356 $617 $1,363 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. In addition, the Fund may enter into arrangements with broker-dealers who have agreed to pay certain Fund expenses in return for executing Fund transactions through that broker-dealer. For more information about these fees, see "Investment Adviser." PROSPECTUS 19 - -------------------------------------------------------------------------------- INVESTMENT GRADE BOND FUND - --------------------------------------------------------------------------------
[SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOAL High total return through current income and capital appreciation, while preserving the principal amount invested - ----------------------------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS Investment grade U.S. government and corporate debt securities - ----------------------------------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Moderate - ----------------------------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify relatively inexpensive securities in a selected market index - ----------------------------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Investors who want to receive income from their investment, as well as an increase in the value of the investment - -----------------------------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Investment Grade Bond Fund invests at least 80% of its net assets in investment grade fixed income securities. The Adviser focuses on corporate debt securities, U.S. Treasury obligations, and mortgage-backed securities. In selecting investments for the Fund, the Adviser tries to minimize risk while attempting to outperform selected market indices. Currently, the Adviser's selected index is the Lehman Brothers U.S. Government/Credit Index, a widely recognized, unmanaged index of investment grade government and corporate debt securities. The Adviser seeks to invest more in portions of the Index that seem relatively inexpensive, and less in those that seem expensive. The Adviser allocates the Fund's investments among various market sectors based on the Adviser's analysis of historical data, yield information and credit ratings. The Adviser anticipates that the Fund's average weighted maturity will range from 4 to 10 years. Due to its investment strategy, the Fund may buy and sell securities frequently. This may result in higher transaction costs and additional capital gains tax liabilities. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? The prices of the Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, the Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities are generally more volatile, so the average maturity or duration of these securities affects risk. Mortgage-backed securities are fixed income securities representing an interest in a pool of underlying mortgage loans. Mortgage-backed securities are sensitive to changes in interest rates, but may respond to these changes differently from other fixed income securities due to the possibility of prepayment of the underlying mortgage loans. As a result, it may not be possible to determine in advance the actual maturity date or average life of a mortgage-backed security. Rising interest rates tend to discourage refinancings, with the result that the average life and volatility of the security will increase, exacerbating its decrease in market price. When interest rates fall, however, mortgage-backed securities may not gain as much in market value because of the expectation of additional mortgage prepayments that must be reinvested at lower interest rates. Prepayment risk may make it difficult to calculate the average maturity of the portfolio of mortgage-backed securities and, therefore, to assess the volatility risk of that portfolio. Although the Fund's U.S. government securities are considered to be among the safest investments, they are not guaranteed against price movements due to changing interest rates. Obligations issued by some U.S. government agencies are backed by the U.S. Treasury, while others are backed solely by the ability of the agency to borrow from the U.S. Treasury or by the agency's own resources. 20 PROSPECTUS - -------------------------------------------------------------------------------- INVESTMENT GRADE BOND FUND - -------------------------------------------------------------------------------- [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S TRUST SHARES FROM YEAR TO YEAR.* [Bar Chart Omitted] Plot points are as follows: 1993 10.84% 1994 -3.32% 1995 17.80% 1996 2.34% 1997 9.08% 1998 9.19% 1999 -1.53% 2000 6.57% 2001 9.06% BEST QUARTER WORST QUARTER 6.11% -2.67% (6/30/95) (3/31/94) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS 0.41%. THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE LEHMAN BROTHERS U.S. GOVERNMENT/CREDIT INDEX, LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX AND THE LIPPER INTERMEDIATE INVESTMENT GRADE DEBT FUNDS AVERAGE. TRUST SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Investment Grade Bond Fund 9.06% 6.39% 6.44% - -------------------------------------------------------------------------------- Lehman Brothers U.S. Government/ Credit Index 8.51% 7.36% 7.17% - -------------------------------------------------------------------------------- Lehman Brothers U.S. Aggregate Bond Index 8.42% 7.43% 7.16% - -------------------------------------------------------------------------------- Lipper Intermediate Investment Grade Debt Funds Average 7.62% 6.44% 6.43% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE TRUST SHARES ON JULY 16, 1992. BENCHMARK RETURNS SINCE JULY 31, 1992 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). - -------------------------------------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? - -------------------------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Lehman Brothers U.S. Government/Credit Index is a widely-recognized, market value-weighted (higher market value bonds have more influence than lower market value bonds) index of U.S. Treasury securities, U.S. government agency obligations, corporate debt backed by the U.S. government, fixed-rate nonconvertible corporate debt securities, Yankee bonds, and nonconvertible debt securities issued by or guaranteed by foreign governments and agencies. All securities in the Index are rated investment grade (BBB) or higher, with maturities of at least 1 year. The Lehman Brothers U.S. Aggregate Bond Index is a widely-recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index that combines the Lehman Brothers U.S. Government/Credit Index and the Lehman Brothers Mortgage-Backed Securities Index. The Lehman Brothers U.S. Government/Credit Index consists of U.S. government obligations and corporate debt securities. The Lehman Brothers Mortgage-Backed Securities Index consists of mortgage-backed securities rated AAA. The Lehman Brothers U.S. Aggregate Bond Index includes fixed income securities rated investment grade (BBB) or higher, with maturities of at least one year. The securities in the Index have outstanding par values of at least $100 million for U.S. government obligations and $25 million for the others. The Lipper Intermediate Investment Grade Debt Funds Average is a composite of mutual funds with investment goals similar to the Fund's goals. It reports the Average of the intermediate term investment grade bond mutual funds tracked by Lipper Analytical Services, Inc. The number of funds in the Average varies. PROSPECTUS 21 - -------------------------------------------------------------------------------- INVESTMENT GRADE BOND FUND - -------------------------------------------------------------------------------- [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 0.74% Other Expenses 0.09% ----- Total Annual Fund Operating Expenses 0.83%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THIS FEE WAIVER REMAINS IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: Investment Grade Bond Fund - Trust Shares 0.81% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $85 $265 $460 $1,025 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." 22 PROSPECTUS - -------------------------------------------------------------------------------- LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND - --------------------------------------------------------------------------------
[SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOAL High current income, while preserving capital - ----------------------------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS Mortgage-backed securities - ----------------------------------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Low - ----------------------------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify securities that are less prone to prepayment risk - ----------------------------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Conservative investors who want to receive income from their investment - -----------------------------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Limited-Term Federal Mortgage Securities Fund invests at least 80% of its net assets in U.S. government agency mortgage-backed securities, such as Fannie Mae, GNMA and collateralized mortgage obligations. These securities typically have an effective maturity from 1 to 5 years. In selecting investments for the Fund, the Adviser tries to identify securities that the Adviser expects to perform well in rising and falling markets. The Adviser also attempts to reduce the risk that the underlying mortgages are prepaid by focusing on securities that it believes are less prone to this risk. For example, Fannie Mae or GNMA securities that were issued years ago may be less prone to prepayment risk because there have been many opportunities for prepayment, but few have occurred. Due to its investment strategy, the Fund may buy and sell securities frequently. This may result in higher transaction costs and additional capital gains tax liabilities. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? The prices of the Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, the Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities are generally more volatile, so the average maturity or duration of these securities affects risk. The Fund is also subject to the risk that mortgage-backed securities may underperform other segments of the fixed income market or the fixed income market as a whole. Mortgage-backed securities are fixed income securities representing an interest in a pool of underlying mortgage loans. Mortgage-backed securities are sensitive to changes in interest rates, but may respond to these changes differently from other fixed income securities due to the possibility of prepayment of the underlying mortgage loans. As a result, it may not be possible to determine in advance the actual maturity date or average life of a mortgage-backed security. Rising interest rates tend to discourage refinancings, with the result that the average life and volatility of the security will increase, exacerbating its decrease in market price. When interest rates fall, however, mortgage-backed securities may not gain as much in market value because of the expectation of additional mortgage prepayments that must be reinvested at lower interest rates. Prepayment risk may make it difficult to calculate the average maturity of the portfolio of mortgage-backed securities and, therefore, to assess the volatility risk of that portfolio. Although the Fund's U.S. government securities are considered to be among the safest investments, they are not guaranteed against price movements due to changing interest rates. Obligations issued by some U.S. government agencies are backed by the U.S. Treasury, while others are backed solely by the ability of the agency to borrow from the U.S. Treasury or by the agency's own resources. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S TRUST SHARES FROM YEAR TO YEAR.* [Bar Chart Omitted] PLOT POINTS ARE AS FOLLOWS: 1995 12.14% 1996 4.53% 1997 6.74% 1998 6.90% 1999 1.25% 2000 8.60% 2001 7.41% BEST QUARTER WORST QUARTER 4.36% -0.29% (9/30/01) (6/30/99) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS 3.33%. PROSPECTUS 23 - -------------------------------------------------------------------------------- LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE MERRILL LYNCH 1-5 YEAR U.S. TREASURIES/AGENCIES INDEX AND THE MERRILL LYNCH 1-5 YEAR U.S. TREASURIES INDEX. TRUST SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Limited-Term Federal Mortgage Securities Fund 7.41% 6.15% 6.27% - -------------------------------------------------------------------------------- Merrill Lynch 1-5 Year U.S. Treasuries/ Agencies Index 8.53% 6.85% 6.89% - -------------------------------------------------------------------------------- Merrill Lynch 1-5 Year U.S. Treasuries Index 8.37% 6.80% 6.84% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE TRUST SHARES ON JUNE 6, 1994. BENCHMARK RETURNS SINCE MAY 31, 1994 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). - -------------------------------------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? - -------------------------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Merrill Lynch 1-5 Year U.S. Treasuries/Agencies Index includes U.S. government and agency bonds that have a minimum issue size of $150 million. The current market value of the Index is $1.50 trillion with duration of 2.06 years and yield to maturity of 2.48%. The Merrill Lynch 1-5 Year U.S. Treasuries Index is a widely-recognized, capitalization weighted (companies with larger market capitalizations have more influence than those with smaller market capitalizations) index of U.S. Treasury securities with maturities of 1 year or greater and no more than 5 years. [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 0.65% Other Expenses 0.10% ----- Total Annual Fund Operating Expenses 0.75%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THIS FEE WAIVER REMAINS IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: Limited-Term Federal Mortgage Securities Fund - Trust Shares 0.70% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $77 $240 $417 $930 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." 24 PROSPECTUS - -------------------------------------------------------------------------------- MID-CAP EQUITY FUND - --------------------------------------------------------------------------------
[SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOAL Capital appreciation - ----------------------------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS U.S. mid-cap common stocks - ----------------------------------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Moderate to high - ----------------------------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify companies with above average growth potential at an attractive price - ----------------------------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Investors who want the value of their investment to grow and who are willing to accept more volatility for the possibility of higher returns - -----------------------------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Mid-Cap Equity Fund invests at least 80% of its net assets in a diversified portfolio of common stocks and other equity securities of U.S. companies that have small- to mid-sized market capitalizations (I.E., companies with market capitalizations of $500 million to $10 billion or companies in the S&P Mid Cap 400(R) Index). In selecting investments for the Fund, the Adviser chooses companies that, in its opinion, offer above average growth potential at attractive prices. The Adviser evaluates companies based on their industry sectors and the market in general. The Fund maintains holdings in the industries that appear to perform best during a given business cycle. The Adviser analyzes companies that are in favored industries based on their fundamental characteristics, such as growth rates and earnings. The Adviser does not consider current income in selecting investments for the Fund. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The Fund is also subject to the risk that mid-cap common stocks may underperform other segments of the equity market or the equity market as a whole. The small- to mid-sized capitalization companies the Fund invests in may be more vulnerable to adverse business or economic events than larger, more established companies. In particular, these small companies may have limited product lines, markets and financial resources, and may depend upon a relatively small management group. Therefore, small-cap and mid-cap stocks may be more volatile than those of larger companies. These securities may be traded over-the-counter or listed on an exchange. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S TRUST SHARES FROM YEAR TO YEAR.* [BAR CHART OMITTED] PLOT POINTS ARE AS FOLLOWS: 1995 31.22% 1996 15.42% 1997 21.23% 1998 6.48% 1999 16.14% 2000 -2.97% 2001 2.38% BEST QUARTER WORST QUARTER 24.73% -19.96% (12/31/98) (9/30/98) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS -18.14%. PROSPECTUS 25 - -------------------------------------------------------------------------------- MID-CAP EQUITY FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE S&P MID CAP 400(R) INDEX. TRUST SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Mid-Cap Equity Fund 2.38% 8.29% 10.60% - -------------------------------------------------------------------------------- S&P Mid Cap 400(R) Index -0.61% 16.11% 15.38% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE TRUST SHARES ON FEBRUARY 2, 1994. BENCHMARK RETURNS SINCE JANUARY 31, 1994 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). - -------------------------------------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? - -------------------------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The S&P Mid Cap 400(R) Index is a widely-recognized, capitalization-weighted (companies with larger market capitalizations have more influence than those with smaller market capitalizations) index of 400 domestic mid-cap stocks chosen for market size, liquidity, and industry group representation. [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 1.15% Other Expenses 0.09% ----- Total Annual Fund Operating Expenses 1.24%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THIS FEE WAIVER REMAINS IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: Mid-Cap Equity Fund - Trust Shares 1.22% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $126 $393 $681 $1,500 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. In addition, the Fund may enter into arrangements with broker-dealers who have agreed to pay certain Fund expenses in return for executing Fund transactions through that broker-dealer. For more information about these fees, see "Investment Adviser." 26 PROSPECTUS - -------------------------------------------------------------------------------- MID CAP VALUE EQUITY FUND - --------------------------------------------------------------------------------
[SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOALS PRIMARY Capital appreciation SECONDARY Current income - ------------------------------------------------------------------------------------------------------------------------------------ INVESTMENT FOCUS U.S. mid-cap equity securities - ------------------------------------------------------------------------------------------------------------------------------------ SHARE PRICE VOLATILITY Moderate - ------------------------------------------------------------------------------------------------------------------------------------ PRINCIPAL INVESTMENT STRATEGY Attempts to identify undervalued mid-cap securities - ------------------------------------------------------------------------------------------------------------------------------------ INVESTOR PROFILE Investors who primarily want the value of their investment to grow, but want to receive some income from their investment - ------------------------------------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Mid Cap Value Equity Fund invests at least 80% of its net assets in equity securities of U.S. mid-sized companies with market capitalizations between approximately $1 billion and $12 billion. In selecting investments for the Fund, the Adviser chooses common stocks that it believes are undervalued in the market. The Adviser may sell a security when it achieves a designated target price, a company's growth prospects change, or the opportunity for a better investment arises. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The Fund is also subject to the risk that mid-cap equity securities may underperform other segments of the equity market or the equity market as a whole. The mid-sized capitalization companies the Fund invests in may be more vulnerable to adverse business or economic events than larger, more established companies. In particular, these smaller companies may have limited product lines, markets and financial resources, and may depend upon a relatively small management group. Therefore, mid-cap stocks may be more volatile than those of larger companies. These securities may be traded over-the-counter or listed on an exchange. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The Mid Cap Value Equity Fund commenced operations on November 30, 2001, and therefore does not have a performance history for a full calendar year. PROSPECTUS 27 - -------------------------------------------------------------------------------- MID CAP VALUE EQUITY FUND - -------------------------------------------------------------------------------- [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 1.25% Other Expenses 0.12% ----- Total Annual Fund Operating Expenses 1.37%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE CURRENT FISCAL YEAR ARE EXPECTED TO BE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER INTENDS TO WAIVE A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THIS FEE WAIVER REMAINS IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES WOULD BE AS FOLLOWS: Mid Cap Value Equity Fund - Trust Shares 1.27% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS $139 $434 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. In addition, the Fund may enter into arrangements with broker-dealers who have agreed to pay certain Fund expenses in return for executing Fund transactions through that broker-dealer. For more information about these fees, see "Investment Adviser." 28 PROSPECTUS - -------------------------------------------------------------------------------- SHORT-TERM BOND FUND - --------------------------------------------------------------------------------
[SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOAL High current income, while preserving capital - ------------------------------------------------------------------------------------------------------------------------------------ INVESTMENT FOCUS Investment grade U.S. government and corporate debt securities - ------------------------------------------------------------------------------------------------------------------------------------ SHARE PRICE VOLATILITY Low - ------------------------------------------------------------------------------------------------------------------------------------ PRINCIPAL INVESTMENT STRATEGY Attempts to identify securities that offer a comparably better return than similar securities for a given level of credit risk - ------------------------------------------------------------------------------------------------------------------------------------ INVESTOR PROFILE Income oriented investors who are willing to accept increased risk for the possibility of returns greater than money market investing - ------------------------------------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Short-Term Bond Fund invests at least 80% of its net assets in a diversified portfolio of short- to medium-term investment grade U.S. Treasury, corporate debt, mortgage-backed and asset-backed securities. The Fund expects that it will normally maintain an average weighted maturity of approximately 3 years. In selecting investments for the Fund, the Adviser attempts to identify securities that offer a comparably better investment return for a given level of credit risk. For example, short-term bonds generally have better returns than money market instruments, with a fairly modest increase in credit risk and/or volatility. The Adviser manages the Fund from a total return perspective. That is, the Adviser makes day-to-day investment decisions for the Fund with a view towards maximizing returns. The Adviser analyzes yields, market sectors and credit risk in an effort to identify attractive investments with the best risk/reward trade-off. Due to its investment strategy, the Fund may buy and sell securities frequently. This may result in higher transaction costs and additional capital gains tax liabilities. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? The prices of the Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, the Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities are generally more volatile, so the average maturity or duration of these securities affects risk. Mortgage-backed and asset-backed securities are fixed income securities representing an interest in a pool of underlying mortgage loans or underlying assets such as truck and auto loans, leases and credit card receivables. Mortgage-backed and asset-backed securities are sensitive to changes in interest rates, but may respond to these changes differently from other fixed income securities due to the possibility of prepayment of the underlying mortgage loan, receivables or other assets underlying these securities. As a result, it may not be possible to determine in advance the actual maturity date or average life of a mortgage-backed or asset-backed security. Rising interest rates tend to discourage refinancings, with the result that the average life and volatility of the security will increase, exacerbating its decrease in the market place. When interest rates fall, however, mortgage-backed and asset-backed securities may not gain as much in market value because of the expectation of additional mortgage prepayment or prepayment of the underlying asset that must be reinvested at lower interest rates. Prepayment risk may make it difficult to calculate the average maturity of the portfolio of mortgage-backed or asset-backed securities and, therefore, to assess the volatility risk of that portfolio. Although the Fund's U.S. government securities are considered to be among the safest investments, they are not guaranteed against price movements due to changing interest rates. Obligations issued by some U.S. government agencies are backed by the U.S. Treasury, while others are backed solely by the ability of the agency to borrow from the U.S. Treasury or by the agency's own resources. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. PROSPECTUS 29 - -------------------------------------------------------------------------------- SHORT-TERM BOND FUND - -------------------------------------------------------------------------------- THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S TRUST SHARES FROM YEAR TO YEAR.* [BAR CHART OMITTED] PLOT POINTS ARE AS FOLLOWS: 1994 -0.07% 1995 11.77% 1996 3.90% 1997 6.78% 1998 6.84% 1999 0.92% 2000 7.64% 2001 7.54% BEST QUARTER WORST QUARTER 3.86% -0.75% (9/30/01) (12/31/01) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS -0.35%. THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE SALOMON 1-3 YEAR TREASURY/GOVERNMENT SPONSORED/CORPORATE INDEX. TRUST SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Short-Term Bond Fund 7.54% 5.91% 5.56% - -------------------------------------------------------------------------------- Salomon 1-3 Year Treasury/Government Sponsored/Corporate Index 8.87% 6.77% 6.10% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE TRUST SHARES ON MARCH 15, 1993. BENCHMARK RETURNS SINCE FEBRUARY 28, 1993 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). - -------------------------------------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? - -------------------------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Salomon 1-3 Year Treasury/Government Sponsored/Corporate Index is a widely-recognized index of U.S. Treasury securities, government agency obligations, and corporate debt securities rated at least investment grade (BBB). The securities in the Index have maturities of 1 year or greater and less than 3 years. [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 0.65% Other Expenses 0.10% ----- Total Annual Fund Operating Expenses 0.75%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THIS FEE WAIVER REMAINS IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: Short-Term Bond Fund - Trust Shares 0.70% 30 PROSPECTUS - -------------------------------------------------------------------------------- SHORT-TERM BOND FUND - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $77 $240 $417 $930 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." PROSPECTUS 31 - -------------------------------------------------------------------------------- SHORT-TERM U.S. TREASURY SECURITIES FUND - --------------------------------------------------------------------------------
[SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOAL High current income, while preserving capital - ------------------------------------------------------------------------------------------------------------------------------------ INVESTMENT FOCUS Short-term U.S. Treasury securities - ------------------------------------------------------------------------------------------------------------------------------------ SHARE PRICE VOLATILITY Low - ------------------------------------------------------------------------------------------------------------------------------------ PRINCIPAL INVESTMENT STRATEGY Attempts to identify Treasury securities with maturities that offer a comparably better return potential and yield than either shorter maturity or longer maturity securities for a given level of interest rate risk - ------------------------------------------------------------------------------------------------------------------------------------ INVESTOR PROFILE Income oriented investors who are willing to accept increased risk for the possibility of returns greater than money market investing - ------------------------------------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Short-Term U.S. Treasury Securities Fund invests exclusively in short-term U.S. Treasury securities (those with remaining maturities of 3 years or less). The Fund intends to maintain an average weighted maturity from 1 to 2 years. The Fund offers investors the opportunity to capture the advantage of investing in short-term bonds over money market instruments. Generally, short-term bonds offer a comparably better return than money market instruments, with a modest increase in interest rate risk. The Adviser manages the Fund from a total return perspective. That is, the Adviser makes day-to-day investment decisions for the Fund with a view toward maximizing returns and yield. The Adviser tries to select those U.S. Treasury securities that offer the best risk/reward trade-off. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? The prices of the Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, the Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities are generally more volatile, so the average maturity or duration of these securities affects risk. The Fund is also subject to the risk that short-term U.S. Treasury securities may underperform other segments of the fixed income market or the fixed income market as a whole. Although the Fund's U.S. Treasury securities are considered to be among the safest investments, they are not guaranteed against price movements due to changing interest rates. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S TRUST SHARES FROM YEAR TO YEAR.* [BAR CHART OMITTED] PLOT POINTS ARE AS FOLLOWS: 1994 1.41% 1995 8.58% 1996 4.52% 1997 5.86% 1998 6.24% 1999 2.71% 2000 6.65% 2001 6.55% BEST QUARTER WORST QUARTER 2.64% -0.10% (9/30/01) (3/31/94) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS 1.89%. 32 PROSPECTUS - -------------------------------------------------------------------------------- SHORT-TERM U.S. TREASURY SECURITIES FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE SALOMON 1-3 YEAR TREASURY INDEX AND THE SALOMON 6 MONTH TREASURY BILL INDEX. TRUST SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Short-Term U.S. Treasury Securities Fund 6.55% 5.59% 5.14% - -------------------------------------------------------------------------------- Salomon 1-3 Year Treasury Index 8.31% 6.59% 5.95% - -------------------------------------------------------------------------------- Salomon 6 Month Treasury Bill Index 4.53% 5.22% 5.02% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE TRUST SHARES ON MARCH 15, 1993. BENCHMARK RETURNS SINCE FEBRUARY 28, 1993 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). - -------------------------------------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? - -------------------------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Salomon 1-3 Year Treasury Index is a widely-recognized index of U.S. Treasury securities with maturities of one year or greater and less than three years. The Salomon 6 Month Treasury Bill Index is a widely-recognized index of the 6 month U.S. Treasury Bills. [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 0.65% Other Expenses 0.11% ------ Total Annual Fund Operating Expenses 0.76%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THIS FEE WAIVER REMAINS IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: Short-Term U.S. Treasury Securities Fund - Trust Shares 0.70% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $78 $243 $422 $942 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." PROSPECTUS 33 - -------------------------------------------------------------------------------- SMALL CAP GROWTH STOCK FUND - --------------------------------------------------------------------------------
[SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOAL Long-term capital appreciation - ------------------------------------------------------------------------------------------------------------------------------------ INVESTMENT FOCUS U.S. small cap common stocks of growth companies - ------------------------------------------------------------------------------------------------------------------------------------ SHARE PRICE VOLATILITY High - ------------------------------------------------------------------------------------------------------------------------------------ PRINCIPAL INVESTMENT STRATEGY Identifies small cap companies with above average growth potential - ------------------------------------------------------------------------------------------------------------------------------------ INVESTOR PROFILE Investors who want the value of their investment to grow, but do not need current income - ------------------------------------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Small Cap Growth Stock Fund invests at least 80% of its net assets in small U.S. companies with market capitalizations between $50 million and $3 billion in size. The Fund's investment philosophy is based on the premise that a portfolio of small cap stocks with positive earnings trends, reasonable valuation, and strong fundamentals will provide superior returns over time. The Adviser selects companies with strong current earnings growth, improving profitability, a strong balance sheet, strong current and projected business fundamentals, and priced at reasonable valuations. The Adviser believes in executing a very disciplined and objective investment process and in controlling risk through a broadly diversified portfolio. Due to its investment strategy, the Fund may buy and sell securities frequently. This may result in higher transaction costs and the potential for capital gains tax liabilities. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? Since it purchases common stocks, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the stock markets have moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The Fund is also subject to the risk that small capitalization growth stocks may underperform other segments of the equity market or the equity market as a whole. The smaller capitalization companies the Fund invests in may be more vulnerable to adverse business or economic events than larger, more established companies. In particular, these small companies may have limited product lines, markets and financial resources, and may depend upon a relatively small management group. Therefore, small cap stocks may be more volatile than those of larger companies. These securities may be traded over-the-counter or listed on an exchange. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S TRUST SHARES FROM YEAR TO YEAR.* [BAR CHART OMITTED] PLOT POINTS ARE AS FOLLOWS: 1999 20.55% 2000 11.76% 2001 -0.82% BEST QUARTER WORST QUARTER 23.93% -22.83% (12/31/01) (9/30/01) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS -9.21%. 34 PROSPECTUS - -------------------------------------------------------------------------------- SMALL CAP GROWTH STOCK FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE S&P SMALL CAP 600(R) INDEX. TRUST SHARES 1 YEAR SINCE INCEPTION* - -------------------------------------------------------------------------------- Small Cap Growth Stock Fund -0.82% 23.08% - -------------------------------------------------------------------------------- S&P Small Cap 600(R) Index 6.54% 14.99% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE TRUST SHARES ON OCTOBER 8, 1998. BENCHMARK RETURNS SINCE SEPTEMBER 30, 1998 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). - -------------------------------------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? - -------------------------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The S&P Small Cap 600(R) Index is a widely-recognized, capitalization-weighted (companies with larger market capitalizations have more influence than those with smaller market capitalizations) index of 600 domestic small cap stocks. [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 1.15% Other Expenses 0.10% ----- Total Annual Fund Operating Expenses 1.25% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $127 $397 $686 $1,511 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. In addition, the Fund may enter into arrangements with broker-dealers who have agreed to pay certain Fund expenses in return for executing Fund transactions through that broker-dealer. For more information about these fees, see "Investment Adviser." PROSPECTUS 35 - -------------------------------------------------------------------------------- SMALL CAP VALUE EQUITY FUND - --------------------------------------------------------------------------------
[SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOALS PRIMARY Capital appreciation SECONDARY Current income - ------------------------------------------------------------------------------------------------------------------------------------ INVESTMENT FOCUS U.S. small cap equity securities - ------------------------------------------------------------------------------------------------------------------------------------ SHARE PRICE VOLATILITY Moderate - ------------------------------------------------------------------------------------------------------------------------------------ PRINCIPAL INVESTMENT STRATEGY Attempts to identify undervalued small cap securities - ------------------------------------------------------------------------------------------------------------------------------------ INVESTOR PROFILE Investors who primarily want the value of their investment to grow, but want to receive some income from their investment - ------------------------------------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Small Cap Value Equity Fund invests at least 80% of its net assets in equity securities of small-sized U.S. companies (I.E., companies with market capitalizations under $2 billion). In selecting investments for the Fund, the Adviser chooses equity securities of small sized companies that it believes are undervalued in the market. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The Fund is also subject to the risk that small capitalization common stocks may underperform other segments of the equity market or the equity market as a whole. The smaller capitalization companies the Fund invests in may be more vulnerable to adverse business or economic events than larger, more established companies. In particular, these small companies may have limited product lines, markets and financial resources, and may depend upon a relatively small management group. Therefore, small cap stocks may be more volatile than those of larger companies. These securities may be traded over-the-counter or listed on an exchange. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. The Fund began operating as a registered mutual fund on January 31, 1997. Performance prior to January 31, 1997 is that of the Adviser's similarly managed collective investment fund, which began operations on August 31, 1994. The collective fund's performance has been adjusted to reflect the fees and expenses for Trust Shares of the Fund. As a collective fund, rather than a registered mutual fund, it was not subject to the same investment and tax restrictions. If it had been, the collective fund's performance would have been lower. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S TRUST SHARES FROM YEAR TO YEAR.* [BAR CHART OMITTED] PLOT POINTS ARE AS FOLLOWS: 1995 30.99% 1996 34.25% 1997 32.59% 1998 -13.45% 1999 -2.72% 2000 17.96% 2001 21.21% BEST QUARTER WORST QUARTER 19.82% -21.99% (6/30/99) (9/30/98) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS 7.72%. 36 PROSPECTUS - -------------------------------------------------------------------------------- SMALL CAP VALUE EQUITY FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE RUSSELL 2000 VALUE INDEX. TRUST SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Small Cap Value Equity Fund 21.21% 9.80% 15.23% - -------------------------------------------------------------------------------- Russell 2000 Value Index 14.02% 11.21% 13.26% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE COLLECTIVE INVESTMENT FUND ON AUGUST 31, 1994. - -------------------------------------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? - -------------------------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Russell 2000 Value Index is a widely-recognized, capitalization-weighted (companies with larger market capitalizations have more influence than those with smaller market capitalizations) index of companies in the Russell 2000 Index with lower growth rates and price-to-book ratios. [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 1.15% Other Expenses 0.10% ----- Total Annual Fund Operating Expenses 1.25% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $127 $397 $686 $1,511 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. In addition, the Fund may enter into arrangements with broker-dealers who have agreed to pay certain Fund expenses in return for executing Fund transactions through that broker-dealer. For more information about these fees, see "Investment Adviser." PROSPECTUS 37 - -------------------------------------------------------------------------------- STRATEGIC INCOME FUND - --------------------------------------------------------------------------------
[SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOAL PRIMARY Current income SECONDARY Preservation of capital - --------------------------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS High yield corporate, government, and other debt instruments of U.S. and non-U.S. issuers - --------------------------------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Moderate - --------------------------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to increase income while reducing share price volatility through diversification across three major sectors of the fixed income market - --------------------------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Investors who seek high current income with reduced risk of share price volatility - ---------------------------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Strategic Income Fund invests primarily in a diversified portfolio of high yield corporate, U.S. government and international bonds. The Fund will maintain a minimum average credit quality rating of BBB. The Fund will invest at least 15%, but not more than 60%, of its assets in a particular sector. In selecting debt securities for the Fund, the Adviser seeks out companies with good fundamentals and performing prospects that are currently out of favor with investors. The primary basis for security selection is the potential income offered by the security relative to the Adviser's assessment of the issuer's ability to generate the cash flow required to meet its obligation. The Adviser employs a "bottom-up" approach, identifying investment opportunities based on the underlying financial and economic fundamentals of the specific issuer. Due to its investment strategy, the Fund may buy and sell securities frequently. This may result in higher transaction costs and additional capital gains tax liabilities. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? The prices of the Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, the Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities are generally more volatile, so the average maturity or duration of these securities affects risk. High yield securities involve greater risks of default or downgrade and are more volatile than investment grade securities. Junk bonds involve greater risk of default or price declines than investment grade securities due to actual or perceived changes in an issuer's creditworthiness. In addition, issuers of junk bonds may be more susceptible than other issuers to economic downturns. Junk bonds are subject to the risk that the issuer may not be able to pay interest or dividends and ultimately to repay principal upon maturity. Discontinuation of these payments could substantially adversely affect the market value of the security. Investing in foreign countries poses additional risks since political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. In addition, investments in foreign countries are generally denominated in a foreign currency. As a result, changes in the value of those currencies compared to the U.S. dollar may affect (positively or negatively) the value of a Fund's investments. These currency movements may happen separately from and in response to events that do not otherwise affect the value of the security in the issuer's home country. These various risks will be even greater for investments in emerging market countries since political turmoil and rapid changes in economic conditions are more likely to occur in these countries. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The Strategic Income Fund commenced operations on November 30, 2001, and therefore does not have a performance history for a full calendar year. 38 PROSPECTUS - -------------------------------------------------------------------------------- STRATEGIC INCOME FUND - -------------------------------------------------------------------------------- [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 0.85% Other Expenses 0.19% ----- Total Annual Fund Operating Expenses 1.04%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE CURRENT FISCAL YEAR ARE EXPECTED TO BE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER INTENDS TO WAIVE A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THIS FEE WAIVER REMAINS IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES WOULD BE AS FOLLOWS: Strategic Income Fund - Trust Shares 0.94% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return and Fund operating expenses remain the same. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS $106 $331 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." PROSPECTUS 39 - -------------------------------------------------------------------------------- TAX SENSITIVE GROWTH STOCK FUND - -------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY
INVESTMENT GOAL Long-term capital growth with nominal dividend income - --------------------------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS U.S. common stocks of growth companies - --------------------------------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Moderate - --------------------------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify companies that have above average growth potential and uses a low portfolio turnover strategy to reduce capital gains distributions - --------------------------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Investors who want to increase the value of their investment while minimizing taxable capital gains distributions - ---------------------------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Tax Sensitive Growth Stock Fund invests primarily in a diversified portfolio of common stocks of financially strong U.S. growth companies. Many of these companies have a history of stable or rising dividend payout policies. The Adviser attempts to minimize the impact of capital gains taxes on investment returns by using a low turnover rate (generally 50% or less) strategy, in conjunction with other tax management strategies. These strategies may lead to lower capital gains distributions and, therefore, lower capital gains taxes. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? Since it purchases common stocks, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the stock markets have moved in cycles, and the value of the Fund's common stocks may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of stocks issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The Fund is also subject to the risk that common stocks of U.S. growth companies may underperform other segments of the equity market or the equity market as a whole. The smaller capitalization companies the Fund invests in may be more vulnerable to adverse business or economic events than larger, more established companies. In particular, these small companies may have limited product lines, markets and financial resources, and may depend upon a relatively small management group. Therefore, small cap stocks may be more volatile than those of larger companies. These securities may be traded over-the-counter or listed on an exchange. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. The Fund began operating as a registered mutual fund on December 11, 1998. Performance prior to December 11, 1998 is that of the Adviser's similarly managed collective investment fund, which began operations on December 31, 1995. The collective fund's performance has been adjusted to reflect the fees and expenses for Trust Shares of the Fund. As a collective investment fund, rather than a registered mutual fund, it was not subject to the same investment and tax restrictions. If it had been, the collective fund's performance would have been lower. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S TRUST SHARES FROM YEAR TO YEAR.* [BAR CHART OMITTED] PLOT POINTS ARE AS FOLLOWS: 1996 21.04% 1997 28.76% 1998 31.73% 1999 24.74% 2000 -12.15% 2001 -18.21% BEST QUARTER WORST QUARTER 27.74% -16.18% (12/31/98) (3/31/01) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS -11.46%. 40 PROSPECTUS - -------------------------------------------------------------------------------- TAX SENSITIVE GROWTH STOCK FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF S&P 500(R) INDEX. TRUST SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Tax Sensitive Growth Stock Fund -18.21% 8.74% 10.70% - -------------------------------------------------------------------------------- S&P 500(R) Index -11.88% 10.70% 12.65% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE COLLECTIVE INVESTMENT FUND ON DECEMBER 31, 1995. - -------------------------------------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? - -------------------------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The S&P 500(R) Index is a widely-recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index of 500 stocks designed to mimic the overall U.S. equity market's industry weightings. [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 1.15% Other Expenses 0.09% ----- Total Annual Fund Operating Expenses 1.24% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your share at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $126 $393 $681 $1,500 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. In addition, the Fund may enter into arrangements with broker-dealers who have agreed to pay certain Fund expenses in return for executing Fund transactions through that broker-dealer. For more information about these fees, see "Investment Adviser." PROSPECTUS 41 - -------------------------------------------------------------------------------- U.S. GOVERNMENT SECURITIES FUND - --------------------------------------------------------------------------------
[SUITCASE GRAPHIC OMITTED] FUND SUMMARY - --------------------------------------------------------------------------------------------------------------------------- INVESTMENT GOAL High current income, while preserving capital - --------------------------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS Mortgage-backed securities and U.S. Treasury obligations - --------------------------------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Low to moderate - --------------------------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to increase income without adding undue risk - --------------------------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Conservative investors who want to receive income from their investment - ---------------------------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The US. Government Securities Fund invests at least 80% of its net assets in U.S. government debt securities, such as mortgage-backed securities and U.S. Treasury obligations. In an attempt to provide a consistently high dividend without adding undue risk, the Fund focuses its investments in mortgage-backed securities. The average maturity of the Fund's portfolio will typically range from 7 to 14 years. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? The prices of the Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, the Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities are generally more volatile, so the average maturity or duration of these securities affects risk. The Fund is also subject to the risk that U.S. government debt securities may underperform other segments of the fixed income market or the fixed income market as a whole. Mortgage-backed securities are fixed income securities representing an interest in a pool of underlying mortgage loans. Mortgage-backed securities are sensitive to changes in interest rates, but may respond to these changes differently from other fixed income securities due to the possibility of prepayment of the underlying mortgage loans. As a result, it may not be possible to determine in advance the actual maturity date or average life of a mortgage-backed security. Rising interest rates tend to discourage refinancings, with the result that the average life and volatility of the security will increase, exacerbating its decrease in market price. When interest rates fall, however, mortgage-backed securities may not gain as much in market value because of the expectation of additional mortgage prepayments that must be reinvested at lower interest rates. Prepayment risk may make it difficult to calculate the average maturity of the portfolio of mortgage-backed securities and, therefore, to assess the volatility risk of that portfolio. Although the Fund's U.S. government securities are considered to be among the safest investments, they are not guaranteed against price movements due to changing interest rates. Obligations issued by some U.S. government agencies are backed by the U.S. Treasury, while others are backed solely by the ability of the agency to borrow from the U.S. Treasury or by the agency's own resources. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S TRUST SHARES FROM YEAR TO YEAR.* [BAR CHART OMITTED] PLOT POINTS ARE AS FOLLOWS: 1995 17.33% 1996 2.55% 1997 8.94% 1998 8.16% 1999 -0.97% 2000 10.98% 2001 6.92% BEST QUARTER WORST QUARTER 5.89% -2.24% (6/30/95) (3/31/96) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS 4.00%. 42 PROSPECTUS - -------------------------------------------------------------------------------- U.S. GOVERNMENT SECURITIES FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE MERRILL LYNCH GOVERNMENT/MORTGAGE INDEX AND THE LEHMAN BROTHERS INTERMEDIATE U.S. GOVERNMENT BOND INDEX. TRUST SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- U.S. Government Securities Fund 6.92% 6.72% 6.89% - -------------------------------------------------------------------------------- Merrill Lynch Government/ Mortgage Index 7.59% 7.44% 7.71% - -------------------------------------------------------------------------------- Lehman Brothers Intermediate U.S. Government Bond Index 8.42% 7.06% 7.11% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE TRUST SHARES ON AUGUST 1, 1994. BENCHMARK RETURNS SINCE JULY 31, 1994 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). - -------------------------------------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? - -------------------------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Merrill Lynch Government/Mortgage Index is a synthetic index created by combining, at their respective market weights (i) the Merrill Lynch Government Master Index, which is a widely-recognized index comprised of U.S. Treasury securities and U.S. government agency securities with a maturity of at least 1 year; and (ii) the Merrill Lynch Mortgage Master Index, which is a widely-recognized index comprised of mortgage-backed securities including 15 and 30 year single family mortgages in addition to aggregated pooled mortgages. The Lehman Brothers Intermediate U.S. Government Bond Index is a widely-recognized, market value-weighted (higher market value bonds have more influence than lower market value bonds) index of U.S. Treasury securities, U.S. government agency obligations, and corporate debt backed by the U.S. government, fixed-rate nonconvertible corporate debt securities, Yankee bonds, and nonconvertible debt securities issued by or guaranteed by foreign governments and agencies. All securities in the Index are rated investment grade (BBB) or higher, with maturities of at least 1 year. [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 0.74% Other Expenses 0.11% ----- Total Annual Fund Operating Expenses 0.85%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THIS FEE WAIVER REMAINS IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: U.S. Government Securities Fund - Trust Shares 0.82% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $87 $271 $471 $1,049 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." PROSPECTUS 43 - -------------------------------------------------------------------------------- VALUE INCOME STOCK FUND - --------------------------------------------------------------------------------
[SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOALS PRIMARY Current income SECONDARY Capital appreciation - --------------------------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS U.S. common stocks - --------------------------------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Moderate - --------------------------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify high dividend-paying, undervalued stocks - --------------------------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Investors who are looking for current income and capital appreciation with less volatility than the average stock fund - ---------------------------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Value Income Stock Fund invests at least 80% of its net assets in common stocks and other equity securities of companies. In selecting investments for the Fund, the Adviser primarily chooses U.S. companies that have a market capitalization of at least $5 billion and that have a history of paying regular dividends. The Adviser focuses on dividend-paying stocks that trade below their historical value. The Adviser's "bottom-up" approach to stock selection emphasizes individual stocks over economic trends. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. The Fund began operating as a registered mutual fund on February 12, 1993. Performance prior to February 12, 1993 is that of the Adviser's similarly managed collective investment fund, which began operating on October 31, 1989. The collective fund's performance has been adjusted to reflect the fees and expenses for Trust Shares of the Fund. As a collective investment fund, rather than a registered mutual fund, it was not subject to the same investment and tax restrictions. If it had been, the collective fund's performance would have been lower. THE BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S TRUST SHARES FROM YEAR TO YEAR.* [BAR CHART OMITTED] PLOT POINTS ARE AS FOLLOWS: 1992 20.05% 1993 11.14% 1994 3.54% 1995 35.93% 1996 19.46% 1997 27.08% 1998 10.58% 1999 -2.93% 2000 10.85% 2001 -0.95% BEST QUARTER WORST QUARTER 15.35% -12.14% (6/30/99) (9/30/99) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS -4.36%. 44 PROSPECTUS - -------------------------------------------------------------------------------- VALUE INCOME STOCK FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE S&P 500(R)/BARRA VALUE INDEX. TRUST SHARES 1 YEAR 5 YEARS 10 YEARS - -------------------------------------------------------------------------------- Value Income Stock Fund -0.95% 8.41% 12.88% - -------------------------------------------------------------------------------- S&P 500(R)/BARRA Value Index -11.71% 9.49% 13.10% - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? - -------------------------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The S&P 500(R)/BARRA Value Index is a widely-recognized index of the stocks in the S&P 500(R) Index that have lower price-to-book ratios. The S&P 500(R) Index is a widely-recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index of 500 stocks designed to mimic the overall U.S. equity market's industry weightings. [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 0.80% Other Expenses 0.10% ----- Total Annual Fund Operating Expenses 0.90% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $92 $287 $498 $1,108 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. In addition, the Fund may enter into arrangements with broker-dealers who have agreed to pay certain Fund expenses in return for executing Fund transactions through that broker-dealer. For more information about these fees, see "Investment Adviser." PROSPECTUS 45 - -------------------------------------------------------------------------------- VANTAGE FUND - --------------------------------------------------------------------------------
[SUITCASE GRAPHIC OMITTED] FUND SUMMARY - --------------------------------------------------------------------------------------------------------------------------- INVESTMENT GOALS PRIMARY Long-term capital appreciation SECONDARY Hedge against periodic declines in equity markets - --------------------------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS U.S. common stocks - --------------------------------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY High - --------------------------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify undervalued and overvalued stocks - --------------------------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Aggressive investors with long-term investment goals who are willing to accept significant volatility for the possibility of higher returns - ---------------------------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Vantage Fund establishes long and short positions primarily in common stocks of U.S. companies. Using fundamental analysis, the Adviser buys stocks "long" that it believes will perform better than their peers, and sells stocks "short" that it believes will underperform their peers. A long position is established when the Adviser purchases a stock outright, and a short position is established when the Adviser sells a security that it has borrowed. Short positions may be used to partially hedge long positions or to garner returns from declines in securities prices. The Adviser may also seek to enhance returns by purchasing securities with borrowed money. This investment technique, known as "leveraging," increases investment risk, but also increases investment opportunity. The Fund may borrow up to 33.33% of its assets (including the amount borrowed). From time to time, the Adviser may take defensive positions in cash or short-term debt securities. There may be several times per year when the Fund places more than 25% of its assets in cash or short-term debt securities. The Fund would initiate such defensive positions when the Adviser is concerned that short-term market volatility is unusually high or while the Adviser is reviewing and assessing the financial consequences of significant economic events. At such times, the Fund may not achieve its investments objective. The Adviser seeks to identify long and short opportunities by utilizing both "bottom-up" and "top-down" fundamental analysis methodologies. "Bottom-up" analysis is employed to evaluate the competitive advantages and market sustainability of individual companies. "Top-down" analysis is used to assess the relative attractiveness of investment opportunities within the context of industry, macro-economic and financial market trends. Using top-down analysis, the Adviser frequently increases and decreases the amount of long and short positions allocated to various market sectors, such as technology, financial services, capital goods, energy, utilities, consumer cyclicals, transportation and consumer staples. This strategy of adjusting sector weightings, also known as "sector rotation," is employed when industry or macro-economic changes cause the investment outlook of a particular sector to improve or worsen relative to other sectors. If the Adviser believes, for example, that economic growth is accelerating rapidly, then it may increase the Fund's long positions in economically sensitive stocks, such as consumer cyclicals. To execute its sector rotation strategy efficiently, the Adviser may establish long or short positions in securities that represent indexes or other groups of stocks, such as exchange traded funds. For a complete list of investment techniques that may be employed by the fund, please see the Statement of Additional Information. The Fund invests primarily in companies with market capitalizations over $1 billion, but may invest a portion of its assets in smaller companies. Due to its investment strategy, the Fund will buy and sell securities frequently. This may result in higher transaction costs and additional capital gains tax liabilities. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? Since it establishes long and short positions in common stocks, the Fund is subject to the risk that stock prices will rise and fall over short or extended periods of time. Historically, the stock markets have moved in cycles, and the value of the Fund's common stocks may fluctuate drastically from day to day. Individual companies may report unexpected results or be affected considerably by industry and/or economic trends and developments. The prices of stocks issued by such companies may change substantially in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. Since the Fund engages in selling stocks short, the risk of price volatility may be greater in this fund than in long-only equity mutual funds. While the potential losses associated with long positions are typically limited to the original cost of the securities, the potential for losses associated with short positions is theoretically unlimited. 46 PROSPECTUS - -------------------------------------------------------------------------------- VANTAGE FUND - -------------------------------------------------------------------------------- The Fund may engage in hedging transactions to reduce the risks of its investments in equity securities. However, hedging will not necessarily protect the Fund fully against anticipated risks. Moreover, hedging transactions involve costs and risks of their own. As a result, hedging may not improve the Fund's performance either on an absolute or risk-adjusted basis. The practice of sector rotation will result in increased exposure to risks inherent in particular industries or sectors. Different industries and sectors may be more or less susceptible to changes in economic conditions, including, for example, interest rates, inflation rates, industry conditions, competition, technological developments, trade relationships, political and diplomatic events and trends. Concentrations in sectors that produce unfavorable performance may cause the Fund to perform more unfavorably than a broadly diversified fund that has less exposure to those industries or sectors. The small and medium capitalization companies in which the Fund invests may be more vulnerable to unexpected business or economic events than larger, more established companies. In particular, these small and medium companies may have limited product lines, markets and financial resources, and may depend upon a relatively small management group. Therefore, small cap stocks may be more volatile than those of larger companies. These securities may be traded over-the-counter or listed on an exchange and may or may not pay dividends. Investing in foreign countries poses additional risks since political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. In addition, investments in foreign countries are generally denominated in a foreign currency. As a result, changes in the value of those currencies compared to the U.S. dollar may affect (positively or negatively) the value of a Fund's investments. These currency movements may happen separately from and in response to events that do not otherwise affect the value of the security in the issuer's home country. These various risks will be even greater for investments in emerging market countries since political turmoil and rapid changes in economic conditions are more likely to occur in these countries. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The Vantage Fund commenced operations on November 29, 2001, and therefore does not have a performance history for a full calendar year. [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 1.60% Other Expenses 0.53% ----- Total Annual Fund Operating Expenses 2.13%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE CURRENT FISCAL YEAR ARE EXPECTED TO BE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER INTENDS TO WAIVE A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THIS FEE WAIVER REMAINS IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES WOULD BE AS FOLLOWS: Vantage Fund - Trust Shares 2.03% PROSPECTUS 47 - -------------------------------------------------------------------------------- VANTAGE FUND - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS $216 $667 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. In addition, the Fund may enter into arrangements with broker-dealers who have agreed to pay certain Fund expenses in return for executing Fund transactions through that broker-dealer. For more information about these fees, see "Investment Adviser." 48 PROSPECTUS - -------------------------------------------------------------------------------- PRIME QUALITY MONEY MARKET FUND - --------------------------------------------------------------------------------
[SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOAL High current income, while preserving capital and liquidity - --------------------------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS Money market instruments - --------------------------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify money market instruments with the most attractive risk/return trade-off - --------------------------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Conservative investors who want to receive current income from their investment - ----------------------------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Prime Quality Money Market Fund invests exclusively in high quality U.S. money market instruments and foreign money market instruments denominated in U.S. dollars. In selecting investments for the Fund, the Adviser tries to increase income without adding undue risk. The Adviser analyzes maturity, yields, market sectors and credit risk. Investments are made in money market instruments with the most attractive risk/return trade-off. As a money market fund, the Fund follows strict rules about credit risk, maturity and diversification of its investments. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? An investment in the Fund is subject to income risk, which is the possibility that the Fund's yield will decline due to falling interest rates. A Fund share is not a bank deposit and is not insured or guaranteed by the FDIC or any government agency. In addition, although a money market fund seeks to keep a constant price per share of $1.00, you may lose money by investing in the Fund. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S TRUST SHARES FROM YEAR TO YEAR.* [BAR CHART OMITTED] PLOT POINTS ARE AS FOLLOWS: 1993 2.77% 1994 3.77% 1995 5.47% 1996 4.99% 1997 5.15% 1998 5.10% 1999 4.74% 2000 6.04% 2001 3.72% BEST QUARTER WORST QUARTER 1.55% 0.52% (9/30/00) (12/31/01 * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS 0.75%. PROSPECTUS 49 - -------------------------------------------------------------------------------- PRIME QUALITY MONEY MARKET FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE IMONEYNET, INC. FIRST TIER RETAIL AVERAGE. TRUST SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Prime Quality Money Market Fund 3.72% 4.95% 4.54% - -------------------------------------------------------------------------------- iMoneyNet, Inc. First Tier Retail Average 3.54% 4.77% 4.40% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE TRUST SHARES ON JUNE 8, 1992. BENCHMARK RETURNS SINCE MAY 31, 1992 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). To obtain more information about the Fund's current yield, call 1-800-814-3397. - -------------------------------------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN AVERAGE? - -------------------------------------------------------------------------------- An average is a composite of mutual funds with similar investment goals. The iMoneyNet, Inc. First Tier Retail Average is a widely-recognized composite of money market funds which invest in commercial paper, bank obligations and short-term investments rated in the highest ratings category. The number of funds in the Average varies. [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 0.65% Other Expenses 0.09% ----- Total Annual Fund Operating Expenses 0.74%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THIS FEE WAIVER REMAINS IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: Prime Quality Money Market Fund - Trust Shares 0.63% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $76 $237 $411 $918 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." 50 PROSPECTUS - -------------------------------------------------------------------------------- U.S. GOVERNMENT SECURITIES MONEY MARKET FUND - --------------------------------------------------------------------------------
[SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOAL High current income, while preserving capital and liquidity - --------------------------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS U.S. Treasury and government agency securities, and repurchase agreements - --------------------------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to increase income without adding undue risk by analyzing yields - --------------------------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Conservative investors who want to receive current income - ---------------------------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The U.S. Government Securities Money Market Fund invests exclusively in U.S. Treasury obligations, obligations issued or guaranteed as to principal and interest by agencies or instrumentalities of the U.S. government, repurchase agreements involving these securities, and shares of registered money market funds that invest in the foregoing. In selecting investments for the Fund, the Adviser tries to increase income without adding undue risk by analyzing yields. The Adviser actively manages the maturity of the Fund and its portfolio to maximize the Fund's yield based on current market interest rates and the Adviser's outlook on the market. As a money market fund, the Fund follows strict rules about credit risk, maturity and diversification of its investments. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? An investment in the Fund is subject to income risk, which is the possibility that the Fund's yield will decline due to falling interest rates. A Fund share is not a bank deposit and is not insured or guaranteed by the FDIC or any government agency. In addition, although a money market fund seeks to keep a constant price per share of $1.00, you may lose money by investing in the Fund. Although the Fund's U.S. government securities are considered to be among the safest investments, they are not guaranteed against price movements due to changing interest rates. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S TRUST SHARES FROM YEAR TO YEAR.* [Bar Chart Omitted] Plot points are as follows: 1993 2.67% 1994 3.64% 1995 5.39% 1996 4.81% 1997 4.99% 1998 4.88% 1999 4.41% 2000 5.71% 2001 3.67% BEST QUARTER WORST QUARTER 1.49% 0.48% (12/31/00) (12/31/01) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS 0.75%. PROSPECTUS 51 - -------------------------------------------------------------------------------- U.S. GOVERNMENT SECURITIES MONEY MARKET FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE IMONEYNET, INC. GOVERNMENT & AGENCY RETAIL AVERAGE. TRUST SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- U.S. Government Securities Money Market Fund 3.67% 4.73% 4.37% - -------------------------------------------------------------------------------- iMoneyNet, Inc. Government & Agency Retail Average 3.53% 4.73% 4.34% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE TRUST SHARES ON JUNE 8, 1992. BENCHMARK RETURNS SINCE MAY 31, 1992 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). To obtain more information about the Fund's yield, call 1-800-814-3397. - -------------------------------------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN AVERAGE? - -------------------------------------------------------------------------------- An average is a composite of mutual funds with similar investment goals. The iMoneyNet, Inc. Government & Agency Retail Average is a widely-recognized composite of all money market funds which invest in U.S. Treasury Bills, repurchase agreements or securities issued by agencies of the U.S. government. The number of funds in the Average varies. [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 0.65% Other Expenses 0.10% ----- Total Annual Fund Operating Expenses 0.75%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THIS FEE WAIVER REMAINS IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: U.S. Government Securities Money Market Fund - Trust Shares 0.66% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $77 $240 $417 $930 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." 52 PROSPECTUS - -------------------------------------------------------------------------------- U.S. TREASURY MONEY MARKET FUND - --------------------------------------------------------------------------------
[SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOAL High current income, while maintaining liquidity - --------------------------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS Money market instruments issued and guaranteed by the U.S. Treasury - --------------------------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Investing in U.S. Treasury obligations and repurchase agreements - --------------------------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Conservative investors who want to receive current income from their investment - ---------------------------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The U.S. Treasury Money Market Fund invests solely in U.S. Treasury obligations and repurchase agreements that are collateralized by obligations issued or guaranteed by the U.S. Treasury. The Fund limits its investments so as to obtain the highest investment quality rating by a nationally recognized statistical rating organization (Standard and Poor's Corporation, AAA). As a money market fund, the Fund follows strict rules about credit risk, maturity and diversification of its investments. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? An investment in the Fund is subject to income risk, which is the possibility that the Fund's yield will decline due to falling interest rates. A Fund share is not a bank deposit and is not insured or guaranteed by the FDIC or any government agency. In addition, although a money market fund seeks to keep a constant price per share of $1.00, you may lose money by investing in the Fund. Although the Fund's U.S. Treasury securities are considered to be among the safest investments, they are not guaranteed against price movements due to changing interest rates. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S TRUST SHARES FROM YEAR TO YEAR.* [Bar Chart Omitted] Plot points are as follows: 1992 3.40% 1993 2.51% 1994 3.50% 1995 5.33% 1996 4.77% 1997 4.93% 1998 4.82% 1999 4.38% 2000 5.63% 2001 3.32% BEST QUARTER WORST QUARTER 1.46% 0.41% (12/31/00) (12/31/01) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS 0.63%. PROSPECTUS 53 - -------------------------------------------------------------------------------- U.S. TREASURY MONEY MARKET FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE IMONEYNET, INC. TREASURY & REPO RETAIL AVERAGE. TRUST SHARES 1 YEAR 5 YEARS 10 YEARS - -------------------------------------------------------------------------------- U.S. Treasury Money Market Fund 3.32% 4.61% 4.25% - -------------------------------------------------------------------------------- iMoneyNet, Inc. Treasury & Repo Retail Average 3.42% 4.61% 4.24% - -------------------------------------------------------------------------------- To obtain more information about the Fund's current yield, call 1-800-814-3397. - -------------------------------------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN AVERAGE? - -------------------------------------------------------------------------------- An average is a composite of mutual funds with similar investment goals. The iMoneyNet, Inc. Treasury & Repo Retail Average is a widely-recognized composite of money market funds which invest in U.S. Treasury Bills and repurchase agreements backed by these securities. The number of funds in the Average varies. [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 0.65% Other Expenses 0.09% ----- Total Annual Fund Operating Expenses 0.74%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THIS FEE WAIVER REMAINS IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: U.S. Treasury Money Market Fund - Trust Shares 0.65% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $76 $237 $411 $918 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." 54 PROSPECTUS - -------------------------------------------------------------------------------- LIFE VISION AGGRESSIVE GROWTH FUND - -------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY
- --------------------------------------------------------------------------------------------------------------------------- INVESTMENT GOAL High capital appreciation - --------------------------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS Equity and money market funds - --------------------------------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY High - --------------------------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Investing at least 80% of the Life Vision Fund's total net assets in STI Classic Equity Funds - --------------------------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Investors who want the value of their investment to grow, but do not need to receive income on their investment, and are willing to be subject to the risks of equity securities - ---------------------------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Life Vision Aggressive Growth Fund invests at least 80% of its total net assets in STI Classic Funds that invest primarily in equity securities. The Fund's remaining assets may be invested in STI Classic Money Market Funds, securities issued by the U.S. government, its agencies or instrumentalities, repurchase agreements and short-term paper. In selecting a diversified portfolio of underlying STI Classic Funds, the Adviser analyzes many factors, including the underlying STI Classic Funds' investment objectives, total return, volatility and expenses. THE FUND CURRENTLY PLANS TO INVEST IN SHARES OF THE FOLLOWING UNDERLYING STI CLASSIC FUNDS WITHIN THE PERCENTAGE RANGES INDICATED: INVESTMENT RANGE (PERCENTAGE OF THE LIFE VISION AGGRESSIVE GROWTH ASSET CLASS FUND'S ASSETS) - -------------------------------------------------------------------------------- Equity Funds 80-100% Capital Appreciation Fund Growth and Income Fund International Equity Index Fund Mid-Cap Equity Fund Small Cap Value Equity Fund Small Cap Growth Stock Fund Value Income Stock Fund Money Market Funds 0-20% Prime Quality Money Market Fund Other STI Classic Funds may be utilized in the future. Due to its investment strategy, this Life Vision Fund holds STI Classic Funds that buy and sell securities frequently. This may result in higher transaction costs and additional capital gains taxes for taxable investors. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS LIFE VISION FUND? The value of an investment in this Life Vision Fund is based primarily on the performance of the underlying STI Classic Funds and the allocation of this Life Vision Fund's assets among them. Since it purchases equity securities, this Life Vision Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the STI Classic Funds' securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in this Life Vision Fund. This Life Vision Fund is also subject to the risk that the Adviser's asset allocation decisions will not anticipate market trends successfully. For example, weighting common stocks too heavily during a stock market decline may result in a failure to preserve capital. Conversely, investing too heavily in fixed income securities during a period of stock market appreciation may result in lower total return. The risks associated with investing in this Life Vision Fund will vary depending upon how the assets are allocated among the underlying STI Classic Funds. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in this Life Vision Fund. Of course, the Life Vision Fund's past performance does not necessarily indicate how this Life Vision Fund will perform in the PROSPECTUS 55 - -------------------------------------------------------------------------------- LIFE VISION AGGRESSIVE GROWTH FUND - -------------------------------------------------------------------------------- future. The Life Vision Fund began operating as a registered mutual fund on June 30, 1997. Performance prior to to June 30, 1997 is that of the Adviser's similarly managed asset allocation program, which began operations on December 31, 1992. The asset allocation program's performance has been adjusted to reflect the fees and expenses for Trust Shares of the Fund. As an asset allocation program, rather than a registered mutual fund, it was not subject to the same investment and tax restrictions. If it had been, the asset allocation program's performance would have been lower. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THIS LIFE VISION FUND'S TRUST SHARES FROM YEAR TO YEAR.* [BAR CHART OMITTED] PLOT POINTS ARE AS FOLLOWS: 1993 12.14% 1994 -4.30% 1995 25.12% 1996 16.62% 1997 22.53% 1998 12.31% 1999 10.31% 2000 6.30% 2001 -6.52% BEST QUARTER WORST QUARTER 18.72% -15.23% (12/31/98) (9/30/98) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS -7.11%. THIS TABLE COMPARES THIS LIFE VISION FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF A HYBRID 61/15/12/10/2 BLEND OF THE RUSSELL 1000 INDEX, MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE, AUSTRALASIA AND FAR EAST (MSCI EAFE) INDEX, RUSSELL 2000 INDEX, SALOMON 3-MONTH TREASURY BILL INDEX AND THE RUSSELL MID-CAP INDEX. TRUST SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Life Vision Aggressive Growth Fund -6.52% 8.57% 10.02% - -------------------------------------------------------------------------------- Hybrid 61/15/12/10/2 Blend of the Following Market Benchmarks -10.28% 8.48% 11.36% - -------------------------------------------------------------------------------- Russell 1000 Index -12.45% 10.50% 13.28% - -------------------------------------------------------------------------------- MSCI EAFE Index -21.44% 0.89% 6.50% - -------------------------------------------------------------------------------- Russell 2000 Index 2.49% 7.52% 10.77% - -------------------------------------------------------------------------------- Salomon 3-Month Treasury Bill Index 4.08% 5.01% 4.81% - -------------------------------------------------------------------------------- Russell Mid-Cap Index -5.62% 11.40% 13.28% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE ADVISER'S ASSET ALLOCATION PROGRAM ON DECEMBER 31, 1992. - -------------------------------------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? - -------------------------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Russell 1000 Index measures the performance of the 1,000 largest companies in the Russell 3000 Index, which represents approximately 90% of the total market capitalization of the Russell 3000 Index. The MSCI EAFE Index is a widely-recognized, capitalization-weighted (larger market capitalizations have more influence than smaller market capitalizations) index of over 900 securities listed on the stock exchanges in Europe, Australasia and the Far East. The country weighting of the Index is calculated using the market capitalization of each of the various countries, and then with respect to the market capitalization of the various companies operating in each country. The Russell 2000 Index is a widely-recognized, capitalization-weighted (companies with larger market capitalizations have more influence than those with smaller market capitalizations) index of the 2,000 smallest U.S. companies out of the 3,000 largest companies. The Salomon 3-Month Treasury Bill Index is a widely-recognized index of the 3-month U.S. Treasury bills. The Russell Mid-Cap Index measures the performance of those Frank Russell Mid-Cap companies with higher price-to-book ratios and higher forecasted growth values. The stocks are also members of the Russell 1000 Index. 56 PROSPECTUS - -------------------------------------------------------------------------------- LIFE VISION AGGRESSIVE GROWTH FUND - -------------------------------------------------------------------------------- [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES THIS TABLE DESCRIBES THIS LIFE VISION FUND'S FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND HOLD THIS LIFE VISION FUND'S SHARES. THE TABLE DOES NOT REFLECT ANY OF THE OPERATING COSTS AND INVESTMENT ADVISORY FEES OF THE UNDERLYING STI CLASSIC FUNDS. THIS LIFE VISION FUND AND ITS SHAREHOLDERS WILL INDIRECTLY BEAR A PRO RATA SHARE OF THE EXPENSES OF THE UNDERLYING STI CLASSIC FUNDS. - -------------------------------------------------------------------------------- ANNUAL LIFE VISION FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 0.25% Other Expenses 0.16% ----- Total Annual Life Vision Fund Operating Expenses 0.41%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THIS FEE WAIVER REMAINS IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: Life Vision Aggressive Growth Fund - Trust Shares 0.25% THE EXPENSES SET FORTH ABOVE ARE IN ADDITION TO THE COSTS OF UNDERLYING STI CLASSIC FUNDS BORNE BY THE FUND. AS OF MAY 31, 2002, THE FUND'S EXPENSES BASED ON INVESTMENTS IN UNDERLYING STI CLASSIC FUNDS WERE 1.11%. THEREFORE, TOTAL ANNUALIZED EXPENSES WERE 1.52%. WITH THE FEE WAIVER DISCUSSED ABOVE, THE FUND'S ACTUAL TOTAL ANNUALIZED EXPENSES WERE 1.36% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in this Life Vision Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in this Life Vision Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, this Life Vision Fund's direct operating expenses before waivers (0.41%) remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $42 $132 $230 $518 The following costs are all inclusive representing both direct Fund expenses and additional expenses associated with investments in underlying STI Classic Funds (1.52%). 1 YEAR 3 YEARS 5 YEARS 10 YEARS $155 $480 $829 $1,813 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Life Vision Fund expenses in the table above are shown as a percentage of the Life Vision Fund's net assets. These expenses are deducted from Life Vision Fund assets. For more information about these fees, see "Investment Adviser." PROSPECTUS 57 - -------------------------------------------------------------------------------- LIFE VISION GROWTH AND INCOME FUND - --------------------------------------------------------------------------------
[SUITCASE GRAPHIC OMITTED] FUND SUMMARY - --------------------------------------------------------------------------------------------------------------------------- INVESTMENT GOAL Long-term capital appreciation - --------------------------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS Equity and bond funds - --------------------------------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Moderate - --------------------------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Investing pursuant to an asset allocation strategy in a combination of STI Classic Equity and, to a lesser extent, Bond Funds - --------------------------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Investors who want their assets to grow, but want to moderate the risks of equity securities through investment of a portion of their assets in bonds - ---------------------------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Life Vision Growth and Income Fund invests at least 70% to 80% of its total net assets in STI Classic Funds that invest primarily in either equity securities or fixed income securities. The Fund's remaining assets may be invested in shares of underlying STI Classic Money Market Funds, securities issued by the U.S. government, its agencies or instrumentalities, repurchase agreements and short-term paper. In selecting a diversified portfolio of underlying STI Classic Funds, the Adviser analyzes many factors, including the underlying STI Classic Funds' investment objectives, total returns, volatility and expenses. THE FUND CURRENTLY PLANS TO INVEST IN SHARES OF THE FOLLOWING UNDERLYING STI CLASSIC FUNDS WITHIN THE PERCENTAGE RANGES INDICATED: INVESTMENT RANGE (PERCENTAGE OF THE LIFE VISION GROWTH AND ASSET CLASS INCOME FUND'S ASSETS) - -------------------------------------------------------------------------------- Equity Funds 50-80% Capital Appreciation Fund Growth and Income Fund International Equity Index Fund Mid-Cap Equity Fund Small Cap Value Equity Fund Small Cap Growth Stock Fund Value Income Stock Fund Bond Funds 20-50% Short-Term Bond Fund Investment Grade Bond Fund Limited-Term Federal Mortgage Securities Fund Money Market Funds 0-20% Prime Quality Money Market Fund Other STI Classic Funds may be utilized in the future. Due to its investment strategy, this Life Vision Fund holds STI Classic Funds that buy and sell securities frequently. This may result in higher transaction costs and additional capital gains tax liabilities for taxable investors. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? The value of an investment in this Life Vision Fund is based primarily on the performance of the underlying STI Classic Funds and the allocation of this Life Vision Fund's assets among them. Since it purchases equity funds, this Life Vision Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of an underlying STI Classic Funds' securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in this Life Vision Fund. The prices of an underlying STI Classic Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, an underlying STI Classic Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities are generally more volatile, so the average maturity or duration of these securities affects risk. This Life Vision Fund is also subject to the risk that the Adviser's asset allocation decisions will not anticipate market trends successfully. For example, weighting common stocks too heavily during a stock market decline may result in a failure to preserve capital. Conversely, investing too heavily in fixed income securities during a period of stock market appreciation may result in lower total return. The risks associated with investing in this Life Vision Fund will vary depending upon how the assets are allocated among the underlying STI Classic Funds. 58 PROSPECTUS - -------------------------------------------------------------------------------- LIFE VISION GROWTH AND INCOME FUND - -------------------------------------------------------------------------------- [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in this Life Vision Fund. Of course, this Life Vision Fund's past performance does not necessarily indicate how this Life Vision Fund will perform in the future. The Life Vision Fund began operating as a registered mutual fund on June 30, 1997. Performance prior to June 30, 1997 is that of the Adviser's similarly managed asset allocation program, which began operations on December 31, 1992. The asset allocation program's performance has been adjusted to reflect the fees and expenses for Trust Shares of the Fund. As an asset allocation program, rather than a registered mutual fund, it was not subject to the same investment and tax restrictions. If it had been, the asset allocation program's performance would have been lower. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THIS LIFE VISION FUND'S TRUST SHARES FROM YEAR TO YEAR.* [BAR CHART OMITTED] Plot points are as follows: 1993 10.02% 1994 -3.52% 1995 22.68% 1996 12.16% 1997 18.08% 1998 11.16% 1999 7.95% 2000 7.08% 2001 -2.55% BEST QUARTER WORST QUARTER 13.65% -10.20% (12/31/98) (9/30/98) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS -4.05%. THIS TABLE COMPARES THIS LIFE VISION FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE HYBRID 40/17/16/13/12/2 BLEND OF THE RUSSELL 1000 INDEX, MERRILL LYNCH 1-5 YEAR U.S. CORPORATE/GOVERNMENT INDEX, LEHMAN BROTHERS U.S. GOVERNMENT/CREDIT INDEX, MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE, AUSTRALASIA AND FAR EAST (MSCI EAFE) INDEX, RUSSELL 2000 INDEX AND THE RUSSELL MID-CAP INDEX. TRUST SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Life Vision Growth and Income Fund -2.55% 8.14% 8.93% - -------------------------------------------------------------------------------- Hybrid 40/17/16/13/12/2 Blend of the Following Benchmarks -4.76% 8.33% 10.35% - -------------------------------------------------------------------------------- Russell 1000 Index -12.45% 10.50% 13.28% - -------------------------------------------------------------------------------- Merrill Lynch 1-5 Year U.S. Corporate/ Government Index 8.98% 6.95% 6.49% - -------------------------------------------------------------------------------- Lehman Brothers U.S. Government/ Credit Index 8.51% 7.36% 7.24% - -------------------------------------------------------------------------------- MSCI EAFE Index -21.44% 0.89% 6.50% - -------------------------------------------------------------------------------- Russell 2000 Index 2.49% 7.52% 10.77% - -------------------------------------------------------------------------------- Russell Mid-Cap Index -5.62% 11.40% 13.28% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE ADVISER'S ASSET ALLOCATION PROGRAM ON DECEMBER 31, 1992. - -------------------------------------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? - -------------------------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Russell 1000 Index measures the performance of the 1,000 largest companies in the Russell 3000 Index, which represents approximately 90% of the total market capitalization of the Russell 3000 Index. The Merrill Lynch 1-5 Year U.S. Corporate/Government Index is a widely- recognized, capitalization-weighted index including all U.S. Corporate securities and U.S. Government securities with maturities of 1 year or greater but less than 5 years from maturity. The Lehman Brothers U.S. Government/Credit Index is a widely-recognized, market value-weighted (higher market value bonds have more influence than lower market value bonds) index of U.S. Treasury securities, U.S. government agency obligations, corporate debt backed by the U.S. government, fixed-rate nonconvertible corporate debt securities, Yankee bonds, and nonconvertible debt securities issued by or guaranteed by foreign governments and agencies. All securities in the Index are rated investment grade (BBB) or higher, with maturities of at least 1 year. The MSCI EAFE Index is a widely-recognized, capitalization weighted (companies with larger market capitalizations have more influence than smaller market capitalizations) index of over 900 securities listed on the stock exchanges in Europe, Australasia and the Far East. The country weighting of the Index is calculated using the market capitalization of each of the various PROSPECTUS 59 - -------------------------------------------------------------------------------- LIFE VISION GROWTH AND INCOME FUND - -------------------------------------------------------------------------------- countries, and then with respect to the market capitalization of the various companies operating in each country. The Russell 2000 Index is a widely-recognized, capitalization weighted (companies with larger market capitalizations have more influence than those with smaller market capitalizations) index of the 2,000 smallest U.S. companies out of the 3,000 largest companies. The Russell Mid-Cap Index measures the performance of those Frank Russell Mid-Cap companies with higher price-to-book ratios and higher forecasted growth values. The stocks are also members of the Russell 1000 Index. [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES THIS TABLE DESCRIBES THE LIFE VISION FUND'S FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND HOLD THIS LIFE VISION FUND'S SHARES. THE TABLE DOES NOT REFLECT ANY OF THE OPERATING COSTS AND INVESTMENT ADVISORY FEES OF THE UNDERLYING STI CLASSIC FUNDS. THIS LIFE VISION FUND AND ITS SHAREHOLDERS WILL INDIRECTLY BEAR A PRO RATA SHARE OF THE EXPENSES OF THE UNDERLYING STI CLASSIC FUNDS. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 0.25% Other Expenses 0.14% ----- Total Annual Fund Operating Expenses 0.39%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THIS FEE WAIVER REMAINS IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: Life Vision Growth and Income Fund - Trust Shares 0.25% THE EXPENSES SET FORTH ABOVE ARE IN ADDITION TO THE COSTS OF THE UNDERLYING STI CLASSIC FUNDS BORNE BY THE FUND. AS OF MAY 31, 2002, THE FUND'S EXPENSES ON INVESTMENTS IN UNDERLYING STI CLASSIC FUNDS WERE 1.01%. THEREFORE, TOTAL ANNUALIZED EXPENSES WERE 1.40%. WITH THE FEE WAIVER DISCUSSED ABOVE, THE FUND'S ACTUAL TOTAL ANNUALIZED EXPENSES WERE 1.26%. - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in this Life Vision Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in this Life Vision Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, the Life Vision Fund's direct operating expenses before waivers (0.39%) remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $40 $125 $219 $493 The following costs are all inclusive representing both direct Fund expenses and additional expenses associated with investments in underlying STI Classic Funds (1.40%). 1 YEAR 3 YEARS 5 YEARS 10 YEARS $143 $443 $766 $1,680 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Life Vision Fund expenses in the table above are shown as a percentage of the Life Vision Fund's net assets. These expenses are deducted from Life Vision Fund assets. For more information about these fees, see "Investment Adviser." 60 PROSPECTUS - -------------------------------------------------------------------------------- LIFE VISION MODERATE GROWTH FUND - --------------------------------------------------------------------------------
[SUITCASE GRAPHIC OMITTED] FUND SUMMARY - --------------------------------------------------------------------------------------------------------------------------- INVESTMENT GOAL Capital appreciation and current income - --------------------------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS Equity and bond funds - --------------------------------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Low - --------------------------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Investing pursuant to an asset allocation strategy in a combination of STI Classic Equity and Bond Funds - --------------------------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Investors who want income from their investment, as well as an increase in its value, and are willing to be subject to the risks of equity securities - ---------------------------------------------------------------------------------------------------------------------------
[TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Life Vision Moderate Growth Fund principally invests in STI Classic Funds that invest primarily in equity securities and fixed income securities. The Fund's remaining assets may be invested in shares of underlying STI Classic Money Market Funds, securities issued by the U.S. government, its agencies or instrumentalities, repurchase agreements and short-term paper. In selecting a diversified portfolio of underlying STI Classic Funds, the Adviser analyzes many factors, including the underlying STI Classic Funds' investment objectives, total returns, volatility and expenses. THE FUND CURRENTLY PLANS TO INVEST IN SHARES OF THE FOLLOWING UNDERLYING STI CLASSIC FUNDS WITHIN THE PERCENTAGE RANGES INDICATED: INVESTMENT RANGE (PERCENTAGE OF THE LIFE VISION MODERATE ASSET CLASS GROWTH FUND'S ASSETS) - -------------------------------------------------------------------------------- Equity Funds 35-65% Capital Appreciation Fund Growth and Income Fund International Equity Index Fund Mid-Cap Equity Fund Small Cap Value Equity Fund Small Cap Growth Stock Fund Value Income Stock Fund Bond Funds 35-65% Short-Term Bond Fund Investment Grade Bond Fund Limited-Term Federal Mortgage Securities Fund Money Market Funds 0-20% Prime Quality Money Market Fund Other STI Classic Funds may be utilized in the future. Due to its investment strategy, this Life Vision Fund holds STI Classic Funds that buy and sell securities frequently. This may result in higher transaction costs and additional capital gains taxes for taxable investors. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? The value of an investment in this Life Vision Fund is based primarily on the performance of the underlying STI Classic Funds and the allocation of this Life Vision Fund's assets among them. Since it purchases equity funds, this Life Vision Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of an underlying STI Classic Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in this Life Vision Fund. The prices of an underlying STI Classic Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, an underlying STI Classic Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities are generally more volatile, so the average maturity or duration of these securities affects risk. This Life Vision Fund is also subject to the risk that the Adviser's asset allocation decisions will not anticipate market trends successfully. For example, weighting common stocks too heavily during a stock market decline may result in a failure to preserve capital. Conversely, investing too heavily in fixed income securities during a period of stock market appreciation may result in lower total return. The risks associated with investing in this Life Vision Fund will vary depending upon how the assets are allocated among the underlying STI Classic Funds. PROSPECTUS 61 - -------------------------------------------------------------------------------- LIFE VISION MODERATE GROWTH FUND - -------------------------------------------------------------------------------- [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in this Life Vision Fund. Of course, this Life Vision Fund's past performance does not necessarily indicate how this Life Vision Fund will perform in the future. The Life Vision Fund began operating as a registered mutual fund on June 30, 1997. Performance prior to June 30, 1997 is that of the Adviser's similarly managed asset allocation program, which began operations on December 31, 1992. The asset allocation program's performance has been adjusted to reflect the fees and expenses for Trust Shares of the Fund. As an asset allocation program, rather than a registered mutual fund, it was not subject to the same investment and tax restrictions. If it had been, the asset allocation program's performance would have been lower. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THIS LIFE VISION FUND'S TRUST SHARES FROM YEAR TO YEAR.* {BAR CHART OMITTED] PLOT POINTS ARE AS FOLLOWS: 1993 9.26% 1994 -2.97% 1995 20.52% 1996 10.51% 1997 16.41% 1998 11.15% 1999 6.19% 2000 5.46% 2001 -1.10% BEST QUARTER WORST QUARTER 11.24% -7.99% (12/31/98) (9/30/98) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS -2.87%. THIS TABLE COMPARES THIS LIFE VISION FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF A HYBRID 27/26/22/14/10/1 BLEND OF THE RUSSELL 1000 INDEX, MERRILL LYNCH 1-5 YEAR U.S. CORPORATE/GOVERNMENT INDEX, LEHMAN BROTHERS U.S. GOVERNMENT/CREDIT INDEX, MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE, AUSTRALASIA AND FAR EAST (MSCI EAFE) INDEX, RUSSELL 2000 INDEX AND THE RUSSELL MID-CAP INDEX. TRUST SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Life Vision Moderate Growth Fund -1.10% 7.46% 8.15% - -------------------------------------------------------------------------------- Hybrid 27/26/22/14/10/1 Blend of the following Benchmarks -2.05% 7.79% 9.36% - -------------------------------------------------------------------------------- Russell 1000 Index -12.45% 10.50% 13.28% - -------------------------------------------------------------------------------- Merrill Lynch 1-5 Year U.S. Corporate/ Government Index 8.98% 6.95% 6.49% - -------------------------------------------------------------------------------- Lehman Brothers U.S. Government/ Credit Index 8.51% 7.36% 7.24% - -------------------------------------------------------------------------------- MSCI EAFE Index -21.44% 0.89% 6.50% - -------------------------------------------------------------------------------- Russell 2000 Index 2.49% 7.52% 10.77% - -------------------------------------------------------------------------------- Russell Mid-Cap Index -5.62% 11.40% 13.28% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE ADVISER'S ASSET ALLOCATION PROGRAM ON DECEMBER 31, 1992. 62 PROSPECTUS - -------------------------------------------------------------------------------- LIFE VISION MODERATE GROWTH FUND - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? - -------------------------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Russell 1000 Index measures the performance of the 1,000 largest companies in the Russell 3000 Index, which represents approximately 90% of the total market capitalization of the Russell 3000 Index. The Merrill Lynch 1-5 Year U.S. Corporate/Government Index is a widely- recognized, capitalization-weighted index including all U.S. Corporate securities and U.S. Government securities with maturities of 1 year or greater but less than 5 years from maturity. The Lehman Brothers U.S. Government/Credit Index is a widely-recognized, market value-weighted (higher market value bonds have more influence than lower market value bonds) index of U.S. Treasury securities, U.S. government agency obligations, corporate debt backed by the U.S. government, fixed-rate nonconvertible corporate debt securities, Yankee bonds, and nonconvertible debt securities issued by or guaranteed by foreign governments and agencies. All securities in the Index are rated investment grade (BBB) or higher, with maturities of at least 1 year. The MSCI EAFE Index is a widely-recognized, capitalization-weighted (companies with larger market capitalizations have more influence than smaller market capitalizations) index of over 900 securities listed on the stock exchanges in Europe, Australasia and the Far East. The country weighting of the Index is calculated using the market capitalization of each of the various countries, and then with respect to the market capitalization of the various companies operating in each country. The Russell 2000 Index is a widely-recognized, capitalization weighted (companies with larger market capitalizations have more influence than those with smaller market capitalizations) index of the 2,000 smallest U.S. companies out of the 3,000 largest companies. The Russell Mid-Cap Index measures the performance of those Frank Russell Mid-Cap companies with higher price-to-book ratios and higher forecasted growth values. The stocks are also members of the Russell 1000 Index. [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES THIS TABLE DESCRIBES THIS LIFE VISION FUND'S FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND HOLD THIS LIFE VISION FUND'S SHARES. THE TABLE DOES NOT REFLECT ANY OF THE OPERATING COSTS AND INVESTMENT ADVISORY FEES OF THE UNDERLYING STI CLASSIC FUNDS. THIS LIFE VISION FUND AND ITS SHAREHOLDERS WILL INDIRECTLY BEAR A PRO RATA SHARE OF THE EXPENSES OF THE UNDERLYING STI CLASSIC FUNDS. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 0.25% Other Expenses 0.11% ----- Total Annual Fund Operating Expenses 0.36%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THIS FEE WAIVER REMAINS IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: Life Vision Moderate Growth Fund - Trust Shares 0.25% THE EXPENSES SET FORTH ABOVE ARE IN ADDITION TO THE COSTS OF THE UNDERLYING STI CLASSIC FUNDS BORNE BY THE FUND. AS OF MAY 31, 2002, THE FUND'S EXPENSES BASED ON INVESTMENTS IN UNDERLYING STI CLASSIC FUNDS WERE 0.99%. THEREFORE, TOTAL ANNUALIZED EXPENSES WERE 1.35%. WITH THE FEE WAIVER DISCUSSED ABOVE, THE FUND'S ACTUAL TOTAL ANNUALIZED EXPENSES WERE 1.24%. PROSPECTUS 63 - -------------------------------------------------------------------------------- LIFE VISION MODERATE GROWTH FUND - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in this Life Vision Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in this Life Vision Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, the Life Vision Fund's direct operating expenses before waivers (0.36%) remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $37 $116 $202 $456 The following costs are all inclusive representing both direct Fund expenses and additional expenses associated with investments in underlying STI Classic Funds (1.35%). 1 YEAR 3 YEARS 5 YEARS 10 YEARS $137 $428 $739 $1,624 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Life Vision Fund expenses in the table above are shown as a percentage of the Life Vision Fund's net assets. These expenses are deducted from Life Vision Fund assets. The Adviser could discontinue this voluntary waiver at any time. For more information about these fees, see "Investment Adviser." 64 PROSPECTUS - -------------------------------------------------------------------------------- MORE INFORMATION ABOUT RISK - -------------------------------------------------------------------------------- [life preserver graphic omitted] MORE INFORMATION ABOUT RISK EQUITY RISK BALANCED FUND CAPITAL APPRECIATION FUND GROWTH AND INCOME FUND INFORMATION AND TECHNOLOGY FUND INTERNATIONAL EQUITY FUND INTERNATIONAL EQUITY INDEX FUND MID-CAP EQUITY FUND MID CAP VALUE EQUITY FUND SMALL CAP GROWTH STOCK FUND SMALL CAP VALUE EQUITY FUND TAX SENSITIVE GROWTH STOCK FUND VALUE INCOME STOCK FUND VANTAGE FUND LIFE VISION AGGRESSIVE GROWTH FUND LIFE VISION GROWTH AND INCOME FUND LIFE VISION MODERATE GROWTH FUND Equity securities include public and privately issued equity securities, common and preferred stocks, warrants, rights to subscribe to common stock and convertible securities, as well as instruments that attempt to track the price movement of equity indices. Investments in equity securities and equity derivatives in general are subject to market risks that may cause their prices to fluctuate over time. The value of securities convertible into equity securities, such as warrants or convertible debt, is also affected by prevailing interest rates, the credit quality of the issuer and any call provision. Fluctuations in the value of equity securities in which a mutual fund invests will cause a fund's net asset value to fluctuate. An investment in a portfolio of equity securities may be more suitable for long-term investors who can bear the risk of these share price fluctuations. FIXED INCOME RISK BALANCED FUND CLASSIC INSTITUTIONAL SUPER SHORT INCOME PLUS FUND HIGH INCOME FUND INVESTMENT GRADE BOND FUND LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND SHORT-TERM BOND FUND SHORT-TERM U.S. TREASURY SECURITIES FUND U.S. GOVERNMENT SECURITIES FUND LIFE VISION AGGRESSIVE GROWTH FUND LIFE VISION GROWTH AND INCOME FUND LIFE VISION MODERATE GROWTH FUND The market value of fixed income investments change in response to interest rate changes and other factors. During periods of falling interest rates, the values of outstanding fixed income securities generally rise. Moreover, while securities with longer maturities tend to produce higher yields, the prices of longer maturity securities are also subject to greater market fluctuations as a result of changes in interest rates. In addition to these fundamental risks, different types of fixed income securities may be subject to the following additional risk: CREDIT RISK BALANCED FUND INVESTMENT GRADE BOND FUND SHORT-TERM BOND FUND The possibility that an issuer will be unable to make timely payments of either principal or interest. FOREIGN SECURITY RISKS CLASSIC INSTITUTIONAL SUPER SHORT INCOME PLUS FUND GROWTH AND INCOME FUND HIGH INCOME FUND INTERNATIONAL EQUITY FUND INTERNATIONAL EQUITY INDEX FUND STRATEGIC INCOME FUND Investments in securities of foreign companies or governments can be more volatile than investments in U.S. companies or governments. Diplomatic, PROSPECTUS 65 - -------------------------------------------------------------------------------- MORE INFORMATION ABOUT RISK - -------------------------------------------------------------------------------- political, or economic developments, including nationalization or appropriation, could affect investments in foreign countries. Foreign securities markets generally have less trading volume and less liquidity than U.S. markets. In addition, the value of securities denominated in foreign currencies, and of dividends from such securities, can change significantly when foreign currencies strengthen or weaken relative to the U.S. dollar. Foreign companies or governments generally are not subject to uniform accounting, auditing, and financial reporting standards comparable to those applicable to domestic U.S. companies or governments. Transaction costs are generally higher than those in the U.S. and expenses for custodial arrangements of foreign securities may be somewhat greater than typical expenses for custodial arrangements of similar U.S. securities. Some foreign governments levy withholding taxes against dividend and interest income. Although in some countries a portion of these taxes are recoverable, the non-recovered portion will reduce the income received from the securities comprising the portfolio. HEDGING RISK STRATEGIC INCOME FUND VANTAGE FUND Hedging is a strategy designed to offset investment risks. The Vantage Fund's hedging activities are primarily short sales, but may also include among other things, forwards, options and futures. There are risks associated with hedging activities, including: o 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 and currency exchange rates. o There may be an imperfect or no correlation between the changes in market value of the securities held by the Fund or the currencies in which those securities are denominated and the prices of forward contracts, futures and options on futures. o There may not be a liquid secondary market for a futures contract or option. o Trading restrictions or limitations may be imposed by an exchange, and government regulations may restrict trading in currencies, futures contracts and options. LEVERAGING RISK VANTAGE FUND Leveraging activities include, among other things, borrowing and the use of short sales, options and futures. There are risks associated with leveraging activities, including: o A fund experiencing losses over certain ranges in the market that exceed losses experienced by a non-leveraged fund. o There may be an imperfect or no correlation between the changes in market value of the securities held by a fund and the prices of futures and options on futures. o Although the funds will only purchase exchange-traded futures and options, due to market conditions there may not be a liquid secondary market for a futures contract or option. As a result, the Fund may be unable to close out their futures or options contracts at a time which is advantageous. o Trading restrictions or limitations may be imposed by an exchange, and government regulations may restrict trading in futures contracts and options. In addition, the following leveraged instruments are subject to certain specific risks: DERIVATIVES RISK STRATEGIC INCOME FUND VANTAGE FUND The Funds may use derivatives to attempt to achieve their investment objectives, while at the same time maintaining liquidity. To collateralize (or cover) these derivatives transactions, the Funds hold cash or U.S. government securities. 66 PROSPECTUS - -------------------------------------------------------------------------------- MORE INFORMATION ABOUT FUND INVESTMENTS - -------------------------------------------------------------------------------- SHORT SALES VANTAGE FUND Short sales are transactions in which a Fund sells a security it does not own. To complete a short sale, a Fund must borrow the security to deliver to the buyer. The Fund is then obligated to replace the borrowed security by purchasing the security at the market price at the time of replacement. This price may be more or less than the price at which the security was sold by the Fund. Potential losses associated with a short sale are theoretically unlimited, since prices of the stocks being sold short have unlimited appreciation potential. TRACKING ERROR RISK INTERNATIONAL EQUITY INDEX FUND Factors such as Fund expenses, imperfect correlation between the Fund's investments and those of its benchmarks, rounding of share prices, changes to the benchmark, regulatory policies, and leverage, may affect its ability to achieve perfect correlation. The magnitude of any tracking error may be affected by a higher portfolio turnover rate. Because an index is just a composite of the prices of the securities it represents rather than an actual portfolio of those securities, an index will have no expenses. As a result, the Fund, which will have expenses such as taxes, custody, management fees and other operational costs, and brokerage, may not achieve its investment objective of accurately correlating to an index. [mountain graphic omitted] MORE INFORMATION ABOUT FUND INVESTMENTS This prospectus describes the Funds' primary strategies, and the Funds will normally invest in the types of securities described in this prospectus. However, in addition to the investments and strategies described in this prospectus, each Fund also may invest in other securities, use other strategies and engage in other investment practices. These investments and strategies, as well as those described in this prospectus, are described in detail in the Statement of Additional Information (SAI). The investments and strategies described in this prospectus are those that the Funds use under normal conditions. During unusual economic or market conditions, or for temporary defensive or liquidity purposes, each Fund (except the Money Market Funds) may invest up to 100% of its assets in cash, money market instruments, repurchase agreements and short-term obligations that would not ordinarily be consistent with a Fund's objectives. The Small Cap Value Equity Fund also may invest in investment grade fixed income securities and mid-to large-cap common stocks that would not ordinarily be consistent with a Fund's objective. In addition, the Investment Grade Bond and Short-Term Bond Funds each may shorten its average weighted maturity to as little as 90 days. A Fund (other than a Money Market Fund) will do so only if the Adviser believes that the risk of loss outweighs the opportunity for capital gains or higher income. Of course, a Fund cannot guarantee that it will achieve its investment goal. 67 PROSPECTUS - -------------------------------------------------------------------------------- INVESTMENT ADVISER AND PORTFOLIO MANAGERS - -------------------------------------------------------------------------------- [magnifier graphic omitted] INVESTMENT ADVISER The investment adviser (Adviser) makes investment decisions for the Funds and continuously reviews, supervises and administers each Fund's respective investment program. The Board of Trustees supervises the Adviser and establishes policies that the Adviser must follow in its management activities. Trusco Capital Management, Inc. (Trusco or the Adviser), 50 Hurt Plaza, Suite 1400, Atlanta, Georgia 30303, serves as the Adviser to the Funds. As of June 30, 2002, Trusco had $45.5 billion in assets under management. For the fiscal period ended May 31, 2002, the Adviser received advisory fees of: BALANCED FUND 0.92% CAPITAL APPRECIATION FUND 1.13% CLASSIC INSTITUTIONAL SUPER SHORT INCOME PLUS FUND 0.20% GROWTH AND INCOME FUND 0.90% HIGH INCOME FUND 0.65% INFORMATION AND TECHNOLOGY FUND 1.10% INTERNATIONAL EQUITY FUND 1.25% INTERNATIONAL EQUITY INDEX FUND 0.82% INVESTMENT GRADE BOND FUND 0.72% LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND 0.60% MID-CAP EQUITY FUND 1.13% MID CAP VALUE EQUITY FUND 1.15% SHORT-TERM BOND FUND 0.60% SHORT-TERM U.S. TREASURY SECURITIES FUND 0.59% SMALL CAP GROWTH STOCK FUND 1.15% SMALL CAP VALUE EQUITY FUND 1.15% STRATEGIC INCOME FUND 0.75% TAX SENSITIVE GROWTH STOCK FUND 1.15% U.S. GOVERNMENT SECURITIES FUND 0.71% VALUE INCOME STOCK FUND 0.80% VANTAGE FUND 1.50% PRIME QUALITY MONEY MARKET FUND 0.54% U.S. GOVERNMENT SECURITIES MONEY MARKET FUND 0.56% U.S. TREASURY MONEY MARKET FUND 0.56% LIFE VISION AGGRESSIVE GROWTH FUND 0.09% LIFE VISION GROWTH AND INCOME FUND 0.11% LIFE VISION MODERATE GROWTH FUND 0.14% The Adviser may use its affiliates as brokers for Fund transactions. Prior to January 1, 2000, STI Capital Management, N.A. (STI), a subsidiary of SunTrust Banks, Inc. served as the investment adviser to the Balanced Fund, Capital Appreciation Fund, International Equity Fund, Investment Grade Bond Fund, Limited-Term Federal Mortgage Securities Fund, Mid-Cap Equity Fund, Small Cap Value Equity Fund, and Value Income Stock Fund. On January 1, 2000, SunTrust Bank (formerly SunTrust Bank, Atlanta), a subsidiary of SunTrust Banks, Inc. succeeded STI as the investment adviser to those Funds. On July 1, 2000 SunTrust Banks, Inc. reorganized its money management units, including those of SunTrust Bank, into Trusco Capital Management, Inc. As a result, Trusco now serves as the investment Adviser to each STI Classic Fund including the Life Vision Funds. THE INVESTMENT TEAM The Life Vision Aggressive Growth Fund, Life Vision Growth and Income Fund and Life Vision Moderate Growth Fund are managed by a team of investment professionals. No one person is primarily responsible for making investment recommendations to the team. PORTFOLIO MANAGERS The Balanced Fund is co-managed by Mr. Robert J. Rhodes, CFA, Mr. Earl L. Denney, CFA, and Mr. Dave E. West, CFA. Mr. Rhodes manages the equity portion of the Fund. Mr. Denney and Mr. West co-manage the fixed-income portion of the Fund. Mr. Rhodes has also managed the Capital Appreciation Fund since June 2000. Mr. Rhodes is an Executive Vice President and head of the Equity Funds group at Trusco. Mr. Rhodes has been employed by Trusco since 1973 and was Director of Research at Trusco from 1980 to 2000. Mr. Rhodes has more than 29 years of investment experience. In January 2000, Mr. West was named Managing Director of SunTrust Bank, and is now a Managing Director of Trusco, after working at 68 PROSPECTUS - -------------------------------------------------------------------------------- PORTFOLIO MANAGERS - -------------------------------------------------------------------------------- STI since 1985. Mr. West has more than 16 years of investment experience. In January 2000, Mr. Denney was named Managing Director of SunTrust Bank and is now a Managing Director of Trusco, after serving as Managing Director of STI since 1983. Mr. Denney has more than 23 years of investment experience. Mr. Robert W. Corner has served as a Vice President of Trusco since September 1996. Mr. Corner has managed the Super Short Income Plus Fund since it began operating in April 2002. He has more than 15 years of investment experience. Mr. Alan S. Kelley serves as the Lead Portfolio Manager of the Information and Technology Fund. He has served as Vice President of Trusco and has managed the Fund since it began operating in September 1999. He has also managed the Vantage Fund since it began operating in November 2001. Prior to joining Trusco, Mr. Kelley served as a Portfolio Manager with SunTrust Bank, Atlanta from 1995 to 1999. He has more than 8 years of investment experience. Mr. Jeffrey E. Markunas, CFA, has served as Lead Portfolio Manager of the Growth and Income Fund since it began operating in September 1992. From 1992 until July 2000, he served as Senior Vice President and Director of Equity Management for Crestar Asset Management Company. Additionally, he was named Senior Vice President of Trusco in January 1999 and Managing Director in July 2000. Mr. Markunas has more than 19 years of investment experience. The International Equity Index Fund is managed by Mr. Chad Deakins. Mr. Deakins serves as a Vice President of Trusco and has worked there since 1996. He has managed the International Equity Index Fund since February 1999. Mr. Deakins has also managed the International Equity Fund since May 2000. Prior to joining Trusco, Mr. Deakins worked at SunTrust Bank. He has more than 8 years of investment experience. The Investment Grade Bond Fund and the Limited-Term Federal Mortgage Securities Fund are co-managed by Mr. L. Earl Denney, CFA, and Mr. Dave E. West, CFA. In January 2000, Mr. Denney was named Managing Director of SunTrust Bank and is now Managing Director of Trusco, after serving as Managing Director of STI since 1983. Mr. Denney has co-managed the Investment Grade Bond Fund since it began operating in June 1992 and has managed the Limited-Term Mortgage Securities Fund since it began operating in June 1994. Mr. Denny has more than 23 years of investment experience. In January 2000, Mr. West was named Managing Director of SunTrust Bank and is now a Managing Director of Trusco, after working at STI since 1985. Mr. West has co-managed the Investment Grade Bond Fund since it began operating in June 1992 and has co-managed the Limited-Term Federal Mortgage Securities Fund since it began operating in June 1994. Mr. West has more than 16 years of investment experience. Mr. John Hamlin has served as Vice President of Trusco since July 2000, after serving as a Portfolio Manager of STI since March 1999. He has managed the Mid-Cap Equity Fund since April 1999. Prior to joining STI, Mr. Hamlin served as Portfolio Manager at Phoenix Investment Counsel, Inc. from 1992 to 1999. He has more than 13 years of investment experience. The Mid Cap Value Equity Fund has been team managed since November 2001 by Mr. Mills Riddick, CFA, Mr. Dan Lewis, MBA, Mr. Brett Barner, CFA and Mr. Don Wordell, MBA. Mr. Riddick has served as a Managing Director of Trusco since July 2000, after serving as Managing Director of STI Capital Management, N.A. (STI), a subsidiary of SunTrust Banks, Inc. since 1994. Mr. Riddick has more than 20 years of investment experience. Mr. Lewis has served as a Portfolio Manager of Trusco since July 2000, after serving as a Portfolio Manager for STI since 1993. He has more than 10 years of investment experience. Mr. Barner has served as Vice president of Trusco since July 2000, after serving as a Managing Director of STI since 1994. Mr. Barner has more than 18 years of investment experience. Mr. Wordell has served as a Portfolio Manager since joining Trusco in 1996. He is a member of the Association for Investment Management & Research (AIMR) and the Orlando 69 PROSPECTUS - -------------------------------------------------------------------------------- PURCHASING AND SELLING FUND SHARES - -------------------------------------------------------------------------------- Society of Financial Analysts and has more than 6 years of investment experience. Ms. Agnes G. Pampush, CFA, has served as a Managing Director of Trusco since July 2000, after serving as Vice President of Trusco since 1998. Ms. Pampush was employed by Trusco from 1988 to 1996, and rejoined the firm in 1998. She has managed the Short-Term Bond Fund since February 1999 and the High Income Fund since April 2000. She has more than 20 years of investment experience. Mr. David S. Yealy has served as Managing Director of Trusco since July 2000. He has managed the Prime Quality Money Market Fund since it began operating in June 1992, the Short-Term U.S. Treasury Securities Fund since July 1996, and the U.S. Treasury Money Market Fund since October 2000. Prior to July 2000, Mr. Yealy was a First Vice President of Trusco and has worked there since 1991. He has more than 17 years of investment experience. Mr. Mark D. Garfinkel, CFA, has served as a Portfolio Manager of Trusco since 1994. He has managed the Small Cap Growth Stock Fund since it began operating in October 1998. He has more than 15 years of investment experience. Mr. Brett Barner, CFA, has served as Vice President of Trusco since July 2000, after serving as a Managing Director of STI since 1994. He has managed the Small Cap Value Equity Fund since it began operating in January 1997. He has more than 18 years of investment experience. Mr. Stuart F. Van Arsdale, CFA, has served as a Managing Director of Trusco since May 2002 and has managed the Tax Sensitive Growth Stock Fund since October 2002. Prior to joining Trusco, Mr. Van Arsdale served as Director of Growth Investments for DePrince, Race and Zollo from October 1998 to April 2002 and Senior Vice President and Managing Director of STI Capital Management from January 1980 to September 1998. He has more than 22 years of investment experience. Mr. Neil J. Powers, CFA, joined Trusco in 1997 and serves as a Managing Director. He has managed the U.S. Government Securities Fund since November 2000 and the Strategic Income Fund since it began operating in November 2001. Prior to joining Trusco, Mr. Powers worked at Putnam Investments, from 1986 to 1997, where he managed multi-sector bond funds and separately managed institutional accounts. He has more than 18 years of investment experience. The Value Income Stock Fund is managed by Mr. Mills Riddick, CFA. Mr. Riddick has served as a Managing Director of Trusco since July 2000, after serving as a Managing Director of STI since 1994. Mr. Riddick has managed the Value Income Stock Fund since April 1995. Mr. Riddick has more than 20 years of investment experience. Mr. Robert S. Bowman, CFA, has served as a Vice President of Trusco since January 1999. He has managed the U.S. Government Securities Money Market Fund since October 2000. Prior to joining Trusco, Mr. Bowman served as an assistant trader from 1994 to 1995 and Vice President of Crestar Asset Management Company since 1995. He has more than 8 years of investment experience. [handshake graphic omitted] PURCHASING AND SELLING FUND SHARES This section tells you how to purchase and sell (sometimes called "redeem") Trust Shares of the Funds. HOW TO PURCHASE FUND SHARES The Funds offer Trust Shares only to financial institutions or intermediaries, including subsidiaries of SunTrust Banks, Inc. (SunTrust), for their own or their customers' accounts for which they act as fiduciary, agent, investment adviser, or custodian. As a result, you, as a customer of a financial institution may purchase Trust Shares through accounts made with financial institutions. Trust Shares will be held of record by (in the name of) your financial institution. Depending upon the terms of your account, however, you may have, or be given, the right to vote your Trust Shares. The Funds may reject any purchase order if it is determined that accepting the order 70 PROSPECTUS - -------------------------------------------------------------------------------- PURCHASING AND SELLING FUND SHARES - -------------------------------------------------------------------------------- would not be in the best interests of the STI Classic Funds or its shareholders. If you are no longer eligible to participate in a 401(k) plan that holds Trust Shares of a Life Vision Fund on your behalf, you may exchange those shares for Investor Shares of the underlying Funds held by that Life Vision Fund. There is no sales charge for such an exchange. WHEN CAN YOU PURCHASE SHARES? You may purchase shares on any day that the New York Stock Exchange is open for business (a Business Day). But you may not do so for shares of the Money Market Funds on federal holidays. The price per share (the offering price) will be the net asset value per share (NAV) next determined after the Funds receive your purchase order. Each Fund calculates its NAV once each Business Day at the regularly-scheduled close of normal trading on the New York Stock Exchange (normally, 4:00 p.m., Eastern Time). So, for you to receive the current Business Day's NAV for each Fund (except the Money Market Funds), generally a Fund must receive your purchase order in proper form before 4:00 p.m., Eastern Time. The Fund will not accept orders that request a particular day or price for the transaction or any other special conditions. Each Money Market Fund calculates its NAV once each Business Day at the regularly-scheduled close of normal trading on the New York Stock Exchange (normally 4:00 p.m., Eastern Time.) So, for you to be eligible to receive dividends declared on the day you submit your purchase order, the Money Market Funds must generally receive your order before 2:00 p.m., Eastern Time and receive federal funds (readily available funds) before 4:00 p.m., Eastern Time. Otherwise, your purchase order will be effective the following Business Day, as long as each Money Market Fund receives federal funds before calculating its NAV the following day. FOR CUSTOMERS OF SUNTRUST, ITS AFFILIATES, AND OTHER FINANCIAL INSTITUTIONS YOU MAY HAVE TO TRANSMIT YOUR PURCHASE AND SALE REQUESTS TO SUNTRUST OR OTHER FINANCIAL INSTITUTIONS AT AN EARLIER TIME FOR YOUR TRANSACTION TO BECOME EFFECTIVE THAT DAY. THIS ALLOWS THE FINANCIAL INSTITUTION TIME TO PROCESS YOUR REQUEST AND TRANSMIT IT TO THE ADMINISTRATOR OR TRANSFER AGENT IN TIME TO MEET THE ABOVE STATED FUND CUT-OFF TIMES. FOR MORE INFORMATION ABOUT HOW TO PURCHASE OR SELL FUND SHARES, INCLUDING SPECIFIC SUNTRUST OR OTHER FINANCIAL INSTITUTIONS' INTERNAL ORDER ENTRY CUT-OFF TIMES, PLEASE CONTACT YOUR FINANCIAL INSTITUTION DIRECTLY. HOW THE FUNDS CALCULATE NAV In calculating NAV, each Fund (except the Money Market Funds) generally values its investment portfolio at market price. In calculating NAV for each Money Market Fund, each Fund generally values its investment portfolio using the amortized cost valuation method, which is described in detail in the SAI. If market prices are unavailable or a Fund thinks that the market price or amortized cost valuation method is unreliable, fair value prices may be determined in good faith using methods approved by the Board of Trustees. Each Money Market Fund expects its NAV to remain constant at $1.00 per share, although the Fund cannot guarantee this. Some Funds hold securities that are listed on foreign exchanges. These securities may trade on weekends or other days when the Funds do not calculate NAV. As a result, the market value of these investments may change on days when you cannot purchase or sell Fund shares. NET ASSET VALUE NAV for one Fund share is the value of that share's portion of the net assets of the Fund. 71 PROSPECTUS - -------------------------------------------------------------------------------- DIVIDENDS AND DISTRIBUTIONS - -------------------------------------------------------------------------------- HOW TO SELL YOUR FUND SHARES You may sell (sometimes called "redeem") your shares on any Business Day by contacting SunTrust or your financial institution. SunTrust or your financial institution will give you information about how to sell your shares including any specific cut-off times required. Holders of Trust Shares may sell shares by following the procedures established when they opened their account or accounts with the Funds or with their financial institution or intermediary. The sale price of each share will be the next NAV determined after the Funds receive your request. Redemption orders must be received by the Money Market Funds on a Business Day before 3:00 p.m., Eastern Time. Orders received after this time will be executed the following Business Day. RECEIVING YOUR MONEY Normally, the Funds will send your sale proceeds within five Business Days after the Adviser receives your request, but it may take up to seven days. REDEMPTIONS IN KIND The Funds generally pay sale (redemption) proceeds in cash. However, under unusual conditions that make the payment of cash unwise (and for the protection of the Funds' remaining shareholders) the Funds might pay all or part of your redemption proceeds in liquid securities with a market value equal to the redemption price (redemption in kind). It is highly unlikely that your shares would ever be redeemed in kind, but if they were you would probably have to pay transaction costs to sell the securities distributed to you, as well as taxes on any capital gains from the sale as with any redemption. SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES A Fund may suspend your right to sell your shares if the New York Stock Exchange restricts trading, the SEC declares an emergency or for other reasons. More information about this is in the SAI. TELEPHONE TRANSACTIONS Purchasing and selling Fund shares over the telephone is extremely convenient, but not without risk. Although the Fund has certain safeguards and procedures to confirm the identity of callers and the authenticity of instructions, the Fund is not responsible for any losses or costs incurred by following telephone instructions the Fund reasonably believes to be genuine. If you or your financial institution transact with the Fund over the telephone, you will generally bear the risk of any loss. The Funds reserve the right to modify, suspend or terminate telephone transaction privileges at any time. DIVIDENDS AND DISTRIBUTIONS Each Fund distributes its net investment income as follows: QUARTERLY - -------------------------------------------------------------------------------- BALANCED FUND CAPITAL APPRECIATION FUND GROWTH AND INCOME FUND INFORMATION AND TECHNOLOGY FUND MID-CAP EQUITY FUND MID CAP VALUE EQUITY FUND SMALL CAP VALUE EQUITY FUND SMALL CAP GROWTH STOCK FUND TAX SENSITIVE GROWTH STOCK FUND VALUE INCOME STOCK FUND VANTAGE FUND LIFE VISION AGGRESSIVE GROWTH FUND LIFE VISION GROWTH AND INCOME FUND LIFE VISION MODERATE GROWTH FUND ANNUALLY - -------------------------------------------------------------------------------- INTERNATIONAL EQUITY FUND INTERNATIONAL EQUITY INDEX FUND The Bond and Money Market Funds declare dividends daily and pay these dividends monthly. Each Fund makes distributions of its net realized capital gains, if any, at least annually. If you own Fund shares on a Fund's record date, you will be entitled to receive the distribution. 72 PROSPECTUS - -------------------------------------------------------------------------------- TAXES - -------------------------------------------------------------------------------- You will receive dividends and distributions in the form of additional Fund shares unless you elect to receive payment in cash. To elect cash payment, you must notify the Funds in writing prior to the date of the distribution. Your election will be effective for dividends and distributions paid after the Funds receive your written notice. To cancel your election, simply send the Funds written notice. TAXES PLEASE CONSULT YOUR TAX ADVISOR REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL, STATE AND LOCAL INCOME TAXES. Below the Funds have summarized some important tax issues that affect the Funds and their shareholders. This summary is based on current tax laws, which may change. Dividends and distributions will accumulate on a tax-deferred basis if you are investing through an employer-sponsored retirement or savings plan that qualifies for tax-exempt treatment under federal income tax laws. Generally, you will not owe taxes on these distributions until you begin withdrawals from the plan. Withdrawals from the plan are subject to special tax rules and may be subject to a penalty tax in the case of premature withdrawals. You should consult your plan administrator, your plan's Summary Plan Description, and/or your tax advisor about the tax consequences of plan withdrawals. MORE INFORMATION ABOUT TAXES IS IN THE SAI. PROSPECTUS 73 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS The financial highlights table is intended to help you understand a Fund's financial performance for the period of the Fund's (and its predecessor's) operations. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). The information provided below for the period ended May 31, 2002 has been audited by PricewaterhouseCoopers LLP. The information for prior periods has been audited by predecessor independent accounting firms. The Reports of Independent Accountants for each such period along with the Fund's financial statements and related notes, are included in the Annual Reports to Shareholders for such periods. The 2002 Annual Report is available upon request and without charge by calling 1-800-428-6970. The 2002 Annual Report is incorporated by reference in the SAI. For the Periods Ended May 31, (unless otherwise indicated) For a Share Outstanding Throughout the Periods
NET REALIZED NET ASSET NET AND DISTRIBUTIONS VALUE INVESTMENT UNREALIZED FROM NET DISTRIBUTIONS NET ASSET NET ASSETS BEGINNING INCOME GAINS (LOSSES) INVESTMENT FROM REALIZED VALUE END TOTAL END OF OF PERIOD (LOSS) ON INVESTMENTS INCOME CAPITAL GAINS OF PERIOD RETURN (+) PERIOD (000) ---------- ---------- -------------- ----------- ------------- --------- ---------- ------------ - ------------- BALANCED FUND - ------------- Trust Shares 2002 ..... $13.18 $ 0.23 $(0.65) $(0.24) $(0.34) $12.18 (3.29)% $ 241,604 2001 ..... 13.37 0.30 0.12 (0.31) (0.30) 13.18 3.24 209,316 2000 ..... 13.26 0.32 0.33 (0.30) (0.24) 13.37 5.02 223,634 1999 ..... 13.09 0.28 1.09 (0.28) (0.92) 13.26 10.98 251,752 1998 ..... 11.94 0.31 2.19 (0.32) (1.03) 13.09 22.15 188,465 - ------------------------- CAPITAL APPRECIATION FUND - ------------------------- Trust Shares 2002 ..... $13.89 -- $(1.53) -- $(0.12) $12.24 (11.06)% $1,204,445 2001 ..... 17.12 $(0.05) (0.38) -- (2.80) 13.89 (3.74) 1,177,933 2000 ..... 16.62 0.02 1.40 -- (0.92) 17.12 8.98 1,296,927 1999 ..... 16.48 0.05 2.70 $(0.06) (2.55) 16.62 17.83 1,966,842 1998 ..... 15.09 0.09 3.96 (0.09) (2.57) 16.48 29.51 1,532,587 - -------------------------- GROWTH AND INCOME FUND (A) - -------------------------- Trust Shares 2002 ..... $15.05 $ 0.09 $(1.26) $(0.08) -- $13.80 (7.80)% $ 792,557 2001 ..... 15.53 0.07 (0.04) (0.08) $(0.43) 15.05 0.11 867,664 2000 ..... 16.09 0.11 0.55 (0.10) (1.12) 15.53 4.11 885,109 1999(1) .. 15.10 0.04 1.97 (0.02) (1.00) 16.09 14.24 634,279 For the years ended November 30: 1998 ..... 16.55 0.09 1.64 (0.09) (3.09) 15.10 13.64 577,042 1997 ..... 13.39 0.14 3.24 (0.15) (0.07) 16.55 25.41 590,824 - ---------------- HIGH INCOME FUND - ---------------- Trust Shares 2002(2) .. $ 7.37 $ 0.39 $(0.12) $(0.39) -- $ 7.25 3.70% $ 28,767
RATIO OF NET RATIO OF RATIO OF INVESTMENT NET EXPENSES TO INCOME (LOSS) TO RATIO OF INVESTMENT AVERAGE NET AVERAGE NET EXPENSES TO INCOME (LOSS) ASSETS (EXCLUDING ASSETS (EXCLUDING PORTFOLIO AVERAGE TO AVERAGE WAIVERS AND WAIVERS AND TURNOVER NET ASSETS NET ASSETS REIMBURSEMENTS) REIMBURSEMENTS) RATE ---------- ------------- ----------------- ----------------- --------- - ------------- BALANCED FUND - ------------- Trust Shares 2002 ..... 1.02% 1.78% 1.05% 1.75% 95% 2001 ..... 1.01 2.24 1.05 2.20 99 2000 ..... 0.97 2.39 1.07 2.29 182 1999 ..... 0.97 2.19 1.06 2.10 179 1998 ..... 0.96 2.51 1.08 2.39 154 - ------------------------- CAPITAL APPRECIATION FUND - ------------------------- Trust Shares 2002 ..... 1.22% (0.54)% 1.24% (0.56)% 75% 2001 ..... 1.21 (0.29) 1.24 (0.32) 75 2000 ..... 1.17 0.10 1.26 0.01 129 1999 ..... 1.17 0.29 1.26 0.20 147 1998 ..... 1.16 0.61 1.27 0.50 194 - -------------------------- GROWTH AND INCOME FUND (A) - -------------------------- Trust Shares 2002 ..... 0.99% 0.63% 0.99% 0.63% 68% 2001 ..... 0.99 0.49 0.99 0.49 73 2000 ..... 1.01 0.76 1.01 0.76 53 1999(1) .. 1.14 0.49 1.43 0.20 31 For the years 1998 ..... 1.03 0.63 1.21 0.45 71 1997 ..... 1.02 0.92 1.17 0.77 100 - ---------------- HIGH INCOME FUND - ---------------- Trust Shares 2002(2) .. 0.82% 8.27% 0.97% 8.12% 59%
(+) Returns are for the period indicated and have not been annualized. (1) For the six month period ended May 31, 1999. All ratios for the period have been annualized. (2) Trust shares were offered on October 3, 2001. All ratios for the period have been annualized. (A) On May 24, 1999, the CrestFunds Value Fund exchanged all of its assets and certain liabilities for shares of the Growth and Income Fund. The CrestFunds Value Fund is the accounting survivor in this transaction, and as a result, its basis of accounting for assets and liabilities and its operating results for the periods prior to May 24, 1999 have been carried forward in these financial highlights. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Amounts designated as "--" are either $0 or round to $0. 74 PROSPECTUS - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- For the Periods Ended May 31, For a Share Outstanding Throughout the Period
NET REALIZED NET ASSET NET AND DISTRIBUTIONS RATIO OF VALUE INVESTMENT UNREALIZED FROM NET DISTRIBUTIONS NET ASSET NET ASSETS EXPENSES TO BEGINNING INCOME GAINS (LOSSES) INVESTMENT FROM REALIZED VALUE END TOTAL END OF AVERAGE OF PERIOD (LOSS) ON INVESTMENTS INCOME CAPITAL GAINS OF PERIOD RETURN (+) PERIOD (000) NET ASSETS ---------- ---------- -------------- ----------- ------------- --------- ---------- ------------ ----------- - ------------------------------- INFORMATION AND TECHNOLOGY FUND - ------------------------------- Trust Shares 2002 ..... $13.34 $ 0.01 $(5.29) -- -- $ 8.06 (39.58)% $ 32,068 1.19% 2001 ..... 15.87 (0.08) (2.45) -- -- 13.34 (15.94) 87,045 1.20 2000(1) .. 10.00 (0.04) 5.91 -- -- 15.87 58.70 106,425 1.20 - ------------------------- INTERNATIONAL EQUITY FUND - ------------------------- Trust Shares 2002 ..... $10.19 $ 0.19 $(1.07) -- -- $ 9.31 (8.64)% $ 252,991 1.48% 2001 ..... 12.56 -- (1.22) $(0.04) $(1.11) 10.19 (10.79) 208,120 1.45 2000 ..... 12.97 (0.10) 1.42 (0.07) (1.66) 12.56 10.58 299,100 1.48 1999 ..... 15.00 -- (1.14) (0.05) (0.84) 12.97 (7.43) 573,255 1.47 1998 ..... 13.63 0.04 2.69 (0.04) (1.32) 15.00 21.87 628,870 1.47 - ------------------------------- INTERNATIONAL EQUITY INDEX FUND - ------------------------------- Trust Shares 2002 ..... $11.18 $ 0.04 $(1.43) $(0.03) -- $ 9.76 (12.43)% $ 287,944 1.04% 2001 ..... 13.97 0.06 (2.69) (0.07) $(0.09) 11.18 (18.90) 236,862 1.06 2000 ..... 11.82 0.16 2.13 (0.03) (0.11) 13.97 19.36 340,853 1.07 1999 ..... 13.31 0.09 0.85 (0.24) (2.19) 11.82 7.87 74,616 1.07 1998 ..... 11.34 0.11 2.65 (0.11) (0.68) 13.31 25.82 56,200 1.06 - -------------------------- INVESTMENT GRADE BOND FUND - -------------------------- Trust Shares 2002 ..... $10.23 $ 0.51 $ 0.01 $(0.51) -- $10.24 5.18% $ 886,471 0.81% 2001 ..... 9.58 0.61 0.65 (0.61) -- 10.23 13.55 860,073 0.81 2000 ..... 10.36 0.61 (0.78) (0.61) -- 9.58 (1.76) 998,596 0.77 1999 ..... 10.65 0.56 (0.11) (0.56) $(0.18) 10.36 4.25 1,149,068 0.77 1998 ..... 10.16 0.60 0.49 (0.60) -- 10.65 10.92 793,488 0.76 - --------------------------------------------- LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND - --------------------------------------------- Trust Shares 2002 ..... $10.01 $ 0.43 $ 0.32 $(0.43) $(0.02) $10.31 7.53% $ 164,624 0.70% 2001 ..... 9.62 0.55 0.39 (0.55) -- 10.01 10.02 107,674 0.70 2000 ..... 9.94 0.55 (0.32) (0.55) -- 9.62 2.33 125,355 0.67 1999 ..... 10.12 0.54 (0.06) (0.54) (0.12) 9.94 4.75 135,256 0.67 1998 ..... 10.02 0.58 0.11 (0.58) (0.01) 10.12 7.12 137,488 0.66 - ------------------- MID-CAP EQUITY FUND - ------------------- Trust Shares 2002 ..... $10.95 $ 0.01(2) $(1.17)(2) -- -- $ 9.79 (10.59)% $ 171,813 1.22% 2001 ..... 14.10 (0.03) (0.61) -- $(2.51) 10.95 (6.92) 156,111 1.21 2000 ..... 12.68 (0.04) 2.32 -- (0.86) 14.10 19.10 206,545 1.17 1999 ..... 13.79 0.01 0.07 -- (1.19) 12.68 1.61 254,055 1.17 1998 ..... 13.21 -- 2.54 -- (1.96) 13.79 21.14 337,825 1.16 - ------------------------- MID CAP VALUE EQUITY FUND - ------------------------- Trust Shares 2002(3) .. $10.00 $ 0.02 $ 0.94 $(0.01) -- $10.95 9.65% $ 174,859 1.27% - -------------------- SHORT-TERM BOND FUND - -------------------- Trust Shares 2002 ..... $10.04 $ 0.46 $(0.03) $(0.46) -- $10.01 4.29% $ 305,884 0.70% 2001 ..... 9.65 0.56 0.39 (0.56) -- 10.04 10.13 215,458 0.70 2000 ..... 9.91 0.53 (0.25) (0.53) $(0.01) 9.65 2.87 180,402 0.67 1999 ..... 10.05 0.51 (0.10) (0.52) (0.03) 9.91 4.06 209,904 0.67 1998 ..... 9.90 0.55 0.16 (0.55) (0.01) 10.05 7.31 120,422 0.66
RATIO OF NET RATIO OF RATIO OF INVESTMENT NET EXPENSES TO INCOME (LOSS) TO INVESTMENT AVERAGE NET AVERAGE NET INCOME (LOSS) ASSETS (EXCLUDING ASSETS (EXCLUDING PORTFOLIO TO AVERAGE WAIVERS AND WAIVERS AND TURNOVER NET ASSETS REIMBURSEMENTS) REIMBURSEMENTS) RATE -------------- ----------------- ----------------- --------- - ------------------------------- INFORMATION AND TECHNOLOGY FUND - ------------------------------- Trust Shares 2002 ..... (0.92)% 1.19% (0.92)% 1,102% 2001 ..... (0.45) 1.21 (0.46) 750 2000(1) .. (0.54) 1.34 (0.68) 250 - ------------------------ INTERNATIONAL EQUITY FUND - ------------------------ Trust Shares 2002 ..... 0.48% 1.48% 0.48% 102% 2001 ..... 0.50 1.45 0.50 68 2000 ..... 0.59 1.48 0.59 179 1999 ..... 0.68 1.52 0.63 161 1998 ..... 0.61 1.48 0.60 108 - ------------------------------- INTERNATIONAL EQUITY INDEX FUND - ------------------------------- Trust Shares 2002 ..... 0.63% 1.12% 0.55% 35% 2001 ..... 0.40 1.09 0.37 13 2000 ..... 0.83 1.18 0.72 9 1999 ..... 0.69 1.17 0.59 32 1998 ..... 0.88 1.18 0.76 1 - -------------------------- INVESTMENT GRADE BOND FUND - -------------------------- Trust Shares 2002 ..... 4.81% 0.83% 4.79% 123% 2001 ..... 6.17 0.84 6.14 131 2000 ..... 6.05 0.84 5.98 202 1999 ..... 5.25 0.85 5.17 221 1998 ..... 5.67 0.86 5.57 109 - --------------------------------------------- LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND - --------------------------------------------- Trust Shares 2002 ..... 3.72% 0.75% 3.67% 410% 2001 ..... 5.62 0.76 5.56 532 2000 ..... 5.60 0.79 5.48 384 1999 ..... 5.28 0.77 5.18 379 1998 ..... 5.75 0.77 5.64 163 - ------------------- MID-CAP EQUITY FUND - ------------------- Trust Shares 2002 ..... (0.18)% 1.24% (0.20)% 87% 2001 ..... (0.24) 1.25 (0.28) 100 2000 ..... -- 1.25 (0.08) 131 1999 ..... (0.47) 1.28 (0.58) 76 1998 ..... (0.29) 1.27 (0.40) 129 - ------------------------- MID CAP VALUE EQUITY FUND - ------------------------- Trust Shares 2002(3) .. 0.29% 1.37% 0.19% 30% - -------------------- SHORT-TERM BOND FUND - -------------------- Trust Shares 2002 ..... 4.48% 0.75% 4.43% 142% 2001 ..... 5.71 0.76 5.65 87 2000 ..... 5.40 0.76 5.31 70 1999 ..... 5.12 0.77 5.02 108 1998 ..... 5.47 0.79 5.34 87 (+) Returns are for the period indicated and have not been annualized. (1) Trust shares were offered beginning September 30, 1999. All ratios for the period have been annualized. (2) This amount has been changed to reflect the correction of a clerical error contained in the Fund's 2002 Annual Report to Shareholders. (3) Commenced operations on November 30, 2001. All ratios for the period have been annualized. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Amounts designated as "--" are either $0 or have been rounded to $0. PROSPECTUS 75 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- For the Periods Ended May 31, For a Share Outstanding Throughout the Periods
NET REALIZED NET ASSET NET AND DISTRIBUTIONS RATIO OF VALUE INVESTMENT UNREALIZED FROM NET DISTRIBUTIONS NET ASSET NET ASSETS EXPENSES TO BEGINNING INCOME GAINS (LOSSES) INVESTMENT FROM REALIZED VALUE END TOTAL END OF AVERAGE OF PERIOD (LOSS) ON INVESTMENTS INCOME CAPITAL GAINS OF PERIOD RETURN (+) PERIOD (000) NET ASSETS ---------- ---------- -------------- ----------- ------------- --------- ---------- ------------ ----------- - ---------------------------------------- SHORT-TERM U.S. TREASURY SECURITIES FUND - ---------------------------------------- Trust Shares 2002 ..... $10.13 $ 0.37 $ 0.10 $(0.37) $(0.03) $10.20 4.69% $ 107,169 0.70% 2001 ..... 9.85 0.49 0.28 (0.49) -- 10.13 8.02 88,398 0.71 2000 ..... 9.95 0.46 (0.10) (0.46) -- 9.85 3.75 72,570 0.67 1999 ..... 9.97 0.47 (0.02) (0.47) -- 9.95 4.59 56,027 0.67 1998 ..... 9.88 0.51 0.10 (0.52) -- 9.97 6.30 46,920 0.66 - --------------------------- SMALL CAP GROWTH STOCK FUND - --------------------------- Trust Shares 2002 ..... $18.37 -- $(1.02) -- $(0.07) $17.28 (5.55)% $ 593,211 1.25% 2001 ..... 18.30 $(0.18) 1.71 -- (1.46) 18.37 8.33 508,857 1.24 2000 ..... 14.55 (0.08) 4.02 -- (0.19) 18.30 27.24 431,478 1.20 1999(1) .. 10.00 (0.05) 4.62 -- (0.02) 14.55 45.70 152,290 1.20 - --------------------------- SMALL CAP VALUE EQUITY FUND - --------------------------- Trust Shares 2002 ..... $12.21 $ 0.08 $ 2.35 $(0.10) -- $14.54 20.06% $ 614,199 1.25% 2001 ..... 9.13 0.17 3.07 (0.16) -- 12.21 35.90 401,900 1.25 2000 ..... 9.70 0.13 (0.59) (0.11) -- 9.13 (4.72) 212,074 1.22 1999 ..... 12.88 0.13 (2.57) (0.13) $(0.61) 9.70 (18.72) 301,984 1.22 1998 ..... 11.07 0.14 2.41 (0.12) (0.62) 12.88 23.59 390,841 1.21 - --------------------- STRATEGIC INCOME FUND - --------------------- Trust Shares 2002(2) .. $10.00 $ 0.27 $(0.20) $(0.27) -- $ 9.80 0.74% $ 43,717 0.94% - ------------------------------- TAX SENSITIVE GROWTH STOCK FUND - ------------------------------- Trust Shares 2002 ..... $26.74 $(0.02) $(3.47) -- -- $23.25 (13.05)% $ 244,707 1.24% 2001 ..... 33.10 (0.03) (6.33) -- -- 26.74 (19.21) 460,311 1.24 2000 ..... 29.96 0.02 3.12 -- -- 33.10 10.48 710,179 1.20 1999(3) .. 25.61 0.02 4.34 $(0.01) -- 29.96 17.04 223,543 1.20 - ------------------------------- U.S. GOVERNMENT SECURITIES FUND - ------------------------------- Trust Shares 2002 ..... $10.38 $ 0.54 $ 0.26 $(0.54) $(0.17) $10.47 7.90% $ 168,609 0.82% 2001 ..... 9.86 0.58 0.52 (0.58) -- 10.38 11.41 148,666 0.81 2000 ..... 10.28 0.58 (0.42) (0.58) -- 9.86 1.63 85,420 0.77 1999 ..... 10.46 0.59 (0.18) (0.59) -- 10.28 3.90 102,167 0.77 1998 ..... 10.02 0.61 0.44 (0.61) -- 10.46 10.76 34,899 0.76 - ----------------------- VALUE INCOME STOCK FUND - ----------------------- Trust Shares 2002 ..... $11.61 $ 0.12 $(0.56) $(0.12) -- $11.05 (3.68)% $ 686,014 0.90% 2001 ..... 10.38 0.19 1.24 (0.20) -- 11.61 14.09 704,842 0.90 2000 ..... 12.85 0.23 (1.49) (0.22) $(0.99) 10.38 (10.52) 921,797 0.89 1999 ..... 13.90 0.24 1.02 (0.24) (2.07) 12.85 11.13 1,589,951 0.92 1998 ..... 13.71 0.26 2.62 (0.27) (2.42) 13.90 23.10 1,725,418 0.92 - ------------ VANTAGE FUND - ------------ Trust Shares 2002(4) .. $10.00 $(0.03) $(0.32) -- -- $ 9.65 (3.50)% $ 8,816 2.03%
RATIO OF NET RATIO OF RATIO OF INVESTMENT NET EXPENSES TO INCOME (LOSS) TO INVESTMENT AVERAGE NET AVERAGE NET INCOME (LOSS) ASSETS (EXCLUDING ASSETS (EXCLUDING PORTFOLIO TO AVERAGE WAIVERS AND WAIVERS AND TURNOVER NET ASSETS REIMBURSEMENTS) REIMBURSEMENTS) RATE -------------- ----------------- ----------------- --------- - ---------------------------------------- SHORT-TERM U.S. TREASURY SECURITIES FUND - ---------------------------------------- Trust Shares 2002 ..... 3.57% 0.76% 3.51% 117% 2001 ..... 4.95 0.78 4.88 87 2000 ..... 4.70 0.79 4.58 50 1999 ..... 4.69 0.78 4.58 57 1998 ..... 5.19 0.84 5.01 39 - --------------------------- SMALL CAP GROWTH STOCK FUND - --------------------------- Trust Shares 2002 ..... (1.01)% 1.25% (1.01)% 100% 2001 ..... (0.95) 1.25 (0.96) 112 2000 ..... (0.86) 1.23 (0.89) 110 1999(1) .. (0.48) 1.49 (0.77) 75 - --------------------------- SMALL CAP VALUE EQUITY FUND - --------------------------- Trust Shares 2002 ..... 0.67% 1.25% 0.67% 29% 2001 ..... 1.72 1.25 1.72 86 2000 ..... 1.31 1.25 1.28 65 1999 ..... 1.27 1.27 1.22 63 1998 ..... 1.07 1.31 0.97 55 - --------------------- STRATEGIC INCOME FUND - --------------------- Trust Shares 2002(2) .. 6.07% 1.04% 5.97% 43% - ------------------------------- TAX SENSITIVE GROWTH STOCK FUND - ------------------------------- Trust Shares 2002 ..... (0.10)% 1.24% (0.10)% 69% 2001 ..... (0.10) 1.25 (0.11) 103 2000 ..... 0.13 1.26 0.07 30 1999(3) .. 0.21 1.34 0.07 18 - ------------------------------- U.S. GOVERNMENT SECURITIES FUND - ------------------------------- Trust Shares 2002 ..... 5.09% 0.85% 5.06% 262% 2001 ..... 5.66 0.85 5.62 207 2000 ..... 5.77 0.84 5.70 29 1999 ..... 5.58 0.88 5.47 19 1998 ..... 5.93 0.92 5.77 14 - ----------------------- VALUE INCOME STOCK FUND - ----------------------- Trust Shares 2002 ..... 1.13% 0.90% 1.13% 60% 2001 ..... 1.70 0.90 1.70 77 2000 ..... 2.02 0.89 2.02 62 1999 ..... 1.91 0.92 1.91 69 1998 ..... 1.85 0.92 1.85 99 - ------------ VANTAGE FUND - ------------ Trust Shares 2002(4) .. (0.78)% 2.13%(5) (0.88)%(5) 1,063% (+) Returns are for the period indicated and have not been annualized. (1) Shares were offered beginning on October 8, 1998. All ratios for the period have been annualized. (2) Commenced operations on November 30, 2001. All ratios for the period have been annualized. (3) Trust Shares were offered beginning on December 11, 1998. All ratios for the period have been annualized. (4) Trust Shares were offered beginning on November 30, 2001. All ratios for the period have been annualized. (5) This ratio has been changed to reflect the correction of a clerical error contained in the Fund's 2002 Annual Report to Shareholders. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Amounts designated as "--" are either $0 or round to $0. 76 PROSPECTUS - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- For the Periods Ended May 31, (unless otherwise indicated) For a Share Outstanding Throughout the Periods
RATIO OF NET NET ASSET DISTRIBUTIONS RATIO OF INVESTMENT VALUE NET FROM NET NET ASSET NET ASSETS EXPENSES TO INCOME BEGINNING INVESTMENT INVESTMENT VALUE END TOTAL END OF AVERAGE TO AVERAGE OF PERIOD INCOME INCOME OF PERIOD RETURN (+) PERIOD (000) NET ASSETS NET ASSETS ----------- ---------- ------------- ---------- --------- ----------- ----------- ---------- - ------------------------------- PRIME QUALITY MONEY MARKET FUND - ------------------------------- Trust Shares 2002 ..... $1.00 $0.02 $(0.02) $1.00 2.29% $3,907,203 0.63% 2.22% 2001 ..... 1.00 0.06 (0.06) 1.00 5.75 3,728,371 0.63 5.57 2000 ..... 1.00 0.05 (0.05) 1.00 5.20 3,311,229 0.60 5.06 1999 ..... 1.00 0.05 (0.05) 1.00 4.83 3,903,232 0.60 4.69 1998 ..... 1.00 0.05 (0.05) 1.00 5.22 1,880,229 0.59 5.10 - -------------------------------------------- U.S. GOVERNMENT SECURITIES MONEY MARKET FUND - -------------------------------------------- Trust Shares 2002 ..... $1.00 $0.02 $(0.02) $1.00 2.25% $ 997,759 0.66% 2.17% 2001 ..... 1.00 0.05 (0.05) 1.00 5.56 805,285 0.65 5.29 2000 ..... 1.00 0.05 (0.05) 1.00 4.86 468,568 0.63 4.80 1999 ..... 1.00 0.04 (0.04) 1.00 4.57 404,459 0.63 4.47 1998 ..... 1.00 0.05 (0.05) 1.00 5.04 377,490 0.62 4.92 - ---------------------------------- U.S. TREASURY MONEY MARKET FUND(A) - ---------------------------------- Trust Shares 2002 ..... $1.00 $0.02 $(0.02) $1.00 1.96% $ 871,946 0.65% 1.90% 2001 ..... 1.00 0.05 (0.05) 1.00 5.36 733,768 0.66 5.23 2000 ..... 1.00 0.05 (0.05) 1.00 4.81 723,277 0.63 4.71 1999* .... 1.00 0.02 (0.02) 1.00 2.08 760,833 0.68 4.10 For the Year ended November 30: 1998 ..... 1.00 0.05 (0.05) 1.00 4.89 699,923 0.66 4.77 1997 ..... 1.00 0.05 (0.05) 1.00 4.91 632,381 0.65 4.82
RATIO OF NET RATIO OF INVESTMENT EXPENSES TO INCOME TO AVERAGE NET AVERAGE NET ASSETS (EXCLUDING ASSETS (EXCLUDING WAIVERS AND WAIVERS AND REIMBURSEMENTS) REIMBURSEMENTS) ----------------- ----------------- - ------------------------------- PRIME QUALITY MONEY MARKET FUND - ------------------------------- Trust Shares 2002 ..... 0.74% 2.11% 2001 ..... 0.75 5.45 2000 ..... 0.75 4.91 1999 ..... 0.77 4.52 1998 ..... 0.77 4.92 - -------------------------------------------- U.S. GOVERNMENT SECURITIES MONEY MARKET FUND - -------------------------------------------- Trust Shares Trust Share 2002 ..... 0.75% 2.08% 2001 ..... 0.75 5.19 2000 ..... 0.74 4.69 1999 ..... 0.76 4.34 1998 ..... 0.78 4.76 - ---------------------------------- U.S. TREASURY MONEY MARKET FUND(A) - ---------------------------------- Trust Shares 2002 ..... 0.74% 1.81% 2001 ..... 0.76 5.13 2000 ..... 0.74 4.60 1999* .... 0.83 3.95 For the Year ended November 30: 1998 ..... 0.81 4.62 1997 ..... 0.80 4.67 (+) Returns are for the period indicated and have been annualized. * For the period December 1, 1998 to May 31, 1999. All ratios for the period have been annualized. (A) On May 24, 1999, the CrestFunds U.S. Treasury Money Fund exchanged all of its assets and certain liabilities for shares of the U.S. Treasury Money Market Fund. The CrestFunds U.S. Treasury Money Fund is the accounting survivor in this transaction, and as a result, its basis of accounting for assets and liabilities and its operating results for the periods prior to May 24, 1999 have been carried forward in these financial highlights. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Amounts designated as "--" are either $0 or have been rounded to $0. PROSPECTUS 77 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- For the Periods Ended May 31, (unless otherwise indicated) For a Share Outstanding Throughout the Periods
NET REALIZED NET ASSET AND DISTRIBUTIONS RATIO OF VALUE NET UNREALIZED FROM NET DISTRIBUTIONS NET ASSET NET ASSETS EXPENSES TO BEGINNING INVESTMENT GAINS (LOSSES) INVESTMENT FROM REALIZED VALUE END TOTAL END OF AVERAGE OF PERIOD INCOME ON INVESTMENTS INCOME CAPITAL GAINS OF PERIOD RETURN (+) PERIOD (000) NET ASSETS ---------- ---------- -------------- ----------- ------------- --------- ---------- ------------ ----------- - ------------------------------------------ LIFE VISION AGGRESSIVE GROWTH FUND (A) (B) - ------------------------------------------ 2002 ..... $10.31 $0.02 $(0.74) $(0.02) -- $ 9.57 (6.96)% $34,398 0.25% 2001 ..... 11.61 0.11 0.23 (0.12) $(1.52) 10.31 3.07 23,936 0.25 2000 ..... 11.31 0.05 0.74 (0.05) (0.44) 11.61 7.25 18,412 0.25 1999(1) .. 11.32 0.02 1.13 (0.01) (1.15) 11.31 10.99 18,699 0.27 For the years ended November 30: 1998 ..... 10.65 0.03 0.67 (0.03) -- 11.32 6.53 16,230 0.25 1997(2) .. 10.00 0.03 0.65 (0.03) -- 10.65 6.82 13,712 0.25 - ------------------------------------------ LIFE VISION GROWTH AND INCOME FUND (A) (B) - ------------------------------------------ Trust Shares 2002 ..... $10.42 $0.12 $(0.43) $(0.13) -- $ 9.98 (2.97)% $77,395 0.25% 2001 ..... 10.50 0.24 0.40 (0.25) $(0.47) 10.42 6.31 37,550 0.25 2000 ..... 10.33 0.07 0.52 (0.17) (0.25) 10.50 5.81 30,473 0.25 1999(1) .. 11.06 0.08 0.69 (0.06) (1.44) 10.33 7.75 21,950 0.27 For the years ended November 30: 1998 ..... 10.51 0.18 0.56 (0.18) (0.01) 11.06 7.12 19,042 0.25 1997(2) .. 10.00 0.09 0.51 (0.09) -- 10.51 5.97 22,521 0.25 - ---------------------------------------- LIFE VISION MODERATE GROWTH FUND (A) (B) - ---------------------------------------- Trust Shares 2002 ..... $ 9.73 $0.17 $(0.32) $(0.18) -- $ 9.40 (1.52)% $88,592 0.25% 2001 ..... 10.61 0.32 0.20 (0.34) $(1.06) 9.73 5.28 73,429 0.25 2000 ..... 10.80 0.33 0.13 (0.21) (0.44) 10.61 4.46 69,622 0.25 1999(1) .. 11.01 0.11 0.56 (0.09) (0.79) 10.80 6.35 88,188 0.27 For the years ended November 30: 1998 ..... 10.46 0.24 0.58 (0.24) (0.03) 11.01 7.90 93,211 0.25 1997(2) .. 10.00 0.12 0.45 (0.11) -- 10.46 5.70 89,442 0.25
RATIO OF NET RATIO OF RATIO OF INVESTMENT NET EXPENSES TO INCOME (LOSS) TO INVESTMENT AVERAGE NET AVERAGE NET INCOME ASSETS (EXCLUDING ASSETS (EXCLUDING PORTFOLIO TO AVERAGE WAIVERS AND WAIVERS AND TURNOVER NET ASSETS REIMBURSEMENTS) REIMBURSEMENTS) RATE ----------- ----------------- ----------------- --------- - ------------------------------------------ LIFE VISION AGGRESSIVE GROWTH FUND (A) (B) - ------------------------------------------ Trust Shares 2002 ..... 0.17% 0.41% 0.01% 101% 2001 ..... 1.05 0.43 0.87 202 2000 ..... 0.48 0.44 0.29 183 1999(1) .. 0.28 0.63 (0.08) 33 For the years ended November 30: 1998 ..... 0.23 0.66 (0.18) 75 1997(2) .. 0.72 0.73 0.24 34 - ------------------------------------------ LIFE VISION GROWTH AND INCOME FUND (A) (B) - ------------------------------------------ Trust Shares 2002 ..... 1.25% 0.39% 1.11% 166% 2001 ..... 2.41 0.39 2.27 286 2000 ..... 1.77 0.42 1.60 189 1999(1) .. 1.38 0.60 1.05 40 For the years ended November 30: 1998 ..... 1.68 0.59 1.34 57 1997(2) .. 2.11 0.59 1.77 25 - ---------------------------------------- LIFE VISION MODERATE GROWTH FUND (A) (B) - ---------------------------------------- Trust Shares 2002 ..... 1.81% 0.36% 1.70% 202% 2001 ..... 3.04 0.37 2.92 247 2000 ..... 2.19 0.37 2.07 151 1999(1) .. 1.90 0.42 1.75 48 For the years ended November 30: 1998 ..... 2.21 0.42 2.04 52 1997(2) .. 2.66 0.42 2.49 43 (+) Returns are for the period indicated and have not been annualized. (1) For the six month period ended May 31, 1999. All ratios for the period have been annualized. (2) Trust shares were offered beginning on June 30, 1997. All ratios for the period have been annualized. (A) On May 24, 1999, the CrestFunds Life Vision Maximum Growth, CrestFunds Life Vision Growth and Income, and CrestFunds Life Vision Balanced Portfolios exchanged all of their assets and certain liabilities for shares of the Life Vision Aggressive Growth, Life Vision Growth and Income, and Life Vision Moderate Growth Funds, respectively. The CrestFunds Life Vision Maximum Growth, CrestFunds Life Vision Growth and Income, and CrestFunds Life Vision Balanced Portfolios are the accounting survivors in these transactions, and as a result, their basis of accounting for assets and liabilities and their operating results for the periods prior to May 24, 1999 have been carried forward in these financial highlights. (B) The Life Vision Funds and its shareholders indirectly bear a pro rata share of the expenses of the underlying STI Classic Funds. Returns shown do not reflect the deduction of taxes that a shareholder would pa on Fund distributions or the redemption of Fund shares. Amounts designated as "--" are either $0 or round to $0. 78 PROSPECTUS - -------------------------------------------------------------------------------- HOW TO OBTAIN MORE INFORMATION ABOUT THE STI CLASSIC FUNDS - -------------------------------------------------------------------------------- INVESTMENT ADVISER Trusco Capital Management, Inc. 50 Hurt Plaza Suite 1400 Atlanta, Georgia 30303 DISTRIBUTOR SEI Investments Distribution Co. One Freedom Valley Drive Oaks, Pennsylvania 19456 LEGAL COUNSEL Morgan, Lewis & Bockius LLP More information about the Funds is available without charge through the following: STATEMENT OF ADDITIONAL INFORMATION (SAI) The SAI dated October 1, 2002, includes detailed information about the STI Classic Funds. The SAI is on file with the SEC and is incorporated by reference into this prospectus. This means that the SAI, for legal purposes, is a part of this prospectus. ANNUAL AND SEMI-ANNUAL REPORTS These reports list each Fund's holdings and contain information from the Funds' managers about strategies and recent market conditions and trends and their impact on Fund performance. The reports also contain detailed financial information about the Funds. TO OBTAIN AN SAI, ANNUAL OR SEMI-ANNUAL REPORT, OR MORE INFORMATION: BY TELEPHONE: Call 1-800-428-6970 BY MAIL: Write to the Funds c/o SEI Investments Distribution Co. Oaks, Pennsylvania 19456 FROM THE SEC: You can also obtain the SAI or the Annual and Semi-Annual reports, as well as other information about the STI Classic Funds, from the EDGAR Database on the SEC's website ("HTTP://WWW.SEC.GOV"). You may review and copy documents at the SEC Public Reference Room in Washington, DC (for information on the operation of the Public Reference Room, call 202-942-8090). You may request documents by mail from the SEC, upon payment of a duplicating fee, by writing to: Securities and Exchange Commission, Public Reference Section, Washington, DC 20549-0102. You may also obtain this information, upon payment of a duplicating fee, by emailing the SEC at the following address: PUBLICINFO@SEC.GOV. The STI Classic Funds' Investment Company Act registration number is 811-06557. STI-PS-006-0200 [Background graphic omitted] - -------------------------------------------------------------------------------- 401(K) PROSPECTUS [SUNTRUST LOGO OMITTED] - -------------------------------------------------------------------------------- Oct. 1, 2002 STI Classic Funds for the SunTrust 401(k) Plan The Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense. PROSPECTUS - ----------------------- ABOUT THIS PROSPECTUS - ----------------------- The STI Classic Funds is a mutual fund family that offers shares in separate investment portfolios (Funds). The Funds have individual investment goals and strategies. This prospectus gives you important information about the Trust Shares of each Fund that you should know before investing. Please read this prospectus and keep it for future reference. THIS PROSPECTUS HAS BEEN ARRANGED INTO DIFFERENT SECTIONS SO THAT YOU CAN EASILY REVIEW THIS IMPORTANT INFORMATION. ON THE NEXT PAGE, THERE IS SOME GENERAL INFORMATION YOU SHOULD KNOW ABOUT RISK AND RETURN THAT IS COMMON TO EACH OF THE FUNDS. FOR MORE DETAILED INFORMATION ABOUT EACH FUND, PLEASE SEE: [ 2] CAPITAL APPRECIATION FUND [ 4] GROWTH AND INCOME FUND [ 6] INVESTMENT GRADE BOND FUND [ 8] MID-CAP EQUITY FUND [10] PRIME QUALITY MONEY MARKET FUND [12] SHORT-TERM BOND FUND [14] SMALL CAP GROWTH STOCK FUND [16] VALUE INCOME STOCK FUND [18] MORE INFORMATION ABOUT RISK [18] MORE INFORMATION ABOUT FUND INVESTMENTS [19] INVESTMENT ADVISER [19] PORTFOLIO MANAGERS [20] PURCHASING AND SELLING FUND SHARES [22] DIVIDENDS AND DISTRIBUTIONS [22] TAXES [23] FINANCIAL HIGHLIGHTS [25] HOW TO OBTAIN MORE INFORMATION ABOUT THE STI CLASSIC FUNDS - -------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY [TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING? [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES [MOUNTAIN GRAPHIC OMITTED] MORE INFORMATION ABOUT FUND INVESTMENTS [MAGNIFIER GRAPHIC OMITTED] INVESTMENT ADVISER [HANDSHAKE GRAPHIC OMITTED] PURCHASING AND SELLING FUND SHARES - -------------------------------------------------------------------------------- OCTOBER 1, 2002 PROSPECTUS 1
- ------------------------------------------------------------------------------------------------------------------------------------ CUSIP/TICKER SYMBOLS - ------------------------------------------------------------------------------------------------------------------------------------ FUND NAME CLASS INCEPTION* TICKER CUSIP - --------------------------------------------------------------------------------------------------------------------------- EQUITY FUNDS Capital Appreciation Trust 7/1/92 STCAX 784766867 Growth and Income Trust 9/26/92 CRVAX 784766198 Mid-Cap Equity Trust 2/2/94 SAGTX 784766750 Small Cap Growth Stock Trust 10/8/98 SSCTX 784766263 Value Income Stock Trust 10/31/89 STVTX 784766834 - --------------------------------------------------------------------------------------------------------------------------- FIXED INCOME FUNDS Investment Grade Bond Trust 7/16/92 STIGX 784766701 Short-Term Bond Trust 3/15/93 SSBTX 784766826 - --------------------------------------------------------------------------------------------------------------------------- MONEY MARKET FUNDS Prime Quality Money Market Trust 6/8/92 SQTXX 784766107 - --------------------------------------------------------------------------------------------------------------------------- * THE INCEPTION DATE REFLECTS THE BEGINNING OF THE CLASS'S PERFORMANCE HISTORY, WHICH MAY INCLUDE THE PERFORMANCE OF OTHER CLASSES OF THE FUND AND/OR PREDECESSORS OF THE FUND. FOR FURTHER INFORMATION, SEE "PERFORMANCE INFORMATION."
- -------------------------------------------------------------------------------- RISK/RETURN INFORMATION COMMON TO THE FUNDS - -------------------------------------------------------------------------------- Each Fund is a mutual fund. A mutual fund pools shareholders' money and, using professional investment managers, invests it in securities. Each Fund has its own investment goal and strategies for reaching that goal. The Adviser invests Fund assets in a way that it believes will help a Fund achieve its goal. Still, investing in each Fund involves risk and there is no guarantee that a Fund will achieve its goal. The Adviser's judgments about the markets, the economy or companies may not anticipate actual market movements, economic conditions or company performance, and these judgments may affect the return on your investment. In fact, no matter how good a job the Adviser does, you could lose money on your investment in a Fund, just as you could with other investments. A FUND SHARE IS NOT A BANK DEPOSIT AND IT IS NOT INSURED OR GUARANTEED BY THE FDIC OR ANY GOVERNMENT AGENCY. The value of your investment in a Fund (other than a money market fund) is based on the market prices of the securities a Fund holds. These prices change daily due to economic and other events that affect particular companies and other issuers. These price movements, sometimes called volatility, may be greater or lesser depending on the types of securities a Fund owns and the markets in which they trade. The effect on a Fund of a change in the value of a single security will depend on how widely the Fund diversifies its holdings. 2 PROSPECTUS - -------------------------------------------------------------------------------- CAPITAL APPRECIATION FUND - -------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOAL Capital appreciation - -------------------------------------------------------------------------------- INVESTMENT FOCUS U.S. common stocks - -------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Moderate - -------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify companies with above average growth potential - -------------------------------------------------------------------------------- INVESTOR PROFILE Investors who want the value of their investment to grow, but do not need to receive income on their investment - -------------------------------------------------------------------------------- [TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Capital Appreciation Fund invests primarily in U.S. common stocks and other equity securities that the Adviser believes have strong business fundamentals, such as revenue growth, cash flows and earnings trends. In selecting investments for the Fund, the Adviser chooses companies that it believes have above average growth potential. The Adviser uses a "bottom-up" process based on individual company earnings trends and fundamentals to determine the weighting of the Fund's investments in various equity market sectors. The Adviser's strategy focuses primarily on large-cap stocks, but will also utilize mid-cap stocks. Due to its investment strategy, the Fund may buy and sell securities frequently. This may result in higher transaction costs and additional capital gains tax liabilities. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S TRUST SHARES FROM YEAR TO YEAR.* [BAR GRAPH OMITTED] [PLOT POINTS FOLLOW:] 1993 9.89% 1994 -7.14% 1995 31.15% 1996 20.31% 1997 31.13% 1998 28.06% 1999 9.71% 2000 1.62% 2001 -6.49% BEST QUARTER WORST QUARTER 22.93% -14.98% (12/31/98) (9/30/01) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS -13.00%. PROSPECTUS 3 - -------------------------------------------------------------------------------- CAPITAL APPRECIATION FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE S&P 500(R) INDEX. TRUST SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Capital Appreciation Fund -6.49% 11.85% 12.91% - -------------------------------------------------------------------------------- S&P 500(R) Index -11.88% 10.70% 13.73% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE TRUST SHARES ON JULY 1, 1992. BENCHMARK RETURNS SINCE JUNE 30, 1992 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). -------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? -------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The S&P 500(R) Index is a widely-recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index of 500 stocks designed to mimic the overall U.S. equity market's industry weightings. [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 1.15% Other Expenses 0.09% ----- Total Annual Fund Operating Expenses 1.24%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THIS FEE WAIVER REMAINS IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: CAPITAL APPRECIATION FUND - TRUST SHARES 1.22% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $126 $393 $681 $1,500 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. In addition, the Fund may enter into arrangements with broker-dealers who have agreed to pay certain Fund expenses in return for executing Fund transactions through that broker-dealer. For more information about these fees, see "Investment Adviser." 4 PROSPECTUS - -------------------------------------------------------------------------------- GROWTH AND INCOME FUND - -------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOALS PRIMARY Long-term capital appreciation SECONDARY Current income - -------------------------------------------------------------------------------- INVESTMENT FOCUS Equity securities - -------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Moderate - -------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify securities of companies with market capitalizations of at least $1 billion with attractive valuation and/or above average earnings potential relative either to their sectors or the market as a whole - -------------------------------------------------------------------------------- INVESTOR PROFILE Investors who are looking for capital appreciation potential and some income with less volatility than the equity market as a whole - -------------------------------------------------------------------------------- [TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Growth and Income Fund invests primarily in equity securities, including common stocks of domestic companies and listed American Depositary Receipts (ADRs) of foreign companies, all with market capitalizations of at least $1 billion. However, the average market capitalization can vary throughout a full market cycle and will be flexible to allow the Adviser to capture market opportunities. The Adviser uses a quantitative screening process to identify companies with attractive fundamental profiles. The portfolio management team selects stocks of companies with strong financial quality and above average earnings potential to secure the best relative values in each economic sector. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. Investing in foreign countries poses additional risks since political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. In addition, investments in foreign countries are generally denominated in a foreign currency. As a result, changes in the value of those currencies compared to the U.S. dollar may affect (positively or negatively) the value of a Fund's investments. These currency movements may happen separately from and in response to events that do not otherwise affect the value of the security in the issuer's home country. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S TRUST SHARES FROM YEAR TO YEAR.* [BAR GRAPH OMITTED] [PLOT POINTS FOLLOW:] 1993 10.20% 1994 -0.81% 1995 29.38% 1996 19.06% 1997 27.69% 1998 18.20% 1999 14.17% 2000 1.43% 2001 -6.60% BEST QUARTER WORST QUARTER 17.38% -10.84% (6/30/97) (9/30/01) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS -8.67%. PROSPECTUS 5 - -------------------------------------------------------------------------------- GROWTH AND INCOME FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE S&P 500(R)/BARRA VALUE INDEX. TRUST SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Growth and Income Fund -6.60% 10.30% 12.32% - -------------------------------------------------------------------------------- S&P 500(R)/BARRA Value Index -11.71% 9.49% 13.46% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE TRUST SHARES ON SEPTEMBER 26, 1992. BENCHMARK RETURNS SINCE SEPTEMBER 30, 1992 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). -------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? -------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The S&P 500(R)/BARRA Value Index is a widely-recognized index of the stocks in the S&P 500(R) Index that have lower price-to-book ratios. The S&P 500(R) Index is a widely-recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index of 500 stocks designed to mimic the overall U.S. equity market's industry weightings. [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 0.90% Other Expenses 0.09% ----- Total Annual Fund Operating Expenses 0.99% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $101 $315 $547 $1,213 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. In addition, the Fund may enter into arrangements with broker-dealers who have agreed to pay certain Fund expenses in return for executing Fund transactions through that broker-dealer. For more information about these fees, see "Investment Adviser." 6 PROSPECTUS - -------------------------------------------------------------------------------- INVESTMENT GRADE BOND FUND - -------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOAL High total return through current income and capital appreciation, while preserving the principal amount invested - -------------------------------------------------------------------------------- INVESTMENT FOCUS Investment grade U.S. government and corporate debt securities - -------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Moderate - -------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify relatively inexpensive securities in a selected market index - -------------------------------------------------------------------------------- INVESTOR PROFILE Investors who want to receive income from their investment, as well as an increase in the value of the investment - -------------------------------------------------------------------------------- [TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Investment Grade Bond Fund invests at least 80% of its net assets in investment grade fixed income securities. The Adviser focuses on corporate debt securities, U.S. Treasury obligations, and mortgage-backed securities. In selecting investments for the Fund, the Adviser tries to minimize risk while attempting to outperform selected market indices. Currently, the Adviser's selected index is the Lehman Brothers U.S. Government/Credit Index, a widely recognized, unmanaged index of investment grade government and corporate debt securities. The Adviser seeks to invest more in portions of the Index that seem relatively inexpensive, and less in those that seem expensive. The Adviser allocates the Fund's investments among various market sectors based on the Adviser's analysis of historical data, yield information and credit ratings. The Adviser anticipates that the Fund's average weighted maturity will range from 4 to 10 years. Due to its investment strategy, the Fund may buy and sell securities frequently. This may result in higher transaction costs and additional capital gains tax liabilities. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? The prices of the Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, the Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities are generally more volatile, so the average maturity or duration of these securities affects risk. Mortgage-backed securities are fixed income securities representing an interest in a pool of underlying mortgage loans. Mortgage-backed securities are sensitive to changes in interest rates, but may respond to these changes differently from other fixed income securities due to the possibility of prepayment of the underlying mortgage loans. As a result, it may not be possible to determine in advance the actual maturity date or average life of a mortgage-backed security. Rising interest rates tend to discourage refinancings, with the result that the average life and volatility of the security will increase, exacerbating its decrease in market price. When interest rates fall, however, mortgage-backed securities may not gain as much in market value because of the expectation of additional mortgage prepayments that must be reinvested at lower interest rates. Prepayment risk may make it difficult to calculate the average maturity of the portfolio of mortgage-backed securities and, therefore, to assess the volatility risk of that portfolio. Although the Fund's U.S. government securities are considered to be among the safest investments, they are not guaranteed against price movements due to changing interest rates. Obligations issued by some U.S. government agencies are backed by the U.S. Treasury, while others are backed solely by the ability of the agency to borrow from the U.S. Treasury or by the agency's own resources. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S TRUST SHARES FROM YEAR TO YEAR.* [BAR GRAPH OMITTED] [PLOT POINTS FOLLOW:] 1993 10.84% 1994 -3.32% 1995 17.80% 1996 2.34% 1997 9.08% 1998 9.19% 1999 -1.53% 2000 6.57% 2001 9.06% BEST QUARTER WORST QUARTER 6.11% -2.67% (6/30/95) (3/31/94) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS 0.41%. PROSPECTUS 7 - -------------------------------------------------------------------------------- INVESTMENT GRADE BOND FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE LEHMAN BROTHERS U.S. GOVERNMENT/CREDIT INDEX, LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX AND THE LIPPER INTERMEDIATE INVESTMENT GRADE DEBT FUNDS AVERAGE. TRUST SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Investment Grade Bond Fund 9.06% 6.39% 6.44% - -------------------------------------------------------------------------------- Lehman Brothers U.S. Government/ Credit Index 8.51% 7.36% 7.17% - ------------------------------------------------------------------------------- Lehman Brothers U.S. Aggregate Bond Index 8.42% 7.43% 7.16% - -------------------------------------------------------------------------------- Lipper Intermediate Investment Grade Debt Funds Average 7.62% 6.44% 6.43% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE TRUST SHARES ON JULY 16, 1992. BENCHMARK RETURNS SINCE JULY 31, 1992 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). -------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? -------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Lehman Brothers U.S. Government/Credit Index is a widely-recognized, market value-weighted (higher market value bonds have more influence than lower market value bonds) index of U.S. Treasury securities, U.S. government agency obligations, corporate debt backed by the U.S. government, fixed-rate nonconvertible corporate debt securities, Yankee bonds, and nonconvertible debt securities issued by or guaranteed by foreign governments and agencies. All securities in the Index are rated investment grade (BBB) or higher, with maturities of at least 1 year. The Lehman Brothers U.S. Aggregate Bond Index is a widely-recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index that combines the Lehman Brothers U.S. Government/Credit Index and the Lehman Brothers Mortgage-Backed Securities Index. The Lehman Brothers U.S. Government/Credit Index consists of U.S. government obligations and corporate debt securities. The Lehman Brothers Mortgage-Backed Securities Index consists of mortgage-backed securities rated AAA. The Lehman Brothers U.S. Aggregate Bond Index includes fixed income securities rated investment grade (BBB) or higher, with maturities of at least one year. The securities in the Index have outstanding par values of at least $100 million for U.S. government obligations and $25 million for the others. The Lipper Intermediate Investment Grade Debt Funds Average is a composite of mutual funds with investment goals similar to the Fund's goals. It reports the Average of the intermediate term investment grade bond mutual funds tracked by Lipper Analytical Services, Inc. The number of funds in the Average varies. [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 0.74% Other Expenses 0.09% ----- Total Annual Fund Operating Expenses 0.83%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THIS FEE WAIVER REMAINS IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: INVESTMENT GRADE BOND FUND - TRUST SHARES 0.81% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $85 $265 $460 $1,025 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." 8 PROSPECTUS - -------------------------------------------------------------------------------- MID-CAP EQUITY FUND - -------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOAL Capital appreciation - -------------------------------------------------------------------------------- INVESTMENT FOCUS U.S. mid-cap common stocks - -------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Moderate to high - -------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify companies with above average growth potential at an attractive price - -------------------------------------------------------------------------------- INVESTOR PROFILE Investors who want the value of their investment to grow and who are willing to accept more volatility for the possibility of higher returns - -------------------------------------------------------------------------------- [TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Mid-Cap Equity Fund invests at least 80% of its net assets in a diversified portfolio of common stocks and other equity securities of U.S. companies that have small- to mid-sized market capitalizations (I.E., companies with market capitalizations of $500 million to $10 billion or companies in the S&P Mid Cap 400(R) Index). In selecting investments for the Fund, the Adviser chooses companies that, in its opinion, offer above average growth potential at attractive prices. The Adviser evaluates companies based on their industry sectors and the market in general. The Fund maintains holdings in the industries that appear to perform best during a given business cycle. The Adviser analyzes companies that are in favored industries based on their fundamental characteristics, such as growth rates and earnings. The Adviser does not consider current income in selecting investments for the Fund. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The Fund is also subject to the risk that mid-cap common stocks may underperform other segments of the equity market or the equity market as a whole. The small- to mid-sized capitalization companies the Fund invests in may be more vulnerable to adverse business or economic events than larger, more established companies. In particular, these small companies may have limited product lines, markets and financial resources, and may depend upon a relatively small management group. Therefore, small-cap and mid-cap stocks may be more volatile than those of larger companies. These securities may be traded over-the-counter or listed on an exchange. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S TRUST SHARES FROM YEAR TO YEAR.* [BAR GRAPH OMITTED] [PLOT POINTS FOLLOW:] 1995 31.22% 1996 15.42% 1997 21.23% 1998 6.48% 1999 16.14% 2000 -2.97% 2001 2.38% BEST QUARTER WORST QUARTER 24.73% -19.96% (12/31/98) (9/30/98) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS -18.14%. PROSPECTUS 9 - -------------------------------------------------------------------------------- MID-CAP EQUITY FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE S&P MID CAP 400(R) INDEX. TRUST SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Mid-Cap Equity Fund 2.38% 8.29% 10.60% - -------------------------------------------------------------------------------- S&P Mid Cap 400(R) Index -0.61% 16.11% 15.38% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE TRUST SHARES ON FEBRUARY 2, 1994. BENCHMARK RETURNS SINCE JANUARY 31, 1994 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). -------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? -------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The S&P Mid Cap 400(R) Index is a widely-recognized, capitalization-weighted (companies with larger market capitalizations have more influence than those with smaller market capitalizations) index of 400 domestic mid-cap stocks chosen for market size, liquidity, and industry group representation. [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 1.15% Other Expenses 0.09% ----- Total Annual Fund Operating Expenses 1.24%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THIS FEE WAIVER REMAINS IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: MID-CAP EQUITY FUND - TRUST SHARES 1.22% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $126 $393 $681 $1,500 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. In addition, the Fund may enter into arrangements with broker-dealers who have agreed to pay certain Fund expenses in return for executing Fund transactions through that broker-dealer. For more information about these fees, see "Investment Adviser." 10 PROSPECTUS - -------------------------------------------------------------------------------- PRIME QUALITY MONEY MARKET FUND - -------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOAL High current income, while preserving capital and liquidity - -------------------------------------------------------------------------------- INVESTMENT FOCUS Money market instruments - -------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify money market instruments with the most attractive risk/return trade-off - -------------------------------------------------------------------------------- INVESTOR PROFILE Conservative investors who want to receive current income from their investment - -------------------------------------------------------------------------------- [TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Prime Quality Money Market Fund invests exclusively in high quality U.S. money market instruments and foreign money market instruments denominated in U.S. dollars. In selecting investments for the Fund, the Adviser tries to increase income without adding undue risk. The Adviser analyzes maturity, yields, market sectors and credit risk. Investments are made in money market instruments with the most attractive risk/return trade-off. As a money market fund, the Fund follows strict rules about credit risk, maturity and diversification of its investments. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? An investment in the Fund is subject to income risk, which is the possibility that the Fund's yield will decline due to falling interest rates. A Fund share is not a bank deposit and is not insured or guaranteed by the FDIC or any government agency. In addition, although a money market fund seeks to keep a constant price per share of $1.00, you may lose money by investing in the Fund. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S TRUST SHARES FROM YEAR TO YEAR.* [BAR GRAPH OMITTED] [PLOT POINTS FOLLOW:] 1993 2.77% 1994 3.77% 1995 5.47% 1996 4.99% 1997 5.15% 1998 5.10% 1999 4.74% 2000 6.04% 2001 3.72% BEST QUARTER WORST QUARTER 1.55% 0.52% (9/30/00) (12/31/01) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS 0.75%. PROSPECTUS 11 - -------------------------------------------------------------------------------- PRIME QUALITY MONEY MARKET FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE IMONEYNET, INC. FIRST TIER RETAIL AVERAGE. TRUST SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Prime Quality Money Market Fund 3.72% 4.95% 4.54% - -------------------------------------------------------------------------------- iMoneyNet, Inc. First Tier Retail Average 3.54% 4.77% 4.40% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE TRUST SHARES ON JUNE 8, 1992. BENCHMARK RETURNS SINCE MAY 31, 1992 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). -------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN AVERAGE? -------------------------------------------------- An average is a composite of mutual funds with similar investment goals. The iMoneyNet, Inc. First Tier Retail Average is a widely-recognized composite of money market funds which invest in securities rated in the highest category by at least two recognized rating agencies. The number of funds in the Average varies. To obtain more information about the Fund's current yield, call 1-800-814-3397. [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 0.65% Other Expenses 0.09% ----- Total Annual Fund Operating Expenses 0.74%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THIS FEE WAIVER REMAINS IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: PRIME QUALITY MONEY MARKET FUND - TRUST SHARES 0.63% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $76 $237 $411 $918 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." 12 PROSPECTUS - -------------------------------------------------------------------------------- SHORT-TERM BOND FUND - -------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOAL High current income, while preserving capital - -------------------------------------------------------------------------------- INVESTMENT FOCUS Investment grade U.S. government and corporate debt securities - -------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Low - -------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify securities that offer a comparably better return than similar securities for a given level of credit risk - -------------------------------------------------------------------------------- INVESTOR PROFILE Income oriented investors who are willing to accept increased risk for the possibility of returns greater than money market investing - -------------------------------------------------------------------------------- [TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Short-Term Bond Fund invests at least 80% of its net assets in a diversified portfolio of short- to medium-term investment grade U.S. Treasury, corporate debt, mortgage-backed and asset-backed securities. The Fund expects that it will normally maintain an average weighted maturity of approximately 3 years. In selecting investments for the Fund, the Adviser attempts to identify securities that offer a comparably better investment return for a given level of credit risk. For example, short-term bonds generally have better returns than money market instruments, with a fairly modest increase in credit risk and/or volatility. The Adviser manages the Fund from a total return perspective. That is, the Adviser makes day-to-day investment decisions for the Fund with a view towards maximizing returns. The Adviser analyzes yields, market sectors and credit risk in an effort to identify attractive investments with the best risk/reward trade-off. Due to its investment strategy, the Fund may buy and sell securities frequently. This may result in higher transaction costs and additional capital gains tax liabilities. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? The prices of the Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, the Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities are generally more volatile, so the average maturity or duration of these securities affects risk. Mortgage-backed and asset-backed securities are fixed income securities representing an interest in a pool of underlying mortgage loans or underlying assets such as truck and auto loans, leases and credit card receivables. Mortgage-backed and asset-backed securities are sensitive to changes in interest rates, but may respond to these changes differently from other fixed income securities due to the possibility of prepayment of the underlying mortgage loan, receivables or other assets underlying these securities. As a result, it may not be possible to determine in advance the actual maturity date or average life of a mortgage-backed or asset-backed security. Rising interest rates tend to discourage refinancings, with the result that the average life and volatility of the security will increase, exacerbating its decrease in the market place. When interest rates fall, however, mortgage-backed and asset-backed securities may not gain as much in market value because of the expectation of additional mortgage prepayment or prepayment of the underlying asset that must be reinvested at lower interest rates. Prepayment risk may make it difficult to calculate the average maturity of the portfolio of mortgage-backed or asset-backed securities and, therefore, to assess the volatility risk of that portfolio. Although the Fund's U.S. government securities are considered to be among the safest investments, they are not guaranteed against price movements due to changing interest rates. Obligations issued by some U.S. government agencies are backed by the U.S. Treasury, while others are backed solely by the ability of the agency to borrow from the U.S. Treasury or by the agency's own resources. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S TRUST SHARES FROM YEAR TO YEAR.* [BAR GRAPH OMITTED] [PLOT POINTS FOLLOW:] 1994 -0.07% 1995 11.77% 1996 3.90% 1997 6.78% 1998 6.84% 1999 0.92% 2000 7.64% 2001 7.54% BEST QUARTER WORST QUARTER 3.86% -0.75% (9/30/01) (12/31/01) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS -0.35%. PROSPECTUS 13 - -------------------------------------------------------------------------------- SHORT-TERM BOND FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE SALOMON 1-3 YEAR TREASURY/GOVERNMENT SPONSORED/CORPORATE INDEX. TRUST SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - -------------------------------------------------------------------------------- Short-Term Bond Fund 7.54% 5.91% 5.56% - -------------------------------------------------------------------------------- Salomon 1-3 Year Treasury/Government Sponsored/Corporate Index 8.87% 6.77% 6.10% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE TRUST SHARES ON MARCH 15, 1993. BENCHMARK RETURNS SINCE FEBRUARY 28, 1993 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). -------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? -------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Salomon 1-3 Year Treasury/Government Sponsored/Corporate Index is a widely-recognized index of U.S. Treasury securities, government agency obligations, and corporate debt securities rated at least investment grade (BBB). The securities in the Index have maturities of 1 year or greater and less than 3 years. [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 0.65% Other Expenses 0.10% ----- Total Annual Fund Operating Expenses 0.75%* * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THIS FEE WAIVER REMAINS IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: SHORT-TERM BOND FUND - TRUST SHARES 0.70% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $77 $240 $417 $930 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." 14 PROSPECTUS - -------------------------------------------------------------------------------- SMALL CAP GROWTH STOCK FUND - -------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOAL Long-term capital appreciation - -------------------------------------------------------------------------------- INVESTMENT FOCUS U.S. small cap common stocks of growth companies - -------------------------------------------------------------------------------- SHARE PRICE VOLATILITY High - -------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Identifies small cap companies with above average growth potential - -------------------------------------------------------------------------------- INVESTOR PROFILE Investors who want the value of their investment to grow, but do not need current income - -------------------------------------------------------------------------------- [TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Small Cap Growth Stock Fund invests at least 80% of its net assets in small U.S. companies with market capitalizations between $50 million and $3 billion in size. The Fund's investment philosophy is based on the premise that a portfolio of small cap stocks with positive earnings trends, reasonable valuation, and strong fundamentals will provide superior returns over time. The Adviser selects companies with strong current earnings growth, improving profitability, a strong balance sheet, strong current and projected business fundamentals, and priced at reasonable valuations. The Adviser believes in executing a very disciplined and objective investment process and in controlling risk through a broadly diversified portfolio. Due to its investment strategy, the Fund may buy and sell securities frequently. This may result in higher transaction costs and the potential for capital gains tax liabilities. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? Since it purchases common stocks, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the stock markets have moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The Fund is also subject to the risk that small capitalization growth stocks may underperform other segments of the equity market or the equity market as a whole. The smaller capitalization companies the Fund invests in may be more vulnerable to adverse business or economic events than larger, more established companies. In particular, these small companies may have limited product lines, markets and financial resources, and may depend upon a relatively small management group. Therefore, small cap stocks may be more volatile than those of larger companies. These securities may be traded over-the-counter or listed on an exchange. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S TRUST SHARES FROM YEAR TO YEAR.* [BAR GRAPH OMITTED] PLOT POINTS FOLLOW:] 1999 20.55% 2000 11.76% 2001 -0.82% BEST QUARTER WORST QUARTER 23.93% -22.83% (12/31/01) (9/30/01) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS -9.21%. PROSPECTUS 15 - -------------------------------------------------------------------------------- SMALL CAP GROWTH STOCK FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE S&P SMALL CAP 600(R) INDEX. TRUST SHARES 1 YEAR SINCE INCEPTION* - -------------------------------------------------------------------------------- Small Cap Growth Stock Fund -0.82% 23.08% - -------------------------------------------------------------------------------- S&P Small Cap 600(R) Index 6.54% 14.99% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE TRUST SHARES ON OCTOBER 8, 1998. BENCHMARK RETURNS SINCE SEPTEMBER 30, 1998 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). -------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? -------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The S&P Small Cap 600(R) Index is a widely-recognized, capitalization-weighted (companies with larger market capitalizations have more influence than those with smaller market capitalizations) index of 600 domestic small cap stocks. [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 1.15% Other Expenses 0.10% ----- Total Annual Fund Operating Expenses 1.25% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $127 $397 $686 $1,511 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. In addition, the Fund may enter into arrangements with broker-dealers who have agreed to pay certain Fund expenses in return for executing Fund transactions through that broker-dealer. For more information about these fees, see "Investment Adviser." 16 PROSPECTUS - -------------------------------------------------------------------------------- VALUE INCOME STOCK FUND - -------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOALS PRIMARY Current income SECONDARY Capital appreciation - -------------------------------------------------------------------------------- INVESTMENT FOCUS U.S. common stocks - -------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Moderate - -------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify high dividend-paying, undervalued stocks - -------------------------------------------------------------------------------- INVESTOR PROFILE Investors who are looking for current income and capital appreciation with less volatility than the average stock fund - -------------------------------------------------------------------------------- [TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Value Income Stock Fund invests at least 80% of its net assets in common stocks and other equity securities of companies. In selecting investments for the Fund, the Adviser primarily chooses U.S. companies that have a market capitalization of at least $5 billion and that have a history of paying regular dividends. The Adviser focuses on dividend-paying stocks that trade below their historical value. The Adviser's "bottom-up" approach to stock selection emphasizes individual stocks over economic trends. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. The Fund began operating as a registered mutual fund on February 12, 1993. Performance prior to February 12, 1993 is that of the Adviser's similarly managed collective investment fund, which began operating on October 31, 1989. The collective fund's performance has been adjusted to reflect the fees and expenses for Trust Shares of the Fund. As a collective investment fund, rather than a registered mutual fund, it was not subject to the same investment and tax restrictions. If it had been, the collective fund's performance would have been lower. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S TRUST SHARES FROM YEAR TO YEAR.* [BAR GRAPH OMITTED] [PLOT POINTS FOLLOW:] 1992 20.05% 1993 11.14% 1994 3.54% 1995 35.93% 1996 19.46% 1997 27.08% 1998 10.58% 1999 -2.93% 2000 10.85% 2001 -0.95% BEST QUARTER WORST QUARTER 15.35% -12.14% (6/30/99) (9/30/99) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS -4.36%. PROSPECTUS 17 - -------------------------------------------------------------------------------- VALUE INCOME STOCK FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE S&P 500(R)/BARRA VALUE INDEX. TRUST SHARES 1 YEAR 5 YEARS 10 YEARS - -------------------------------------------------------------------------------- Value Income Stock Fund -0.95% 8.41% 12.88% - -------------------------------------------------------------------------------- S&P 500(R)/BARRA Value Index -11.71% 9.49% 13.10% - -------------------------------------------------------------------------------- -------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? -------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The S&P 500(R)/BARRA Value Index is a widely-recognized index of the stocks in the S&P 500(R) Index that have lower price-to-book ratios. The S&P 500(R) Index is a widely-recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index of 500 stocks designed to mimic the overall U.S. equity market's industry weightings. [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 0.80% Other Expenses 0.10% ----- Total Annual Fund Operating Expenses 0.90% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $92 $287 $498 $1,108 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. In addition, the Fund may enter into arrangements with broker-dealers who have agreed to pay certain Fund expenses in return for executing Fund transactions through that broker-dealer. For more information about these fees, see "Investment Adviser." 18 PROSPECTUS - -------------------------------------------------------------------------------- MORE INFORMATION ABOUT RISK - -------------------------------------------------------------------------------- [LIFE PRESERVER GRAPHIC OMITTED] MORE INFORMATION ABOUT RISK EQUITY RISK CAPITAL APPRECIATION FUND GROWTH AND INCOME FUND MID-CAP EQUITY FUND SMALL CAP GROWTH STOCK FUND VALUE INCOME STOCK FUND Equity securities include public and privately issued equity securities, common and preferred stocks, warrants, rights to subscribe to common stock and convertible securities, as well as instruments that attempt to track the price movement of equity indices. Investments in equity securities and equity derivatives in general are subject to market risks that may cause their prices to fluctuate over time. The value of securities convertible into equity securities, such as warrants or convertible debt, is also affected by prevailing interest rates, the credit quality of the issuer and any call provision. Fluctuations in the value of equity securities in which a mutual fund invests will cause a fund's net asset value to fluctuate. An investment in a portfolio of equity securities may be more suitable for long-term investors who can bear the risk of these share price fluctuations. FIXED INCOME RISK INVESTMENT GRADE BOND FUND SHORT-TERM BOND FUND The market value of fixed income investments changes in response to interest rate changes and other factors. During periods of falling interest rates, the values of outstanding fixed income securities generally rise. Moreover, while securities with longer maturities tend to produce higher yields, the prices of longer maturity securities are also subject to greater market fluctuations as a result of changes in interest rates. In addition to these fundamental risks, different types of fixed income securities may be subject to the following additional risk: CREDIT RISK INVESTMENT GRADE BOND FUND SHORT-TERM BOND FUND The possibility that an issuer will be unable to make timely payments of either principal or interest. FOREIGN SECURITY RISKS GROWTH AND INCOME FUND Investments in securities of foreign companies or governments can be more volatile than investments in U.S. companies or governments. Diplomatic, political, or economic developments, including nationalization or appropriation, could affect investments in foreign countries. Foreign securities markets generally have less trading volume and less liquidity than U.S. markets. In addition, the value of securities denominated in foreign currencies, and of dividends from such securities, can change significantly when foreign currencies strengthen or weaken relative to the U.S. dollar. Foreign companies or governments generally are not subject to uniform accounting, auditing, and financial reporting standards comparable to those applicable to domestic U.S. companies or governments. Transaction costs are generally higher than those in the U.S. and expenses for custodial arrangements of foreign securities may be somewhat greater than typical expenses for custodial arrangements of similar U.S. securities. Some foreign governments levy withholding taxes against dividend and interest income. Although in some countries a portion of these taxes are recoverable, the non-recovered portion will reduce the income received from the securities comprising the portfolio. [MOUNTAIN GRAPHIC OMITTED] MORE INFORMATION ABOUT FUND INVESTMENTS This prospectus describes the Funds' primary strategies, and the Funds will normally invest in the types of securities described in this prospectus. However, in addition to the investments and strategies described in this prospectus, each Fund also may invest in other securities, use other strategies and engage in other investment practices. These investments and strategies, as well as those described in this prospectus, are described in detail in the Statement of Additional Information (SAI). The investments and strategies described in this prospectus are those that the Adviser uses under normal conditions. During unusual economic or market conditions, or for temporary defensive or liquidity purposes, each Fund (except the Prime PROSPECTUS 19 - -------------------------------------------------------------------------------- INVESTMENT ADVISER AND PORTFOLIO MANAGERS - -------------------------------------------------------------------------------- Quality Money Market Fund) may invest up to 100% of its assets in cash, money market instruments, repurchase agreements and short-term obligations that would not ordinarily be consistent with a Fund's objectives. In addition, the Investment Grade Bond and Short-Term Bond Funds each may shorten its average weighted maturity to as little as 90 days. A Fund (other than the Prime Quality Money Market Fund) will do so only if the Adviser believes that the risk of loss outweighs the opportunity for capital gains or higher income. Of course, a Fund cannot guarantee that it will achieve its investment goal. [MAGNIFIER GRAPHIC OMITTED] INVESTMENT ADVISER The investment adviser (Adviser) makes investment decisions for the Funds and continuously reviews, supervises and administers each Fund's respective investment program. The Board of Trustees supervises the Adviser and establishes policies that the Adviser must follow in its management activities. Trusco Capital Management, Inc. (Trusco or the Adviser), 50 Hurt Plaza, Suite 1400, Atlanta, Georgia 30303, serves as the Adviser to the Funds. As of June 30, 2002, Trusco had $45.5 billion in assets under management. For the fiscal period ended May 31, 2002, the Adviser received advisory fees of: CAPITAL APPRECIATION FUND 1.13% GROWTH AND INCOME FUND 0.90% INVESTMENT GRADE BOND FUND 0.72% MID-CAP EQUITY FUND 1.13% PRIME QUALITY MONEY MARKET FUND 0.54% SHORT-TERM BOND FUND 0.60% SMALL CAP GROWTH STOCK FUND 1.15% VALUE INCOME STOCK FUND 0.80% The Adviser may use its affiliates as brokers for Fund transactions. Prior to January 1, 2000, STI Capital Management, N.A. (STI), a subsidiary of SunTrust Banks, Inc. served as the investment adviser to the Capital Appreciation Fund, Mid-Cap Equity Fund and Value Income Stock Fund. On January 1, 2000, SunTrust Bank (formerly SunTrust Bank, Atlanta), a subsidiary of SunTrust Banks, Inc. succeeded STI as the investment adviser to those Funds. On July 1, 2000, SunTrust Banks, Inc. reorganized its money management units, including those of SunTrust Bank, into Trusco Capital Management, Inc. As a result, Trusco now serves as the investment adviser to each STI Classic Fund. PORTFOLIO MANAGERS The Capital Appreciation Fund is managed by Mr. Robert J. Rhodes, CFA. Mr. Rhodes is an Executive Vice President and head of the Equity Funds group at Trusco. Mr. Rhodes has been employed by Trusco since 1973 and was Director of Research at Trusco from 1980 to 2000. Mr. Rhodes has more than 29 years of investment experience. Mr. Jeffrey E. Markunas, CFA, has served as Lead Portfolio Manager of the Growth and Income Fund since it began operating in September 1992. From 1992 until July 2000, he served as Senior Vice President and Director of Equity Management for Crestar Asset Management Company. Additionally, he was named Senior Vice President of Trusco in January 1999 and Managing Director in July 2000. Mr. Markunas has more than 19 years of investment experience. The Investment Grade Bond Fund is co-managed by Mr. L. Earl Denney, CFA, and Mr. Dave E. West, CFA. In January 2000, Mr. Denney was named Managing Director of SunTrust Bank and is now Managing Director of Trusco, after serving as Managing Director of STI since 1983. Mr. Denney has co-managed the Investment Grade Bond Fund since it began operating in June 1992. Mr. Denney has more than 23 years of investment experience. In January 2000, Mr. West was named Managing Director of SunTrust Bank and is now Managing Director of Trusco, after working at STI since 1985. Mr. West has co-managed the Investment Grade Bond Fund since it began operating in June 1992. Mr. West has more than 16 years of investment experience. Mr. John Hamlin has served as a Vice President of Trusco since July 2000, after serving as a Portfolio Manager of STI since March 1999. He has managed the Mid-Cap Equity Fund since April 20 PROSPECTUS - -------------------------------------------------------------------------------- PURCHASING AND SELLING FUND SHARES - -------------------------------------------------------------------------------- 1999. Prior to joining STI, Mr. Hamlin served as Portfolio Manager at Phoenix Investment Counsel, Inc. from 1992 to 1999. He has more than 13 years of investment experience. Mr. David S. Yealy has served as Managing Director of Trusco since July 2000. He has managed the Prime Quality Money Market Fund since it began operating in June 1992. Prior to July 2000, Mr. Yealy was a First Vice President of Trusco and has worked there since 1991. He has more than 17 years of investment experience. Ms. Agnes G. Pampush, CFA, has served as a Managing Director of Trusco since July 2000, after serving as a Vice President of Trusco since 1998. Ms. Pampush was employed by Trusco from 1988 to 1996, and rejoined the firm in 1998. She has managed the Short-Term Bond Fund since February 1999. She has more than 20 years of investment experience. Mr. Mark D. Garfinkel, CFA, has served as a Portfolio Manager of Trusco since 1994. He has managed the Small Cap Growth Stock Fund since it began operating in October 1998. He has more than 15 years of investment experience. The Value Income Stock Fund is managed by Mr. Mills Riddick, CFA. Mr. Riddick has served as a Managing Director of Trusco since July 2000, after serving as a Managing Director of STI since 1994. He has managed the Value Income Stock Fund since April 1995. Mr. Riddick has more than 20 years of investment experience. [HANDSHAKE GRAPHIC OMITTED] PURCHASING AND SELLING FUND SHARES This section tells you how to purchase or sell (sometimes called "redeem") Trust Shares of the Funds. HOW TO PURCHASE FUND SHARES The Funds offer Trust Shares only to financial institutions or intermediaries, including subsidiaries of SunTrust Banks, Inc. (SunTrust), for their own or their customers' accounts for which they act as fiduciary, agent, investment adviser, or custodian. As a result, you, as a customer of a financial institution may purchase Trust Shares through accounts made with financial institutions. Trust Shares will be held of record by (in the name of) your financial institution. Depending upon the terms of your account, however, you may have, or be given, the right to vote your Trust Shares. The Funds may reject any purchase order if it is determined that accepting the order would not be in the best interests of the STI Classic Funds or its shareholders. WHEN CAN YOU PURCHASE SHARES? You may purchase shares on any day that the New York Stock Exchange is open for business (a Business Day). But you may not do so for shares of the Prime Quality Money Market Fund on federal holidays. The price per share (the offering price) will be the net asset value per share (NAV) next determined after the funds receive your purchase order. Each Fund calculates its NAV once each Business Day at the regularly-scheduled close of normal trading on the New York Stock Exchange (normally, 4:00 p.m., Eastern Time). So, for you to receive the current Business Day's NAV for each Fund (except the Prime Quality Money Market Fund), generally the Funds must receive your purchase order in proper form before 4:00 p.m., Eastern Time. The Prime Quality Money Market Fund calculates its NAV once each Business Day at the regularly-scheduled close of normal trading on the New York Stock Exchange (normally, 4:00 p.m., Eastern Time). So, for you to be eligible to receive dividends declared on the day you submit your purchase order, the Prime Quality Money Market Fund must generally receive your order in proper form before 2:00 p.m., Eastern Time and federal funds (readily available funds) before 4:00 p.m., Eastern Time. Otherwise, your purchase order will be effective the following Business Day, as long as the Prime Quality Money Market Fund receives federal funds before calculating its NAV the following day. FOR CUSTOMERS OF SUNTRUST, ITS AFFILIATES, AND OTHER FINANCIAL INSTITUTIONS YOU MAY HAVE TO TRANSMIT YOUR PURCHASE AND SALE REQUESTS TO SUNTRUST OR OTHER FINANCIAL INSTITUTIONS AT AN EARLIER TIME FOR YOUR TRANSACTION TO BECOME EFFECTIVE THAT DAY. THIS ALLOWS THE FINANCIAL INSTITUTION TIME TO PROCESS YOUR REQUEST AND TRANSMIT IT TO THE ADMINI- PROSPECTUS 21 - -------------------------------------------------------------------------------- PURCHASING AND SELLING FUND SHARES - -------------------------------------------------------------------------------- STRATOR OR TRANSFER AGENT IN TIME TO MEET THE ABOVE STATED FUND CUT-OFF TIMES. FOR MORE INFORMATION ABOUT HOW TO PURCHASE OR SELL FUND SHARES, INCLUDING SPECIFIC SUNTRUST OR OTHER FINANCIAL INSTITUTIONS' INTERNAL ORDER ENTRY CUT-OFF TIMES, PLEASE CONTACT YOUR FINANCIAL INSTITUTION DIRECTLY. HOW THE FUNDS CALCULATE NAV In calculating NAV, each Fund (except the Prime Quality Money Market Fund) generally values its investment portfolio at market price. In calculating NAV for the Prime Quality Money Market Fund, the Fund generally values its investment portfolio using the amortized cost valuation method, which is described in detail in the SAI. If market prices are unavailable or a Fund thinks that the market price or amortized cost valuation method is unreliable, fair value prices may be determined in good faith using methods approved by the Board of Trustees. The Prime Quality Money Market Fund expects its NAV to remain constant at $1.00 per share, although the Fund cannot guarantee this. The Growth and Income Fund holds securities that are listed on foreign exchanges. These securities may trade on weekends or other days when the Fund does not calculate NAV. As a result, the market value of the Fund's investments may change on days when you cannot purchase or sell Fund shares. NET ASSET VALUE NAV for one Fund share is the value of that share's portion of the net assets of the Fund. HOW TO SELL YOUR FUND SHARES You may sell (sometimes called "redeem") your shares on any Business Day by contacting SunTrust or your financial institution. SunTrust or your financial institution will give you information about how to sell your shares including any specific cut-off times required. Holders of Trust Shares may sell shares by following the procedures established when they opened their account or accounts with the Funds or with their financial institution or intermediary. The sale price of each share will be the next NAV determined after the Funds receive your request. Redemption orders must be received by the Prime Quality Money Market Fund on a Business Day before 2:00 p.m., Eastern Time. Orders received after 2:00 p.m., Eastern Time will be executed the following Business Day. RECEIVING YOUR MONEY Normally, the Funds will send your sale proceeds within five Business Days after the Funds receive your request but it may take up to seven days. REDEMPTIONS IN KIND The Funds generally pay sale (redemption) proceeds in cash. However, under unusual conditions that make the payment of cash unwise (and for the protection of the Funds' remaining shareholders) the Funds might pay all or part of your redemption proceeds in liquid securities with a market value equal to the redemption price (redemption in kind). It is highly unlikely that your shares would ever be redeemed in kind, but if they were you would probably have to pay transaction costs to sell the securities distributed to you, as well as taxes on any capital gains from the sale as with any redemption. SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES A Fund may suspend your right to sell your shares if the New York Stock Exchange restricts trading, the SEC declares an emergency or for other reasons. More information about this is in the SAI. TELEPHONE TRANSACTIONS Purchasing and selling Fund shares over the telephone is extremely convenient, but not without risk. Although the Fund has certain safeguards and procedures to confirm the identity of callers and the authenticity of instructions, the Fund is not responsible for any losses or costs incurred by following telephone instructions the Fund reasonably believes to be genuine. If you or your financial institution transact with the Fund over the telephone, you will generally bear the risk of any loss. The Funds reserve the right to modify, suspend or terminate telephone transaction privileges at any time. 22 PROSPECTUS - -------------------------------------------------------------------------------- DIVIDENDS, DISTRIBUTIONS AND TAXES - -------------------------------------------------------------------------------- DIVIDENDS AND DISTRIBUTIONS Each Fund distributes its net investment income as follows: DECLARED DAILY AND DISTRIBUTED MONTHLY - -------------------------------------------------------------------------------- INVESTMENT GRADE BOND FUND PRIME QUALITY MONEY MARKET FUND SHORT-TERM BOND FUND QUARTERLY - -------------------------------------------------------------------------------- CAPITAL APPRECIATION GROWTH AND INCOME FUND MID-CAP EQUITY FUND SMALL CAP GROWTH STOCK FUND VALUE INCOME STOCK FUND Each Fund makes distributions of its net realized capital gains, if any, at least annually. If the SunTrust 401(k) Plan owns Fund shares on a Fund's record date, the Plan is entitled to receive the distribution. As Plan participants, you will receive dividends and distributions in the form of additional Fund shares if you own shares of the Fund on the date the dividend or distribution is allocated by the Plan. You will, therefore, not receive a dividend or distribution if you do not own shares of the Fund on the date the dividend or distribution is allocated. TAXES PLEASE CONSULT YOUR TAX ADVISOR REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL, STATE AND LOCAL INCOME TAXES. Below the Funds have summarized some important tax issues that affect the Funds and their shareholders. This summary is based on current tax laws, which may change. Dividends and distributions will accumulate on a tax-deferred basis if you are investing through the SunTrust 401(k) Plan. Generally, you will not owe taxes on these distributions until you begin withdrawals from the Plan. Redemptions of Fund shares resulting in withdrawals from the Plan are subject to numerous complex and special tax rules and may be subject to a penalty in the case of premature withdrawals. If you have questions about the tax consequences of Plan withdrawals, you should consult your tax advisor; the Plan's Summary Plan Description in the SunTrust Employee Handbook; BENE, the SunTrust Benefits Service Center, at 1-800-818-2363; or the Plan Administrator, SunTrust Human Resources, P.O. Box 4418, Center 636, Atlanta, Georgia 30302. MORE INFORMATION ABOUT TAXES IS IN THE SAI. PROSPECTUS 23 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS The financial highlights table is intended to help you understand a Fund's financial performance for the period of the Fund's (and its predecessor's) operations. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). The information provided below for the period ended May 31, 2002 has been audited by PricewaterhouseCoopers LLP. The information for prior periods has been audited by predecessor independent accounting firms. The Reports of Independent Accountants for each such period along with the Fund's financial statements and related notes, are included in the Annual Reports to Shareholders for such periods. The 2002 Annual Report is available upon request and without charge by calling 1-800-428-6970. The 2002 Annual Report is incorporated by reference in the SAI. For the Periods Ended May 31, (unless otherwise indicated) For a Share Outstanding Throughout the Periods
NET REALIZED NET ASSET NET AND DISTRIBUTIONS VALUE INVESTMENT UNREALIZED FROM NET DISTRIBUTIONS NET ASSET NET ASSETS BEGINNING INCOME GAINS (LOSSES) INVESTMENT FROM REALIZED VALUE END TOTAL END OF OF PERIOD (LOSS) ON INVESTMENTS INCOME CAPITAL GAINS OF PERIOD RETURN (+) PERIOD (000) ---------- ---------- -------------- ------------ ------------- --------- ---------- ------------ CAPITAL APPRECIATION FUND Trust Share 2002 $13.89 -- $(1.53) -- $(0.12) $12.24 (11.06)% $1,204,445 2001 17.12 $(0.05) (0.38) -- (2.80) 13.89 (3.74) 1,177,933 2000 16.62 0.02 1.40 -- (0.92) 17.12 8.98 1,296,927 1999 16.48 0.05 2.70 $(0.06) (2.55) 16.62 17.83 1,966,842 1998 15.09 0.09 3.96 (0.09) (2.57) 16.48 29.51 1,532,587 GROWTH AND INCOME FUND (A) Trust Shares 2002 $15.05 $ 0.09 $(1.26) $(0.08) -- $13.80 (7.80)% $ 792,557 2001 15.53 0.07 (0.04) (0.08) $(0.43) 15.05 0.11 867,664 2000 16.09 0.11 0.55 (0.10) (1.12) 15.53 4.11 885,109 1999(1) 15.10 0.04 1.97 (0.02) (1.00) 16.09 14.24 634,279 For the years ended November 30: 1998 $16.55 $ 0.09 $1.64 $(0.09) $(3.09) $15.10 13.64% $ 577,042 1997 13.39 0.14 3.24 (0.15) (0.07) 16.55 25.41 590,824 INVESTMENT GRADE BOND FUND Trust Shares 2002 $10.23 $ 0.51 $ 0.01 $(0.51) -- $10.24 5.18% $ 886,471 2001 9.58 0.61 0.65 (0.61) -- 10.23 13.55 860,073 2000 10.36 0.61 (0.78) (0.61) -- 9.58 (1.76) 998,596 1999 10.65 0.56 (0.11) (0.56) $(0.18) 10.36 4.25 1,149,068 1998 10.16 0.60 0.49 (0.60) -- 10.65 10.92 793,488 MID-CAP EQUITY FUND Trust Shares 2002 $10.95 $ 0.01(2) $(1.17)(2) -- -- $ 9.79 (10.59)% $ 171,813 2001 14.10 (0.03) (0.61) -- $(2.51) 10.95 (6.92) 156,111 2000 12.68 (0.04) 2.32 -- (0.86) 14.10 19.10 206,545 1999 13.79 0.01 0.07 -- (1.19) 12.68 1.61 254,055 1998 13.21 -- 2.54 -- (1.96) 13.79 21.14 337,825
RATIO OF NET RATIO OF RATIO OF INVESTMENT NET EXPENSES TO INCOME (LOSS) TO RATIO OF INVESTMENT AVERAGE NET AVERAGE NET EXPENSES TO INCOME (LOSS) ASSETS (EXCLUDING ASSETS (EXCLUDING PORTFOLIO AVERAGE TO AVERAGE WAIVERS AND WAIVERS AND TURNOVER NET ASSETS NET ASSETS REIMBURSEMENTS) REIMBURSEMENTS) RATE ------------ ------------- ---------------- ----------------- ----------- CAPITAL APPRECIATION FUND Trust Share 2002 1.22% (0.54)% 1.24% (0.56)% 75% 2001 1.21 (0.29) 1.24 (0.32) 75 2000 1.17 0.10 1.26 0.01 129 1999 1.17 0.29 1.26 0.20 147 1998 1.16 0.61 1.27 0.50 194 GROWTH AND INCOME FUND (A) Trust Shares 2002 0.99% 0.63% 0.99% 0.63% 68% 2001 0.99 0.49 0.99 0.49 73 2000 1.01 0.76 1.01 0.76 53 1999(1) 1.14 0.49 1.43 0.20 31 For the years ended November 30: 1998 1.03% 0.63% 1.21% 0.45% 71% 1997 1.02 0.92 1.17 0.77 100 INVESTMENT GRADE BOND FUND Trust Shares 2002 0.81% 4.81% 0.83% 4.79% 123% 2001 0.81 6.17 0.84 6.14 131 2000 0.77 6.05 0.84 5.98 202 1999 0.77 5.25 0.85 5.17 221 1998 0.76 5.67 0.86 5.57 109 MID-CAP EQUITY FUND Trust Shares 2002 1.22% (0.18)% 1.24% (0.20)% 87% 2001 1.21 (0.24) 1.25 (0.28) 100 2000 1.17 -- 1.25 (0.08) 131 1999 1.17 (0.47) 1.28 (0.58) 76 1998 1.16 (0.29) 1.27 (0.40) 129
(+) Returns are for the period indicated and have not been annualized. (1) For the six month period ended May 31, 1999. All ratios for the period have been annualized. (2) This amount has been changed to reflect the correction of a clerical error contained in the Fund's 2002 Annual Report to Shareholders. (A) On May 24, 1999, the CrestFunds Value Fund exchanged all of its assets and certain liabilities for shares of the Growth and Income Fund. The CrestFunds Value Fund is the accounting survivor in this transaction, and as a result, its basis of accounting for assets and liabilities and its operating results for the periods prior to May 24, 1999 have been carried forward in these financial highlights. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Amounts designated as "--" are either $0 or round to $0. 24 PROSPECTUS - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- For the Periods Ended May 31, For a Share Outstanding Throughout the Periods
NET REALIZED NET ASSET NET AND DISTRIBUTIONS VALUE INVESTMENT UNREALIZED FROM NET DISTRIBUTIONS NET ASSET NET ASSETS BEGINNING INCOME GAINS (LOSSES) INVESTMENT FROM REALIZED VALUE END TOTAL END OF OF PERIOD (LOSS) ON INVESTMENTS INCOME CAPITAL GAINS OF PERIOD RETURN (+) PERIOD (000) ----------- --------- --------------- ------------- ------------- ---------- ---------- ------------ PRIME QUALITY MONEY MARKET FUND Trust Shares 2002 $ 1.00 $ 0.02 -- $(0.02) -- $ 1.00 2.29% $3,907,203 2001 1.00 0.06 -- (0.06) -- 1.00 5.75 3,728,371 2000 1.00 0.05 -- (0.05) -- 1.00 5.20 3,311,229 1999 1.00 0.05 -- (0.05) -- 1.00 4.83 3,903,232 1998 1.00 0.05 -- (0.05) -- 1.00 5.22 1,880,229 SHORT-TERM BOND FUND Trust Shares 2002 $10.04 $ 0.46 $(0.03) $(0.46) -- $10.01 4.29% $ 305,884 2001 9.65 0.56 0.39 (0.56) -- 10.04 10.13 215,458 2000 9.91 0.53 (0.25) (0.53) $(0.01) 9.65 2.87 180,402 1999 10.05 0.51 (0.10) (0.52) (0.03) 9.91 4.06 209,904 1998 9.90 0.55 0.16 (0.55) (0.01) 10.05 7.31 120,422 SMALL CAP GROWTH STOCK FUND Trust Shares 2002 $18.37 -- $(1.02) -- $(0.07) $17.28 (5.55)% $ 593,211 2001 18.30 $(0.18) 1.71 -- (1.46) 18.37 8.33 508,857 2000 14.55 (0.08) 4.02 -- (0.19) 18.30 27.24 431,478 1999(1) 10.00 (0.05) 4.62 -- (0.02) 14.55 45.70 152,290 VALUE INCOME STOCK FUND Trust Shares 2002 $11.61 $ 0.12 $(0.56) $(0.12) -- $11.05 (3.68)% $ 686,014 2001 10.38 0.19 1.24 (0.20) -- 11.61 14.09 704,842 2000 12.85 0.23 (1.49) (0.22) $(0.99) 10.38 (10.52) 921,797 1999 13.90 0.24 1.02 (0.24) (2.07) 12.85 11.13 1,589,951 1998 13.71 0.26 2.62 (0.27) (2.42) 13.90 23.10 1,725,418
RATIO OF NET RATIO OF RATIO OF INVESTMENT NET EXPENSES TO INCOME (LOSS) TO RATIO OF INVESTMENT AVERAGE NET AVERAGE NET EXPENSES TO INCOME (LOSS) ASSETS (EXCLUDING ASSETS (EXCLUDING PORTFOLIO AVERAGE TO AVERAGE WAIVERS AND WAIVERS AND TURNOVER NET ASSETS NET ASSETS REIMBURSEMENTS) REIMBURSEMENTS) RATE ----------- ------------ ----------------- ----------------- ---------- PRIME QUALITY MONEY MARKET FUND Trust Shares 2002 0.63% 2.22% 0.74% 2.11% -- 2001 0.63 5.57 0.75 5.45 -- 2000 0.60 5.06 0.75 4.91 -- 1999 0.60 4.69 0.77 4.52 -- 1998 0.59 5.10 0.77 4.92 -- SHORT-TERM BOND FUND Trust Shares 2002 0.70% 4.48% 0.75% 4.43% 142% 2001 0.70 5.71 0.76 5.65 87 2000 0.67 5.40 0.76 5.31 70 1999 0.67 5.12 0.77 5.02 108 1998 0.66 5.47 0.79 5.34 87 SMALL CAP GROWTH STOCK FUND Trust Shares 2002 1.25% (1.01)% 1.25% (1.01)% 100% 2001 1.24 (0.95) 1.25 (0.96) 112 2000 1.20 (0.86) 1.23 (0.89) 110 1999(1) 1.20 (0.48) 1.49 (0.77) 75 VALUE INCOME STOCK FUND Trust Shares 2002 0.90% 1.13% 0.90% 1.13% 60% 2001 0.90 1.70 0.90 1.70 77 2000 0.89 2.02 0.89 2.02 62 1999 0.92 1.91 0.92 1.91 69 1998 0.92 1.85 0.92 1.85 99
(+) Returns are for the period indicated and have not been annualized. (1) Shares were offered beginning on October 8, 1998. All ratios for the period have been annualized. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Amounts designated as "--" are either $0 or round to $0. PROSPECTUS 25 - -------------------------------------------------------------------------------- HOW TO OBTAIN MORE INFORMATION ABOUT THE STI CLASSIC FUNDS - -------------------------------------------------------------------------------- INVESTMENT ADVISER Trusco Capital Management, Inc. 50 Hurt Plaza Suite 1400 Atlanta, Georgia 30303 DISTRIBUTOR SEI Investments Distribution Co. One Freedom Valley Drive Oaks, Pennsylvania 19456 LEGAL COUNSEL Morgan, Lewis & Bockius LLP More information about the Funds is available without charge through the following: STATEMENT OF ADDITIONAL INFORMATION (SAI) The SAI dated October 1, 2002, includes detailed information about the STI Classic Funds. The SAI is on file with the SEC and is incorporated by reference into this prospectus. This means that the SAI, for legal purposes, is a part of this prospectus. ANNUAL AND SEMI-ANNUAL REPORTS These reports list each Fund's holdings and contain information from the Fund's managers about strategies and recent market conditions and trends and their impact on Fund performance. The reports also contain detailed financial information about the Funds. TO OBTAIN AN SAI, ANNUAL OR SEMI-ANNUAL REPORT, OR MORE INFORMATION: BY TELEPHONE: Call 1-800-428-6970 BY MAIL: Write to the Funds c/o SEI Investments Distribution Co. Oaks, Pennsylvania 19456 FROM THE SEC: You can also obtain the SAI or the Annual and Semi-Annual reports, as well as other information about the STI Classic Funds, from the EDGAR Database on the SEC's website ("HTTP://WWW.SEC.GOV"). You may review and copy documents at the SEC Public Reference Room in Washington, DC (for information on the operation of the Public Reference Room, call 202-942-8090). You may request documents by mail from the SEC, upon payment of a duplicating fee, by writing to: Securities and Exchange Commission, Public Reference Section, Washington, DC 20549-0102. You may also obtain this information, upon payment of a duplicating fee, by e-mailing the SEC at the following address: PUBLICINFO@SEC.GOV. The STI Classic Funds' Investment Company Act registration number is 811-06557. [Background graphic omitted] (C)2002, SunTrust Banks, Inc. is a federally registered service mark of SunTrust Banks, Inc. STI-PS-018-0100 STI CLASSIC FUNDS-BALANCED FUND TRUST SHARES PROSPECTUS OCTOBER 1, 2002 BALANCED FUND FOR PARTICIPANTS OF THE DEKALB COUNTY, GEORGIA BOARD OF EDUCATION TAX SHELTERED ANNUITY PLAN INVESTMENT ADVISER TO THE FUND: TRUSCO CAPITAL MANAGEMENT, INC. (the "Adviser") [STI CLASSIC LOGO OMITTED] THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. PROSPECTUS - ------------------------- ABOUT THIS PROSPECTUS - ------------------------- The STI Classic Funds is a mutual fund family that offers shares in separate investment portfolios (Funds). The Funds have individual investment goals and strategies. This prospectus gives you important information about the Trust Shares of the Balanced Fund that you should know before investing. Please read this prospectus and keep it for future reference. THIS PROSPECTUS HAS BEEN ARRANGED INTO DIFFERENT SECTIONS SO THAT YOU CAN EASILY REVIEW THIS IMPORTANT INFORMATION. ON THE NEXT PAGE, THERE IS SOME GENERAL INFORMATION YOU SHOULD KNOW ABOUT RISK AND RETURN. FOR MORE DETAILED INFORMATION ABOUT THE FUND, PLEASE SEE: 2 PRINCIPAL INVESTMENT STRATEGIES AND RISKS, PERFORMANCE INFORMATION AND EXPENSES 4 MORE INFORMATION ABOUT RISK 4 MORE INFORMATION ABOUT FUND INVESTMENTS 4 INVESTMENT ADVISER 5 PORTFOLIO MANAGERS 5 PURCHASING AND SELLING FUND SHARES 7 DIVIDENDS AND DISTRIBUTIONS 7 TAXES 8 FINANCIAL HIGHLIGHTS BACK HOW TO OBTAIN MORE INFORMATION ABOUT COVER THE STI CLASSIC FUNDS ---------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED]FUND SUMMARY [TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING? [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES [MOUNTAIN GRAPHIC OMITTED] MORE INFORMATION ABOUT FUND INVESTMENTS [MAGNIFIER GRAPHIC OMITTED] INVESTMENT ADVISER [HANDSHAKE GRAPHIC OMITTED] PURCHASING AND SELLING FUND SHARES ---------------------------------------------------------------------------- OCTOBER 1, 2002 PROSPECTUS 1 - -------------------------------------------------------------------------------- RISK/RETURN INFORMATION - -------------------------------------------------------------------------------- The Fund is a mutual fund. A mutual fund pools shareholders' money and, using professional investment managers, invests it in securities. The Fund has its own investment goal and strategies for reaching that goal. The Adviser invests Fund assets in a way that it believes will help the Fund achieve its goal. Still, investing in the Fund involves risks and there is no guarantee that the Fund will achieve its goal. The Adviser's judgments about the markets, the economy or companies may not anticipate actual market movements, economic conditions or company performance, and these judgments may affect the return on your investment. In fact, no matter how good a job the Adviser does, you could lose money on your investment in the Fund, just as you could with other investments. A FUND SHARE IS NOT A BANK DEPOSIT AND IT IS NOT INSURED OR GUARANTEED BY THE FDIC OR ANY GOVERNMENT AGENCY. The value of your investment in the Fund is based on the market prices of the securities the Fund holds. These prices change daily due to economic and other events that affect particular companies and other issuers. These price movements, sometimes called volatility, may be greater or lesser depending on the types of securities the Fund owns and the markets in which it trades. The effect on the Fund of a change in the value of a single security will depend on how widely the Fund diversifies its holdings. 2 PROSPECTUS - -------------------------------------------------------------------------------- BALANCED FUND - -------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOAL Capital appreciation and current income ---------------------------------------------------------------------------- INVESTMENT FOCUS PRIMARY U.S. common stocks SECONDARY Bonds ---------------------------------------------------------------------------- SHARE PRICE VOLATILITY Moderate ---------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify companies with a history of earnings growth and bonds with minimal risk ---------------------------------------------------------------------------- INVESTOR PROFILE Investors who want income from their investment, as well as an increase in its value ---------------------------------------------------------------------------- [TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Balanced Fund invests in common and preferred stocks, convertible securities, U.S. government obligations and investment grade corporate bonds. In selecting stocks for the Fund, the Adviser attempts to identify high-quality companies with a history of above average earnings growth. In selecting bonds, the Adviser tries to minimize risk while attempting to outperform selected market indices. Due to its investment strategy, the Fund may buy and sell securities frequently. This may result in higher transaction costs and additional capital gains tax liabilities. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The prices of the Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, the Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities are generally more volatile, so the average maturity or duration of these securities affects risk. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S TRUST SHARES FROM YEAR TO YEAR.* [EQUITY TRUST BALANCED GRAPHIC OMITTED] 1995 25.51% 1996 12.13% 1997 21.14% 1998 19.55% 1999 4.66% 2000 4.79% 2001 0.23% BEST QUARTER WORST QUARTER 12.57% -5.89% (12/31/98) (9/30/01) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM JANUARY 1, 2001 TO JUNE 30, 2002 WAS -6.64%. PROSPECTUS 3 - -------------------------------------------------------------------------------- BALANCED FUND - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF A HYBRID 60/40 BLEND OF THE S&P 500(r) INDEX AND THE LEHMAN BROTHERS U.S. GOVERNMENT/CREDIT INDEX. TRUST SHARES 1 YEAR 5 YEARS SINCE INCEPTION* ---------------------------------------------------------------------------- Balanced Fund 0.23% 9.75% 10.00% ---------------------------------------------------------------------------- Hybrid 60/40 Blend of the Following Benchmarks -3.67% 9.79% 11.35% ---------------------------------------------------------------------------- S&P 500(r) Index -11.88% 10.70% 13.98% ---------------------------------------------------------------------------- Lehman Brothers U.S. Government/Credit Index 8.51% 7.36% 6.77% ---------------------------------------------------------------------------- * SINCE THE INCEPTION OF THETRUST SHARES ON JANUARY 3, 1994. BENCHMARK RETURNS SINCE DECEMBER 31, 1993 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). ---------------------------------------------------------------------------- [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? ---------------------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or securities in a market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The S&P 500(r) Index is a widely-recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index of 500 stocks designed to mimic the overall U.S. equity market's industry weightings. The Lehman Brothers U.S. Government/Credit Index is a widely-recognized, market value- weighted (higher market value bonds have more influence than lower market value bonds) index of U.S. Treasury securities,U.S. government agency obligations, corporate debt backed by the U.S.government, fixed-rate nonconvertible corporate debt securities, Yankee bonds, and nonconvertible debt securities issued by or guaranteed by foreign governments and agencies. All securities in this index are rated investment grade (BBB) or higher, with maturities of at least 1 year. [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. ---------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) ---------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 0.95% Other Expenses 0.10% ----- Total Annual Fund Operating Expenses 1.05% * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THIS FEE WAIVER REMAINS IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: Balanced Fund - Trust Shares 1.02% ---------------------------------------------------------------------------- EXAMPLE ---------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $107 $334 $579 $1,283 ---------------------------------------------------------------------------- FUND EXPENSES ---------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. In addition, the Fund may enter into arrangements with broker-dealers who have agreed to pay certain Fund expenses in return for executing Fund transactions through that broker-dealer. For more information about these fees, see "Investment Adviser." 4 PROSPECTUS - -------------------------------------------------------------------------------- MORE INFORMATION ABOUT RISK - -------------------------------------------------------------------------------- [LIFE PRESERVER GRAPHIC OMITTED] MORE INFORMATION ABOUT RISK EQUITY RISK - Equity securities include public and privately issued equity securities, common and preferred stocks, warrants, rights to subscribe to common stock and convertible securities, as well as instruments that attempt to track the price movement of equity indices. Investments in equity securities and equity derivatives in general are subject to market risks that may cause their prices to fluctuate over time. The value of securities convertible into equity securities, such as warrants or convertible debt, is also affected by prevailing interest rates, the credit quality of the issuer and any call provision. Fluctuations in the value of equity securities in which a mutual fund invests will cause a fund's net asset value to fluctuate. An investment in a portfolio of equity securities may be more suitable for long-term investors who can bear the risk of these share price fluctuations. FIXED INCOME RISK - The market value of fixed income investments changes in response to interest rate changes and other factors. During periods of falling interest rates, the values of outstanding fixed income securities generally rise. Moreover, while securities with longer maturities tend to produce higher yields, the prices of longer maturity securities are also subject to greater market fluctuations as a result of changes in interest rates. In addition to these fundamental risks, different types of fixed income securities may be subject to the following additional risk: CREDIT RISK - The possibility that an issuer will be unable to make timely payments of either principal or interest. [MOUNTAIN GRAPHIC OMITTED] MORE INFORMATION ABOUT FUND INVESTMENTS This prospectus describes the Fund's primary strategies, and the Fund will normally invest in the types of securities described in this prospectus. However, in addition to the investments and strategies described in this prospectus, the Fund also may invest in other securities, use other strategies and engage in other investment practices. These investments and strategies, as well as those described in this prospectus, are described in detail in the Statement of Additional Information (SAI). The investments and strategies described in this prospectus are those that the Fund uses under normal conditions. During unusual economic or market conditions, or for temporary defensive or liquidity purposes, the Fund may invest up to 100% of its assets in cash, money market instruments, repurchase agreements and short-term obligations that would not ordinarily be consistent with a Fund's objectives. The Fund will do so only if the Adviser believes that the risk of loss outweighs the opportunity for capital gains or higher income. Of course, the Fund cannot guarantee that it will achieve its investment goal. [MAGNIFIER GRAPHIC OMITTED] INVESTMENT ADVISER The investment adviser (Adviser) makes investment decisions for the Fund and continuously reviews, supervises and administers the Fund's respective investment program. The Board of Trustees supervises the Adviser and establishes policies that the Adviser must follow in its management activities. Trusco Capital Management, Inc. (Trusco or the Adviser), 50 Hurt Plaza, Suite 1400, Atlanta, Georgia 30303, serves as the Adviser to the Fund. As of June 30, 2002, Trusco had $45.5 billion in assets under management. For the fiscal period ended May 31, 2002, the Adviser received advisory fees of: BALANCED FUND 0.92% PROSPECTUS 5 - -------------------------------------------------------------------------------- PURCHASING AND SELLING FUND SHARES - -------------------------------------------------------------------------------- The Adviser may use its affiliates as brokers for Fund transactions. Prior to January 1, 2000, STI Capital Management, N.A. (STI), a subsidiary of SunTrust Banks, Inc. served as the investment adviser to the Balanced Fund. On January 1, 2000, SunTrust Bank (formerly SunTrust Bank, Atlanta), a subsidiary of SunTrust Banks, Inc. succeeded STI as the investment adviser to the Fund. On July 1, 2000, SunTrust Banks, Inc. reorganized its money management units, including those of SunTrust Bank, into Trusco Capital Management, Inc. As a result, Trusco now serves as the investment adviser to the Balanced Fund. PORTFOLIO MANAGERS The Balanced Fund is co-managed by Mr. Robert J. Rhodes, CFA, Mr. Earl L. Denney, CFA, and Mr. Dave E. West, CFA. Mr. Rhodes manages the equity portion of the Fund. Mr. Denney and Mr. West co-manage the fixed-income portion of the Fund. Mr. Rhodes is an Executive Vice President and head of the Equity Funds group at Trusco. Mr. Rhodes has been employed by Trusco since 1973 and was Director of Research at Trusco from 1980 to 2000. Mr. Rhodes has more than 29 years of investment experience. In January 2000, Mr. Denney was named Managing Director of SunTrust Bank and is now a Managing Director of Trusco, after serving as Managing Director of STI since 1983. Mr. Denney has more than 23 years of investment experience. In January 2000, Mr. West was named Managing Director of SunTrust Bank and is now a Managing Director of Trusco, after working at STI since 1985. Mr. West has more then 16 years of investment experience. [HANDSHAKE GRAPHIC OMITTED] PURCHASING AND SELLING FUND SHARES This section tells you how to purchase and sell (sometimes called "redeem") Trust Shares of the Fund. HOW TO PURCHASE FUND SHARES The Fund offers Trust Shares only to financial institutions or intermediaries, including subsidiaries of SunTrust Banks, Inc. (SunTrust), for their own or their customers' accounts for which they act as fiduciary, agent, investment adviser, or custodian. As a result, you, as a customer of a financial institution may purchase Trust Shares through accounts made with financial institutions. Trust Shares will be held of record by (in the name of) your financial institution. Depending upon the terms of your account, however, you may have, or be given, the right to vote your Trust Shares. The Fund may reject any purchase order if it is determined that accepting the order would not be in the best interests of the STI Classic Funds or its shareholders. WHEN CAN YOU PURCHASE SHARES? You may purchase shares on any day that the New York Stock Exchange is open for business(a Business Day). The price per share (the offering price) will be the net asset value per share NAV) next determined after the Fund receives your purchase order. The Fund calculates its NAV once each Business Day at the regularly-scheduled close of normal trading on the New York Stock Exchange (normally, 4:00 p.m., Eastern Time). So, for you to receive the current Business Day's NAV, generally the Fund must receive your purchase order in proper form before 4:00 p.m., Eastern Time. The Fund will not accept orders that request a particular day or price for the transaction or any other special conditions. 6 PROSPECTUS - -------------------------------------------------------------------------------- PURCHASING AND SELLING FUND SHARES - -------------------------------------------------------------------------------- FOR CUSTOMERS OF SUNTRUST, ITS AFFILIATES, AND OTHER FINANCIAL INSTITUTIONS YOU MAY HAVE TO TRANSMIT YOUR PURCHASE AND SALE REQUESTS TO SUNTRUST OR OTHER FINANCIAL INSTITUTIONS AT AN EARLIER TIME FOR YOUR TRANSACTION TO BECOME EFFECTIVE THAT DAY. THIS ALLOWS THE FINANCIAL INSTITUTION TIME TO PROCESS YOUR REQUEST AND TRANSMIT IT TO THE ADMINISTRATOR OR TRANSFER AGENT IN TIME TO MEET THE ABOVE STATED FUND CUT-OFF TIMES. FOR MORE INFORMATION ABOUT HOW TO PURCHASE OR SELL FUND SHARES, INCLUDING SPECIFIC SUNTRUST OR OTHER FINANCIAL INSTITUTIONS' INTERNAL ORDER ENTRY CUT-OFF TIMES, PLEASE CONTACT YOUR FINANCIAL INSTITUTION DIRECTLY. HOW THE FUND CALCULATES NAV In calculating NAV, the Fund generally values its investment portfolio at market price. If market prices are unavailable or the Fund thinks that they are unreliable, fair value prices may be determined in good faith using methods approved by the Board of Trustees. NET ASSET VALUE NAV for one Fund share is the value of that share's portion of the net assets of the Fund. HOW TO SELL YOUR FUND SHARES You may sell (sometimes called "redeem") your shares on any Business Day by contacting SunTrust or your financial institution. SunTrust or your financial institution will give you information about how to sell your shares including any specific cut-off times required. Holders of Trust Shares may sell shares by following the procedures established when they opened their account or accounts with the Fund or with their financial institution or intermediary. The sale price of each share will be the next NAV determined after the Fund receives your request. RECEIVING YOUR MONEY Normally, the Fund will send your sale proceeds within five Business Days after the Fund receives your request, but it may take up to seven days. REDEMPTIONS IN KIND The Fund generally pays sale (redemption) proceeds in cash. However, under unusual conditions that make the payment of cash unwise (and for the protection of the Fund's remaining shareholders) the Fund might pay all or part of your redemption proceeds in liquid securities with a market value equal to the redemption price (redemption in kind). It is highly unlikely that your shares would ever be redeemed in kind, but if they were, you would probably have to pay transaction costs to sell the securities distributed to you, as well as taxes on any capital gains from the sale as with any redemption. SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES The Fund may suspend your right to sell your shares if the New York Stock Exchange restricts trading, the SEC declares an emergency or for other reasons. More information about this is in the SAI. TELEPHONE TRANSACTIONS Purchasing and selling Fund shares over the telephone is extremely convenient, but not without risk. Although the Fund has certain safeguards and procedures to confirm the identity of callers and the authenticity of instructions, the Fund is not responsible for any losses or costs incurred by following telephone instructions the Fund reasonably believes to be genuine. If you or your financial institution transact with the Fund over the telephone, you will generally bear the risk of any loss. The Funds reserve the right to modify, suspend or terminate telephone transaction privileges at any time. PROSPECTUS 7 - -------------------------------------------------------------------------------- DIVIDENDS, DISTRIBUTIONS AND TAXES - -------------------------------------------------------------------------------- DIVIDENDS AND DISTRIBUTIONS The Balanced Fund distributes its net investment income quarterly and makes distributions of its net realized capital gains, if any, at least annually. If you own Fund shares on the Fund's record date, you will be entitled to receive the distribution. You will receive dividends and distributions in the form of additional Fund shares. TAXES PLEASE CONSULT YOUR TAX ADVISOR REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL, STATE AND LOCAL INCOME TAXES. Below the Fund has summarized some important tax issues that affect the Fund and its shareholders. This summary is based on current tax laws, which may change. Your dividend and capital gains distributions will be reinvested in additional Fund shares and accumulate on a tax-deferred basis if you are investing through a qualified tax sheltered annuity plan. Generally, you will not owe taxes on these distributions until you begin withdrawals from the plan. Sales and redemptions of Fund shares resulting in withdrawals from the plan are subject to numerous complex and special tax rules and may be subject to a penalty tax in the case of premature withdrawals. You should consult your tax advisor about the tax consequences of plan withdrawals. MORE INFORMATION ABOUT TAXES IS IN THE SAI. 8 PROSPECTUS - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS The financial highlights table is intended to help you understand a Fund's financial performance for the period of the Fund's operations. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). The information provided below for the period ended May 31, 2002 has been audited by PricewaterhouseCoopers LLP. The information for prior periods has been audited by predecessor independent accounting firms. The Reports of Independent Accountants for each such period along with the Fund's financial statements and related notes, are included in the Annual Reports to Shareholders for such periods. The 2002 Annual Report is available upon request and without charge by calling 1-800-428-6970. The 2002 Annual Report is incorporated by reference in the SAI. For the Periods Ended May 31, For a Share Outstanding Throughout the Periods
NET REALIZED NET ASSET AND DISTRIBUTIONS VALUE NET UNREALIZED FROM NET DISTRIBUTIONS NET ASSET BEGINNING INVESTMENT GAINS (LOSSES) INVESTMENT FROM REALIZED VALUE END TOTAL OF PERIOD INCOME ON INVESTMENTS INCOME CAPITAL GAINS OF PERIOD RETURN (+) ---------- ---------- -------------- ------------- -------------- --------- ---------- ------------- Balanced Fund ------------- Trust Shares 2002........... $13.18 $0.23 $(0.65) $ (0.24) $ (0.34) $12.18 (3.29)% 2001........... 13.37 0.30 0.12 (0.31) (0.30) 13.18 3.24 2000........... 13.26 0.32 0.33 (0.30) (0.24) 13.37 5.02 1999........... 13.09 0.28 1.09 (0.28) (0.92) 13.26 10.98 1998........... 11.94 0.31 2.19 (0.32) (1.03) 13.09 22.15 RATIO OF NET RATIO OF RATIO OF INVESTMENT NET EXPENSES TO INCOME TO RATIO OF INVESTMENT AVERAGE NET AVERAGE NET NET ASSETS EXPENSES TO INCOME ASSETS (EXCLUDING) ASSETS (EXCLUDING) PORTFOLIO END OF AVERAGE TO AVERAGE WAIVERS AND WAIVERS AND TURNOVER PERIOD(000) NET ASSETS NET ASSETS REIMBURSEMENTS) REIMBURSEMENTS) RATE ------------ ----------- ----------- ----------------- ------------------ ---------- ------------- BALANCED FUND ------------- Trust Shares 2002........... $241,604 1.02% 1.78% 1.05% 1.75% 95% 2001........... 209,316 1.01 2.24 1.05 2.20 99 2000........... 223,634 0.97 2.39 1.07 2.29 182 1999........... 251,752 0.97 2.19 1.06 2.10 179 1998........... 188,465 0.96 2.51 1.08 2.39 154 (+) Returns are for the period indicated and have not been annualized. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
PROSPECTUS 9 - -------------------------------------------------------------------------------- NOTES - -------------------------------------------------------------------------------- 10 PROSPECTUS - -------------------------------------------------------------------------------- HOW TO OBTAIN MORE INFORMATION ABOUT THE STI CLASSIC FUNDS - -------------------------------------------------------------------------------- INVESTMENT ADVISER Trusco Capital Management, Inc. 50 Hurt Plaza Suite 1400 Atlanta, Georgia 30303 DISTRIBUTOR SEI Investments Distribution Co. One Freedom Valley Drive Oaks, Pennsylvania 19456 LEGAL COUNSEL Morgan, Lewis & Bockius LLP More information about the Fund is available without charge through the following: STATEMENT OF ADDITIONAL INFORMATION (SAI) The SAI dated October 1, 2002, includes detailed information about the STI Classic Funds. The SAI is on file with the SEC and is incorporated by reference into this prospectus. This means that the SAI, for legal purposes, is a part of this prospectus. ANNUAL AND SEMI-ANNUAL REPORTS These reports list the Fund's holdings and contain information from the Fund's managers about strategies and recent market conditions and trends and their impact on Fund performance. The reports also contain detailed financial information about the Fund. TO OBTAIN AN SAI, ANNUAL OR SEMI-ANNUAL REPORT, OR MORE INFORMATION: BY TELEPHONE: Call 1-800-428-6970 BY MAIL: Write to the Fund c/o SEI Investments Distribution Co. Oaks, Pennsylvania 19456 FROM THE SEC: You can also obtain the SAI or the Annual and Semi-Annual reports,as well as other information about the STI Classic Funds, from the EDGAR Database on the SEC's website ("HTTP://WWW.SEC.GOV"). You may review and copy documents at the SEC Public Reference Room in Washington, DC (for information on the operation of the Public Reference Room, call 202-942- 8090). You may request documents by mail from the SEC, upon payment of a duplicating fee, by writing to: Securities and Exchange Commission, Public Reference Section, Washington, DC 20549-0102. You may also obtain this information, upon payment of a duplicating fee, by e-mailing the SEC at the following address: PUBLICINFO@SEC.GOV. The STI Classic Funds' Investment Company Act registration number is 811-06557. PROSPECTUS INSTITUTIONAL SHARES BOND FUNDS CLASSIC INSTITUTIONAL SHORT-TERM BOND FUND CLASSIC INSTITUTIONAL SUPER SHORT INCOME PLUS FUND CLASSIC INSTITUTIONAL U.S.GOVERNMENT SECURITIES SUPER SHORT INCOME PLUS FUND MONEY MARKET FUNDS CLASSIC INSTITUTIONAL CASH MANAGEMENT MONEY MARKET FUND CLASSIC INSTITUTIONAL U.S. GOVERNMENT SECURITIES MONEY MARKET FUND CLASSIC INSTITUTIONAL U.S. TREASURY SECURITIES MONEY MARKET FUND October 1, 2002 Investment Adviser to the Funds: Trusco Capital Management, Inc. (THE "ADVISER") The Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense. (THIS PAGE LEFT INTENTIONALLY BLANK) ABOUT THIS PROSPECTUS The STI Classic Funds is a mutual fund family that offers shares in separate investment portfolios (Funds). The Funds have individual investment goals and strategies. This prospectus gives you important information about the Institutional Shares of the Classic Institutional Bond and Money Market Funds that you should know before investing. Please read this prospectus and keep it for future reference. THIS PROSPECTUS HAS BEEN ARRANGED INTO DIFFERENT SECTIONS SO THAT YOU CAN EASILY REVIEW THIS IMPORTANT INFORMATION. FOLLOWING THE TABLE OF CONTENTS, THERE IS SOME GENERAL INFORMATION YOU SHOULD KNOW ABOUT RISK AND RETURN THAT IS COMMON TO EACH OF THE FUNDS. FOR MORE DETAILED INFORMATION ABOUT EACH FUND, PLEASE SEE: Page CLASSIC INSTITUTIONAL SHORT-TERM BOND FUND ............................ 2 CLASSIC INSTITUTIONAL SUPER SHORT INCOME PLUS FUND .................... 4 CLASSIC INSTITUTIONAL U.S. GOVERNMENT SECURITIES SUPER SHORT INCOME PLUS FUND ........................................ 6 CLASSIC INSTITUTIONAL CASH MANAGEMENT MONEY MARKET FUND ............... 8 CLASSIC INSTITUTIONAL U.S. GOVERNMENT SECURITIES MONEY MARKET FUND .... 10 CLASSIC INSTITUTIONAL U.S. TREASURY SECURITIES MONEY MARKET FUND ...... 12 MORE INFORMATION ABOUT RISK ........................................... 14 MORE INFORMATION ABOUT FUND INVESTMENTS ............................... 14 INVESTMENT ADVISER .................................................... 15 PORTFOLIO MANAGERS .................................................... 15 PURCHASING AND SELLING FUND SHARES .................................... 15 DIVIDENDS AND DISTRIBUTIONS ........................................... 17 TAXES ................................................................. 18 FINANCIAL HIGHLIGHTS .................................................. 19 HOW TO OBTAIN MORE INFORMATION ABOUT THE STI CLASSIC FUNDS ..... Back Cover CUSIP/TICKER SYMBOLS
FUND NAME CLASS INCEPTION* TICKER CUSIP BOND FUNDS Classic Institutional Short-Term Bond Institutional 5/14/02 SISBX 784767659 Classic Institutional Super Short Income Plus Institutional 4/15/02 SISSX 784767642 Classic Institutional U.S. Government Securities Super Short Income Plus Institutional 4/11/02 SIGVX 784767634 MONEY MARKET FUNDS Classic Institutional Cash Management Institutional 10/25/95 CICXX 784766354 Classic Institutional U.S. Government Securities Institutional 8/1/94 CRGXX 784767808 Classic Institutional U.S. Treasury Securities Institutional 12/12/96 CIUXX 784766347
- -------------------------------------------------------------------------------- RISK/RETURN INFORMATION COMMON TO THE FUNDS Each Fund is a mutual fund. A mutual fund pools shareholders' money and, using professional investment managers, invests it in securities. Each Fund has its own investment goal and strategies for reaching that goal. The Adviser invests Fund assets in a way that it believes will help a Fund achieve its goal. Still, investing in each Fund involves risk and there is no guarantee that a Fund will achieve its goal. The Adviser's judgments about the markets, the economy or companies may not anticipate actual market movements, economic conditions or company performance, and these judgments may affect the return on your investment. In fact, no matter how good a job the Adviser does, you could lose money on your investment in the Fund, just as you could with other investments. A FUND SHARE IS NOT A BANK DEPOSIT AND IT IS NOT INSURED OR GUARANTEED BY THE FDIC OR ANY GOVERNMENT AGENCY. The value of your investment in a Fund (other than a money market fund) is based on the market prices of the securities a Fund holds. These prices change daily due to economic and other events that affect particular companies and other issuers. These price movements, sometimes called volatility, may be greater or lesser depending on the types of securities a Fund owns and the markets in which they trade. The effect on a Fund of a change in the value of a single security will depend on how widely a Fund diversifies its holdings. - -------------------------------------------------------------------------------- 2 CLASSIC INSTITUTIONAL SHORT-TERM BOND FUND - -------------------------------------------------------------------------------- FUND SUMMARY - -------------------------------------------------------------------------------- INVESTMENT GOAL High current income, while preserving capital - -------------------------------------------------------------------------------- INVESTMENT FOCUS Investment grade U.S. government and corporate debt securities - -------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Low - -------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify securities that offer a comparably better return than similar securities for a given level of credit risk - -------------------------------------------------------------------------------- INVESTOR PROFILE Income oriented investors who are willing to accept increased risk for the possibility of returns greater than money market investing - -------------------------------------------------------------------------------- INVESTMENT STRATEGY The Classic Institutional Short-Term Bond Fund invests at least 80% of its net assets in a diversified portfolio of short- to medium-term investment grade U.S. Treasury, corporate debt, mortgage-backed and asset-backed securities. The Fund expects that it will normally maintain an average weighted maturity of approximately three years. In selecting investments for the Fund, the Adviser attempts to identify securities that offer a comparably better investment return for a given level of credit risk. For example, short-term bonds generally have better returns than money market instruments, with a fairly modest increase in credit risk and/or volatility. The Adviser manages the Fund from a total return perspective. That is, the Adviser makes day-to-day investment decisions for the Fund with a view towards maximizing returns. The Adviser analyzes yields, market sectors and credit risk in an effort to identify attractive investments with the best risk/reward trade-off. Due to its investment strategy, the Fund may buy and sell securities frequently. This may result in higher transaction costs and additional capital gains tax liabilities. WHAT ARE THE RISKS OF INVESTING IN THIS FUND? The prices of the Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, the Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities are generally more volatile, so the average maturity or duration of these securities affects risk. Mortgage-backed and asset-backed securities are fixed income securities representing an interest in a pool of underlying mortgage loans or underlying assets such as truck and auto loans, leases and credit card receivables. Mortgage-backed and asset-backed securities are sensitive to changes in interest rates, but may respond to these changes differently from other fixed income securities due to the possibility of prepayment of the underlying mortgage loan, receivables or other assets underlying these securities. As a result, it may not be possible to determine in advance the actual maturity date or average life of a mortgage-backed or asset-backed security. Rising interest rates tend to discourage refinancings, with the result that the average life and volatility of the security will increase, exacerbating its decrease in the market place. When interest rates fall, however, mortgage-backed and asset-backed securities may not gain as much in market value because of the expectation of additional mortgage prepayment or prepayment of the underlying asset that must be reinvested at lower 3 - -------------------------------------------------------------------------------- interest rates. Prepayment risk may make it difficult to calculate the average maturity of the portfolio of mortgage-backed or asset-backed securities and, therefore, to assess the volatility risk of that portfolio. Although the Fund's U.S. government securities are considered to be among the safest investments, they are not guaranteed against price movements due to changing interest rates. Obligations issued by some U.S. government agencies are backed by the U.S. Treasury, while others are backed solely by the ability of the agency to borrow from the U.S. Treasury or by the agency's own resources. PERFORMANCE INFORMATION The Classic Institutional Short-Term Bond Fund commenced operations on May 14, 2002, and therefore does not have a performance history for a full calendar year. FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- INSTITUTIONAL SHARES Investment Advisory Fees 0.60% Shareholder Service Fee 0.25% Other Expenses 0.22%* - -------------------------------------------------------------------------------- Total Annual Fund Operating Expenses 1.07%** - -------------------------------------------------------------------------------- * OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT YEAR. ** THE FUND'S TOTAL ESTIMATED ANNUAL FUND OPERATING EXPENSES FOR THE CURRENT FISCAL YEAR ARE EXPECTED TO BE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER AND THE DISTRIBUTOR INTEND TO WAIVE A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THESE FEE WAIVERS REMAIN IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER AND THE DISTRIBUTOR MAY DISCONTINUE ALL OR PART OF THESE FEE WAIVERS AT ANY TIME. WITH THESE FEE WAIVERS, THE FUND'S ESTIMATED TOTAL OPERATING EXPENSES WOULD BE AS FOLLOWS: CLASSIC INSTITUTIONAL SHORT-TERM BOND FUND - INSTITUTIONAL SHARES 0.57% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS $109 $340 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." 4 CLASSIC INSTITUTIONAL SUPER SHORT INCOME PLUS FUND - -------------------------------------------------------------------------------- FUND SUMMARY - -------------------------------------------------------------------------------- INVESTMENT GOAL High current income consistent with preserving capital and maintaining liquidity - -------------------------------------------------------------------------------- INVESTMENT FOCUS Short duration investment grade money market and fixed income securities - -------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Low - -------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify short duration securities that offer a comparably better return potential and yield than money market funds - -------------------------------------------------------------------------------- INVESTOR PROFILE Conservative investors seeking to maximize income consistent with limited share price volatility - -------------------------------------------------------------------------------- INVESTMENT STRATEGY The Classic Institutional Super Short Income Plus Fund invests at least 80% of its net assets in short duration, investment grade money market and fixed income securities including, but not limited to, U.S. Treasury and Agency securities, obligations of supranational entities and foreign governments, domestic and foreign corporate debt obligations, taxable municipal debt securities, mortgage backed and asset backed securities, repurchase agreements, and other mutual funds. The Fund normally expects to maintain an average effective duration between three months and one year. Individual purchases will generally be limited to securities with a maturity/average life of less than three years. In selecting investments for the Fund, the Adviser attempts to maximize income by identifying securities that offer an acceptable yield for a given level of credit risk and maturity. Most securities are purchased with the intent to hold to maturity. However, circumstances may warrant or require that securities be sold prior to maturity. WHAT ARE THE RISKS OF INVESTING IN THIS FUND? The price (NAV) of the Fund will fluctuate depending on general changes in interest rates as well as changes in the yields of the specific securities in the Fund. General (or macro) changes in interest rates may be as a result of economic developments or Federal Reserve policy while issuer specific changes in yield may be as a result of a change in creditworthiness of a particular issuer or industry. In general, the NAV of the Fund will rise when interests rates fall, and likewise, the NAV of the Fund will fall when interest rates rise. An objective of the Fund is to minimize NAV fluctuation by (a) maintaining the Fund average weighted duration between three months and one year and (b) diversifying the Fund among issuers and industries. The prices of the Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, the Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities are generally more volatile, so the average maturity or duration of these securities affects risk. The Fund is also subject to the risk that short-term U.S. government debt securities may underperform other segments of the fixed income market or the fixed income market as a whole. Mortgage-backed securities are fixed income securities representing an interest in a pool of underlying mortgage loans. Mortgage-backed securities are sensitive to changes in interest rates, but may respond to these changes differently from other fixed income securities due to the possibility of prepayment of the underlying mortgage loans. As a result, it may not be possible to determine in advance the actual maturity 5 - -------------------------------------------------------------------------------- date or average life of a mortgage-backed security. Rising interest rates tend to discourage refinancings, with the result that the average life and volatility of the security will increase, exacerbating its decrease in market price. When interest rates fall, however, mortgage-backed securities may not gain as much in market value because of the expectation of additional mortgage prepayments that must be reinvested at lower interest rates. Prepayment risk may make it difficult to calculate the average maturity of the Fund of mortgage-backed securities, and therefore, to assess the volatility risk of the Fund. Investing in foreign countries poses additional risks since political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. In addition, investments in foreign countries are generally denominated in a foreign currency. As a result, changes in the value of those currencies compared to the U.S. dollar may affect (positively or negatively) the value of a Fund's investments. These currency movements may happen separately from and in response to events that do not otherwise affect the value of the security in the issuer's home country. These various risks will be even greater for investments in emerging market countries since political turmoil and rapid changes in economic conditions are more likely to occur in these countries. Although the Fund's U.S. government securities are considered to be among the safest investments, they are not guaranteed against price movements due to changing interest rates. Obligations issued by some U.S. government agencies are backed by the U.S. Treasury, while others are backed solely by the ability of the agency to borrow from the U.S. Treasury or by the agency's own resources. PERFORMANCE INFORMATION The Classic Institutional Super Short Income Plus Fund commenced operations on April 15, 2002, and therefore does not have a performance history for a full calendar year. FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- INSTITUTIONAL SHARES Investment Advisory Fees 0.50% Shareholder Service Fee 0.25% Other Expenses 0.16%* - -------------------------------------------------------------------------------- Total Annual Fund Operating Expenses 0.91%** - -------------------------------------------------------------------------------- * OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT YEAR. ** THE FUND'S TOTAL ESTIMATED ANNUAL FUND OPERATING EXPENSES FOR THE CURRENT FISCAL YEAR ARE EXPECTED TO BE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER AND THE DISTRIBUTOR INTEND TO WAIVE A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THESE FEE WAIVERS REMAIN IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER AND THE DISTRIBUTOR MAY DISCONTINUE ALL OR PART OF THESE FEE WAIVERS AT ANY TIME. WITH THESE FEE WAIVERS, THE FUND'S ESTIMATED TOTAL OPERATING EXPENSES WOULD BE AS FOLLOWS: CLASSIC INSTITUTIONAL SUPER SHORT INCOME PLUS FUND - INSTITUTIONAL SHARES 0.36% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS $93 $290 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." 6 CLASSIC INSTITUTIONAL U.S. GOVERNMENT SECURITIES SUPER SHORT INCOME PLUS FUND - -------------------------------------------------------------------------------- FUND SUMMARY - -------------------------------------------------------------------------------- INVESTMENT GOAL High current income consistent with preserving capital and maintaining liquidity - -------------------------------------------------------------------------------- INVESTMENT FOCUS Short duration U.S. government securities - -------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Low - -------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify short duration U.S. government securities that offer a comparably better return potential and yield than money market funds - -------------------------------------------------------------------------------- INVESTOR PROFILE Conservative investors seeking to maximize income consistent with limited share price volatility and the relative safety of U.S. government securities - -------------------------------------------------------------------------------- INVESTMENT STRATEGY The Classic Institutional U.S. Government Securities Super Short Income Plus Fund invests at least 80% of its net assets in short duration U.S. Treasury securities, U.S. Agency securities, U.S. Agency mortgage-backed securities, repurchase agreements, and other U.S. government mutual funds. The Fund expects to maintain an average effective duration between three months and one year. Individual purchases will generally be limited to securities with a maturity/average life of less than three years. In selecting investments for the Fund, the Adviser attempts to maximize income by identifying securities that offer an acceptable yield for a given maturity. Most securities are purchased with the intent to hold to maturity. However, circumstances may warrant or require that securities be sold prior to maturity. WHAT ARE THE RISKS OF INVESTING IN THIS FUND? The price (NAV) of the Fund will fluctuate depending on general changes in interest rates as well as changes in the yields of the specific securities in the Fund. General (or macro) changes in interest rates may be a result of economic developments or Federal Reserve policy. In general, the NAV of the Fund will rise when interest rates fall, and likewise, the NAV of the Fund will fall when interest rates rise. An objective of the Fund is to minimize NAV fluctuation by (a) maintaining the Fund average weighted duration between three months and one year and (b) investing the Fund in U.S. government and agency securities. The prices of the Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, the Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities are generally more volatile, so the average maturity or duration of these securities affects risk. The Fund is also subject to the risk that U.S. government debt securities may underperform other segments of the fixed income market or the fixed income market as a whole. Mortgage-backed securities are fixed income securities representing an interest in a pool of underlying mortgage loans. Mortgage-backed securities are sensitive to changes in interest rates, but may respond to these changes differently from other fixed income securities due to the possibility of prepayment of the underlying mortgage loans. As a result, it may not be possible to determine in advance the actual maturity date or average life of a mortgage-backed security. Rising interest rates tend to discourage refinancings, with the result that the average life and volatility of the security will increase, exacerbating its decrease in 7 - -------------------------------------------------------------------------------- market price. When interest rates fall, however, mortgage-backed securities may not gain as much in market value because of the expectation of additional mortgage prepayments that must be reinvested at lower interest rates. Prepayment risk may make it difficult to calculate the average maturity of the portfolio of mortgage-backed securities and, therefore, to assess the volatility risk of that portfolio. Although the Fund's U.S. government securities are considered to be among the safest investments, they are not guaranteed against price movements due to changing interest rates. Obligations issued by some U.S. government agencies are backed by the U.S. Treasury, while others are backed solely by the ability of the agency to borrow from the U.S. Treasury or by the agency's own resources. PERFORMANCE INFORMATION The Classic Institutional U.S. Government Securities Super Short Income Plus Fund commenced operations on April 11, 2002, and therefore does not have a performance history for a full calendar year. FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- INSTITUTIONAL SHARES Investment Advisory Fees 0.40% Shareholder Service Fee 0.25% Other Expenses 0.18%* - -------------------------------------------------------------------------------- Total Annual Fund Operating Expenses 0.83%** - -------------------------------------------------------------------------------- * OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT YEAR. ** THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE ESTIMATED FISCAL YEAR ARE EXPECTED TO BE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER AND THE DISTRIBUTOR INTEND TO WAIVE A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THESE FEE WAIVERS REMAIN IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER AND THE DISTRIBUTOR MAY DISCONTINUE ALL OR PART OF THESE FEE WAIVERS AT ANY TIME. WITH THESE FEE WAIVERS, THE FUND'S ESTIMATED TOTAL OPERATING EXPENSES WOULD BE AS FOLLOWS: CLASSIC INSTITUTIONAL U.S. GOVERNMENT SECURITIES SUPER SHORT INCOME PLUS FUND - INSTITUTIONAL SHARES 0.30% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS $85 $265 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." 8 CLASSIC INSTITUTIONAL CASH MANAGEMENT MONEY MARKET FUND - -------------------------------------------------------------------------------- FUND SUMMARY - -------------------------------------------------------------------------------- INVESTMENT GOAL As high a level of current income as is consistent with preservation of capital and liquidity - -------------------------------------------------------------------------------- INVESTMENT FOCUS Money market instruments - -------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to increase income without adding undue risk - -------------------------------------------------------------------------------- INVESTOR PROFILE Conservative investors seeking current income through a liquid investment - -------------------------------------------------------------------------------- INVESTMENT STRATEGY The Classic Institutional Cash Management Money Market Fund invests exclusively in high quality U.S. dollar-denominated money market instruments. The Fund invests in obligations of (i) the U.S. Treasury, (ii) agencies and instrumentalities of U.S. and foreign governments, (iii) domestic and foreign banks, (iv) domestic and foreign corporate issuers, and (v) supranational entities, as well as repurchase agreements. In selecting investments for the Fund, the Adviser tries to increase income without adding undue risk by analyzing maturity, yields, market sectors and credit risk. As a money market fund, the Fund follows strict rules about credit risk, maturity and diversification of its investments. WHAT ARE THE RISKS OF INVESTING IN THIS FUND? An investment in the Fund is subject to income risk, which is the possibility that the Fund's yield will decline due to falling interest rates. A Fund share is not a bank deposit and is not insured or guaranteed by the FDIC or any government agency. In addition, although a money market fund seeks to keep a constant price per share of $1.00, you may lose money by investing in the Fund. Although the Fund's U.S. government securities are considered to be among the safest investments, they are not guaranteed against price movements due to changing interest rates. Obligations issued by some U.S. government agencies are backed by the U.S. Treasury, while others are backed solely by the ability of the agency to borrow from the U.S. Treasury or the agency's own resources. Investing in foreign countries poses additional risks since political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S INSTITUTIONAL SHARES FROM YEAR TO YEAR.* [Bar Chart Omitted] Plot Points are as follows: 1996 5.47% 1997 5.63% 1998 5.52% 1999 5.12% 2000 6.33% 2001 4.13% BEST QUARTER WORST QUARTER 1.63% 0.59% (12/31/00) (12/31/01) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS 0.97%. 9 - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE IMONEYNET, INC. FIRST TIER INSTITUTIONS-ONLY AVERAGE. SINCE INSTITUTIONAL SHARES 1 YEAR 5 YEARS INCEPTION* - -------------------------------------------------------------------------------- Classic Institutional Cash Management Money Market Fund 4.13% 5.34% 5.38% - -------------------------------------------------------------------------------- iMoneyNet, Inc. First Tier Institutions- Only Average 3.89% 5.14% 5.17% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE INSTITUTIONAL SHARES ON OCTOBER 25, 1995. BENCHMARK RETURNS SINCE OCTOBER 31, 1995 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). TO OBTAIN INFORMATION ABOUT THE FUND'S YIELD, CALL 1-800-814-3397. - -------------------------------------------------------------------------------- WHAT IS AN AVERAGE? - -------------------------------------------------------------------------------- An average is a composite of mutual funds with similar investment goals. The iMoneyNet, Inc. First Tier Institutions-Only Average is a widely-recognized composite of money market funds which invests in commercial paper, bank obligations and short-term investments in the highest ratings category. The number of funds in the Average varies. FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- INSTITUTIONAL SHARES Investment Advisory Fees 0.20% Other Expenses 0.09% - -------------------------------------------------------------------------------- Total Annual Fund Operating Expenses 0.29%* - -------------------------------------------------------------------------------- * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER AND THE ADMINISTRATOR WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THESE FEE WAIVERS REMAIN IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER AND THE ADMINISTRATOR MAY DISCONTINUE ALL OR PART OF THESE FEE WAIVERS AT ANY TIME. WITH THESE FEE WAIVERS, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: CLASSIC INSTITUTIONAL CASH MANAGEMENT MONEY MARKET FUND - INSTITUTIONAL SHARES 0.25% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $30 $93 $163 $368 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." 10 CLASSIC INSTITUTIONAL U.S. GOVERNMENT SECURITIES MONEY MARKET FUND - -------------------------------------------------------------------------------- FUND SUMMARY - -------------------------------------------------------------------------------- INVESTMENT GOAL High current income to the extent consistent with the preservation of capital and the maintenance of liquidity - -------------------------------------------------------------------------------- INVESTMENT FOCUS U.S. Treasury and government agency securities, and repurchase agreements - -------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to increase income without adding undue risk by analyzing yields - -------------------------------------------------------------------------------- INVESTOR PROFILE Conservative investors seeking current income through a liquid investment - -------------------------------------------------------------------------------- INVESTMENT STRATEGY The Classic Institutional U.S. Government Securities Money Market Fund invests exclusively in U.S. Treasury obligations, obligations issued or guaranteed as to principal and interest by agencies or instrumentalities of the U.S. government, repurchase agreements involving these securities, and shares of registered money market funds that invest in the foregoing. In selecting investments for the Fund, the Adviser tries to increase income without adding undue risk by analyzing yields. The Adviser actively manages the maturity of the Fund and its portfolio to maximize the Fund's yield based on current market interest rates and the Adviser's outlook on the market. As a money market fund, the Fund follows strict rules about credit risk, maturity and diversification of its investments. WHAT ARE THE RISKS OF INVESTING IN THIS FUND? An investment in the Fund is subject to income risk, which is the possibility that the Fund's yield will decline due to falling interest rates. A Fund share is not a bank deposit and is not insured or guaranteed by the FDIC or any government agency. In addition, although a money market fund seeks to keep a constant price per share of $1.00, you may lose money by investing in the Fund. Mortgage-backed securities are fixed income securities representing an interest in a pool of underlying mortgage loans. Mortgage-backed securities are sensitive to changes in interest rates, but may respond to these changes differently from other fixed income securities due to the possibility of prepayment of the underlying mortgage loans. As a result, it may not be possible to determine in advance the actual maturity date or average life of a mortgage-backed security. Rising interest rates tend to discourage refinancings, with the result that the average life and volatility of the security will increase, exacerbating its decrease in market price. When interest rates fall, however, mortgage-backed securities may not gain as much in market value because of the expectation of additional mortgage prepayments that must be reinvested at lower interest rates. Prepayment risk may make it difficult to calculate the average maturity of a portfolio of mortgage-backed securities and, therefore, to assess the volatility risk of that portfolio. Although the Fund's U.S. government securities are considered to be among the safest investments, they are not guaranteed against price movements due to changing interest rates. Obligations issued by some U.S. government agencies are backed by the U.S. Treasury, while others are backed solely by the ability of the agency to borrow from the U.S. Treasury or by the agency's own resources. PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. 11 - -------------------------------------------------------------------------------- THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S INSTITUTIONAL SHARES FROM YEAR TO YEAR.* [Bar Chart Omitted] Plot Points are as follows: 1995 5.89% 1996 5.31% 1997 5.50% 1998 5.36% 1999 4.99% 2000 6.18% 2001 4.02% BEST QUARTER WORST QUARTER 1.60% 0.56% (12/31/00) (12/31/01) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS 0.93%. THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE IMONEYNET, INC. GOVERNMENT INSTITUTIONAL AVERAGE. SINCE INSTITUTIONAL SHARES 1 YEAR 5 YEARS INCEPTION* - -------------------------------------------------------------------------------- Classic Institutional U.S. Government Securities Money Market Fund 4.02% 5.21% 5.30% - -------------------------------------------------------------------------------- iMoneyNet, Inc. Government Institutional Average 3.68% 4.92% 5.02% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE INSTITUTIONAL SHARES ON AUGUST 1, 1994. BENCHMARK RETURNS SINCE JULY 31, 1994 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). TO OBTAIN INFORMATION ABOUT THE FUND'S YIELD, CALL 1-800-814-3397. - -------------------------------------------------------------------------------- WHAT IS AN AVERAGE? - -------------------------------------------------------------------------------- An average is a composite of mutual funds with similar investment goals. The iMoneyNet, Inc. Government Institutional Average is a widely-recognized composite of money market funds which invest in U.S. Treasury Bills, repurchase agreements, or agencies of the U.S. government. The number of funds in the Average varies. FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- INSTITUTIONAL SHARES Investment Advisory Fees 0.20% Other Expenses 0.10% - -------------------------------------------------------------------------------- Total Annual Fund Operating Expenses 0.30%* - -------------------------------------------------------------------------------- * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER AND THE ADMINISTRATOR WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THESE FEE WAIVERS REMAIN IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER AND THE ADMINISTRATOR MAY DISCONTINUE ALL OR PART OF THESE FEE WAIVERS AT ANY TIME. WITH THESE FEE WAIVERS, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: CLASSIC INSTITUTIONAL U.S. GOVERNMENT SECURITIES MONEY MARKET FUND - INSTITUTIONAL SHARES 0.27% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $31 $97 $169 $381 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." 12 CLASSIC INSTITUTIONAL U.S. TREASURY SECURITIES MONEY MARKET FUND - -------------------------------------------------------------------------------- FUND SUMMARY - -------------------------------------------------------------------------------- INVESTMENT GOAL As high a level of current income as is consistent with preservation of capital and liquidity - -------------------------------------------------------------------------------- INVESTMENT FOCUS U.S. Treasury securities and repurchase agreements - -------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to increase income without adding undue risk by analyzing yields - -------------------------------------------------------------------------------- INVESTOR PROFILE Conservative investors seeking current income through a liquid investment - -------------------------------------------------------------------------------- INVESTMENT STRATEGY The Classic Institutional U.S. Treasury Securities Money Market Fund invests exclusively in U.S. Treasury Bills, Notes, Bonds and components of these securities, and repurchase agreements collateralized by these securities. The Fund limits its investments so as to obtain the highest investment quality rating by a nationally recognized statistical rating organization (AAA by Standard & Poor's). In selecting investments for the Fund, the Adviser tries to increase income without adding undue risk by analyzing yields for various maturities. The Adviser actively manages the maturity of the Fund and its portfolio to maximize the Fund's yield based on current market interest rates and the Adviser's outlook on the market. As a money market fund, the Fund follows strict rules about credit risk, maturity and diversification of its investments. WHAT ARE THE RISKS OF INVESTING IN THIS FUND? An investment in the Fund is subject to income risk, which is the possibility that the Fund's yield will decline due to falling interest rates. A Fund share is not a bank deposit and is not insured or guaranteed by the FDIC or any government agency. In addition, although a money market fund seeks to keep a constant price per share of $1.00, you may lose money by investing in the Fund. Although the Fund's U.S. Treasury securities are considered to be among the safest investments, they are not guaranteed against price movements due to changing interest rates. PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE FUND'S INSTITUTIONAL SHARES FROM YEAR TO YEAR.* [Bar Chart Omitted] Plot Points are as follows: 1997 5.44% 1998 5.30% 1999 4.83% 2000 6.06% 2001 3.66% BEST QUARTER WORST QUARTER 1.57% 0.49% (12/31/00) (12/31/01) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS 0.79%. 13 - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001, TO THOSE OF THE IMONEYNET, INC. TREASURY & REPO INSTITUTIONAL AVERAGE. SINCE INSTITUTIONAL SHARES 1 YEAR 5 YEARS INCEPTION* - -------------------------------------------------------------------------------- Classic Institutional U.S. Treasury Securities Money Market Fund 3.66% 5.05% 5.06% - -------------------------------------------------------------------------------- iMoneyNet, Inc. Treasury & Repo Institutional Average 3.42% 4.61% 4.61% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE INSTITUTIONAL SHARES ON DECEMBER 12, 1996. BENCHMARK RETURNS SINCE NOVEMBER 30, 1996 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). TO OBTAIN INFORMATION ABOUT THE FUND'S YIELD, CALL 1-800-814-3397. - -------------------------------------------------------------------------------- WHAT IS AN AVERAGE? - -------------------------------------------------------------------------------- An average is a composite of mutual funds with similar investment goals. The iMoneyNet, Inc. Treasury & Repo Institutional Average is a widely-recognized composite of money market funds which invest in U.S. Treasury Bills and repurchase agreements backed by these securities. The number of funds in the Average varies. FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- INSTITUTIONAL SHARES Investment Advisory Fees 0.20% Other Expenses 0.10% - -------------------------------------------------------------------------------- Total Annual Fund Operating Expenses 0.30%* - -------------------------------------------------------------------------------- * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER AND THE ADMINISTRATOR WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THESE FEE WAIVERS REMAIN IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER AND THE ADMINISTRATOR MAY DISCONTINUE ALL OR PART OF THESE FEE WAIVERS AT ANY TIME. WITH THESE FEE WAIVERS, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: CLASSIC INSTITUTIONAL U.S. TREASURY SECURITIES MONEY MARKET FUND - INSTITUTIONAL SHARES 0.26% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $31 $97 $169 $381 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." 14 - -------------------------------------------------------------------------------- MORE INFORMATION ABOUT RISK Classic Institutional Short-Term Bond Fund Classic Institutional Super Short Income Plus Fund Classic Institutional U.S. Government Securities Super Short Income Plus Fund FIXED INCOME RISK -- The market value of fixed income investments changes in response to interest rate changes and other factors. During periods of falling interest rates, the values of outstanding fixed income securities generally rise. Moreover, while securities with longer maturities tend to produce higher yields, the prices of longer maturity securities are also subject to greater market fluctuations as a result of changes in interest rates. In addition to these fundamental risks, different types of fixed income securities may be subject to the following additional risks: CREDIT RISK -- The possibility that an issuer will be unable to make timely payments of either principal or interest. Classic Institutional Short-Term Bond Fund Classic Institutional Super Short Income Plus Fund Classic Institutional U.S. Government Securities Super Short Income Plus Fund FOREIGN SECURITIES RISK -- Investments in securities of foreign companies or governments can be more volatile than investments in U.S. companies or governments. Diplomatic, political, or economic developments, including nationalization or appropriation, could affect investments in foreign countries. Foreign securities markets generally have less trading volume and less liquidity than U.S. markets. In addition, the value of securities denominated in foreign currencies, and of dividends from such securities, can change significantly when foreign currencies strengthen or weaken relative to the U.S. dollar. Foreign companies or governments generally are not subject to uniform accounting, auditing, and financial reporting standards comparable to those applicable to domestic U.S. companies or governments. Transaction costs are generally higher than those in the U.S. and expenses for custodial arrangements of foreign securities may be somewhat greater than typical expenses for custodial arrangements of similar U.S. securities. Some foreign governments levy withholding taxes against dividend and interest income. Although in some countries a portion of these taxes are recoverable, the non-recovered portion will reduce the income received from the securities comprising the portfolio. MORE INFORMATION ABOUT FUND INVESTMENTS This prospectus describes the Funds' primary strategies, and the Funds will normally invest in the types of securities described in this prospectus. However, in addition to the investments and strategies described in this prospectus, each Fund also may invest in other securities, use other strategies and engage in other investment practices. These investments and strategies, as well as those described in this prospectus, are described in detail in the Statement of Additional Information (SAI). The investments and strategies described in this prospectus are those that the Funds use under normal conditions. During unusual economic or market conditions, or for temporary defensive or liquidity purposes, each Fund may invest up to 100% of its assets in cash, money market instruments, repurchase agreements and short-term obligations that would not ordinarily be consistent with a Fund's objectives. In addition, the Classic Institutional Short-Term Bond Fund, Classic Institutional Super Short Income Plus Fund and the Classic Institutional U.S. Government Securities Super Short Income Plus Fund may shorten its average weighted maturity to as little as 90 days. A Bond Fund will do so only if the Adviser believes that the risk of loss outweighs the opportunity for higher income. Of course, a Fund cannot guarantee that it will achieve its investment goal. 15 - -------------------------------------------------------------------------------- INVESTMENT ADVISER The investment adviser (Adviser) makes investment decisions for the Funds and continuously reviews, supervises and administers each Fund's respective investment program. The Board of Trustees supervises the Adviser and establishes policies that the Adviser must follow in its management activities. Trusco Capital Management, Inc. (Trusco or the Adviser), 50 Hurt Plaza, Suite 1400, Atlanta, Georgia 30303, serves as the Adviser to the Funds. As of June 30, 2002, Trusco had $45.5 billion in assets under management. For the fiscal period ended May 31, 2002, the Adviser received advisory fees of: CLASSIC INSTITUTIONAL SHORT-TERM BOND FUND 0.35% CLASSIC INSTITUTIONAL SUPER SHORT INCOME PLUS FUND 0.20% CLASSIC INSTITUTIONAL U.S. GOVERNMENT SECURITIES SUPER SHORT INCOME PLUS FUND 0.12% CLASSIC INSTITUTIONAL CASH MANAGEMENT MONEY MARKET FUND 0.16% CLASSIC INSTITUTIONAL U.S. GOVERNMENT SECURITIES MONEY MARKET FUND 0.17% CLASSIC INSTITUTIONAL U.S. TREASURY SECURITIES MONEY MARKET FUND 0.16% The Adviser may use its affiliates as brokers for Fund transactions. PORTFOLIO MANAGERS Ms. Agnes G. Pampush, CFA, has served as a Managing Director of Trusco since July 2000, after serving as a Vice President of Trusco since 1998. Ms. Pampush was employed by Trusco from 1988 to 1996, and rejoined the firm in 1998. She has managed the Classic Institutional Short-Term Bond Fund since it began operating in April 2002. She has more than 20 years of investment experience. Mr. Robert W. Corner has served as a Vice President of Trusco since September 1996. Mr. Corner has managed the Classic Institutional Super Short Income Plus Fund and the Classic Institutional U.S. Government Securities Super Short Income Plus Fund since each began operating in April 2002. He has more than 15 years of investment experience. Mr. Robert S. Bowman, CFA, has served as a Vice President of Trusco since January 1999. He has managed the Classic Institutional Cash Management Money Market Fund since it began operating in October 1995, and has managed the Classic Institutional U.S. Government Securities Money Market Fund since 1995. Prior to joining Trusco, Mr. Bowman served as assistant trader from 1994 to 1995, and Vice President of Crestar Asset Management Company since 1995. He has more than eight years of investment experience. Mr. David S. Yealy has served as a Managing Director of Trusco since July 2000. He has managed the Classic Institutional U.S. Treasury Securities Money Market Fund since it began operating in December 1996. Prior to July 2000, Mr. Yealy was a First Vice President of Trusco and has worked there since 1991. He has more than 17 years of investment experience. PURCHASING AND SELLING FUND SHARES This section tells you how to purchase and sell (sometimes called "redeem") Institutional Shares of the Funds. HOW TO PURCHASE FUND SHARES The Funds offer Institutional Shares primarily to various institutional investors, including subsidiaries of SunTrust Banks, Inc. (SunTrust), for their own or their customers' accounts for which they act as fiduciary, agent, investment adviser, or custodian. Shares are sold without a sales charge, although institutions may charge their customers for services provided in 16 - -------------------------------------------------------------------------------- connection with the purchase of shares. Institutional shares will be held of record by (in the name of) your institution. Depending upon the terms of your account, however, you may have, or be given, the right to vote your Institutional Shares. The Funds may reject any purchase order if it is determined that accepting the order would not be in the best interest of the STI Classic Funds or its shareholders. WHEN CAN YOU PURCHASE SHARES? You may purchase shares on any day that the New York Stock Exchange is open for business (a Business Day). But you may not purchase shares of the Money Market Funds on federal holidays. The price per share (the offering price) will be the net asset value per share (NAV) next determined after the Funds receive your purchase order. Each Fund calculates its NAV once each Business Day at the regularly-scheduled close of normal trading on the New York Stock Exchange (normally, 4:00 p.m., Eastern Time). So, for you to receive the current Business Day's NAV for each Fund (except the Money Market Funds), generally a Fund must receive your purchase order in proper form before 4:00 p.m., Eastern Time. The Fund will not accept orders that request a particular day or price for the transaction or any other special conditions. Each Money Market Fund calculates its NAV once each Business Day at the regularly-scheduled close of normal trading on the New York Stock Exchange (normally 4:00 p.m., Eastern Time.) So, for you to be eligible to receive dividends declared on the day you submit your purchase order, the Money Market Funds must generally receive your order before 2:00 p.m., Eastern Time and federal funds (readily available funds) before 4:00 p.m., Eastern Time. Otherwise, your purchase order will be effective the following Business Day, as long as each Money Market Fund receives federal funds before calculating its NAV the following day. FOR CUSTOMERS OF SUNTRUST, ITS AFFILIATES AND OTHER INSTITUTIONS YOU MAY HAVE TO TRANSMIT YOUR PURCHASE AND SALE REQUESTS TO YOUR INSTITUTION, INCLUDING SUBSIDIARIES OF SUNTRUST AND ITS AFFILIATES, AT AN EARLIER TIME FOR YOUR TRANSACTION TO BECOME EFFECTIVE THAT DAY. THIS ALLOWS YOUR INSTITUTION TIME TO PROCESS YOUR REQUEST AND TRANSMIT IT TO THE ADMINISTRATOR OR TRANSFER AGENT IN TIME TO MEET THE ABOVE STATED FUND CUT-OFF TIMES. FOR MORE INFORMATION ABOUT HOW TO PURCHASE OR SELL FUND SHARES, INCLUDING SPECIFIC ORDER ENTRY CUT-OFF TIMES, PLEASE CONTACT YOUR INSTITUTION DIRECTLY. HOW THE FUNDS CALCULATE NAV In calculating NAV, a Fund (except the Money Market Funds) generally values its investment portfolio at market price. In calculating NAV for each Money Market Fund, each Fund generally values its investment portfolio using the amortized cost valuation method, which is described in detail in the SAI. If market prices are unavailable or a Fund thinks that the market price or amortized cost valuation method is unreliable during certain market conditions or for other reasons, fair value prices may be determined in good faith using methods approved by the Board of Trustees. Each Money Market Fund expects its NAV to remain constant at $1.00 per share, although the Fund cannot guarantee this. NET ASSET VALUE NAV for one Fund share is the value of that share's portion of the net assets of the Fund. MINIMUM PURCHASES To purchase Institutional Shares of the Money Market Funds for the first time, you must invest at least $10,000,000. To purchase Institutional Shares of any Bond Fund for the first time, you must invest at least $1,000,000. 17 - -------------------------------------------------------------------------------- HOW TO SELL YOUR FUND SHARES You may sell (sometimes called "redeem") your shares on any Business Day by contacting the Funds. If you are a customer of SunTrust or another institution, you must contact that institution directly for information about how to sell your shares including any specific cut-off times required. Holders of Institutional Shares may sell shares by following the procedures established when they opened their account or accounts with the Funds or with their financial institution or intermediary. The sale price of each share will be the next NAV determined after the Funds receive your request. Redemption orders must be received by the Money Market Funds on a Business Day before 2:00 p.m., Eastern time. Orders received after 2:00 p.m., Eastern time will be executed the following Business Day. RECEIVING YOUR MONEY Normally, the Funds will send your sale proceeds within five Business Days after a Fund receives your request, but it may take up to seven days. REDEMPTIONS IN KIND The Funds generally pay sale (redemption) proceeds in cash. However, under unusual conditions that make the payment of cash unwise (and for the protection of the Fund's remaining shareholders) a Fund might pay all or part of your redemption proceeds in liquid securities with a market value equal to the redemption price (redemption in kind). It is highly unlikely that your shares would ever be redeemed in kind, but if they were you would probably have to pay transaction costs to sell the securities distributed to you, as well as taxes on any capital gains from the sale as with any redemption. SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES A Fund may suspend your right to sell your shares if the New York Stock Exchange restricts trading, the SEC declares an emergency or for other reasons. More information about this is in the SAI. TELEPHONE TRANSACTIONS Purchasing and selling Fund shares over the telephone is extremely convenient, but not without risk. Although the Funds have certain safeguards and procedures to confirm the identity of callers and the authenticity of instructions, the Funds are not responsible for any losses or costs incurred by following telephone instructions the Fund reasonably believes to be genuine. If you or your financial institution transact with the Fund over the telephone, you will generally bear the risk of any loss. The Funds reserve the right to modify, suspend or terminate telephone transaction privileges at any time. DIVIDENDS AND DISTRIBUTIONS Each Fund declares dividends daily and pays these dividends monthly. Each Fund makes distributions of its net realized capital gains, if any, at least annually. If you own Fund shares on a Fund's record date, you will be entitled to receive the distribution. You will receive dividends and distributions in the form of additional Fund shares unless you elect to receive payment in cash. To elect cash payment, you must notify the Fund in writing prior to the date of the distribution. Your election will be effective for dividends and distributions paid after the Funds receive your written notice. To cancel your election, simply send the Funds written notice. 18 - -------------------------------------------------------------------------------- TAXES PLEASE CONSULT YOUR TAX ADVISOR REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL, STATE AND LOCAL INCOME TAXES. Below the Funds have summarized some important tax issues that affect the Funds and their shareholders. This summary is based on current tax laws, which may change. Each Fund will distribute substantially all of its net investment income and its net realized capital gains, if any, at least annually. The dividends and distributions you receive may be subject to federal, state and local taxation, depending upon your tax situation. Distributions you receive from a Fund may be taxable whether or not you reinvest them. Income distributions are generally taxable at ordinary income tax rates. Capital gains distributions are generally taxable at the rates applicable to long-term capital gains. EACH SALE OR EXCHANGE OF FUND SHARES MAY BE A TAXABLE EVENT. FOR TAX PURPOSES, AN EXCHANGE OF YOUR FUND SHARES FOR SHARES OF ANOTHER STI CLASSIC FUND IS TREATED THE SAME AS A SALE. Shareholders of the Money Market Funds, however, should be aware that because the Funds each expect to maintain a stable $1.00 net asset value per share, they should not expect to realize any gain or loss on the sale or exchange of Money Market Fund shares. If you have a tax-advantaged or other retirement account you will generally not be subject to federal taxation on income and capital gain distributions until you begin receiving your distributions from your retirement account. You should consult your tax advisor regarding the rules governing your own retirement plan. Except for those certain Funds that expect to distribute federally tax-exempt income (described above), the Funds expect to distribute primarily ordinary income dividends. The Classic Institutional Short-Term Bond Fund and the Classic Institutional Super Short Income Plus Fund each expect that a substantial portion of Fund distributions will represent interest earned on U.S. obligations, while the Classic Institutional U.S. Government Securities Super Short Income Plus Fund expects that some portion of each Fund's distribution will be so derived. Many states grant tax-free status to dividends paid from interest earned on direct obligations of the U.S. government, subject to certain limitations. MORE INFORMATION ABOUT TAXES IS IN THE SAI. 19 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS The financial highlights table is intended to help you understand a Fund's financial performance for the period of the Fund's (and its predecessor's) operations. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). The information provided below for the period ended May 31, 2002 has been audited by PricewaterhouseCoopers LLP. The information for prior periods has been audited by predecessor independent accounting firms. The Reports of Independent Accountants for each such period along with the Fund's financial statements and related notes, are included in the Annual Reports to Shareholders for such periods. The 2002 Annual Report is available upon request and without charge by calling 1-800-428-6970. The 2002 Annual Report is incorporated by reference in the SAI. For the Periods Ended May 31, (unless otherwise noted) For a Share Outstanding Throughout the Periods
Net Realized Net Asset and Distributions Value Net Unrealized from Net Net Asset Beginning Investment Gains on Investment Value End Total of Period Income Investments Income of Period Return (+) ---------- ---------- ----------- -------------- ---------- ----------- - ------------------------------------------ Classic Institutional Short-Term Bond Fund - ------------------------------------------ Institutional Shares 2002(1) $10.00 $0.01 $ 0.03 $(0.01) $10.03 0.41% - -------------------------------------------------- Classic Institutional Super Short Income Plus Fund - -------------------------------------------------- Institutional Shares 2002(2) $ 2.00 $0.01 -- $(0.01) $ 2.00 0.30% - ----------------------------------------------------------------------------- Classic Institutional U.S. Government Securities Super Short Income Plus Fund - ----------------------------------------------------------------------------- Institutional Shares 2002(3) $ 2.00 $0.01 -- $(0.01) $ 2.00 0.32% Ratio of Net Ratio of Investment Ratio of Expenses to Income to Ratio of Net Average Net Average Net Expenses Investment Assets Assets Net Assets to Average Income to (Excluding (Excluding Portfolio End of Net Average Waivers and Waivers and Turnover Period (000) Assets Net Assets Reimbursements) Reimbursements) Rate ------------ ---------- ---------- --------------- -------------- --------- - ------------------------------------------ Classic Institutional Short-Term Bond Fund - ------------------------------------------ Institutional Shares 2002(1) $16,176 0.57%(4) 2.60%(4) 1.07%(4) 2.10%(4) 0% - -------------------------------------------------- Classic Institutional Super Short Income Plus Fund - -------------------------------------------------- Institutional Shares 2002(2) $33,730 0.36%(4) 2.44%(4) 0.91%(4) 1.89%(4) 30% - ----------------------------------------------------------------------------- Classic Institutional U.S. Government Securities Super Short Income Plus Fund - ----------------------------------------------------------------------------- Institutional Shares 2002(3) $28,138 0.30%(4) 2.42%(4) 0.83%(4) 1.89%(4) 34% (+) Returns are for the period indicated and have not been annualized. (The performance in the above table does not reflect the deduction of taxes the shareholder would pay on fund distributions or redemption of fund shares). (1) Commenced operations on May 14, 2002. All ratios have been annualized. (2) Commenced operations on April 15, 2002. All ratios have been annualized. (3) Commenced operations on April 11, 2002. All ratios have been annualized. (4) This ratio has been changed to reflect the correction of a clerical error contained in the Fund's 2002 Annual Report to Shareholders. Amounts designated as "__" are either $0 or round to $0.
20 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS For the Periods Ended May 31, (unless otherwise noted) For a Share Outstanding Throughout the Periods Net Asset Distributions Value Net from Net Net Asset Beginning Investment Investment Value End Total of Period Income Income of Period Return (+) ---------- ---------- ------------ ---------- ----------- - ----------------------------------------------------------- Classic Institutional Cash Management Money Market Fund (A) - ----------------------------------------------------------- Institutional Shares 2002 $1.00 $0.03 $(0.03) $1.00 2.68% 2001 1.00 0.06 (0.06) 1.00 6.13 2000 1.00 0.05 (0.05) 1.00 5.56 1999* 1.00 0.02 (0.02) 1.00 1.58 For the years ended January 31: 1999 1.00 0.05 (0.05) 1.00 5.46 1998 1.00 0.06 (0.06) 1.00 5.66 - ---------------------------------------------------------------------- Classic Institutional U.S. Government Securities Money Market Fund (B) - ---------------------------------------------------------------------- Institutional Shares 2002 $1.00 $0.03 $(0.03) $1.00 2.61% 2001 1.00 0.06 (0.06) 1.00 5.98 2000 1.00 0.05 (0.05) 1.00 5.39 1999* 1.00 0.02 (0.02) 1.00 1.56 For the years ended January 31: 1999 1.00 0.05 (0.05) 1.00 5.30 1998 1.00 0.05 (0.05) 1.00 5.52 - ---------------------------------------------------------------- Classic Institutional U.S. Treasury Securities Money Market Fund - ---------------------------------------------------------------- Institutional Shares 2002 $1.00 $0.02 $(0.02) $1.00 2.28% 2001 1.00 0.06 (0.06) 1.00 5.74 2000 1.00 0.05 (0.05) 1.00 5.25 1999 1.00 0.05 (0.05) 1.00 4.97 1998 1.00 0.05 (0.05) 1.00 5.50 Ratio of Net Ratio of Investment Ratio of Expenses to Income to Ratio of Net Average Net Average Net Expenses Investment Assets Assets Net Assets to Average Income to (Excluding (Excluding End of Net Average Waivers and Waivers and Period (000) Assets Net Assets Reimbursements) Reimbursements) ------------ ---------- ------------ --------------- --------------- - ----------------------------------------------------------- Classic Institutional Cash Management Money Market Fund (A) - ----------------------------------------------------------- Institutional 2002 $3,409,606 0.25% 2.61% 0.29% 2.57% 2001 3,229,400 0.25 5.91 0.30 5.86 2000 2,311,685 0.25 5.42 0.30 5.37 1999* 1,888,483 0.25 4.79 0.35 4.69 For the years ended January 31: 1999 884,490 0.23 5.31 0.35 5.19 1998 740,837 0.20 5.52 0.36 5.36 - -------------------------------------------------------------------------------- Classic Institutional U.S. Government Securities Money Market Fund (B) - -------------------------------------------------------------------------------- Institutional Shares 2002 $1,025,714 0.27% 2.49% 0.30% 2.46% 2001 896,189 0.26 5.72 0.29 5.69 2000 650,626 0.25 5.27 0.29 5.23 1999* 617,089 0.25 4.73 0.36 4.62 For the years ended January 31: 1999 688,031 0.23 5.18 0.36 5.05 1998 789,410 0.20 5.39 0.37 5.22 - -------------------------------------------------------------------------------- Classic Institutional U.S. Treasury Securities Money Market Fund - -------------------------------------------------------------------------------- Institutional Shares 2002 $551,599 0.26% 2.25% 0.30% 2.21% 2001 580,227 0.27 5.44 0.30 5.41 2000 329,725 0.25 5.17 0.31 5.11 1999 283,525 0.20 4.83 0.47 4.56 1998 140,334 0.18 5.34 0.38 5.14 (+) Returns are for the period indicated and have not been annualized. (The performance in the above table does not reflect the deduction of taxes the shareholder would pay on fund distributions or redemption of fund shares.) * For the period February 1, 1999 to May 31, 1999. All ratios for the period have been annualized. (A) On May 17, 1999, the Arbor Prime Obligations Fund exchanged all of its assets and certain liabilities for shares of the Classic Institutional Cash Management Money Market Fund. The Arbor Prime Obligations Fund is the accounting survivor in this transaction, and as a result, its basis of accounting for assets and liabilities and its operating results for the periods prior to May 17, 1999 have been carried forward in these financial highlights. (B) On May 24, 1999, the Arbor U.S. Government Securities Money Fund exchanged all of its assets and certain liabilities for shares of the Classic Institutional U.S. Government Securities Money Market Fund. The Arbor U.S. Government Securities Money Fund is the accounting survivor in this transaction, and as a result, its basis of accounting for assets and liabilities and its operating results for the periods prior to May 24, 1999 have been carried forward in these financial highlights. - -------------------------------------------------------------------------------- NOTES STI CLASSIC FUNDS INVESTMENT ADVISER Trusco Capital Management, Inc. 50 Hurt Plaza Suite 1400 Atlanta, Georgia 30303 DISTRIBUTOR SEI Investments Distribution Co. One Freedom Valley Drive Oaks, Pennsylvania 19456 LEGAL COUNSEL Morgan, Lewis & Bockius LLP More information about the Funds is available without charge through the following: STATEMENT OF ADDITIONAL INFORMATION (SAI) The SAI dated October 1, 2002, includes detailed information about the STI Classic Institutional Bond and Money Market Funds. The SAI is on file with the SEC and is incorporated by reference into this prospectus. This means that the SAI, for legal purposes, is a part of this prospectus. ANNUAL AND SEMI-ANNUAL REPORTS These reports list each Fund's holdings and contain information from the Funds' managers about strategies and recent market conditions and trends and their impact on Fund performance. The reports also contain detailed financial information about the Funds. TO OBTAIN AN SAI, ANNUAL OR SEMI-ANNUAL REPORT, OR MORE INFORMATION: BY TELEPHONE: Call 1-800-428-6970 BY MAIL: Write to the Funds c/o SEI Investments Distribution Co. Oaks, Pennsylvania 19456 FROM THE SEC: You can also obtain the SAI or the Annual and Semi-Annual reports, as well as other information about the STI Classic Funds, from the EDGAR Database on the SEC's website ("HTTP://WWW.SEC.GOV"). You may review and copy documents at the SEC Public Reference Room in Washington, DC (for information on the operation of the Public Reference Room, call 202-942-8090). You may request documents by mail from the SEC, upon payment of a duplicating fee, by writing to: Securities and Exchange Commission, Public Reference Section, Washington, DC 20549-0102. You may also obtain this information, upon payment of a duplicating fee, by e-mailing the SEC at the following address: PUBLICINFO@SEC.GOV. The STI Classic Funds' Investment Company Act registration number is 811-06557. STI-PS-002-0200 STI CLASSIC FUNDS BOND FUNDS TRUST SHARES PROSPECTUS OCTOBER 1, 2002 CLASSIC INSTITUTIONAL SUPER SHORT INCOME PLUS FUND CLASSIC INSTITUTIONAL U.S. GOVERNMENT SECURITIES SUPER SHORT INCOME PLUS FUND INVESTMENT ADVISER TO THE FUNDS: TRUSCO CAPITAL MANAGEMENT, INC. (THE "ADVISER") THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - --------------------- ABOUT THIS PROSPECTUS - --------------------- The STI Classic Funds is a mutual fund family that offers shares in separate investment portfolios (Funds). The Funds have individual investment goals and strategies. This prospectus gives you important information about the Trust Shares of the Classic Institutional Bond Funds that you should know before investing. Please read this prospectus and keep it for future reference. THIS PROSPECTUS HAS BEEN ARRANGED INTO DIFFERENT SECTIONS SO THAT YOU CAN EASILY REVIEW THIS IMPORTANT INFORMATION. ON THE NEXT PAGE, THERE IS SOME GENERAL INFORMATION YOU SHOULD KNOW ABOUT RISK AND RETURN THAT IS COMMON TO EACH OF THE FUNDS. FOR MORE DETAILED INFORMATION ABOUT EACH FUND, PLEASE SEE: CLASSIC INSTITUTIONAL SUPER SHORT INCOME PLUS FUND...................... 2 CLASSIC INSTITUTIONAL U.S. GOVERNMENT SECURITIES SUPER SHORT INCOME PLUS FUND........................................ 4 MORE INFORMATION ABOUT RISK............................................. 6 MORE INFORMATION ABOUT FUND INVESTMENTS................................. 7 INVESTMENT ADVISER ........................................... ......... 7 PORTFOLIO MANAGER....................................................... 7 PURCHASING AND SELLING FUND SHARES...................................... 8 DIVIDENDS AND DISTRIBUTIONS............................................. 10 TAXES................................................................... 10 HOW TO OBTAIN MORE INFORMATION ABOUT THE STI CLASSIC FUNDS............................................Back Cover [SUITCASE GRAPHIC OMITTED} FUND SUMMARY [TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY [LIFEPRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING? [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES [LIFEPRESERVER GRAPHIC OMITTED] MORE INFORMATION ABOUT RISK [MAGNIFIER GRAPHIC OMITTED] INVESTMENT ADVISER [HANDSHAKE GRAPHIC OMITTED] PURCHASING AND SELLING FUND SHARES PROSPECTUS 1 - -------------------------------------------------------------------------------- RISK/RETURN INFORMATION COMMON TO THE FUNDS - -------------------------------------------------------------------------------- Each Fund is a mutual fund. A mutual fund pools shareholders' money and, using professional investment managers, invests it in securities. Each Fund has its own investment goal and strategies for reaching that goal. The Adviser invests Fund assets in a way that it believes will help a Fund achieve its goal. Still, investing in each Fund involves risk and there is no guarantee that a Fund will achieve its goal. The Adviser's judgments about the markets, the economy or companies may not anticipate actual market movements, economic conditions or company performance, and these judgments may affect the return on your investment. In fact, no matter how good a job the Adviser does, you could lose money on your investment in a Fund, just as you could with other investments. A FUND SHARE IS NOT A BANK DEPOSIT AND IT IS NOT INSURED OR GUARANTEED BY THE FDIC OR ANY GOVERNMENT AGENCY. The value of your investment in a Fund is based on the market prices of the securities a Fund holds. These prices change daily due to economic and other events that affect particular companies and other issuers. These price movements, sometimes called volatility, may be greater or lesser depending on the types of securities a Fund owns and the markets in which they trade. The effect on a Fund of a change in the value of a single security will depend on how widely a Fund diversifies its holdings. 2 PROSPECTUS - -------------------------------------------------------------------------------- CLASSIC INSTITUTIONAL SUPER SHORT INCOME PLUS FUND - -------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED]FUND SUMMARY INVESTMENT GOAL High current income consistent with preserving capital and maintaining liquidity - -------------------------------------------------------------------------------- INVESTMENT FOCUS Short duration investment grade money market and fixed income securities - -------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Low - -------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify short duration securities that offer a comparably better return potential and yield than money market funds - -------------------------------------------------------------------------------- INVESTOR PROFILE Conservative investors seeking to maximize income consistent with limited share price volatility - -------------------------------------------------------------------------------- [TELESCOPE GRAPHIC OMITTED]INVESTMENT STRATEGY The Classic Institutional Super Short Income Plus Fund invests at least 80% of its net assets in short duration, investment grade money market and fixed income securities including, but not limited to, U.S. Treasury and Agency securities, obligations of supranational entities and foreign governments, domestic and foreign corporate debt obligations, taxable municipal debt securities, mortgage backed and asset backed securities, repurchase agreements, and other mutual funds. The Fund normally expects to maintain an average effective duration between three months and one year. Individual purchases will generally be limited to securities with a maturity/average life of less than three years. In selecting investments for the Fund, the Adviser attempts to maximize income by identifying securities that offer an acceptable yield for a given level of credit risk and maturity. Most securities are purchased with the intent to hold to maturity. However, circumstances may warrant or require that securities be sold prior to maturity. [LIFEPRESERVER GRAPHIC OMITTED]WHAT ARE THE RISKS OF INVESTING IN THIS FUND? The price (NAV) of the Fund will fluctuate depending on general changes in interest rates as well as changes in the yields of the specific securities in the Fund. General (or macro) changes in interest rates may be as a result of economic developments or Federal Reserve policy while issuer specific changes in yield may be as a result of a change in creditworthiness of a particular issuer or industry. In general, the NAV of the Fund will rise when interests rates fall, and likewise, the NAV of the Fund will fall when interest rates rise. An objective of the Fund is to minimize NAV fluctuation by (a) maintaining the Fund average weighted duration between three months and one year and (b) diversifying the Fund among issuers and industries. The prices of the Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, the Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities are generally more volatile, so the average maturity or duration of these securities affects risk. The Fund is also subject to the risk that short-term U.S. government debt securities may under perform other segments of the fixed income market or the fixed income market as a whole. Mortgage-backed securities are fixed income securities representing an interest in a pool of underlying mortgage loans. Mortgage-backed securities are sensitive to changes in interest rates, but may respond to these changes differently from other fixed income securities due to the possibility of prepayment of the underlying mortgage loans. As a result, it may not be possible to determine in advance the actual maturity date or average life of a mortgage-backed security. Rising interest rates tend to discourage refinancings, with the result that the average life and volatility of the security will increase, exacerbating its decrease in market price. When interest rates fall, however, mortgage-backed securities may not gain as much in market value because of the expectation of additional mortgage prepayments that must be reinvested at lower interest rates. Prepayment risk may make it difficult to calculate the average maturity of the Fund of mortgage-backed securities, and therefore, to assess the volatility risk of the Fund. Investing in foreign countries poses additional risks since political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. In addition, investments in foreign countries are generally PROSPECTUS 3 - -------------------------------------------------------------------------------- CLASSIC INSTITUTIONAL SUPER SHORT INCOME PLUS FUND - -------------------------------------------------------------------------------- denominated in a foreign currency. As a result, changes in the value of those currencies compared to the U.S. dollar may affect(positively or negatively) the value of a Fund's investments. These currency movements may happen separately from and in response to events that do not otherwise affect the value of the security in the issuer's home country. These various risks will be even greater for investments in emerging market countries since political turmoil and rapid changes in economic conditions are more likely to occur in these countries. Although the Fund's U.S. government securities are considered to be among the safest investments, they are not guaranteed against price movements due to changing interest rates. Obligations issued by some U.S. government agencies are backed by the U.S. Treasury, while others are backed solely by the ability of the agency to borrow from the U.S. Treasury or by the agency's own resources. [BULLSEYE GRAPHIC OMITTED]PERFORMANCE INFORMATION The Classic Institutional Super Short Income Plus Fund commenced operations on April 15, 2002, and therefore does not have a performance history for a full calendar year. [COINS GRAPHIC OMITTED]FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 0.50% Shareholder Service Fee 0.25% Other Expenses 0.25%* ----- Total Annual Fund Operating Expenses 1.00%** * OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT YEAR. ** THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR ARE EXPECTED TO BE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER AND THE DISTRIBUTOR INTEND TO WAIVE A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THESE FEE WAIVERS REMAIN IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER AND THE DISTRIBUTOR MAY DISCONTINUE ALL OR PART OF THESE FEE WAIVERS AT ANY TIME. WITH THESE FEE WAIVERS, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES WOULD BE AS FOLLOWS: Classic Institutional Super Short Income Plus Fund - Trust Shares 0.65% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS $102 $318 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." 4 PROSPECTUS - -------------------------------------------------------------------------------- CLASSIC INSTITUTIONAL U.S. GOVERNMENT SECURITIES SUPER SHORT INCOME PLUS FUND - -------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED]FUND SUMMARY INVESTMENT GOAL High current income consistent with preserving capital and maintaining liquidity - -------------------------------------------------------------------------------- INVESTMENT FOCUS Short-duration U.S. government securities - -------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Low - -------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify short duration U.S. government securities that offer a comparably better return potential And yield than money market funds - -------------------------------------------------------------------------------- INVESTOR PROFILE Conservative investors seeking to maximize income consistent with limited share price volatility and the relative safety of U.S. government securities - -------------------------------------------------------------------------------- [TELESCOPE GRAPHIC OMITTED]INVESTMENT STRATEGY The Classic Institutional U.S. Government Securities Super Short Income Plus Fund nvests at least 80% of its net assets in short duration U.S. Treasury securities, U.S. Agency securities, U.S. Agency mortgage-backed securities, repurchase agreements, and other U.S. government mutual funds. The Fund normally expects to maintain an average effective duration between three months and one year. Individual purchases will generally be limited to securities with a maturity/average life of less than three years. In selecting investments for the Fund, the Adviser attempts to maximize income by identifying securities that offer an acceptable yield for a given maturity. Most securities are purchased with the intent to hold to maturity. However, circumstances may warrant or require that securities be sold prior to maturity. [LIFE PRESERVER GRAPHIC OMITTED]WHAT ARE THE RISKS OF INVESTING IN THIS FUND? The price (NAV) of the Fund will fluctuate depending on general changes in interest rates as well as changes in the yields of the specific securities in the Fund. General (or macro) changes in interest rates may be a result of economic developments or Federal Reserve policy. In general, the NAV of the Fund will rise when interest rates fall, and likewise, the NAV of the Fund will fall when interest rates rise. An objective of the Fund is to minimize NAV fluctuation by (a) maintaining the Fund average weighted duration between three months and one year and (b) investing the Fund in U.S. government and agency securities. The prices of the Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, the Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities are generally more volatile, so the average maturity or duration of these securities affects risk. The Fund is also subject to the risk that U.S. government debt securities may underperform other segments of the fixed income market or the fixed income market as a whole. Mortgage-backed securities are fixed income securities representing an interest in a pool of underlying mortgage loans. Mortgage-backed securities are sensitive to changes in interest rates, but may respond to these changes differently from other fixed income securities due to the possibility of prepayment of the underlying mortgage loans. As a result, it may not be possible to determine in advance the actual maturity date or average life of a mortgage-backed security. Rising interest rates tend to discourage refinancings, with the result that the average life and volatility of the security will increase, exacerbating its decrease in market price. When interest rates fall, however, mortgage-backed securities may not gain as much in market value because of the expectation of additional mortgage prepayments that must be reinvested at lower interest rates. Prepayment risk may make it difficult to calculate the average maturity of the portfolio of mortgage-backed securities and, therefore, to assess the volatility risk of that portfolio. Although the Fund's U.S. government securities are considered to be among the safest investments, they are not guaranteed against price movements due to changing interest rates. Obligations issued by some U.S. government agencies are backed by the U.S. Treasury, while others are backed solely by the ability of the agency to borrow from the U.S. Treasury or by the agency's own resources. [BULLSEYE GRAPHIC OMITTED]PERFORMANCE INFORMATION The Classic Institutional U.S. Government Securities Super Short Income Plus Fund Institutional Shares commenced operations on April 11, 2002, and therefore does not have a performance history for a full calendar year. As of October 1, 2002, Trust Shares were not available for purchase by investors. [COINS GRAPHIC OMITTED]FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 0.40% Shareholder Service Fee 0.25% Other Expenses 0.28%* ----- Total Annual Fund Operating Expenses 0.93%** * OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT YEAR. ** THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR ARE EXPECTED TO BE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER AND THE DISTRIBUTOR INTEND TO WAIVE A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THESE FEE WAIVERS REMAIN IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER AND THE DISTRIBUTOR MAY DISCONTINUE ALL OR PART OF THESE FEE WAIVERS AT ANY TIME. WITH THESE FEE WAIVERS, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES WOULD BE AS FOLLOWS: Classic Institutional U.S. Government Securities Super Short Income Plus Fund - Trust Shares 0.65% PROSPECTUS 5 - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS $95 $296 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." 6 PROSPECTUS - -------------------------------------------------------------------------------- MORE INFORMATION ABOUT RISK - -------------------------------------------------------------------------------- [LIFEPRESERVER GRAPHIC OMITTED]MORE INFORMATION ABOUT RISK FIXED INCOME RISK-- The market value of fixed income investments All Funds changes in response to interest rate changes and other factors. During periods of falling interest rates, the values of outstanding fixed income securities generally rise. Moreover, while securities with longer maturities tend to produce higher yields, the prices of longer maturity securities are also subject to greater market fluctuations as a result of changes in interest rates. In addition to these fundamental risks, different types of fixed income securities may be subject to the following additional risks: CREDIT RISK -- The possibility that an issuer will be unable to make timely payments of either principal or interest. FOREIGN SECURITIES RISK - Investments in securities of foreign All Funds companies or governments can be more volatile than investments in U.S. companies or governments. Diplomatic, political, or economic developments, including nationalization or appropriation, could affect investments in foreign countries. Foreign securities markets generally have less trading volume and less liquidity than U.S. markets. In addition, the value of securities denominated in foreign currencies, and of dividends from such securities, can change significantly when foreign currencies strengthen or weaken relative to the U.S. dollar. Foreign companies or governments generally are not subject to uniform accounting, auditing, and financial reporting standards comparable to those applicable to domestic U.S. companies or governments. Transaction costs are generally higher than those in the U.S. and expenses for custodial arrangements of foreign securities may be somewhat greater than typical expenses for custodial arrangements of similar U.S. securities. Some foreign governments levy withholding taxes against dividend and interest income. Although in some countries a portion of these taxes are recoverable, the non-recovered portion will reduce the income received from the securities comprising the portfolio. PROSPECTUS 7 - -------------------------------------------------------------------------------- MORE INFORMATION ABOUT FUND INVESTMENTS - -------------------------------------------------------------------------------- [MOUNTAIN GRAPHIC OMITTED]MORE INFORMATION ABOUT FUND INVESTMENTS This prospectus describes the Funds' primary strategies, and the Funds will normally invest in the types of securities described in this prospectus. However, in addition to the investments and strategies described in this prospectus, each Fund also may invest in other securities, use other strategies and engage in other investment practices. These investments and strategies, as well as those described in this prospectus, are described in detail in the Statement of Additional Information (SAI). The investments and strategies described in this prospectus are those that the Funds use under normal conditions. During unusual economic or market conditions, or for temporary defensive or liquidity purposes, each Fund may invest up to 100% of its assets in cash, money market instruments, repurchase agreements and short-term obligations that would not ordinarily be consistent with a Fund's objectives. A Fund will do so only if the Adviser believes that the risk of loss outweighs the opportunity for higher income. Of course, a Fund cannot guarantee that it will achieve its investment goal. [MAGNIFIER GRAPHIC OMITTED]INVESTMENT ADVISER The investment adviser (Adviser) makes investment decisions for the Funds and continuously reviews, supervises and administers each Fund's respective investment program. The Board of Trustees supervises the Adviser and establishes policies that the Adviser must follow in its management activities. Trusco Capital Management, Inc. (Trusco or the Adviser), 50 Hurt Plaza, Suite 1400, Atlanta, Georgia 30303, serves as the Adviser to the Funds. As of June 30, 2002, Trusco had $45.5 billion in assets under management. For its advisory services to the Funds, the Adviser is entitled to receive the following fees as a percentage of each Fund's daily net assets: CLASSIC INSTITUTIONAL SUPER SHORT INCOME PLUS FUND 0.50% CLASSIC INSTITUTIONAL U.S. GOVERNMENT SECURITIES SUPER SHORT INCOME PLUS FUND 0.40% The Adviser may use its affiliates as brokers for Fund transactions. PORTFOLIO MANAGER Mr. Robert W. Corner has served as a Vice President of Trusco since September 1996. Mr. Corner has managed the Super Short Income Plus Fund and the U.S. Government Securities Super Short Income Plus Fund since each began operating in April 2002. He has more than 15 years of investment experience. 8 PROSPECTUS - -------------------------------------------------------------------------------- PURCHASING AND SELLING FUND SHARES - -------------------------------------------------------------------------------- [HANDSHAKE GRAPHIC OMITTED]PURCHASING AND SELLING FUND SHARES This section tells you how to purchase, sell (sometimes called "redeem") or exchange Trust Shares of the Funds. HOW TO PURCHASE FUND SHARES The Funds offer Trust Shares only to financial institutions or intermediaries, including subsidiaries of SunTrust Banks, Inc. (SunTrust), for their own or their customers' accounts for which they act as fiduciary, agent, investment adviser, or custodian. As a result, you, as a customer of a financial institution may purchase Trust Shares through accounts made with financial institutions and potentially through the Investors' Advantage Account (an asset allocation account available through SunTrust Securities, Inc.). Trust Shares will be held of record by (in the name of) your financial institution. Depending upon the terms of your account, however, you may have, or be given, the right to vote your Trust Shares. The Funds may reject any purchase order if it is determined that accepting the order would not be in the best interests of the STI Classic Funds or its shareholders. WHEN CAN YOU PURCHASE SHARES? You may purchase shares on any day that the New York Stock Exchange is open for business (a Business Day). The price per share (the offering price) will be the net asset value per share (NAV) next determined after the Funds receive your purchase order. Each Fund calculates its NAV once each Business Day at the regularly-scheduled close of normal trading on the New York Stock Exchange (normally, 4:00 p.m., Eastern Time). So, for you to receive the current Business Day's NAV, generally a Fund must receive your purchase order in proper form before 4:00 p.m., Eastern Time. The Funds will not accept orders that request a particular day or price for the transaction or any other special conditions. FOR CUSTOMERS OF SUNTRUST, ITS AFFILIATES, AND OTHER FINANCIAL INSTITUTIONS YOU MAY HAVE TO TRANSMIT YOUR PURCHASE, SALE AND EXCHANGE REQUESTS TO SUNTRUST OR OTHER FINANCIAL INSTITUTIONS AT AN EARLIER TIME FOR YOUR TRANSACTION TO BECOME EFFECTIVE THAT DAY. THIS ALLOWS THE FINANCIAL INSTITUTION TIME TO PROCESS YOUR REQUEST AND TRANSMIT IT TO THE ADMINISTRATOR OR TRANSFER AGENT IN TIME TO MEET THE ABOVE STATED FUND CUT-OFF TIMES. FOR MORE INFORMATION ABOUT HOW TO PURCHASE, SELL OR EXCHANGE FUND SHARES, INCLUDING SPECIFIC SUNTRUST OR OTHER FINANCIAL INSTITUTIONS' INTERNAL ORDER ENTRY CUT-OFF TIMES, PLEASE CONTACT YOUR FINANCIAL INSTITUTION DIRECTLY. HOW THE FUNDS CALCULATE NAV In calculating NAV, a Fund generally values its investment portfolio at market price. If market prices are unavailable or a Fund thinks that they are unreliable, fair value prices may be determined in good faith using methods approved by the Board of Trustees. NET ASSET VALUE NAV for one Fund share is the value of that share's portion of the net assets of the Fund. PROSPECTUS 9 - -------------------------------------------------------------------------------- PURCHASING AND SELLING FUND SHARES - -------------------------------------------------------------------------------- MINIMUM PURCHASES To purchase shares for the first time, you must invest at least $500,000 in Trust Shares of any Fund. HOW TO SELL YOUR FUND SHARES You may sell your shares on any Business Day by contacting SunTrust or your financial institution. SunTrust or your financial institution will give you information about how to sell your shares including any specific cut-off times required. Holders of Trust Shares may sell shares by following the procedures established when they opened their account or accounts with the Funds or with their financial institution or intermediary. The sale price of each share will be the next NAV determined after the Funds receive your request. RECEIVING YOUR MONEY Normally, the Funds will send your sale proceeds within five Business Days after a Fund receives your request, but may take up to seven days. REDEMPTIONS IN KIND The Funds generally pay sale (redemption) proceeds in cash. However, under unusual conditions that make the payment of cash unwise (and for the protection of the Funds' remaining shareholders) the Funds might pay all or part of your redemption proceeds in liquid securities with a market value equal to the redemption price (redemption in kind). It is highly unlikely that your shares would ever be redeemed in kind, but if they were you would probably have to pay transaction costs to sell the securities distributed to you, as well as taxes on any capital gains from the sale as with any redemption. SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES A Fund may suspend your right to sell your shares if the New York Stock Exchange restricts trading, the SEC declares an emergency or for other reasons. More information about this is in the SAI. TELEPHONE TRANSACTIONS Purchasing and selling Fund shares over the telephone is extremely convenient, but not without risk. Although the Funds have certain safeguards and procedures to confirm the identity of callers and the authenticity of instructions, the Funds are not responsible for any losses or costs incurred by following telephone instructions the Funds reasonably believe to be genuine. If you or your financial institution transact with the Funds over the telephone, you will generally bear the risk of any loss. The Funds reserve the right to modify, suspend or terminate telephone transaction privileges at any time. 10 PROSPECTUS - -------------------------------------------------------------------------------- DIVIDENDS AND DISTRIBUTIONS - -------------------------------------------------------------------------------- DIVIDENDS AND DISTRIBUTIONS Each Fund declares dividends daily and pays these dividends monthly. Each Fund makes distributions of its net realized capital gains, if any, at least annually. If you own Fund shares on a Fund's record date, you will be entitled to receive the distribution. You will receive dividends and distributions in the form of additional Fund shares unless you elect to receive payment in cash. To elect cash payment, you must notify the Funds in writing prior to the date of the distribution. Your election will be effective for dividends and distributions paid after the Funds receive your written notice. To cancel your election, simply send the Funds written notice. TAXES PLEASE CONSULT YOUR TAX ADVISOR REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL, STATE AND LOCAL INCOME TAXES. Below the Funds have summarized some important tax issues that affect the Funds and their shareholders. This summary is based on current tax laws, which may change. Each Fund will distribute substantially all of its net investment income and its net realized capital gains, if any, at least annually. The dividends and distributions you receive may be subject to federal, state and local taxation, depending upon your tax situation. Distributions you receive from a Fund may be taxable whether or not you reinvest them. Income distributions are generally taxable at ordinary income tax rates. Capital gains distributions are generally taxable at the rates applicable to long-term capital gains. EACH SALE OR EXCHANGE OF FUND SHARES MAY BE A TAXABLE EVENT. FOR TAX PURPOSES, AN EXCHANGE OF YOUR FUND SHARES FOR SHARES OF ANOTHER STI FUND IS THE SAME AS A SALE. If you have a tax-advantaged or other retirement account you will generally not be subject to federal taxation on income and capital gain distributions until you begin receiving your distributions from your retirement account. You should consult your tax advisor regarding the rules governing your own retirement plan. The Funds expect to distribute primarily ordinary income dividends. The Classic Institutional U.S. Government Securities Super Short Income Plus Fund expects that a substantial portion of Fund distributions will represent interest earned on U.S. obligations, while the Classic Institutional Super Short Income Plus Fund expects that some portion of the Fund's distribution will be so derived. Many states grant tax-free status to dividends paid from interest earned on direct obligations of the U.S. government, subject to certain limitations. MORE INFORMATION ABOUT TAXES IS IN THE SAI. STI CLASSIC FUNDS INVESTMENT ADVISER Trusco Capital Management, Inc. 50 Hurt Plaza Suite 1400 Atlanta, Georgia 30303 DISTRIBUTOR SEI Investments Distribution Co. One Freedom Valley Drive Oaks, Pennsylvania 19456 LEGAL COUNSEL Morgan, Lewis & Bockius LLP More information about the Funds is available without charge through the following: STATEMENT OF ADDITIONAL INFORMATION (SAI) The SAI dated October 1, 2002, includes detailed information about the STI Classic Funds. The SAI is on file with the SEC and is incorporated by reference into this prospectus. This means that the SAI, for legal purposes, is a part of this prospectus. ANNUAL AND SEMI-ANNUAL REPORTS These reports list each Fund's holdings and contain information from the Funds' managers about strategies and recent market conditions and trends and their impact on Fund performance. The reports also contain detailed financial information about the Funds. TO OBTAIN AN SAI, ANNUAL OR SEMI-ANNUAL REPORT, OR MORE INFORMATION: BY TELEPHONE: Call 1-800-428-6970 BY MAIL: Write to the Funds c/o SEI Investments Distribution Co. Oaks, Pennsylvania 19456 FROM THE SEC: You can also obtain the SAI or the Annual and Semi-Annual reports, as well as other information about the STI Classic Funds, from the EDGAR Database on the SEC's website ("HTTP://WWW.SEC.GOV"). You may review and copy documents at the SEC Public Reference Room in Washington, DC (for information on the operation of the Public Reference Room, call 202-942-8090). You may request documents by mail from the SEC, upon payment of a duplicating fee, by writing to: Securities and Exchange Commission, Public Reference Section, Washington, DC 20549-0102. You may also obtain this information, upon payment of a duplicating fee, by emailing the SEC at the following address: PUBLICINFO@SEC.GOV. The STI Classic Funds' Investment Company Act registration number is 811-06557. STI CLASSIC FUNDS BOND FUNDS FLEX SHARES PROSPECTUS OCTOBER 1, 2002 CLASSIC INSTITUTIONAL SUPER SHORT INCOME PLUS FUND CLASSIC INSTITUTIONAL U.S. GOVERNMENT SECURITIES SUPER SHORT INCOME PLUS FUND INVESTMENT ADVISER TO THE FUNDS: TRUSCO CAPITAL MANAGEMENT, INC. (THE "ADVISER") THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ABOUT THIS PROSPECTUS The STI Classic Funds is a mutual fund family that offers shares in separate investment portfolios (Funds). The Funds have individual investment goals and strategies. This prospectus gives you important information about the Flex Shares of the Classic Institutional Bond Funds that you should know before investing. Please read this prospectus and keep it for future reference. THIS PROSPECTUS HAS BEEN ARRANGED INTO DIFFERENT SECTIONS SO THAT YOU CAN EASILY REVIEW THIS IMPORTANT INFORMATION. ON THE NEXT PAGE, THERE IS SOME GENERAL INFORMATION YOU SHOULD KNOW ABOUT RISK AND RETURN THAT IS COMMON TO EACH OF THE FUNDS. FOR MORE DETAILED INFORMATION ABOUT EACH FUND, PLEASE SEE: PAGE CLASSIC INSTITUTIONAL SUPER SHORT INCOME PLUS FUND.............XXX CLASSIC INSTITUTIONAL U.S. GOVERNMENT SECURITIES SUPER SHORT INCOME PLUS FUND...............................XXX MORE INFORMATION ABOUT RISK....................................XXX MORE INFORMATION ABOUT FUND INVESTMENTS........................XXX INVESTMENT ADVISER ............................................XXX PORTFOLIO MANAGER..............................................XXX PURCHASING, SELLING AND EXCHANGING FUND SHARES.................XXX DIVIDENDS AND DISTRIBUTIONS....................................XXX TAXES..........................................................XXX HOW TO OBTAIN MORE INFORMATION ABOUT THE STI CLASSIC FUNDS..........................................Back Cover - -------------------------------------------------------------------------------- RISK/RETURN INFORMATION COMMON TO THE FUNDS Each Fund is a mutual fund. A mutual fund pools shareholders' money and, using professional investment managers, invests it in securities. Each Fund has its own investment goal and strategies for reaching that goal. The Adviser invests Fund assets in a way that it believes will help a Fund achieve its goal. Still, investing in each Fund involves risk and there is no guarantee that a Fund will achieve its goal. The Adviser's judgments about the markets, the economy or companies may not anticipate actual market movements, economic conditions or company performance, and these judgments may affect the return on your investment. In fact, no matter how good a job the Adviser does, you could lose money on your investment in a Fund, just as you could with other investments. A FUND SHARE IS NOT A BANK DEPOSIT AND IT IS NOT INSURED OR GUARANTEED BY THE FDIC OR ANY GOVERNMENT AGENCY. The value of your investment in a Fund is based on the market prices of the securities the Funds hold. These prices change daily due to economic and other events that affect particular companies and other issuers. These price movements, sometimes called volatility, may be greater or lesser depending on the types of securities a Fund owns and the markets in which they trade. The effect on a Fund of a change in the value of a single security will depend on how widely a Fund diversifies its holdings. - -------------------------------------------------------------------------------- 2 CLASSIC INSTITUTIONAL SUPER SHORT INCOME PLUS FUND - -------------------------------------------------------------------------------- FUND SUMMARY INVESTMENT GOAL High current income consistent with preserving capital and maintaining liquidity - -------------------------------------------------------------------------------- INVESTMENT FOCUS Short duration investment grade money market and fixed income securities - -------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Low - -------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify short duration securities that offer a comparably better return potential and yield than money market funds - -------------------------------------------------------------------------------- INVESTOR PROFILE Conservative investors seeking to maximize income consistent with limited share price volatility - -------------------------------------------------------------------------------- INVESTMENT STRATEGY The Classic Institutional Super Short Income Plus Fund invests at least 80% of its net assets in short duration, investment grade money market and fixed income securities including, but not limited to, U.S. Treasury and Agency securities, obligations of supranational entities and foreign governments, domestic and foreign corporate debt obligations, taxable municipal debt securities, mortgage backed and asset backed securities, repurchase agreements, and other mutual funds. The Fund normally expects to maintain an average effective duration between three months and one year. Individual purchases will generally be limited to securities with a maturity/average life of less than three years. In selecting investments for the Fund, the Adviser attempts to maximize income by identifying securities that offer an acceptable yield for a given level of credit risk and maturity. Most securities are purchased with the intent to hold to maturity. However, circumstances may warrant or require that securities be sold prior to maturity. WHAT ARE THE RISKS OF INVESTING IN THIS FUND? The price (NAV) of the Fund will fluctuate depending on general changes in interest rates as well as changes in the yields of the specific securities in the Fund. General (or macro) changes in interest rates may be as a result of economic developments or Federal Reserve policy while issuer specific changes in yield may be as a result of a change in creditworthiness of a particular issuer or industry. In general, the NAV of the Fund will rise when interests rates fall, and likewise, the NAV of the Fund will fall when interest rates rise. An objective of the Fund is to minimize NAV fluctuation by (a) maintaining the Fund average weighted duration between three months and one year and (b) diversifying the Fund among issuers and industries. The prices of the Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, the Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities are generally more volatile, so the average maturity or duration of these securities affects risk. The Fund is also subject to the risk that short-term U.S. government debt securities may under perform other segments of the fixed income market or the fixed income market as a whole. Mortgage-backed securities are fixed income securities representing an interest in a pool of underlying mortgage loans. Mortgage-backed securities are sensitive to changes in interest rates, but may respond to these changes differently from other fixed income securities due to the possibility of prepayment of the underlying mortgage loans. As a result, it may not be possible to determine in advance the actual maturity date 3 - -------------------------------------------------------------------------------- or average life of a mortgage-backed security. Rising interest rates tend to discourage refinancings, with the result that the average life and volatility of the security will increase, exacerbating its decrease in market price. When interest rates fall, however, mortgage-backed securities may not gain as much in market value because of the expectation of additional mortgage prepayments that must be reinvested at lower interest rates. Prepayment risk may make it difficult to calculate the average maturity of the Fund of mortgage-backed securities, and therefore, to assess the volatility risk of the Fund. Investing in foreign countries poses additional risks since political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. In addition, investments in foreign countries are generally denominated in a foreign currency. As a result, changes in the value of those currencies compared to the U.S. dollar may affect (positively or negatively) the value of a Fund's investments. These currency movements may happen separately from and in response to events that do not otherwise affect the value of the security in the issuer's home country. These various risks will be even greater for investments in emerging market countries since political turmoil and rapid changes in economic conditions are more likely to occur in these countries. Although the Fund's U.S. government securities are considered to be among the safest investments, they are not guaranteed against price movements due to changing interest rates. Obligations issued by some U.S. government agencies are backed by the U.S. Treasury, while others are backed solely by the ability of the agency to borrow from the U.S. Treasury or by the agency's own resources. PERFORMANCE INFORMATION The Classic Institutional Super Short Income Plus Fund Institutional Shares commenced operations on April 15, 2002, and therefore does not have a performance history for a full calendar year. As of October 1, 2002, Flex Shares were not available for purchase by investors. FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - -------------------------------------------------------------------------------- FLEX SHARES Maximum Deferred Sales Charge (Load) (as a percentage of net asset value)* 2.00% *This sales charge is imposed if you sell Flex Shares within one year of your purchase and decreases over time, depending on how long you own your shares. See "Sales Charges." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- FLEX SHARES Investment Advisory Fees 0.50% Distribution and Service (12b-1) Fees 0.50% Other Expenses 0.40%* ----- Total Annual Fund Operating Expenses 1.40%** * OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT YEAR. ** THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR ARE EXPECTED TO BE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER AND THE DISTRIBUTOR INTEND TO WAIVE A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THESE FEE WAIVERS REMAIN IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER AND THE DISTRIBUTOR MAY DISCONTINUE ALL OR PART OF THESE FEE WAIVERS AT ANY TIME. WITH THESE FEE WAIVERS, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES WOULD BE AS FOLLOWS: Classic Institutional Super Short Income Plus Fund - Flex Shares 0.95% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: IF YOU SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS $343 $443 IF YOU DO NOT SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS $143 $443 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." 4 CLASSIC INSTITUTIONAL U.S. GOVERNMENT SECURITIES SUPER SHORT INCOME PLUS FUND - -------------------------------------------------------------------------------- FUND SUMMARY - -------------------------------------------------------------------------------- INVESTMENT GOAL High current income consistent with preserving capital and maintaining liquidity - -------------------------------------------------------------------------------- INVESTMENT FOCUS Short duration U.S. government securities - -------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Low - -------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify short duration U.S. government securities that offer a comparably better return potential and yield than money market funds - -------------------------------------------------------------------------------- INVESTOR PROFILE Conservative investors seeking to maximize income consistent with limited share price volatility and the relative safety of U.S. government securities - -------------------------------------------------------------------------------- INVESTMENT STRATEGY The Classic Institutional U.S. Government Securities Super Short Income Plus Fund invests at least 80% of its net assets in short duration U.S. Treasury securities, U.S. Agency securities, U.S. Agency mortgage-backed securities, repurchase agreements, and other U.S. government mutual funds. The Fund normally expects to maintain an average effective duration between three months and one year. Individual purchases will generally be limited to securities with a maturity/average life of less than three years. In selecting investments for the Fund, the Adviser attempts to maximize income by identifying securities that offer an acceptable yield for a given maturity. Most securities are purchased with the intent to hold to maturity. However, circumstances may warrant or require that securities be sold prior to maturity. WHAT ARE THE RISKS OF INVESTING IN THIS FUND? The price (NAV) of the Fund will fluctuate depending on general changes in interest rates as well as changes in the yields of the specific securities in the Fund. General (or macro) changes in interest rates may be a result of economic developments or Federal Reserve policy. In general, the NAV of the Fund will rise when interest rates fall, and likewise, the NAV of the Fund will fall when interest rates rise. An objective of the Fund is to minimize NAV fluctuation by (a) maintaining the Fund average weighted duration between three months and one year and (b) investing the Fund in U.S. government and agency securities. The prices of the Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, the Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities are generally more volatile, so the average maturity or duration of these securities affects risk. The Fund is also subject to the risk that U.S. government debt securities may underperform other segments of the fixed income market or the fixed income market as a whole. Mortgage-backed securities are fixed income securities representing an interest in a pool of underlying mortgage loans. Mortgage-backed securities are sensitive to changes in interest rates, but may respond to these changes differently from other fixed income securities due to the possibility of prepayment of the underlying mortgage loans. As a result, it may not be possible to determine in advance the actual maturity 5 - -------------------------------------------------------------------------------- date or average life of a mortgage-backed security. Rising interest rates tend to discourage refinancings, with the result that the average life and volatility of the security will increase, exacerbating its decrease in market price. When interest rates fall, however, mortgage-backed securities may not gain as much in market value because of the expectation of additional mortgage prepayments that must be reinvested at lower interest rates. Prepayment risk may make it difficult to calculate the average maturity of the portfolio of mortgage-backed securities and, therefore, to assess the volatility risk of that portfolio. Although the Fund's U.S. government securities are considered to be among the safest investments, they are not guaranteed against price movements due to changing interest rates. Obligations issued by some U.S. government agencies are backed by the U.S. Treasury, while others are backed solely by the ability of the agency to borrow from the U.S. Treasury or by the agency's own resources. PERFORMANCE INFORMATION The Classic Institutional U.S. Government Securities Super Short Income Plus Fund Institutional Shares commenced operations on April 11, 2002, and therefore does not have a performance history for a full calendar year. As of October 1, 2002, Flex Shares were not available for purchase by investors. FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - -------------------------------------------------------------------------------- FLEX SHARES Maximum Deferred Sales Charge (Load) (as a percentage of net asset value)* 2.00% *This sales charge is imposed if you sell Flex Shares within one year of your purchase and decreases over time, depending on how long you own your shares. See "Sales Charges." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- FLEX SHARES Investment Advisory Fees 0.40% Distribution and Service (12b-1) Fees 0.40% Other Expenses 0.40%* Total Annual Fund Operating Expenses 1.20%** *OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT YEAR. ** THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR ARE EXPECTED TO BE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER AND THE DISTRIBUTOR INTEND TO WAIVE A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THESE FEE WAIVERS REMAIN IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER AND THE DISTRIBUTOR MAY DISCONTINUE ALL OR PART OF THESE FEE WAIVERS AT ANY TIME. WITH THESE FEE WAIVERS, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES WOULD BE AS FOLLOWS: Classic Institutional U.S. Government Securities Super Short Income Plus Fund -- Flex Shares 0.92% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: IF YOU SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS $322 $381 IF YOU DO NOT SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS $122 $381 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." 6 - -------------------------------------------------------------------------------- MORE INFORMATION ABOUT RISK FIXED INCOME RISK-- The market value of fixed income investments All Funds changes in response to interest rate changes and other factors. During periods of falling interest rates, the values of outstanding fixed income securities generally rise. Moreover, while securities with longer maturities tend to produce higher yields, the prices of longer maturity securities are also subject to greater market fluctuations as a result of changes in interest rates. In addition to these fundamental risks, different types of fixed income securities may be subject to the following additional risks: CREDIT RISK -- The possibility that an issuer will be unable to make timely payments of either principal or interest. FOREIGN SECURITIES RISK - Investments in securities of foreign All Funds companies or governments can be more volatile than investments in U.S. companies or governments. Diplomatic, political, or economic developments, including nationalization or appropriation, could affect investments in foreign countries. Foreign securities markets generally have less trading volume and less liquidity than U.S. markets. In addition, the value of securities denominated in foreign currencies, and of dividends from such securities, can change significantly when foreign currencies strengthen or weaken relative to the U.S. dollar. Foreign companies or governments generally are not subject to uniform accounting, auditing, and financial reporting standards comparable to those applicable to domestic U.S. companies or governments. Transaction costs are generally higher than those in the U.S. and expenses for custodial arrangements of foreign securities may be somewhat greater than typical expenses for custodial arrangements of similar U.S. securities. Some foreign governments levy withholding taxes against dividend and interest income. Although in some countries a portion of these taxes are recoverable, the non-recovered portion will reduce the income received from the securities comprising the portfolio. MORE INFORMATION ABOUT FUND INVESTMENTS This prospectus describes the Funds' primary strategies, and the Funds will normally invest in the types of securities described in this prospectus. However, in addition to the investments and strategies described in this prospectus, each Fund also may invest in other securities, use other strategies and engage in other investment practices. These investments and strategies, as well as those described in this prospectus, are described in detail in the Statement of Additional Information (SAI). The investments and strategies described in this prospectus are those that the Funds use under normal conditions. During unusual economic or market conditions, or for temporary defensive or liquidity purposes, each Fund may invest up to 100% of its assets in cash, money market instruments, repurchase agreements and short-term obligations that would not ordinarily be consistent with a Fund's objectives. In addition, each Fund may shorten its average weighted maturity to as little as 90 days. A Fund will do so only if the Adviser believes that the risk of loss outweighs the opportunity for higher income. Of course, a Fund cannot guarantee that it will achieve its investment goal. 7 - -------------------------------------------------------------------------------- INVESTMENT ADVISER The investment adviser (Adviser) makes investment decisions for the Funds and continuously reviews, supervises and administers each Fund's respective investment program. The Board of Trustees supervises the Adviser and establishes policies that the Adviser must follow in its management activities. Trusco Capital Management, Inc. (Trusco or the Adviser), 50 Hurt Plaza, Suite 1400, Atlanta, Georgia 30303, serves as the Adviser to the Funds. As of June 30, 2002, Trusco had $45.5 billion in assets under management. For its advisory services to the Funds, the Adviser is entitled to receive the following fees as a percentage of each Fund's daily net assets: CLASSIC INSTITUTIONAL SUPER SHORT INCOME PLUS FUND 0.50% CLASSIC INSTITUTIONAL U.S. GOVERNMENT SECURITIES SUPER SHORT INCOME PLUS FUND 0.40% The Adviser may use its affiliates as brokers for Fund transactions. PORTFOLIO MANAGER Mr. Robert W. Corner has served as a Vice President of Trusco since September 1996. Mr. Corner has managed the Super Short Income Plus Fund and the U.S. Government Securities Super Short Income Plus Fund since each began operating in April 2002. He has more than 15 years of investment experience. PURCHASING, SELLING AND EXCHANGING FUND SHARES This section tells you how to purchase, sell (sometimes called "redeem") or exchange Flex Shares of the Funds. HOW TO PURCHASE FUND SHARES A SunTrust Securities Investment Consultant can assist you in opening a brokerage account which will be used for all transactions regarding the purchase of STI Classic Funds. Once your account is established, you may buy shares of the Funds by: o Mail* o Telephone (1-800-874-4770) o Wire o Automated Clearing House (ACH) * The Funds do not accept cash as payment for Fund shares. You may also buy shares through investment representatives of certain correspondent banks of SunTrust Banks, Inc. (SunTrust) and other financial institutions that are authorized to place transactions in Fund shares for their customers. Please contact your financial institution directly and follow its procedures for Fund share transactions. Your broker or institution may charge a fee for its services, in addition to the fees charged by a Fund. You will also generally have to address your correspondence or questions regarding a Fund to your institution. A Fund may reject any purchase order if it is determined that accepting the order would not be in the best interests of STI Classic Funds or its shareholders. 8 - -------------------------------------------------------------------------------- WHEN CAN YOU PURCHASE SHARES? You may purchase shares on any day that the New York Stock Exchange is open for business (a Business Day). The price per share (the offering price) will be the net asset value per share (NAV) next determined after the Funds receive your purchase order. Each Fund calculates its NAV once each Business Day at the regularly-scheduled close of normal trading on the New York Stock Exchange (normally, 4:00 p.m., Eastern Time). So, for you to receive the current Business Day's NAV, generally a Fund must receive your purchase order in proper form before 4:00 p.m., Eastern Time. The Funds will not accept orders that request a particular day or price for the transaction or any other special conditions. FOR CUSTOMERS OF SUNTRUST, ITS AFFILIATES, AND OTHER FINANCIAL INSTITUTIONS YOU MAY HAVE TO TRANSMIT YOUR PURCHASE, SALE AND EXCHANGE REQUESTS TO SUNTRUST OR OTHER FINANCIAL INSTITUTIONS AT AN EARLIER TIME FOR YOUR TRANSACTION TO BECOME EFFECTIVE THAT DAY. THIS ALLOWS THE FINANCIAL INSTITUTION TIME TO PROCESS YOUR REQUEST AND TRANSMIT IT TO THE ADMINISTRATOR OR TRANSFER AGENT IN TIME TO MEET THE ABOVE STATED FUND CUT-OFF TIMES. FOR MORE INFORMATION ABOUT HOW TO PURCHASE, SELL OR EXCHANGE FUND SHARES, INCLUDING SPECIFIC SUNTRUST OR OTHER FINANCIAL INSTITUTIONS' INTERNAL ORDER ENTRY CUT-OFF TIMES, PLEASE CONTACT YOUR FINANCIAL INSTITUTION DIRECTLY. HOW THE FUNDS CALCULATE NAV In calculating NAV, a Fund generally values its investment portfolio at market price. If market prices are unavailable or a Fund thinks that they are unreliable, fair value prices may be determined in good faith using methods approved by the Board of Trustees. NET ASSET VALUE NAV for one Fund share is the value of that share's portion of the net assets of the Fund. MINIMUM PURCHASES To purchase shares for the first time, you must invest at least $5,000 ($2,000 for retirement plans) in Flex Shares of any Fund. Your subsequent investments in any Fund must be made in amounts of at least $1,000 or, if you pay by a statement coupon, $100. A Fund may accept investments of smaller amounts for either class of shares at its discretion. FUNDLINK FUNDLINK is a telephone activated service that allows you to transfer money quickly and easily between the STI Classic Funds and your SunTrust bank account(s). To use FUNDLINK, you must first contact your SunTrust Bank Investment Consultant and complete the FUNDLINK application and authorization agreements. Once you have signed up to use FUNDLINK, simply call SunTrust at 1-800-874-4770 to complete all of your purchase and redemption transactions. SYSTEMATIC INVESTMENT PLAN If you have a checking or savings account with a SunTrust affiliate bank, you may purchase shares of either class automatically through regular deductions from your account. With a $500 minimum initial investment, you may begin regularly-scheduled investments from $50 to $100,000 once or twice a month. If you are buying Flex Shares, you should plan on investing at least $5,000 per Fund during the first two years. The Distributor may close your account if you do not meet this minimum investment requirement at the end of two years. 9 - -------------------------------------------------------------------------------- SALES CHARGES CONTINGENT DEFERRED SALES CHARGES (CDSC) You do not pay a sales charge when you purchase Flex Shares. The offering price of Flex Shares is simply the next calculated NAV. But if you sell your shares within the first year after your purchase, you will pay a CDSC equal to 2.00% for either (1) the NAV of the shares at the time of purchase, or (2) NAV of the shares next calculated after the Funds receive your sale request, whichever is less. The sales charge does not apply to shares you purchase through reinvestment of dividends or distributions. So, you never pay a deferred sales charge on any increase in your investment above the initial offering price. This sales charge does not apply to exchanges of Flex Shares of one Fund for Flex Shares of another Fund. IF YOU SELL YOUR FLEX SHARES The CDSC will be waived if you sell your Flex Shares for the following reasons: o to make certain withdrawals from a retirement plan (not including IRAs); o because of death or disability; o for certain payments under the Systematic Withdrawal Plan - up to 12% annually of the value of your shares held at the time of the withdrawal (the Systematic Withdrawal Plan is discussed later in more detail); or o for exchanges from Trust or Investor Shares to Flex Shares where the total accumulated period from the original date of purchase is at least one year. HOW TO SELL YOUR FUND SHARES If you own your shares through a brokerage account with SunTrust, you may sell your shares on any Business Day by contacting SunTrust Securities directly by mail or telephone at 1-800-874-4770. The minimum amount for telephone redemptions is $1,000. If you own your shares through an account with a broker or other institution, contact that broker or institution to sell your shares. If you would like to sell $25,000 or more of your shares, please notify the Funds in writing and include a signature guarantee by a bank or other financial institution (a notarized signature is not sufficient). The sale price of each share will be the next NAV determined after the Funds receive your request less any applicable deferred sales charge. 10 - -------------------------------------------------------------------------------- SYSTEMATIC WITHDRAWAL PLAN If you have at least $10,000 in your account, you may use the systematic withdrawal plan. Under the plan you may arrange monthly, quarterly, semi-annual or annual automatic withdrawals of at least $50 from any Fund. The proceeds of each withdrawal will be mailed to you by check or, if you have a checking or savings account with a SunTrust affiliates bank, electronically transferred to your account. RECEIVING YOUR MONEY Normally, the Funds will send your sale proceeds within five Business Days after a Fund receives your request, but it may take up to seven days. Your proceeds can be wired to your bank account (subject to a $7.00 fee) or sent to you by check. IF YOU RECENTLY PURCHASED YOUR SHARES BY CHECK OR THROUGH ACH, REDEMPTION PROCEEDS MAY NOT BE AVAILABLE UNTIL YOUR CHECK HAS CLEARED (WHICH MAY TAKE UP TO 15 BUSINESS DAYS). REDEMPTIONS IN KIND The Funds generally pay sale (redemption) proceeds in cash. However, under unusual conditions that make the payment of cash unwise (and for the protection of the Funds' remaining shareholders) the Funds might pay all or part of your redemption proceeds in liquid securities with a market value equal to the redemption price (redemption in kind). It is highly unlikely that your shares would ever be redeemed in kind, but if they were you would probably have to pay transaction costs to sell the securities distributed to you, as well as taxes on any capital gains from the sale as with any redemption. INVOLUNTARY SALES OF YOUR SHARES If your account balance drops below $5,000 due to redemptions you may be required to sell your shares. But, the Funds will always give you at least 60 days written notice to give you time to add to your account and avoid the sale of your shares. SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES A Fund may suspend your right to sell your shares if the New York Stock Exchange restricts trading, the SEC declares an emergency or for other reasons. More information about this is in the SAI. HOW TO EXCHANGE YOUR SHARES You may exchange your shares on any Business Day by contacting SunTrust Securities or your financial institution by mail or telephone. Exchange requests must be for an amount of at least $1,000. The exchange privilege is not intended as a vehicle for short-term trading. Excessive exchange activity may interfere with Fund management and may have an adverse effect on all shareholders. In order to limit excessive exchange activity and in other circumstances where it is in the best interests of a Fund, all Funds reserve the right to revise or terminate the exchange privilege, limit the amount or number of exchanges or reject any exchange or restrict or refuse purchases if (1) a Fund or its manager(s) believes the Fund would be harmed or unable to invest effectively, or (2) a Fund receives or anticipates orders that may dramatically affect the Fund as outlined under "Market Timers" as defined later in this prospectus. IF YOU RECENTLY PURCHASED SHARES BY CHECK OR THROUGH ACH, YOU MAY NOT BE ABLE TO EXCHANGE YOUR SHARES UNTIL YOUR CHECK HAS CLEARED (WHICH MAY TAKE UP TO 15 BUSINESS DAYS). This exchange privilege may be changed or canceled at any time upon 60 days notice. 11 - -------------------------------------------------------------------------------- EXCHANGES When you exchange shares, you are really selling your shares and buying other Fund shares. So, your sale price and purchase price will be based on the NAV next calculated after the Fund(s) receives your exchange request. You may exchange Flex Shares of any Fund for Flex Shares of any other Fund. Again, the CDSC will be computed as of the original date of purchase. TELEPHONE TRANSACTIONS Purchasing, selling and exchanging Fund shares over the telephone is extremely convenient, but not without risk. Although the Funds have certain safeguards and procedures to confirm the identity of callers and the authenticity of instructions, the Funds are not responsible for any losses or costs incurred by following telephone instructions the Funds reasonably believe to be genuine. If you or your financial institution transact with the Funds over the telephone, you will generally bear the risk of any loss. The Funds reserve the right to modify, suspend or terminate telephone transaction privileges at any time. DISTRIBUTION OF FUND SHARES Each Fund has adopted a distribution plan that allows the Funds to pay distribution and service fees for the sale and distribution of its shares, and for services provided to shareholders. Because these fees are paid out of a Fund's assets continuously, over time these fees will increase the cost of your investment and may cost you more than paying other types of sales charges. For Flex Shares, the maximum distribution fee is 0.50% of the average daily net assets of the Super Short Income Plus Fund and 0.40% of the U.S. Government Securities Super Short Income Plus Fund. The Distributor may, from time to time in its sole discretion, institute one or more promotional incentive programs for dealers, which will be paid for by the Distributor from any sales charge it receives or from any other source available to it. Under any such program, the Distributor may provide cash or non-cash compensation as recognition for past sales or encouragement for future sales that may include the following: merchandise, travel expenses, prizes, meals, and lodgings, and gifts that do not exceed $100 per year, per individual. DIVIDENDS AND DISTRIBUTIONS Each Fund declares dividends daily and pays these dividends monthly. Each Fund makes distributions of its net realized capital gains, if any, at least annually. If you own Fund shares on a Fund's record date, you will be entitled to receive the distribution. You will receive dividends and distributions in the form of additional Fund shares unless you elect to receive payment in cash. To elect cash payment, you must notify the Funds in writing prior to the date of the distribution. Your election will be effective for dividends and distributions paid after the Funds receive your written notice. To cancel your election, simply send the Funds written notice. 12 - -------------------------------------------------------------------------------- TAXES PLEASE CONSULT YOUR TAX ADVISOR REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL, STATE AND LOCAL INCOME TAXES. Below the Funds have summarized some important tax issues that affect the Funds and their shareholders. This summary is based on current tax laws, which may change. Each Fund will distribute substantially all of its net investment income and its net realized capital gains, if any, at least annually. The dividends and distributions you receive may be subject to federal, state and local taxation, depending upon your tax situation. Distributions you receive from a Fund may be taxable whether or not you reinvest them. Income distributions are generally taxable at ordinary income tax rates. Capital gains distributions are generally taxable at the rates applicable to long-term capital gains. EACH SALE OR EXCHANGE OF FUND SHARES MAY BE A TAXABLE EVENT. FOR TAX PURPOSES, AN EXCHANGE OF YOUR FUND SHARES FOR SHARES OF ANOTHER STI FUND IS THE SAME AS A SALE. If you have a tax-advantaged or other retirement account you will generally not be subject to federal taxation on income and capital gain distributions until you begin receiving your distributions from your retirement account. You should consult your tax advisor regarding the rules governing your own retirement plan. The Funds expect to distribute primarily ordinary income dividends. The Classic Institutional U.S. Government Securities Super Short Income Plus Fund expects that a substantial portion of Fund distributions will represent interest earned on U.S. obligations, while the Classic Institutional Super Short Income Plus Fund expects that some portion of the Fund's distributions will be so derived. Many states grant tax-free status to dividends paid from interest earned on direct obligations of the U.S. government, subject to certain limitations. MORE INFORMATION ABOUT TAXES IS IN THE SAI. STI CLASSIC FUNDS INVESTMENT ADVISER Trusco Capital Management, Inc. 50 Hurt Plaza Suite 1400 Atlanta, Georgia 30303 DISTRIBUTOR SEI Investments Distribution Co. One Freedom Valley Drive Oaks, Pennsylvania 19456 LEGAL COUNSEL Morgan, Lewis & Bockius LLP More information about the Funds is available without charge through the following: STATEMENT OF ADDITIONAL INFORMATION (SAI) The SAI dated October 1, 2002, includes detailed information about the STI Classic Funds. The SAI is on file with the SEC and is incorporated by reference into this prospectus. This means that the SAI, for legal purposes, is a part of this prospectus. ANNUAL AND SEMI-ANNUAL REPORTS These reports list each Fund's holdings and contain information from the Funds' managers about strategies and recent market conditions and trends and their impact on Fund performance. The reports also contain detailed financial information about the Funds. TO OBTAIN AN SAI, ANNUAL OR SEMI-ANNUAL REPORT, OR MORE INFORMATION: BY TELEPHONE: Call 1-800-428-6970 BY MAIL: Write to the Funds c/o SEI Investments Distribution Co. Oaks, Pennsylvania 19456 FROM THE SEC: You can also obtain the SAI or the Annual and Semi-Annual reports, as well as other information about the STI Classic Funds, from the EDGAR Database on the SEC's website ("HTTP://WWW.SEC.GOV"). You may review and copy documents at the SEC Public Reference Room in Washington, DC (for information on the operation of the Public Reference Room, call 202-942-8090). You may request documents by mail from the SEC, upon payment of a duplicating fee, by writing to: Securities and Exchange Commission, Public Reference Section, Washington, DC 20549-0102. You may also obtain this information, upon payment of a duplicating fee, by emailing the SEC at the following address: publicinfo@sec.gov. The STI Classic Funds' Investment Company Act registration number is 811-06557. PROSPECTUS CORPORATE TRUST SHARES CLASSIC INSTITUTIONAL U.S. TREASURY SECURITIES MONEY MARKET FUND October 1, 2002 Investment Adviser to the Fund: Trusco Capital Management, Inc. (THE "ADVISER") The Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense. (THIS PAGE LEFT INTENTIONALLY BLANK) ABOUT THIS PROSPECTUS The STI Classic Funds is a mutual fund family that offers shares in separate investment portfolios (Funds). The Funds have individual investment goals and strategies. This prospectus gives you important information about the Corporate Trust Shares of the Classic Institutional U.S. Treasury Securities Money Market Fund (Fund) that you should know before investing. Please read this prospectus and keep it for future reference. THIS PROSPECTUS HAS BEEN ARRANGED INTO DIFFERENT SECTIONS SO THAT YOU CAN EASILY REVIEW THIS IMPORTANT INFORMATION. IN THE SECTION BELOW, THERE IS SOME GENERAL INFORMATION YOU SHOULD KNOW ABOUT RISK AND RETURN. FOR MORE DETAILED INFORMATION ABOUT THE FUND, PLEASE SEE: Page PRINCIPAL INVESTMENT STRATEGIES AND RISKS, PERFORMANCE INFORMATION 2 FEES AND EXPENSES 3 MORE INFORMATION ABOUT FUND INVESTMENTS 4 INVESTMENT ADVISER 4 PORTFOLIO MANAGER 4 PURCHASING AND SELLING FUND SHARES 4 DIVIDENDS AND DISTRIBUTIONS 6 TAXES 6 FINANCIAL HIGHLIGHTS 7 HOW TO OBTAIN MORE INFORMATION ABOUT THE STI CLASSIC FUNDS Back Cover ------------------------------------------------------------------------- RISK/RETURN INFORMATION The Fund is a mutual fund. A mutual fund pools shareholders' money and, using professional investment managers, invests it in securities. The Fund has an investment goal and strategies for reaching that goal. The Adviser invests Fund assets in a way that it believes will help the Fund achieve its goal. Still, investing in the Fund involves risk and there is no guarantee that the Fund will achieve its goal. The Adviser's judgments about the markets, the economy or companies may not anticipate actual market movements, economic conditions or company performance, and these judgments may affect the return on your investment. In fact, no matter how good a job the Adviser does, you could lose money on your investment in the Fund, just as you could with other investments. A FUND SHARE IS NOT A BANK DEPOSIT AND IT IS NOT INSURED OR GUARANTEED BY THE FDIC OR ANY GOVERNMENT AGENCY. -------------------------------------------------------------------------- 2 CLASSIC INSTITUTIONAL U.S. TREASURY SECURITIES MONEY MARKET FUND - -------------------------------------------------------------------------------- FUND SUMMARY - -------------------------------------------------------------------------------- INVESTMENT GOAL As high a level of current income as is consistent with preservation of capital and liquidity - -------------------------------------------------------------------------------- INVESTMENT FOCUS U.S. Treasury securities and repurchase agreements - -------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to increase income without adding undue risk by analyzing yields - -------------------------------------------------------------------------------- INVESTOR PROFILE Conservative investors seeking current income through a liquid investment - -------------------------------------------------------------------------------- INVESTMENT STRATEGY The Classic Institutional U.S. Treasury Securities Money Market Fund invests exclusively in U.S. Treasury Bills, Notes, Bonds and components of these securities and repurchase agreements collateralized by these securities. The Fund limits its investments so as to obtain the highest investment quality rating by a nationally recognized statistical rating organization (AAA by Standard & Poor's). In selecting investments for the Fund, the Adviser tries to increase income without adding undue risk by analyzing yields for various maturities. The Adviser actively manages the maturity of the Fund and its portfolio to maximize the Fund's yield based on current market interest rates and the Adviser's outlook on the market. As a money market fund, the Fund follows strict rules about credit risk, maturity and diversification of its investments. WHAT ARE THE RISKS OF INVESTING IN THIS FUND? An investment in the Fund is subject to income risk, which is the possibility that the Fund's yield will decline due to falling interest rates. A Fund share is not a bank deposit and is not insured or guaranteed by the FDIC or any government agency. In addition, although a money market fund seeks to keep a constant price per share of $1.00, you may lose money by investing in the Fund. Although the Fund's U.S. Treasury securities are considered to be among the safest investments, they are not guaranteed against price movements due to changing interest rates. PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. Of course, the Fund's past performance does not necessarily indicate how the Fund will perform in the future. THIS BAR CHART SHOWS THE PERFORMANCE OF THE FUND'S CORPORATE TRUST SHARES FROM YEAR TO YEAR.* [Chart Graphic Omitted] Plot points are as follows: 2000 5.85 2001 3.45 BEST QUARTER WORST QUARTER 1.52% 0.44% (12/31/00) (12/31/01) * THE PERFORMANCE INFORMATION SHOWN ABOVE IS BASED ON A CALENDAR YEAR. THE FUND'S TOTAL RETURN FROM 1/1/02 TO 6/30/02 WAS 0.69%. 3 - -------------------------------------------------------------------------------- THIS TABLE COMPARES THE FUND'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED DECEMBER 31, 2001 TO THOSE OF THE IMONEYNET, INC. TREASURY & REPO INSTITUTIONAL AVERAGE. CORPORATE TRUST SHARES 1 YEAR SINCE INCEPTION* - -------------------------------------------------------------------------------- Classic Institutional U.S. Treasury Securities Money Market Fund 3.45% 4.67% - -------------------------------------------------------------------------------- iMoneyNet, Inc. Treasury & Repo Institutional Average 3.42% 4.49% - -------------------------------------------------------------------------------- * SINCE INCEPTION OF THE CORPORATE TRUST SHARES ON JUNE 2, 1999. BENCHMARK RETURNS SINCE MAY 31, 1999 (BENCHMARK RETURNS AVAILABLE ONLY ON A MONTH END BASIS). TO OBTAIN INFORMATION ABOUT THE FUND'S CURRENT YIELD, CALL 1-800-814-3397. - -------------------------------------------------------------------------------- WHAT IS AN AVERAGE? - -------------------------------------------------------------------------------- An average is a composite of mutual funds with similar investment goals. The iMoneyNet, Inc. Treasury & Repo Institutional Average is a widely-recognized composite of money market funds which invest in U.S. Treasury Bills and repurchase agreements backed by these securities. The number of funds in the Average varies. FUND FEES AND EXPENSES THIS TABLE DESCRIBES THE FUND'S FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND HOLD FUND SHARES. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- CORPORATE TRUST SHARES Investment Advisory Fees 0.20% Other Expenses 0.30% - -------------------------------------------------------------------------------- Total Annual Fund Operating Expenses 0.50%* - -------------------------------------------------------------------------------- * THE FUND'S TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES FOR THE MOST RECENT FISCAL YEAR WERE LESS THAN THE AMOUNT SHOWN ABOVE BECAUSE THE ADVISER AND THE ADMINISTRATOR WAIVED A PORTION OF THE FEES IN ORDER TO KEEP TOTAL OPERATING EXPENSES AT A SPECIFIED LEVEL. THESE FEE WAIVERS REMAIN IN PLACE AS OF THE DATE OF THIS PROSPECTUS, BUT THE ADVISER AND THE ADMINISTRATOR MAY DISCONTINUE ALL OR PART OF THESE WAIVERS AT ANY TIME. WITH THESE FEE WAIVERS, THE FUND'S ACTUAL TOTAL OPERATING EXPENSES ARE AS FOLLOWS: Classic Institutional U.S. Treasury Securities Money Market Fund - Corporate Trust Shares 0.46% - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS 5 YEARS 10 YEARS $51 $160 $280 $628 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." 4 - -------------------------------------------------------------------------------- MORE INFORMATION ABOUT FUND INVESTMENTS This prospectus describes the Fund's primary strategies, and the Fund will normally invest in the types of securities described in this prospectus. However, in addition to the investments and strategies described in this prospectus, the Fund also may invest in other securities, use other strategies and engage in other investment practices. These investments and strategies, as well as those described in this prospectus, are described in detail in the Statement of Additional Information (SAI). Of course, a Fund cannot guarantee that it will achieve its investment goal. INVESTMENT ADVISER The investment adviser (Adviser) makes investment decisions for the Fund and continuously reviews, supervises and administers the Fund's investment program. The Board of Trustees supervises the Adviser and establishes policies that the Adviser must follow in its management activities. Trusco Capital Management, Inc. (Trusco or the Adviser) 50 Hurt Plaza, Suite 1400, Atlanta, Georgia 30303, serves as the Adviser to the Fund. As of June 30, 2002, Trusco had $45.5 billion in assets under management. For the period ended May 31, 2002, the Adviser received advisory fees of 0.16% for the Fund. The Adviser may use its affiliates as brokers for Fund transactions. PORTFOLIO MANAGER Mr. David S. Yealy has served as a Managing Director of Trusco since July 2000. He has managed the Classic Institutional U.S. Treasury Securities Money Market Fund since it began operating in December 1996. Prior to July 2000, Mr. Yealy was a First Vice President of Trusco and has worked there since 1991. He has more than 17 years of investment experience. PURCHASING AND SELLING FUND SHARES This section tells you how to purchase and sell (sometimes called "redeem") Corporate Trust Shares of the Fund. HOW TO PURCHASE FUND SHARES The Fund offers Corporate Trust Shares only to accounts of various banking subsidiaries of SunTrust Banks, Inc. which are administered by the Corporate Trust Division (SunTrust). Shares are sold without a sales charge. Corporate Trust Shares will be held of record by (in the name of) SunTrust. Depending upon the terms of your account, however, you may have, or be given, the right to vote your Corporate Trust Shares. The Fund may reject any purchase order if it is determined that accepting the order would not be in the best interest of the STI Classic Funds or its shareholders. WHEN CAN YOU PURCHASE SHARES? You may purchase shares on any day that the New York Stock Exchange and the Federal Reserve are open for business (a Business Day). The price per share (the offering price) will be the net asset value per share (NAV) next determined after the Fund receives your purchase order. The Fund calculates its NAV once each Business Day at the regularly-scheduled close of normal trading on the New York Stock Exchange (normally, 4:00 p.m., Eastern Time). So, for you to be eligible to receive dividends declared on the day that you submit your purchase order, generally the Fund must receive your purchase order in proper form before 2:00 p.m., Eastern Time and federal funds (readily available funds) before 4:00 p.m., Eastern Time. 5 - -------------------------------------------------------------------------------- FOR CUSTOMERS OF SUNTRUST, ITS AFFILIATES AND OTHER FINANCIAL INSTITUTIONS YOU MAY HAVE TO TRANSMIT YOUR PURCHASE AND SALE REQUESTS TO SUNTRUST AT AN EARLIER TIME THAN THOSE LISTED ABOVE FOR YOUR TRANSACTION TO BECOME EFFECTIVE THAT DAY. THIS ALLOWS SUNTRUST TIME TO PROCESS YOUR REQUEST AND TRANSMIT IT TO THE ADMINISTRATOR OR THE TRANSFER AGENT IN TIME TO MEET THE ABOVE STATED FUND CUT-OFF TIMES. FOR MORE INFORMATION ABOUT HOW TO PURCHASE OR SELL FUND SHARES THROUGH YOUR ACCOUNT, INCLUDING SPECIFIC INTERNAL ORDER ENTRY CUT-OFF TIMES, PLEASE CONTACT SUNTRUST DIRECTLY. HOW THE FUND CALCULATES NAV In calculating NAV, the Fund generally values its investment portfolio using the amortized cost valuation method, which is described in detail in the SAI. If this method is determined to be unreliable during certain market conditions or for other reasons, the Fund may value its portfolio at market price or fair value prices may be determined in good faith using methods approved by the Board of Trustees. NET ASSET VALUE NAV for one Fund share is the value of that share's portion of the net assets of the Fund. HOW TO SELL YOUR FUND SHARES You may sell (sometimes called "redeem") your shares on any Business Day by contacting SunTrust. SunTrust will provide information about how to sell your shares including any specific cut-off times required. Redemption orders must be sent to the Fund by SunTrust as the record owner of shares. If you own Corporate Trust Shares through a subsidiary of SunTrust you may sell shares by following the procedures established when you opened your account or accounts. Redemption orders must be received by the Fund on a Business Day before 2:00 p.m., Eastern Time. Orders received after 2:00 p.m., Eastern Time will be executed the following Business Day. RECEIVING YOUR MONEY Normally, the Fund will send your sale proceeds within five Business Days after the Fund receives your request, but it may take up to seven days. REDEMPTIONS IN KIND The Fund generally pays sale (redemption) proceeds in cash. However, under unusual conditions that make the payment of cash unwise (and for the protection of the Fund's remaining shareholders) the Fund might pay all or part of your redemption proceeds in liquid securities with a market value equal to the redemption price (redemption in kind). It is highly unlikely that your shares would ever be redeemed in kind, but if they were you would probably have to pay transaction costs to sell the securities distributed to you, as well as taxes on any capital gains from the sale as with any redemption. SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES The Fund may suspend your right to sell your shares if the New York Stock Exchange restricts trading, the SEC declares an emergency or for other reasons. More information about this is in the SAI. TELEPHONE TRANSACTIONS Purchasing and selling Fund shares over the telephone is extremely convenient, but not without risk. Although the Fund has certain safeguards and procedures to confirm the identity of callers and the authenticity of instructions, the Fund is not responsible for any losses or costs incurred by following telephone instructions the Fund reasonably believes to be genuine. If you or your financial institution transact with the Fund over the telephone, you will generally bear the risk of any loss. The Funds reserve the right to modify, suspend or terminate telephone transaction privileges at any time. 6 - -------------------------------------------------------------------------------- DIVIDENDS AND DISTRIBUTIONS The Fund declares dividends daily and pays these dividends monthly. The Fund makes distributions of its net realized capital gains, if any, at least annually. If you own Fund shares on a Fund's record date, you will be entitled to receive the distribution. You will receive dividends and distributions in the form of additional Fund shares unless you elect to receive payment in cash. To elect cash payment, you must notify the Fund in writing prior to the date of the distribution. Your election will be effective for dividends and distributions paid after the Fund receives your written notice. To cancel your election, simply send the Fund written notice. TAXES PLEASE CONSULT YOUR TAX ADVISOR REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL, STATE AND LOCAL INCOME TAXES. Below the Fund has summarized some important tax issues that affect the Fund and its shareholders. This summary is based on current tax laws, which may change. The Fund will distribute substantially all of its net investment income and its net realized capital gains, if any, at least annually. The dividends and distributions you receive may be subject to federal, state and local taxation, depending upon your tax situation. Distributions you receive from the Fund may be taxable whether or not you reinvest them. Income distributions are generally taxable at ordinary income tax rates. Capital gains distributions, if any, are generally taxable at the rates applicable to long-term capital gains. EACH SALE OF FUND SHARES MAY BE A TAXABLE EVENT; HOWEVER, BECAUSE THE FUND EXPECTS TO MAINTAIN A STABLE $1.00 NET ASSET VALUE PER SHARE, YOU SHOULD NOT EXPECT TO REALIZE ANY GAIN OR LOSS ON THE SALE OR EXCHANGE OF YOUR FUND SHARES. A significant portion of the Fund's distributions may represent interest earned on U.S. obligations. Many states grant tax-free status to dividends paid from interest earned on direct obligations of the U.S. government, subject to certain limitations. MORE INFORMATION ABOUT TAXES IS IN THE SAI. 7 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS The financial highlights table is intended to help you understand a Fund's financial performance for the period of the Fund's operations. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). The information provided below for the period ended May 31, 2002 has been audited by PricewaterhouseCoopers LLP. The information for prior periods has been audited by predecessor independent accounting firms. The Reports of Independent Accountants for each such period along with the Fund's financial statements and related notes, are included in the Annual Reports to Shareholders for such periods. The 2002 Annual Report is available upon request and without charge by calling 1-800-432-4760, ext. 4085. The 2002 Annual Report is incorporated by reference in the SAI. For the Periods Ended May 31, For a Share Outstanding Throughout the Periods
Net Asset Net Distributions Value Investment from Net Net Asset Beginning Income Investment Value End Total of Period (Loss) Income of Period Return (+) ---------- ---------- ------------- --------- ---------- - ---------------------------------------------------------------- Classic Institutional U.S. Treasury Securities Money Market Fund - ---------------------------------------------------------------- Corporate Trust Shares 2002 $1.00 $0.02 $(0.02) $1.00 2.08% 2001 1.00 0.05 (0.05) 1.00 5.53 2000* 1.00 0.05 (0.05) 1.00 5.02
Ratio of Net Ratio of Investment Ratio of Expenses to Income to Ratio of Net Average Net Average Net Expenses Investment Assets Assets Net Assets to Average Income to (Excluding (Excluding End of Net Average Waivers and Waivers and Period (000) Assets Net Assets Reimbursements) Reimbursements) ------------- ---------- ---------- --------------- --------------- - ---------------------------------------------------------------- Classic Institutional U.S. Treasury Securities Money Market Fund - ---------------------------------------------------------------- Corporate Trust Shares 2002 $1,805,066 0.46% 2.11% 0.50% 2.07% 2001 1,303,630 0.46 5.38 0.50 5.34 2000* 1,138,541 0.45 4.93 0.49 4.89 (+) Returns are for the period indicated and have not been annualized. (The performance in the above table does not reflect the deduction of taxes the shareholder would pay on fund distributions or redemption of fund shares). * Commenced operations on June 3, 1999. All ratios for the period have been annualized.
- -------------------------------------------------------------------------------- NOTES - -------------------------------------------------------------------------------- NOTES STI CLASSIC FUNDS INVESTMENT ADVISER Trusco Capital Management, Inc. 50 Hurt Plaza Suite 1400 Atlanta, Georgia 30303 DISTRIBUTOR SEI Investments Distribution Co. One Freedom Valley Drive Oaks, Pennsylvania 19456 LEGAL COUNSEL Morgan, Lewis & Bockius LLP More information about the Fund is available without charge through the following: STATEMENT OF ADDITIONAL INFORMATION (SAI) The SAI dated October 1, 2002, includes detailed information about the STI Classic Institutional Money Market Funds. The SAI is on file with the SEC and is incorporated by reference into this prospectus. This means that the SAI, for legal purposes, is a part of this prospectus. ANNUAL AND SEMI-ANNUAL REPORTS These reports list the Fund's holdings and contain information from the Fund's manager about strategies and recent market conditions and trends and their impact on Fund performance. The reports also contain detailed financial information about the Fund. TO OBTAIN AN SAI, ANNUAL OR SEMI-ANNUAL REPORT, OR MORE INFORMATION: BY TELEPHONE: Call 1-800-432-4760, ext. 4085 BY MAIL: Write to the Fund c/o SEI Investments Distribution Co. Oaks, Pennsylvania 19456 FROM THE SEC: You can also obtain the SAI or the Annual and Semi-Annual reports, as well as other information about the STI Classic Funds, from the EDGAR Database on the SEC's website ("HTTP://WWW.SEC.GOV"). You may review and copy documents at the SEC Public Reference Room in Washington, DC (for information on the operation of the Public Reference Room, call 202-942-8090). You may request documents by mail from the SEC, upon payment of a duplicating fee, by writing to: Securities and Exchange Commission, Public Reference Section, Washington, DC 20549-0102. You may also obtain this information, upon payment of a duplicating fee, by e-mailing the SEC at the following address: PUBLICINFO@SEC.GOV. The STI Classic Funds' Investment Company Act registration number is 811-06557. STI-PS-017-0100 STI CLASSIC FUNDS FOR PARTICIPANTS OF SUNTRUST BANKS SPONSORED RETIREMENT PLANS PROSPECTUS OCTOBER 1, 2002 LIFE VISION CONSERVATIVE FUND INVESTMENT ADVISER TO THE FUND: TRUSCO CAPITAL MANAGEMENT, INC. (THE "ADVISER") [STI Logo Omitted] THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. PROSPECTUS - --------------------- ABOUT THIS PROSPECTUS - --------------------- The STI Classic Funds is a mutual fund family that offers shares in separate investment portfolios (Funds). The Funds have individual investment goals and strategies. The STI Classic Life Vision Funds offer asset allocation strategies that are implemented though investment in a mix of other STI Classic Funds that invest directly in stocks, bonds and other securities according to their own objectives and policies. This prospectus gives you important information about the Trust Shares of the STI Classic Life Vision Conservative Fund (the "Fund") that you should know before investing. Please read this prospectus and keep it for future reference. THIS PROSPECTUS HAS BEEN ARRANGED INTO DIFFERENT SECTIONS SO THAT YOU CAN EASILY REVIEW THIS IMPORTANT INFORMATION. ON THE NEXT PAGE, THERE IS SOME GENERAL INFORMATION YOU SHOULD KNOW ABOUT RISK AND RETURN. FOR MORE DETAILED INFORMATION ABOUT THE FUND, PLEASE SEE: 2 PRINCIPAL INVESTMENT STRATEGIES AND RISKS, PERFORMANCE INFORMATION AND EXPENSES 4 MORE INFORMATION ABOUT RISK 5 MORE INFORMATION ABOUT FUND INVESTMENTS 5 INFORMATION ABOUT THE UNDERLYING STI CLASSIC FUNDS 6 INVESTMENT ADVISER 6 INVESTMENT TEAM 7 PURCHASING AND SELLING FUND SHARES 8 DIVIDENDS AND DISTRIBUTIONS 8 TAXES 10 HOW TO OBTAIN MORE INFORMATION ABOUT THE STI CLASSIC FUNDS - -------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED} FUND SUMMARY [TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING? [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION [INDEX CHART GRAPHIC OMITTED] WHAT IS AN INDEX? [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES [MOUNTAIN GRAPHIC OMITTED] MORE INFORMATION ABOUT FUND INVESTMENTS [MAGNIFIER GRAPHIC OMITTED] INVESTMENT ADVISER [HANDSHAKE GRAPHIC OMITTED] PURCHASING AND SELLING FUND SHARES - -------------------------------------------------------------------------------- OCTOBER 1, 2002 PROSPECTUS 1 - -------------------------------------------------------------------------------- RISK/RETURN INFORMATION - -------------------------------------------------------------------------------- The Fund is a mutual fund. A mutual fund pools shareholders' money and, using a professional investment adviser, invests it in securities. The Fund has its own investment goal and strategies for reaching that goal. The Adviser invests Fund assets in a way that it believes will help the Fund achieve its goal. Still, investing in the Fund involves risk and there is no guarantee that the Fund will achieve its goal. The Adviser's judgments about the markets, the economy, or companies may not anticipate actual market movements, economic conditions or company performance, and these judgments may affect the return on your investment. In fact, no matter how good a job the Adviser does, you could lose money on your investment in the Fund, just as you could with other investments. A FUND SHARE IS NOT A BANK DEPOSIT AND IT IS NOT INSURED OR GUARANTEED BY THE FDIC OR ANY GOVERNMENT AGENCY. The value of your investment in the Fund is based on the market prices of the securities held by the underlying STI Classic Funds. These prices change daily due to economic and other events that affect particular companies and other issuers. These price movements, sometimes called volatility, may be greater or lesser depending on the types of securities the underlying STI Classic Funds own and the markets in which they trade. The effect on the Fund of a change in the value of a single security will depend on how widely the Fund and the underlying STI Classic Funds diversify their holdings. Like other investments, you could lose money on your investment in a Life Vision Fund. Your investment in a Life Vision Fund is not a bank deposit. It is not insured or guaranteed by the FDIC or any government agency. The assets of the Fund will be allocated among underlying STI Classic Funds in accordance with its investment objective, the Adviser's outlook for the economy, the financial markets and the relative market valuations of the underlying STI Classic Funds. The Fund has the ability to invest its assets allocated to a particular asset class in one or more of the underlying STI Classic Funds, which have different investment objectives, policies and risk characteristics. Although the Fund currently expects to invest in the underlying STI Classic Funds discussed in this STI Classic prospectus, the Adviser has the discretion to change the particular underlying STI Classic Funds used as investments by the Fund. If determined to be in the best interest of the Fund, the Adviser reserves the right to substitute or include other underlying STI Classic Funds, including underlying STI Classic Funds that do not currently exist. Before investing, make sure that the Fund's goal matches your own. 2 PROSPECTUS - -------------------------------------------------------------------------------- LIFE VISION CONSERVATIVE FUND - -------------------------------------------------------------------------------- [SUITCASE GRAPHIC OMITTED] FUND SUMMARY INVESTMENT GOALS Capital appreciation and current income - -------------------------------------------------------------------------------- INVESTMENT FOCUS PRIMARY Bond funds SECONDARY Equity funds - -------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Low - -------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Investing pursuant to an asset allocation strategy in a combination of STI Classic Bond Funds, and to a lesser extent, Equity Funds - -------------------------------------------------------------------------------- INVESTOR PROFILE Investors who want income from their investment, as well as an increase in its value, but want to reduce risk by limiting exposure to equity securities - -------------------------------------------------------------------------------- [TELESCOPE GRAPHIC OMITTED] INVESTMENT STRATEGY The Life Vision Conservative Fund invests in STI Classic Funds that invest primarily in fixed income securities, but may invest up to 35% of the Fund's total assets in STI Classic Funds that invest primarily in equity securities. The Fund's remaining assets may be invested in STI Classic Money Market Funds, securities issued by the U.S. government, its agencies or instrumentalities, repurchase agreements and short-term paper. In selecting a diversified portfolio of underlying STI Classic Funds, the Adviser analyzes many factors, including the underlying STI Classic Funds' investment objectives, total return, volatility and expenses. THE FUND CURRENTLY PLANS TO INVEST IN SHARES OF THE FOLLOWING UNDERLYING STI CLASSIC FUNDS WITHIN THE PERCENTAGE RANGES INDICATED: INVESTMENT RANGE (PERCENTAGE OF THE LIFE ASSET CLASS VISION CONSERVATIVE FUND'S ASSETS) - -------------------------------------------------------------------------------- BOND FUNDS 65-100% INVESTMENT GRADE BOND FUND SHORT-TERM BOND FUND U.S. GOVERNMENT SECURITIES FUND EQUITY FUNDS 0-35% CAPITAL APPRECIATION FUND GROWTH AND INCOME FUND SMALL CAP GROWTH STOCK FUND SMALL CAP VALUE EQUITY FUND MONEY MARKET FUNDS 0-20% PRIME QUALITY MONEY MARKET FUND Other STI Classic Funds may be utilized in the future. Due to its investment strategy, the Fund holds STI Classic Funds that buy and sell securities frequently. This may result in higher transaction costs and additional capital gains taxes. [LIFE PRESERVER GRAPHIC OMITTED] WHAT ARE THE RISKS OF INVESTING IN THIS FUND? The value of an investment in the Fund is based primarily on the performance of the underlying STI Classic Funds and the allocation of the Fund's assets among them. The prices of an underlying STI Classic Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, an underlying STI Classic Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower rated securities is even greater than that of higher rated securities. Also, longer-term securities are generally more volatile, so the average maturity or duration of these securities affects risk. Since the Fund may also purchase STI Classic Equity Funds, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of an underlying STI Classic Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities PROSPECTUS 3 - -------------------------------------------------------------------------------- LIFE VISION CONSERVATIVE FUND - -------------------------------------------------------------------------------- issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The Fund is also subject to the risk that the Adviser's asset allocation decisions will not anticipate market trends successfully. For example, weighting Equity Funds too heavily during a stock market decline may result in a failure to preserve capital. Conversely, investing too heavily in STI Classic Bond Funds during a period of stock market appreciation may result in lower total return. [BULLSEYE GRAPHIC OMITTED] PERFORMANCE INFORMATION The Life Vision Conservative Fund had not commenced operations as of October 1, 2002, and therefore does not have a performance history. [COINS GRAPHIC OMITTED] FUND FEES AND EXPENSES THIS TABLE DESCRIBES THE FUND'S FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND HOLD FUND SHARES. THE TABLE DOES NOT REFLECT ANY OF THE OPERATING COSTS AND INVESTMENT ADVISORY FEES OF THE UNDERLYING STI CLASSIC FUNDS. THE FUND AND ITS SHAREHOLDERS WILL INDIRECTLY BEAR A PRO RATA SHARE OF THE EXPENSES OF THE UNDERLYING STI CLASSIC FUNDS. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - -------------------------------------------------------------------------------- TRUST SHARES Investment Advisory Fees 0.25% Other Expenses 0.25%* ------ Total Annual Fund Operating Expenses 0.50%** * BECAUSE THE FUND HAS NOT COMMENCED OPERATIONS, OTHER EXPENSES HAVE BEEN ESTIMATED. **THE EXPENSES SET FORTH ABOVE ARE IN ADDITION TO THE COSTS OF THE UNDERLYING STI CLASSIC FUNDS BORNE BY THE FUND. AS OF MAY 31, 2002, THE FUND'S EXPENSES BASED ON INVESTMENTS IN UNDERLYING STI CLASSIC FUNDS WOULD BE 0.88%. THEREFORE, TOTAL ESTIMATED ANNUALIZED EXPENSES WOULD BE 1.38%. - -------------------------------------------------------------------------------- EXAMPLE - -------------------------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, the Life Vision Fund's direct operating expenses before waivers (0.50%) remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: 1 YEAR 3 YEARS $51 $160 The following costs are all inclusive representing both direct Fund expenses and additional expenses associated with investments in underlying STI Classic Funds (1.38%). 1 YEAR 3 YEARS $140 $437 - -------------------------------------------------------------------------------- FUND EXPENSES - -------------------------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's estimated expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." 4 PROSPECTUS - -------------------------------------------------------------------------------- MORE INFORMATION ABOUT RISK - -------------------------------------------------------------------------------- [LIFE PRESERVER GRAPHIC OMITTED] MORE INFORMATION ABOUT RISK The following sections describe some of the risks associated with certain underlying STI Classic Funds. FIXED INCOME RISK The market value of fixed income investments changes in response to interest rate changes and other factors. During periods of falling interest rates, the values of outstanding fixed income securities generally rise. Moreover, while securities with longer maturities tend to produce higher yields, the prices of longer maturity securities are also subject to greater market fluctuations as a result of changes in interest rates. In addition to these fundamental risks, different types of fixed income securities may be subject to the following additional risk: CREDIT RISK The possibility that an issuer will be unable to make timely payments of either Principal or interest. MORTGAGE-BACKED SECURITIES Mortgage-backed securities are fixed income securities representing an interest in a pool of underlying mortgage loans. They are sensitive to changes in interest rates, but may respond to these changes differently from other fixed income securities due to the possibility of prepayment of the underlying mortgage loans. As a result, it may not be possible to determine in advance the actual maturity date or average life of a mortgage-backed security. Rising interest rates tend to discourage refinancings, with the result that the average life and volatility of the security will increase, exacerbating its decrease in market price. When interest rates fall, however, mortgage-backed securities may not gain as much in market value because of the expectation of additional mortgage prepayments that must be reinvested at lower interest rates. Prepayment risk may make it difficult to calculate the average maturity of the portfolio of mortgage-backed securities and, therefore, to assess the volatility risk of that portfolio. EQUITY RISK Equity securities include public and privately issued equity securities, common and preferred stocks, warrants, rights to subscribe to common stock and convertible securities, as well as instruments that attempt to track the price movement of equity indices. Investments in equity securities and equity derivatives in general are subject to market risks that may cause their prices to fluctuate over time. The value of securities convertible into equity securities, such as warrants or convertible debt, is also affected by prevailing interest rates, the credit quality of the issuer and any call provision. Fluctuations in the value of equity securities in which a mutual fund invests will cause a fund's net asset value to fluctuate. An investment in a portfolio of equity securities may be more suitable for long-term investors who can bear the risk of these share price fluctuations. INTERNATIONAL INVESTING RISK Investing in foreign countries poses additional risks since political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. In addition, investments in foreign countries are generally denominated in a foreign currency. As a result, changes in the value of those currencies compared to the U.S. dollar may affect (positively or negatively) the value of the Fund's investments. These currency movements may happen separately from and in response to events that do not otherwise affect the value of the security in the issuer's home country. PROSPECTUS 5 - -------------------------------------------------------------------------------- MORE INFORMATION ABOUT FUND INVESTMENTS - -------------------------------------------------------------------------------- These various risks will be even greater for investments in emerging market countries since political turmoil and rapid changes in economic conditions are likely to occur in these countries. SMALL CAPITALIZATION RISK The smaller capitalization companies the Fund invests in may be more vulnerable to adverse business or economic events than larger, more established companies. In particular, these small companies may have limited product lines, markets and financial resources, and may depend upon a relatively small management group. Therefore, small cap stocks may be more volatile than those of larger companies. These securities may be traded over-the-counter or listed on an exchange and may or may not pay dividends. [MOUNTAIN GRAPHIC OMITTED] MORE INFORMATION ABOUT FUND INVESTMENTS This prospectus describes the Fund's primary strategies, and the Fund will normally invest in the underlying STI Classic Funds within the percentage ranges set forth for each asset class. However, in addition to the investments and strategies described in this prospectus, the Fund also may invest in other securities, use other strategies and engage in other investment practices. These investments and strategies, as well as those described in this prospectus, are described in detail in the Statement of Additional Information (SAI). The investments and strategies described in this prospectus are those that the Fund uses under normal conditions. During unusual economic or market conditions, or for temporary defensive or liquidity purposes, the Fund may invest up to 100% of its assets in cash, money market instruments, repurchase agreements and short-term obligations that would not ordinarily be consistent with the Fund's objectives. The Fund will do so only if the Adviser believes that the risk of loss outweighs the opportunity for capital gains or higher income. Of course, the Fund cannot guarantee that it will achieve its investment goal. INFORMATION ABOUT THE UNDERLYING STI CLASSIC FUNDS The Fund expects to invest in the following underlying STI Classic Funds. However, the Adviser may, in accordance with the Fund's investment objectives and policies, substitute or select additional underlying STI Classic Funds for investment. UNDERLYING STI CLASSIC BOND FUNDS INVESTMENT GRADE BOND FUND - The Investment Grade Bond Fund seeks high total return through current income and capital appreciation, while preserving the principal amount invested by investing in investment grade U.S. government and corporate debt securities. The Fund's adviser attempts to identify relatively inexpensive securities in a selected market index. SHORT-TERM BOND FUND - The Short-Term Bond Fund seeks high current income, while preserving capital by investing in investment grade U.S. government and corporate debt securities. The Fund's adviser attempts to identify securities that offer a comparably better return than similar securities for a given level of credit risk. U.S. GOVERNMENT SECURITIES FUND - The U.S. Government Securities Fund seeks high current income, while preserving capital by investing in mortgage-backed securities and U.S. Treasury obligations. The Fund's adviser attempts to increase income without adding undue risk. UNDERLYING STI CLASSIC EQUITY FUNDS CAPITAL APPRECIATION FUND - The Capital Appreciation Fund seeks capital appreciation by investing in U.S. common stocks. The Fund's adviser attempts to identify companies with above average growth potential. 6 PROSPECTUS - -------------------------------------------------------------------------------- INVESTMENT ADVISER - -------------------------------------------------------------------------------- GROWTH AND INCOME FUND - The Growth and Income Fund seeks primarily long-term capital appreciation and, secondarily, current income by investing in equity securities. The Fund's adviser attempts to identify securities of companies with market capitalizations of at least $1 billion with attractive valuation and/or above average earnings potential relative either to their sectors or the market as a whole. SMALL CAP GROWTH STOCK FUND - The Small Cap Growth Stock Fund seeks long-term capital appreciation by investing in U.S. small cap common stocks of growth companies. The Fund's adviser attempts to identify small cap companies with above average growth potential. SMALL CAP VALUE EQUITY FUND - The Small Cap Value Equity Fund seeks primarily capital appreciation and, secondarily, current income by investing in U.S. small-cap common stocks. The Fund's adviser attempts to identify undervalued small-cap stocks. UNDERLYING STI CLASSIC MONEY MARKET FUND PRIME QUALITY MONEY MARKET FUND - The Prime Quality Money Market Fund seeks high current income, while preserving capital and liquidity by investing in money market instruments. The Fund's adviser attempts to identify money market instruments with the most attractive risk/return trade-off. [MAGNIFYING GRAPHIC OMITTED] INVESTMENT ADVISER The investment adviser (Adviser) makes investment decisions for the Fund and continuously reviews, supervises and administers the Fund's investment program. The Board of Trustees supervises the Adviser and establishes policies that the Adviser must follow in its management activities. Trusco Capital Management, Inc. (Trusco or the Adviser), 50 Hurt Plaza, Suite 1400, Atlanta, Georgia 30303, serves as the Adviser to the Fund. As of June 30, 2002, Trusco had $45.5 billion in assets under management. INVESTMENT TEAM The Life Vision Conservative Fund is managed by a team of investment professionals. No one person is primarily responsible for making investment recommendations to the team. [HANDSHAKE GRAPHIC OMITTED] PURCHASING AND SELLING FUND SHARES This section tells you how to purchase and sell (sometimes called "redeem") Trust Shares of the Fund. HOW TO PURCHASE FUND SHARES The Fund offers Trust Shares only to financial institutions or intermediaries, including subsidiaries of SunTrust Banks, Inc. (SunTrust), for its own or its customers' accounts for which it acts as fiduciary, agent, investment adviser or custodian. As a result, you, as a customer of a financial institution may purchase Trust Shares through accounts made with financial institutions and potentially through the Preferred Portfolio Account (an asset allocation account available through SunTrust Securities, Inc.). Trust Shares will be held of record by (in the name of) your financial institution. Depending upon the terms of your account, however, you may have, or be given, the right to vote your Trust Shares. The Fund may reject any purchase order if it is determined that accepting the order would not be in the best interests of the STI Classic Funds or its shareholders. If you are no longer eligible to participate in a 401(k) plan that holds Trust Shares of the Fund on your behalf, you may exchange those shares for Investor Shares of the underlying STI Classic Funds held by the Fund. There is no sales charge for such an exchange. PROSPECTUS 7 - -------------------------------------------------------------------------------- PURCHASING AND SELLING FUND SHARES - -------------------------------------------------------------------------------- WHEN CAN YOU PURCHASE SHARES? You may purchase shares on any day that the New York Stock Exchange is open for business (a Business Day). The price per share (the offering price) will be the net asset value per share (NAV) next determined after the Fund receives your purchase order. The Fund calculates its NAV once each Business Day at the regularly-scheduled close of normal trading on the New York Stock Exchange (normally, 4:00 p.m., Eastern Time). So, for you to receive the current Business Day's NAV for the Fund, generally the Fund must receive your purchase order before 4:00 p.m., Eastern Time. FOR CUSTOMERS OF SUNTRUST, ITS AFFILIATES, AND OTHER FINANCIAL INSTITUTIONS YOU MAY HAVE TO TRANSMIT YOUR PURCHASE AND SALE REQUESTS TO SUNTRUST OR OTHER FINANCIAL INSTITUTIONS AT AN EARLIER TIME FOR YOUR TRANSACTION TO BECOME EFFECTIVE THAT DAY. THIS ALLOWS THE FINANCIAL INSTITUTION TIME TO PROCESS YOUR REQUEST AND TRANSMIT IT TO THE ADMINISTRATOR OR TRANSFER AGENT IN TIME TO MEET THE ABOVE STATED FUND CUT-OFF TIMES. FOR MORE INFORMATION ABOUT HOW TO PURCHASE OR SELL FUND SHARES, INCLUDING SPECIFIC SUNTRUST OR OTHER FINANCIAL INSTITUTIONS' INTERNAL ORDER ENTRY CUT-OFF TIMES, PLEASE CONTACT YOUR FINANCIAL INSTITUTION DIRECTLY. HOW THE FUND CALCULATES NAV In calculating NAV, the Fund generally values its investment portfolio at market price. If market prices are unavailable or the Fund thinks that the market price is unreliable, fair value prices may be determined in good faith using methods approved by the Board of Trustees. NET ASSET VALUE NAV for one Fund share is the value of that share's portion of the net assets of the Fund. HOW TO SELL YOUR FUND SHARES You may sell (sometimes called "redeem") your shares on any Business Day by contacting SunTrust or your financial institution. SunTrust or your financial institution will give you information about how to sell your shares including any specific cut-off times required. Holders of Trust Shares may sell shares by following the procedures established when they opened their account or accounts with the Fund or with its financial institution or intermediary. The sale price of each share will be the next NAV determined after the Fund receives your request. RECEIVING YOUR MONEY Normally, the Fund will send your sale proceeds within five Business Days after the Adviser receives your request, but it may take up to seven days. REDEMPTIONS IN KIND The Fund generally pays sale (redemption) proceeds in cash. However, under unusual conditions that make the payment of cash unwise (and for the protection of the Fund's remaining shareholders) the Fund might pay all or part of your redemption proceeds in liquid securities with a market value equal to the redemption price (redemption in kind). It is highly unlikely that your shares would ever be redeemed in kind, but if they were you would probably have to pay transaction costs to sell the securities distributed to you, as well as taxes on any capital gains from the sale as with any redemption. SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES The Fund may suspend your right to sell your shares if the New York Stock Exchange restricts trading, the SEC declares an emergency or for other reasons. More information about this is in the SAI. 8 PROSPECTUS - -------------------------------------------------------------------------------- DIVIDENDS, DISTRIBUTIONS AND TAXES - -------------------------------------------------------------------------------- TELEPHONE TRANSACTIONS Purchasing and selling Fund shares over the telephone is extremely convenient, but not without risk. Although the Fund has certain safeguards and procedures to confirm the identity of callers and the authenticity of instructions, the Fund is not responsible for any losses or costs incurred by following telephone instructions the Fund reasonably believes to be genuine. If you or your financial institution transact with the Fund over the telephone, you will generally bear the risk of any loss. The Fund reserves the right to modify, suspend or terminate telephone transaction privileges at any time. DIVIDENDS AND DISTRIBUTIONS The Fund distributes its income quarterly. The Fund makes distributions of capital gains, if any, at least annually. If you own Fund shares on the Fund's record date, you will be entitled to receive the distribution. You will receive dividends and distributions in the form of additional Fund shares unless you elect to receive payment in cash. To elect cash payment, you must notify the Fund in writing prior to the date of the distribution. Your election will be effective for dividends and distributions paid after the Fund receives your written notice. To cancel your election, simply send the Fund written notice. TAXES PLEASE CONSULT YOUR TAX ADVISOR REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL, STATE AND LOCAL INCOME TAXES. Below the Fund has summarized some important tax issues that affect the Fund and its shareholders. This summary is based on current tax laws, which may change. The Fund will distribute substantially all of its income and capital gains, if any. The dividends and distributions you receive may be subject to federal, state and local taxation, depending upon your tax situation. Distributions you receive from the Fund may be taxable whether or not you reinvest them. Income distributions are generally taxable at ordinary income tax rates. Capital gains distributions are generally taxable at the rates applicable to long-term capital gains. EACH SALE OF FUND SHARES MAY BE A TAXABLE EVENT. MORE INFORMATION ABOUT TAXES IS IN THE SAI. THIS PAGE INTENTIONALLY LEFT BLANK - -------------------------------------------------------------------------------- HOW TO OBTAIN MORE INFORMATION ABOUT THE STI CLASSIC FUNDS - -------------------------------------------------------------------------------- INVESTMENT ADVISER Trusco Capital Management, Inc. 50 Hurt Plaza Suite 1400 Atlanta, Georgia 30303 DISTRIBUTOR SEI Investments Distribution Co. One Freedom Valley Drive Oaks, Pennsylvania 19456 LEGAL COUNSEL Morgan, Lewis & Bockius LLP More information about the Fund is available without charge through the following: STATEMENT OF ADDITIONAL INFORMATION (SAI) The SAI dated October 1, 2002, includes detailed information about the STI Classic Funds. The SAI is on file with the SEC and is incorporated by reference into this prospectus. This means that the SAI, for legal purposes, is a part of this prospectus. ANNUAL AND SEMI-ANNUAL REPORTS These reports list the Fund's holdings and contain information from the Fund's managers about strategies and recent market conditions and trends and their impact on Fund performance. The reports also contain detailed financial information about the Fund. TO OBTAIN AN SAI, ANNUAL OR SEMI-ANNUAL REPORT, OR MORE INFORMATION: BY TELEPHONE: Call 1-800-428-6970 BY MAIL: Write to the Funds c/o SEI Investments Distribution Co. Oaks, Pennsylvania 19456 From the SEC: You can also obtain the SAI or the Annual and Semi-Annual reports, as well as other information about the STI Classic Funds, from the EDGAR Database on the SEC's website ("HTTP://WWW.SEC.GOV"). You may review and copy documents at the SEC Public Reference Room in Washington, DC (for information on the operation of the Public Reference Room call 1-202-942-8090). You may request documents by mail from the SEC, upon payment of a duplicating fee, by writing to: Securities and Exchange Commission, Public Reference Section, Washington, DC 20549-0102. You may also obtain this information upon payment of a duplicating fee by e-mailing the SEC at the following address: PUBLICINFO@SEC.GOV. The STI Classic Funds' Investment Company Act registration number is 811-06557. STATEMENT OF ADDITIONAL INFORMATION STI CLASSIC FUNDS OCTOBER 1, 2002 INVESTMENT ADVISER: TRUSCO CAPITAL MANAGEMENT, INC. This Statement of Additional Information (SAI) is not a prospectus. It is intended to provide additional information regarding the activities and operations of STI Classic Funds (the "Trust") and should be read in conjunction with the Trust's prospectuses dated October 1, 2002. This SAI relates to each class of the following series of the Trust (each a "Fund" and collectively, the "Funds"):
-------------------------------------------------- ------------------- ------------------- ----------------- TRUST SHARES INVESTOR SHARES FLEX SHARES -------------------------------------------------- ------------------- ------------------- ----------------- EQUITY FUNDS -------------------------------------------------- ------------------- ------------------- ----------------- Capital Appreciation Fund |X| |X| |X| -------------------------------------------------- ------------------- ------------------- ----------------- Growth and Income Fund |X| |X| |X| -------------------------------------------------- ------------------- ------------------- ----------------- Information and Technology Fund |X| |X| |X| -------------------------------------------------- ------------------- ------------------- ----------------- International Equity Fund |X| |X| |X| -------------------------------------------------- ------------------- ------------------- ----------------- International Equity Index Fund |X| |X| |X| -------------------------------------------------- ------------------- ------------------- ----------------- Mid-Cap Equity Fund |X| |X| |X| -------------------------------------------------- ------------------- ------------------- ----------------- Mid Cap Value Equity Fund |X| |X| -------------------------------------------------- ------------------- ------------------- ----------------- Small Cap Value Equity Fund |X| |X| -------------------------------------------------- ------------------- ------------------- ----------------- Small Cap Growth Stock Fund |X| |X| |X| -------------------------------------------------- ------------------- ------------------- ----------------- Tax Sensitive Growth Stock Fund |X| |X| -------------------------------------------------- ------------------- ------------------- ----------------- Value Income Stock Fund |X| |X| |X| -------------------------------------------------- ------------------- ------------------- ----------------- Vantage Fund |X| |X| -------------------------------------------------- ------------------- ------------------- ----------------- BALANCED FUND -------------------------------------------------- ------------------- ------------------- ----------------- Balanced Fund |X| |X| |X| -------------------------------------------------- ------------------- ------------------- ----------------- BOND FUNDS -------------------------------------------------- ------------------- ------------------- ----------------- High Income Fund |X| |X| -------------------------------------------------- ------------------- ------------------- ----------------- Investment Grade Bond Fund |X| |X| |X| -------------------------------------------------- ------------------- ------------------- ----------------- Limited-Term Federal Mortgage Securities Fund |X| |X| |X| -------------------------------------------------- ------------------- ------------------- ----------------- Short-Term Bond Fund |X| |X| |X| -------------------------------------------------- ------------------- ------------------- ----------------- Short-Term U.S. Treasury Securities Fund |X| |X| |X| -------------------------------------------------- ------------------- ------------------- ----------------- Strategic Income Fund |X| |X| -------------------------------------------------- ------------------- ------------------- ----------------- U.S. Government Securities Fund |X| |X| |X| -------------------------------------------------- ------------------- ------------------- ----------------- TAX-EXEMPT BOND FUNDS -------------------------------------------------- ------------------- ------------------- ----------------- Florida Tax-Exempt Bond Fund |X| |X| |X| -------------------------------------------------- ------------------- ------------------- ----------------- Georgia Tax-Exempt Bond Fund |X| |X| |X| -------------------------------------------------- ------------------- ------------------- ----------------- Investment Grade Tax-Exempt Bond Fund |X| |X| |X| -------------------------------------------------- ------------------- ------------------- ----------------- Maryland Municipal Bond Fund |X| |X| -------------------------------------------------- ------------------- ------------------- ----------------- Virginia Intermediate Municipal Bond Fund |X| |X| -------------------------------------------------- ------------------- ------------------- ----------------- Virginia Municipal Bond Fund |X| |X| -------------------------------------------------- ------------------- ------------------- ----------------- S-1 -------------------------------------------------- ------------------- ------------------- ----------------- TRUST SHARES INVESTOR SHARES FLEX SHARES -------------------------------------------------- ------------------- ------------------- ----------------- MONEY MARKET FUNDS -------------------------------------------------- ------------------- ------------------- ----------------- Prime Quality Money Market Fund |X| |X| |X| -------------------------------------------------- ------------------- ------------------- ----------------- Tax-Exempt Money Market Fund |X| |X| -------------------------------------------------- ------------------- ------------------- ----------------- U.S. Government Securities Money Market Fund |X| |X| -------------------------------------------------- ------------------- ------------------- ----------------- U.S. Treasury Money Market Fund |X| -------------------------------------------------- ------------------- ------------------- ----------------- Virginia Tax-Free Money Market Fund |X| |X| -------------------------------------------------- ------------------- ------------------- ----------------- LIFE VISION FUNDS -------------------------------------------------- ------------------- ------------------- ----------------- Life Vision Moderate Growth Fund |X| -------------------------------------------------- ------------------- ------------------- ----------------- Life Vision Growth and Income Fund |X| -------------------------------------------------- ------------------- ------------------- ----------------- Life Vision Aggressive Growth Fund |X| -------------------------------------------------- ------------------- ------------------- -----------------
This SAI is incorporated by reference into the Trust's prospectuses. Capitalized terms not defined herein are defined in the prospectuses. Prospectuses may be obtained by writing to the Trust or calling toll-free 1-800-428-6970. S-2 TABLE OF CONTENTS THE TRUST.................................................................S-4 DESCRIPTION OF PERMITTED INVESTMENTS......................................S-4 INVESTMENT LIMITATIONS...................................................S-28 INVESTMENT ADVISER.......................................................S-30 THE ADMINISTRATOR........................................................S-33 THE DISTRIBUTOR..........................................................S-35 THE TRANSFER AGENT.......................................................S-43 THE CUSTODIAN............................................................S-43 INDEPENDENT PUBLIC ACCOUNTANTS...........................................S-43 LEGAL COUNSEL............................................................S-44 TRUSTEES AND OFFICERS OF THE TRUST.......................................S-44 PERFORMANCE INFORMATION..................................................S-48 COMPUTATION OF YIELD.....................................................S-49 CALCULATION OF TOTAL RETURN..............................................S-53 PURCHASING AND REDEEMING SHARES..........................................S-57 DETERMINATION OF NET ASSET VALUE.........................................S-58 TAXES ................................................................S-59 FUND TRANSACTIONS........................................................S-63 PORTFOLIO TURNOVER RATE..................................................S-68 DESCRIPTION OF SHARES....................................................S-70 VOTING RIGHTS............................................................S-70 SHAREHOLDER LIABILITY....................................................S-70 LIMITATION OF TRUSTEES' LIABILITY........................................S-70 CODES OF ETHICS..........................................................S-71 5% AND 25% SHAREHOLDERS..................................................S-71 FINANCIAL STATEMENTS.....................................................S-90 APPENDIX .................................................................A-1 S-3 THE TRUST Each Fund is a separate series of the Trust, an 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 (each a "fund" and collectively, the "funds") of units of beneficial interest ("shares") and different classes of shares of each Fund. The Trust reserves the right to create and issue shares of additional funds and/or classes. DESCRIPTION OF PERMITTED INVESTMENTS The Funds' respective investment objectives and principal investment strategies are described in the prospectuses. The following information supplements, and should be read in conjunction with, the prospectuses. Following are descriptions of the permitted investments and investment practices discussed in the Funds' "Investment Objectives and Policies" section and the associated risk factors. The Adviser will only invest in any of the following instruments or engage in any of the following investment practices if such investment or activity is consistent with and permitted by the Funds' stated investment policies. AMERICAN DEPOSITARY RECEIPTS (ADRS), EUROPEAN DEPOSITARY RECEIPTS (EDRS) AND GLOBAL DEPOSITARY RECEIPTS (GDRS). ADRs, EDRs, and GDRs are securities, typically issued by a U.S. financial institution or a non-U.S. financial institution in the case of an EDR or GDR (a "depositary"). The institution has ownership interests in a security, or a pool of securities, issued by a foreign issuer and deposited with the depositary. ADRs, EDRs and GDRs 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. 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 backed by non-mortgage assets such as company receivables, truck and auto loans, leases and credit card receivables. Other asset-backed securities may be created in the future. These securities may be traded over-the-counter and typically have a short-intermediate maturity structure depending on the pay down characteristics of the underlying financial assets which are passed through to the security holder. These securities are generally issued as pass-through certificates, which represent undivided fractional ownership interests in the underlying pool of assets. Asset-backed securities may also be debt obligations, which are 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 these assets and issuing debt obligations. 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 these securities. BORROWING. The Funds may borrow money. Each Fund may borrow money to facilitate management of a Fund's portfolio by enabling the Fund to meet redemption requests when the liquidation of portfolio instruments would be S-4 inconvenient or disadvantageous. Such borrowing is not for investment purposes and will be repaid by the borrowing Fund promptly. As required by the 1940 Act, a Fund must maintain continuous asset coverage (total assets, including assets acquired with borrowed funds, less liabilities exclusive of borrowings) of 300% of all amounts borrowed. If, at any time, the value of the Fund's assets should fail to meet this 300% coverage test, the Fund, within three days (not including Sundays and holidays), will reduce the amount of the Fund's borrowings to the extent necessary to meet this 300% coverage. Maintenance of this percentage limitation may result in the sale of portfolio securities at a time when investment considerations otherwise indicate that it would be disadvantageous to do so. In addition to the foregoing, the Funds are authorized to borrow money as a temporary measure for extraordinary or emergency purposes in amounts not in excess of 5% of the value of the Fund's total assets. This borrowing is not subject to the foregoing 300% asset coverage requirement. The Funds are authorized to pledge portfolio securities as the Adviser deems appropriate in connection with any borrowings. Borrowing may subject the Funds to interest costs, which may exceed the interest received on the securities purchased with the borrowed funds. The Funds may borrow at times to meet redemption requests rather than sell portfolio securities to raise the necessary cash. Borrowing can involve leveraging when securities are purchased with the borrowed money. To avoid this situation, neither Fund will purchase securities while borrowing represent more than 5% of its total assets. BRADY BONDS. In the event of a default on collateralized Brady Bonds for which obligations are accelerated, the collateral for the payment of principal will not be distributed to investors, nor will such obligations be sold and the proceeds distributed. The collateral will be held by the collateral agent to the scheduled maturity of the defaulted Brady Bonds, which will continue to be outstanding, at which time the face amount of the collateral will equal the principal payments which would have then been due on the Brady Bonds in the normal course. COMMERCIAL PAPER. Commercial paper is the term used to designate unsecured short-term promissory notes issued by corporations and other entities. Maturities on these issues vary from a few to 270 days. CUSTODIAL RECEIPTS. A custodial receipt represents an indirect interest in a tax-exempt bond that is deposited with a custodian. For example, custodial receipts may be used to permit the sale of the deposited bond in smaller denominations than would otherwise be permitted. Frequently, custodial receipts are issued to attach bond insurance or other forms of credit enhancement to the deposited tax-exempt bond. Note, because a "separate security" is not created by the issuance of a receipt, many of the tax advantages bestowed upon holders of the deposited tax-exempt bond are also conferred upon the custodial receipt holder. DEBT SECURITIES. Debt securities represent money borrowed that obligates the issuer (E.G., a corporation, municipality, government, government agency) to repay the borrowed amount at maturity (when the obligation is due and payable) and usually to pay the holder interest at specific times (E.G., bonds, notes, debentures). DOLLAR ROLLS. Dollar rolls are transactions in which securities are sold for delivery in the current month and the seller contracts to repurchase substantially similar securities on a specified future date. Any difference between the sale price and the purchase price (plus interest earned on the cash proceeds of the sale) is applied against the past interest income on the securities sold to arrive at an implied borrowing rate. 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 a 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. S-5 EQUITY SECURITIES. Equity securities represent ownership interests in a company and consist of common stocks, preferred stocks, warrants to acquire common stock, and securities convertible into common stock. Investments in equity securities in general are subject to market risks that may cause their prices to fluctuate over time. Fluctuations in the value of equity securities in which a fund invests will cause the net asset value of a fund to fluctuate. The Fund purchases equity securities traded in the U.S. on registered exchanges or the over-the-counter market. Equity securities are described in more detail below: o COMMON STOCK. Common stock represents an equity or ownership interest in an issuer. In the event an issuer is liquidated or declares bankruptcy, the claims of owners of bonds and preferred stock take precedence over the claims of those who own common stock. o PREFERRED STOCK. Preferred stock represents an equity or ownership interest in an issuer that pays dividends at a specified rate and that has precedence over common stock in the payment of dividends. In the event an issuer is liquidated or declares bankruptcy, the claims of owners of bonds take precedence over the claims of those who own preferred and common stock. o WARRANTS. Warrants are instruments that entitle the holder to buy an equity security at a specific price for a specific period of time. Changes in the value of a warrant do not necessarily correspond to changes in the value of its underlying security. The price of a warrant may be more volatile than the price of its underlying security, and a warrant may offer greater potential for capital appreciation as well as capital loss. Warrants do not entitle a holder to dividends or voting rights with respect to the underlying security and do not represent any rights in the assets of the issuing company. A warrant ceases to have value if it is not exercised prior to its expiration date. These factors can make warrants more speculative than other types of investments. o CONVERTIBLE SECURITIES. Convertible securities are bonds, debentures, notes, preferred stocks or other securities that may be converted or exchanged (by the holder or by the issuer) into shares of the underlying common stock (or cash or securities of equivalent value) at a stated exchange ratio. A convertible security may also be called for redemption or conversion by the issuer after a particular date and under certain circumstances (including a specified price) established upon issue. If a convertible security held by a fund is called for redemption or conversion, the fund could be required to tender it for redemption, convert it into the underlying common stock, or sell it to a third-party. o Convertible securities generally have less potential for gain or loss than common stocks. Convertible securities generally provide yields higher than the underlying common stocks, but generally lower than comparable non-convertible securities. Because of this higher yield, convertible securities generally sell at a price above their "conversion value," which is the current market value of the stock to be received upon conversion. The difference between this conversion value and the price of convertible securities will vary over time depending on changes in the value of the underlying common stocks and interest rates. When the underlying common stocks decline in value, convertible securities will tend not to decline to the same extent because of the interest or dividend payments and the repayment of principal at maturity for certain types of convertible securities. However, securities that are convertible other than at the option of the holder generally do not limit the potential for loss to the same extent as securities convertible at the option of the holder. When the underlying common stocks rise in value, the value of convertible securities may also be expected to increase. At the same time, however, the difference between the market value of convertible securities and their conversion value will narrow, which means that the value of convertible securities will generally not increase to the same extent as the value of the underlying common stocks. Because convertible securities may also be interest-rate sensitive, their value may increase as interest rates fall and decrease as interest rates rise. Convertible securities are also subject to credit risk, and are often lower-quality securities. o MEDIUM CAPITALIZATION ISSUERS. Investing in equity securities of small and medium capitalization companies often involves greater risk than is customarily associated with investments in larger capitalization companies. This increased risk may be due to the greater business risks of smaller size, limited markets and financial resources, narrow product lines and frequent lack of depth of management. The securities of smaller companies are often traded in the over-the-counter market and even if listed on a national securities exchange S-6 may not be traded in volumes typical for that exchange. Consequently, the securities of smaller companies are less likely to be liquid, may have limited market stability, and may be subject to more abrupt or erratic market movements than securities of larger, more established growth companies or the market averages in general. EQUITY-LINKED SECURITIES. A Fund may invest in equity-linked securities, including, among others, PERCS, ELKS or LYONs, which are securities that are convertible into, or the value of which is based upon the value of, equity securities upon certain terms and conditions. The amount received by an investor at maturity of such securities is not fixed but is based on the price of the underlying common stock. It is impossible to predict whether the price of the underlying common stock will rise or fall. Trading prices of the underlying common stock will be influenced by the issuer's operational results, by complex, interrelated political, economic, financial or other factors affecting the capital markets, the stock exchanges on which the underlying common stock is traded and the market segment of which the issuer is a part. In addition, it is not possible to predict how equity-linked securities will trade in the secondary market. The market for such securities may be shallow, and high volume trades may be possible only with discounting. In addition to the foregoing risks, the return on such securities depends on the creditworthiness of the issuer of the securities, which may be the issuer of the underlying securities or a third-party investment banker or other lender. The creditworthiness of such third-party issuer equity-linked securities may, and often does, exceed the creditworthiness of the issuer of the underlying securities. The advantage of using equity-linked securities over traditional equity and debt securities is that the former are income producing vehicles that may provide a higher income than the dividend income on the underlying equity securities while allowing some participation in the capital appreciation of the underlying equity securities. Another advantage of using equity-linked securities is that they may be used for hedging to reduce the risk of investing in the generally more volatile underlying equity securities. The following are three examples of equity-linked securities. A Fund may invest in the securities described below or other similar equity-linked securities. o PERCS. Preferred Equity Redemption Cumulative Stock ("PERCS") technically is preferred stock with some characteristics of common stock. PERCS are mandatorily convertible into common stock after a period of time, usually three years, during which the investors' capital gains are capped, usually at 30%. Commonly, PERCS may be redeemed by the issuer at any time or if the issuer's common stock is trading at a specified price level or better. The redemption price starts at the beginning of the PERCS duration period at a price that is above the cap by the amount of the extra dividends the PERCS holder is entitled to receive relative to the common stock over the duration of the PERCS and declines to the cap price shortly before maturity of the PERCS. In exchange for having the cap on capital gains and giving the issuer the option to redeem the PERCS at any time or at the specified common stock price level, the Fund may be compensated with a substantially higher dividend yield than that on the underlying common stock. o ELKS. Equity-Linked Securities ("ELKS") differ from ordinary debt securities, in that the principal amount received at maturity is not fixed but is based on the price of the issuer's common stock. ELKS are debt securities commonly issued in fully registered form for a term of three years under an indenture trust. At maturity, the holder of ELKS will be entitled to receive a principal amount equal to the lesser of a cap amount, commonly in the range of 30% to 55% greater than the current price of the issuer's common stock, or the average closing price per share of the issuer's common stock, subject to adjustment as a result of certain dilution events, for the 10 trading days immediately prior to maturity. Unlike PERCS, ELKS are commonly not subject to redemption prior to maturity. ELKS usually bear interest during the three-year term at a substantially higher rate than the dividend yield on the underlying common stock. In exchange for having the cap on the return that might have been received as capital gains on the underlying common stock, the Fund may be compensated with the higher yield, contingent on how well the underlying common stock does. o LYONS. Liquid Yield Option Notes ("LYONS") differ from ordinary debt securities, in that the amount received prior to maturity is not fixed but is based on the price of the issuer's common stock. LYONs are zero-coupon notes that sell at a large discount from face value. For an investment in LYONs, the Fund will S-7 not receive any interest payments until the notes mature, typically in 15 to 20 years, when the notes are redeemed at face, or par value. The yield on LYONs, typically, is lower-than-market rate for debt securities of the same maturity, due in part to the fact that the LYONs are convertible into common stock of the issuer at any time at the option of the holder of the LYONs. Commonly, the LYONs are redeemable by the issuer at any time after an initial period or if the issuer's common stock is trading at a specified price level or better, or, at the option of the holder, upon certain fixed dates. The redemption price typically is the purchase price of the LYONs plus accrued original issue discount to the date of redemption, which amounts to the lower-than-market yield. The Fund will receive only the lower-than-market yield unless the underlying common stock increases in value at a substantial rate. LYONs are attractive to investors, like the Fund, when it appears that they will increase in value due to the rise in value of the underlying common stock. EURODOLLAR AND YANKEE DOLLAR 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 dollar obligations are U.S. dollar denominated obligations issued in the United States by foreign banks. FOREIGN SECURITIES. Foreign securities 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, Europaper and Yankee Certificates of Deposit, and investments in Canadian Commercial Paper and foreign securities. These instruments have investment risks that differ in some respects from those related to investments in obligations of U.S. domestic issuers. These 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. These 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. In making investment decisions for the Funds, the Adviser evaluates the risks associated with investing Fund assets in a particular country, including risks stemming from a country's financial infrastructure and settlement practices; the likelihood of expropriation, nationalization or confiscation of invested assets; prevailing or developing custodial practices in the country; the country's laws and regulations regarding the safekeeping, maintenance and recovery of invested assets, the likelihood of government-imposed exchange control restrictions which could impair the liquidity of Fund assets maintained with custodians in that country, as well as risks from political acts of foreign governments ("country risks"). Of course, the Adviser cannot assure that the Fund will not suffer losses resulting from investing in foreign countries. Holding Fund assets in foreign countries through specific foreign custodians presents additional risks, including, but not limited to, the risks that a particular foreign custodian or depository will not exercise proper care with respect to Fund assets or will not have the financial strength or adequate practices and procedures to properly safeguard Fund assets. By investing in foreign securities, the 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 International Equity Index, when included in appropriate amounts in a portfolio otherwise consisting of domestic securities, may provide a source of increased diversification. The International Equity, International Equity Index seek increased diversification by combining securities from various countries and geographic areas that offer different investment opportunities and are affected by different economic trends. The international investments of the International S-8 Equity, International Equity Index 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. Emerging countries are all countries that are considered to be developing or emerging countries by the World Bank or the International Finance Corporation, as well as countries classified by the United Nations or otherwise regarded by the international financial community as developing. Currently, the countries excluded from this category are Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Italy, Ireland, Japan, the Netherlands, New Zealand, Norway, Spain, Sweden, Switzerland, the United Kingdom and the United States. FORWARD FOREIGN CURRENCY CONTRACTS. Forward foreign currency contracts involve obligations 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 the foreign currency. A Fund may realize a gain or loss from currency transactions. FUTURES AND OPTIONS ON FUTURES. 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 will reduce the risk that it will be unable to close out a futures contract by only entering into futures contracts that are traded on a national futures exchange regulated by the Commodities Futures Trading Commission ("CFTC"). Consistent with CFTC regulations, a Fund may use futures contracts and related options for either (i) "BONA FIDE hedging purposes," as such term is defined by the CFTC, or (ii) for other risk management purposes only to the extent that the aggregate initial margin and premiums on such positions (excluding the amount by which options on futures contracts are in the money) do not exceed 5% of the Fund's net assets. Instances in which a Fund may use futures contracts and related options for risk management purposes (other than BONA FIDE hedging) include: attempting to offset changes in the value of securities held or expected to be acquired or be disposed of; attempting to minimize fluctuations in foreign currencies; attempting to gain exposure to a particular market, index or instrument; or other risk management purposes. An index futures contract is a bilateral agreement pursuant to which two parties agree to take or make delivery of an amount of cash equal to a specified dollar amount times the difference between the index value at the close of trading of the contract and the price at which the futures contract is originally struck. No physical delivery of the securities comprising the index is made; generally contracts are closed out prior to the expiration date of the contract. When a Fund purchases or sells a futures contract, or sells an option thereon, the Fund is required to "cover" its position in order to limit leveraging and related risks. To cover its position, a Fund may maintain with its custodian bank (and marked-to-market on a daily basis), a segregated account consisting of cash or liquid securities that, when added to any amounts deposited with a futures commission merchant as margin, are equal to the market value of the futures contract or otherwise "cover" its position in a manner consistent with the 1940 Act or the rules and SEC interpretations thereunder. The segregated account functions as a practical limit on the amount of leverage which the Fund may undertake and on the potential increase in the speculative character of the Fund's outstanding portfolio securities. Additionally, such segregated accounts will generally assure the availability of adequate funds to meet the obligations of the fund arising from such investment activities. A Fund may also cover its long position in a futures contract by purchasing a put option on the same futures contract with a strike price (i.e., an exercise price) as high or higher than the price of the futures contract. In the alternative, if the strike price of the put is less than the price of the futures contract, the Fund will maintain in a segregated account cash or liquid securities equal in value to the difference between the strike price of the put and the price of the futures contract. A Fund may also cover its long position in a futures contract by taking a short position in the instruments underlying the futures contract, or by taking positions in instruments with prices which are expected to move relatively consistently with the futures contract. A Fund may cover its short position in a futures S-9 contract by taking a long position in the instruments underlying the futures contracts, or by taking positions in instruments with prices which are expected to move relatively consistently with the futures contract. A Fund may cover its sale of a call option on a futures contract by taking a long position in the underlying futures contract at a price less than or equal to the strike price of the call option. In the alternative, if the long position in the underlying futures contract is established at a price greater than the strike price of the written (sold) call, the Fund will maintain in a segregated account cash or liquid securities equal in value to the difference between the strike price of the call and the price of the futures contract. A Fund may also cover its sale of a call option by taking positions in instruments with prices which are expected to move relatively consistently with the call option. A Fund may cover its sale of a put option on a futures contract by taking a short position in the underlying futures contract at a price greater than or equal to the strike price of the put option, or, if the short position in the underlying futures contract is established at a price less than the strike price of the written put, the fund will maintain in a segregated account cash or liquid securities equal in value to the difference between the strike price of the put and the price of the futures contract. A Fund may also cover its sale of a put option by taking positions in instruments with prices which are expected to move relatively consistently with the put option. There are significant risks associated with a Fund's use of futures contracts and related options, including the following: (1) the success of a hedging strategy may depend on the Adviser's 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 options on futures. In addition, some strategies reduce a Fund's exposure to price fluctuations, while others tend to increase its market exposure. GUARANTEED INVESTMENT CONTRACTS (GICS). 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. HEDGING TECHNIQUES. Hedging is an investment strategy designed to offset investment risks. Hedging activities include, among other things, the use of options and futures. There are risks associated with hedging activities, including: (i) 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; (ii) there may be an imperfect or no correlation between the changes in market value of the securities held by a Fund and the prices of futures and option on futures; (iii) there may not be a liquid secondary market for a futures contract or option; and (iv) trading restrictions or limitations may be imposed by an exchange, and government regulations may restrict trading in futures contracts and options. HIGH YIELD SECURITIES. High yield securities, commonly referred to as junk bonds, are debt obligations rated below investment grade, I.E., below BBB by S&P or Baa by Moody's, or their unrated equivalents. The risks associated with investing in high yield securities include: (i) High yield, lower rated 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. (ii) 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 these securities at their fair market values either to meet redemption requests, or in response to changes in the economy or the financial markets. S-10 (iii) 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. (iv) The market for high risk, high yield securities may be adversely affected by legislative and regulatory developments. HIGH YIELD FOREIGN SOVEREIGN DEBT SECURITIES. Investing in fixed and floating rate high yield foreign sovereign debt securities will expose the Fund to the direct or indirect consequences of political, social or economic changes in countries that issue the securities. The ability of a foreign sovereign obligor to make timely payments on its external debt obligations will also be strongly influenced by the obligor's balance of payments, including export performance, its access to international credits and investments, fluctuations in interest rates and the extent of its foreign reserves. A country whose exports are concentrated in a few commodities or whose economy depends on certain strategic imports could be vulnerable to fluctuations in international prices of these commodities or imports. To the extent that a country receives payment for its exports in currencies other than dollars, its ability to make debt payments denominated in dollars could be adversely affected. If a foreign sovereign obligor cannot generate sufficient earnings from foreign trade to service its external debt, it may need to depend on continuing loans and aid from foreign governments, commercial banks and multilateral organizations, and inflows of foreign investment. The commitment on the part of these foreign governments, multilateral organizations and others to make such disbursements may be conditioned on the government's implementation of economic reforms and/or economic performance and the timely service of its obligations. Failure to implement such reforms, achieve such levels of economic performance or repay principal or interest when due may result in the cancellation of such third parties' commitments to lend funds, which may further impair the obligor's ability or willingness to timely service its debts. ILLIQUID SECURITIES. Illiquid securities are securities that cannot be sold or disposed of in the ordinary course of business (within seven days) at approximately the prices at which they are valued. Because of their illiquid nature, illiquid securities must be priced at fair value as determined in good faith pursuant to procedures approved by the Trust's Board of Trustees. Despite such good faith efforts to determine fair value prices, the Fund's illiquid securities are subject to the risk that the security's fair value price may differ from the actual price which the Fund may ultimately realize upon its sale or disposition. Difficulty in selling illiquid securities may result in a loss or may be costly to a fund. Under the supervision of the Trust's Board of Trustees, the Adviser determines the liquidity of the Fund's investments. In determining the liquidity of the Fund's investments, the Adviser may consider various factors, including (1) the frequency and volume of trades and quotations, (2) the number of dealers and prospective purchasers in the marketplace, (3) dealer undertakings to make a market, and (4) the nature of the security and the market in which it trades (including any demand, put or tender features, the mechanics and other requirements for transfer, any letters of credit or other credit enhancement features, any ratings, the number of holders, the method of soliciting offers, the time required to dispose of the security, and the ability to assign or offset the rights and obligations of the security). A Fund will not invest more than 15% of its net assets in illiquid securities. INVESTMENT COMPANY SHARES. The Funds may invest in shares of other investment companies, to the extent permitted by applicable law and subject to certain restrictions. These investment companies typically incur fees that are separate from those fees incurred directly by the Funds. The Funds' 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, in addition to paying the Funds' expenses. Under applicable regulations, the Funds are prohibited from acquiring the securities of another investment company if, as a result of such acquisition: (1) the Funds own more than 3% of the total voting stock of the other company; (2) securities issued by any one investment company represent more than 5% of the Funds' total assets; or (3) securities (other than treasury stock) issued by all investment companies represent more than 10% of the total assets of the Funds. INVESTMENT GRADE OBLIGATIONS. Investment Grade Obligations are fixed income obligations rated by one or more of the rating agencies in one of the four highest rating categories at the time of purchase (e.g., AAA, AA, A or BBB by Standard & Poor's Ratings Group ("S&P") or Fitch, Inc. ("Fitch"), or Aaa, Aa, A or Baa by Moody's Investors S-11 Service, Inc. ("Moody's") or determined to be of equivalent quality by the Sub-Advsiers. Securities rated BBB or Baa represent the lowest of four levels of Investment Grade Obligations and are regarded as borderline between sound obligations and those in which the speculative element begins to predominate. Ratings assigned to fixed income securities represent only the opinion of the rating agency assigning the rating and are not dispositive of the credit risk associated with the purchase of a particular Fixed Income Obligation. Moreover, market risk also will affect the prices of even the highest rated fixed income obligation so that their prices may rise or fall even if the issuer's capacity to repay its obligation remains unchanged. LEVERAGED BUYOUTS. The Fund may invest in leveraged buyout limited partnerships and funds that, in turn, invest in leveraged buyout transactions ("LBOs"). An LBO, generally, is an acquisition of an existing business by a newly formed corporation financed largely with debt assumed by such newly formed corporation to be later repaid with funds generated from the acquired company. Since most LBOs are by nature highly leveraged (typically with debt to equity ratios of approximately 9 to 1), equity investments in LBOs may appreciate substantially in value given only modest growth in the earnings or cash flow of the acquired business. Investments in LBO partnerships and funds, however, present a number of risks. Investments in LBO limited partnerships and funds will normally lack liquidity and may be subject to intense competition from other LBO limited partnerships and funds. Additionally, if the cash flow of the acquired company is insufficient to service the debt assumed in the LBO, the LBO limited partnership or fund could lose all or part of its investment in such acquired company. 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. In a loan participation, the borrower corporation is 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 the 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 the 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. MONEY MARKET SECURITIES. Money market securities include short-term U.S. Government Securities; custodial receipts evidencing separately traded interest and principal components of securities issued by the U.S. Treasury; commercial paper rated in the highest short-term rating category by a nationally recognized statistical ratings organization ("NRSRO"), such as Standard & Poor's or Moody's, or determined by the Adviser to be of comparable quality at the time of purchase; short-term bank obligations (certificates of deposit, time deposits and bankers' acceptances) of U.S. commercial banks with assets of at least $1 billion as of the end of their most recent fiscal year; and repurchase agreements involving such securities. Each of these money market securities are described below. For a description of ratings, see the Appendix to this SAI. 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 30-year fixed rate mortgages, graduated payment mortgages, adjustable rate mortgages, and floating mortgages. Government Pass-Through Securities 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"), Fannie Mae, and the Federal Home Loan Mortgage Corporation ("FHLMC"). Fannie Mae and FHLMC obligations are not backed by the full faith and S-12 credit of the U.S. government as GNMA certificates are, but Fannie Mae and FHLMC securities are supported by the instrumentalities' right to borrow from the U.S. Treasury. GNMA, Fannie Mae, and FHLMC each guarantees timely distributions of interest to certificate holders. GNMA and Fannie Mae also guarantee timely distributions of scheduled principal. In the past, FHLMC has only guaranteed 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. Obligations of GNMA are backed by the full faith and credit of the U.S. government. Obligations of Fannie Mae and FHLMC are not backed by the full faith and credit of the U.S. government, but are considered to be of high quality since they are considered to be instrumentalities of the United States. The market value and interest yield of these mortgage-backed securities can vary due to market interest rate fluctuations and early prepayments of underlying mortgages. These securities represent ownership in a pool of federally insured mortgage loans with a maximum maturity of 30 years. However, due to scheduled and unscheduled principal payments on the underlying loans, these securities have a shorter average maturity and, therefore, less principal volatility than a comparable 30-year bond. Since prepayment rates vary widely, it is not possible to accurately predict the average maturity of a particular mortgage-backed security. The scheduled monthly interest and principal payments relating to mortgages in the pool will be "passed through" to investors. Government mortgage-backed securities differ from conventional bonds in that principal is paid back to the certificate holders over the life of the loan rather than at maturity. As a result, there will be monthly scheduled payments of principal and interest. In addition, there may be unscheduled principal payments representing prepayments on the underlying mortgages. Although these securities may offer yields higher than those available from other types of U.S. government securities, mortgage-backed securities may be less effective than other types of securities as a means of "locking in" attractive long-term rates because of the prepayment feature. For instance, when interest rates decline, the value of these securities likely will not rise as much as comparable debt securities due to the prepayment feature. In addition, these prepayments can cause the price of a mortgage-backed security originally purchased at a premium to decline in price to its par value, which may result in a loss. Private Pass-Through Securities are mortgage-backed securities issued by a non-governmental agency, such as a trust. While they are generally structured with one or more types of credit enhancement, private pass-through securities generally lack a guarantee by an entity having the credit status of a governmental agency or instrumentality. The two principal types of private mortgage-backed securities are collateralized mortgage obligations ("CMOs") and real estate mortgage investment conduits ("REMICs"). 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). CMOs are rated in one of the two highest categories by S&P or Moody's and are issued with a number of classes or series which have different expected maturities. Investors purchasing such CMOs are credited with their portion of the scheduled payments of interest and principal on the underlying mortgages plus all unscheduled prepayments of principal based on a predetermined priority schedule. Accordingly, the CMOs in the longer maturity series are less likely than other mortgage pass-throughs to be prepaid prior to their stated maturity. Although some of the mortgages underlying CMOs may be supported by various types of insurance, and some CMOs may be backed by GNMA certificates or other mortgage pass-throughs issued or guaranteed by U.S. government agencies or instrumentalities, the CMOs themselves are not generally guaranteed. REMICs 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 and are rated in one of the two highest categories by S&P or Moody's. 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 Fannie Mae or FHLMC represent beneficial ownership interests in a REMIC trust consisting principally of mortgage loans or Fannie Mae, S-13 FHLMC or GNMA-guaranteed mortgage pass-through certificates. For FHLMC REMIC Certificates, FHLMC guarantees the timely payment of interest. GNMA REMIC Certificates are backed by the full faith and credit of the U.S. government. Stripped Mortgage-Backed Securities 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. 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 Adviser believes that the estimated average life is the most appropriate measure of the maturity of a mortgage-backed security. Accordingly, in order to determine whether such security is a permissible investment for a Fund, it will be deemed to have a remaining maturity equal to its average life as estimated by the Adviser. An average life estimate is a function of an assumption regarding anticipated prepayment patterns. The assumption is based upon current interest rates, current conditions in the relevant housing markets and other factors. The assumption is necessarily subjective, and thus different market participants could produce somewhat different average life estimates with regard to the same security. There can be no assurance that the average life as estimated by the Adviser will be the 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 (see "When-Issued Securities and Municipal Forwards" for more information). 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. MUNICIPAL SECURITIES. Municipal bonds include general obligation bonds, revenue or special obligation bonds, private activity and industrial development bonds and participation interests in municipal bonds. 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 (for example, tolls from a bridge). 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 totally dependent 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 the payment. Municipal notes 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 investment by S&P, or (iv) which, if not rated by S&P or Moody's, are in the Adviser's judgment, 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 S-14 Moody's for the Tax-Exempt Money Market Fund or, if not rated by S&P or Moody's, must be deemed by the Adviser 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. Private activity bonds are issued by or on behalf of states, or political subdivisions thereof, to finance privately owned or operated facilities for business and manufacturing, housing, sports, and pollution control, and to finance activities of and facilities for charitable institutions. Private activity bonds are also used to finance public facilities such as airports, mass transit systems, ports parking and low-income housing. The payment of the principal and interest on private activity bonds is dependent solely on the ability of the facility's user to meet its financial obligations and may be secured by a pledge of real and personal property so financed. Investments in 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 Adviser's opinion, be equivalent to the long-term bond or commercial paper ratings stated above. The Adviser 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 Adviser 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. The Adviser has the authority to 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 in order to meet redemptions and remain as fully invested as possible in municipal securities. The right to put the securities depends on the writer's ability to pay for the securities at the time the put is exercised. The Funds will limit their put transactions to those with institutions which the Adviser believes present minimum credit risks, and the Adviser will use its best efforts to initially determine and thereafter monitor the financial strength of the put providers 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 where adequate current financial information is not available. In the event that any writer is unable to honor a put for financial reasons, the affected Fund would be a general creditor (I.E., on parity with all other unsecured creditors) of the writer. Furthermore, particular provisions of the contract between a Fund and the writer may excuse the writer from repurchasing the securities in certain circumstances (for example, a change in the published rating of the underlying municipal securities or any similar event that has an adverse effect on the issuer's credit); or a provision in the contract may provide that the put will not be exercised except in certain special cases, for example, to maintain portfolio liquidity. A Fund could, however, 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. Municipal 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. Sale of the securities to third parties or lapse of time with the put unexercised may terminate the right to put the securities. Prior to the expiration of any put option, a Fund could seek to negotiate terms for the extension of such an option. If such a renewal cannot be negotiated on terms satisfactory to a Fund, the 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 Funds may purchase subject to a put. For the purpose of determining the "maturity" of securities purchased subject to an option to put, and for the purpose of determining the dollar- S-15 weighted average maturity of the Funds including such securities, the Trust will consider "maturity" to be the first date on which it has the right to demand payment from the writer of the put although the final maturity of the security is later than such date. Other types of tax-exempt instruments which are permissible investments 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 Adviser's opinion, be equivalent to the long-term bond or commercial paper ratings stated above. The Adviser 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 a Fund's investment limitations restricting its 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 issuance. Neither the Funds nor the Adviser will review the proceedings relating to the issuance of municipal securities or the basis for such opinions. SPECIAL CONSIDERATIONS RELATING TO MUNICIPAL OBLIGATIONS OF DESIGNATED STATES As described in the Prospectuses, except for investments in temporary investments, each Fund will invest substantially all of its net assets (at least 80%) in municipal bonds that are exempt from federal and state tax in that state ("Municipal Obligations"), generally Municipal Obligations issued in its respective state. Each Fund is therefore more susceptible to political, economic or regulatory factors adversely affecting issuers of Municipal Obligations in its state. Set forth below is additional information that bears upon the risk of investing in Municipal Obligations issued by public authorities in the states of currently offered Funds. This information was obtained from official statements of issuers located in the respective states as well as from other publicly available official documents and statements. The Funds have not independently verified any of the information contained in such statements and documents. The information below is intended only as a general summary and is not intended as a discussion of any specific factor that may affect any particular obligation or issuer. FACTORS PERTAINING TO FLORIDA Florida's service-based economy is stabilizing with the worst of the September 11, 2001 terrorism fears declining and the national economy recovering. A budget for fiscal 2003 was approved by the legislature during a special session in May and included a fully funded budget stabilization fund of $958 million. After Governor Bush intervened, the House and Senate reached a compromise and delayed reduction of Florida's intangibles tax on stocks and bonds. The state has no personal income tax, but its other revenue sources, primarily sales taxes, have grown consistently in contrast to trends for most other states. Personal income growth continues to outpace the nation and recent economic reports indicate that the State continues to experience job growth, albeit at a more moderate pace. While Florida's unemployment rate increased to 5.4% in July 2002 from 4.9% in July 2001, it remained below the July 2002 national average of 6%. Florida's 2001 per capita income of $28,493 is approximately 94% of the national average of $30,271 and is slightly S-16 above regional levels. Because the State's significant senior population relies more on fixed incomes than on wages, income levels in the State are generally more stable over different phases of economic cycles. Longer term, the state will continue to be an attractive tourist destination and will continue to attract businesses. Florida's population growth during the 1990's was nearly twice the national average, although projections for the next decade indicate somewhat slower growth. The housing market boom also continues throughout the State. As of August 31, 2002, Florida's general obligation debt carried ratings of AA+ by Standard & Poor's, Aa2 by Moody's, and AA by Fitch. These ratings reflect the State's credit quality only and do not indicate the creditworthiness of other tax-exempt securities in which the Fund may invest. FACTORS PERTAINING TO GEORGIA From 1994 to 2000, Georgia benefited from steady economic and employment growth as a result of the State's stable and broad-based trade/services economy, low average cost of living, and extensive transportation infrastructure. Employment began to decline in 2001, with jobs attributable to services, and wholesale and retail trade no longer offsetting job cuts within the manufacturing sector. Conditions are even weaker in the Atlanta metropolitan area due to overbuilding and the general economic weakness of the metro area economy. Outside of Atlanta, healthy residential construction activity continues to support construction employment and improve demand for manufactured products. While the State's unemployment level increased to 4.9% in July 2002 from 4.3% in July 2001, it remained well below the national average of 6% in July 2002. Per capita income in 2001 was $28,438, which is approximately 94% of the national average of $30,271. As of August 31, 2002, Georgia's general obligation debt carried AAA ratings from Standard & Poor's, Moody's, and Fitch. These ratings reflect the State's credit quality only and do not indicate the creditworthiness of other tax-exempt securities in which the Fund may invest. FACTORS PERTAINING TO MARYLAND Maryland's economy has slowed, but continues to outperform most other states during the current national recession. The services, wholesale and retail trade, and government sectors account for most of the State's employment. Unlike in most states, government employment surpasses manufacturing employment. Following the September 11, 2001 terrorists attacks, the Federal Government's increased defense and "anti-terrorist" spending has stabilized the Maryland economy, despite the slowdown in other employment sectors. The current 2003 budget is tightly balanced, with a large structural gap forecast in 2004. Despite the Governor Glendening's recommendation to freeze the personal income tax reduction, it is significant that the budget does include the final phase out of the 10% personal income tax reduction representing an estimated $177 million of revenue. The State's unemployment rate was 4.2% in July 2002, the same rate as one year ago in July 2001, and well below the national average of 6% in July 2002. Per capita income, which was $34,950 in 2001, continues to exceed the national average of $30,271. Maryland remains among the wealthiest states in the nation. Maryland's general obligation debt, which is constitutionally limited to a maximum term of 15 years, carried AAA ratings from Moody's, Standard & Poor's, and Fitch as of August 31, 2002. These ratings reflect the State's credit quality only and do not indicate the creditworthiness of other tax-exempt securities in which the Fund may invest. FACTORS PERTAINING TO VIRGINIA Virginia's economy is slowly emerging from recession. Unemployment is declining with local government and services industries leading the employment growth. As the sixth largest high-tech employer, recent employment S-17 losses in business services, mostly high-tech jobs, are responsible for continuing job losses in the manufacturing and telecommunications industries. Also, the effects of a regionwide drought are expected to continue to hurt agriculture and commercial development. Governor Warner announced a $1.5 billion revenue shortfall in the State's two-year budget, which took effect July 1, and he warned that the gap could widen, forecasting a $3.5 billion shortfall through mid-2004. The sharp drop in revenues was focused mostly in Northern Virginia where record declines in tax collections from high-tech jobs in the 1990's due to job losses accounted for almost half of statewide unemployment. Virginia's unemployment rate was 4.1% in July 2002, well below the national average of 6% in July 2002, but above the Commonwealth's July 2001 rate of 3.7%. Per capita income was $32,295 in 2001, which is 107% of the national average of $30,271. Longer term, the State's strong demographic trends, low business costs, and generous tax incentives will contribute to Virginia's above average growth in the future. As of August 31, 2002, Moody's, Standard & Poor's, and Fitch each gave Virginia's general obligation debt a AAA rating. These ratings reflect the State's credit quality only and do not indicate the creditworthiness of other tax-exempt securities in which the Fund may invest. NON-PUBLICLY TRADED SECURITIES; RULE 144A SECURITIES. The Fund may purchase securities that are not registered under the Securities Act of 1933, as amended (the "1933 Act"), but that can be sold to "qualified institutional buyers" in accordance with Rule 144A under the 1933 Act ("Rule 144A Securities"). An investment in Rule 144A Securities will be considered illiquid and therefore subject to the Fund's limitation on the purchase of illiquid securities (usually 15% of a fund's net assets, 10% for the money market funds), unless the Fund's governing Board of Trustees determines on an ongoing basis that an adequate trading market exists for the security. In addition to an adequate trading market, the Board of Trustees will also consider factors such as trading activity, availability of reliable price information and other relevant information in determining whether a Rule 144A Security is liquid. This investment practice could have the effect of increasing the level of illiquidity in the Fund to the extent that qualified institutional buyers become uninterested for a time in purchasing Rule 144A Securities. The Board of Trustees will carefully monitor any investments by the Fund in Rule 144A Securities. The Board of Trustees may adopt guidelines and delegate to the Adviser the daily function of determining and monitoring the liquidity of Rule 144A Securities, although the Board of Trustees will retain ultimate responsibility for any determination regarding liquidity. Non-publicly traded securities (including Rule 144A Securities) may involve a high degree of business and financial risk and may result in substantial losses. These securities may be less liquid than publicly traded securities, and the Fund may take longer to liquidate these positions than would be the case for publicly traded securities. Although these securities may be resold in privately negotiated transactions, the prices realized on such sales could be less than those originally paid by the Fund. Further, companies whose securities are not publicly traded may not be subject to the disclosure and other investor protection requirements applicable to companies whose securities are publicly traded. The Fund's investments in illiquid securities are subject to the risk that should the Fund desire to sell any of these securities when a ready buyer is not available at a price that is deemed to be representative of their value, the value of the Fund's net assets could be adversely affected. OBLIGATIONS OF DOMESTIC BANKS, FOREIGN BANKS AND FOREIGN BRANCHES OF U.S. BANKS. A Fund may invest in obligations issued by banks and other savings institutions. Investments in bank obligations include obligations of domestic branches of foreign banks and foreign branches of domestic banks. Such investments in domestic branches of foreign banks and foreign branches of domestic banks may involve risks that are different from investments in securities of domestic branches of U.S. banks. These risks may include future unfavorable political and economic developments, possible withholding taxes on interest income, seizure or nationalization of foreign deposits, currency controls, interest limitations, or other governmental restrictions which might affect the payment of principal or interest on the securities held by a Fund. Additionally, these institutions may be subject to less stringent reserve requirements and to different accounting, auditing, reporting and recordkeeping requirements than those applicable to domestic branches of U.S. banks. The Funds may invest in U.S. dollar-denominated obligations of domestic branches of foreign banks and foreign branches of domestic banks only when the Adviser believes that S-18 the risks associated with such investment are minimal and that all applicable quality standards have been satisfied. Bank obligations include the following: o BANKERS' ACCEPTANCES. Bankers' acceptances are bills of exchange or time drafts drawn on and accepted by a commercial bank. Corporations use bankers' acceptances to finance the shipment and storage of goods and to furnish dollar exchange. Maturities are generally six months or less. o 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. o 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 with a withdrawal penalty or that mature in more than seven days are considered to be illiquid securities. OPTIONS. A Fund may purchase and write put and call options on securities or securities indices (traded on U.S. exchanges or over-the-counter markets) and enter into related closing transactions. A put option on a security gives the purchaser of the option the right to sell, and the writer of the option the obligation to buy, the underlying security at any time during the option period. A call option on a security gives the purchaser of the option the right to buy, and the writer of the option the obligation to sell, the underlying security at any time during the option period. The premium paid to the writer is the consideration for undertaking the obligations under the option contract. Put and call options on indices are similar to options on securities except that options on an index give the holder the right to receive, upon exercise of the option, an amount of cash if the closing level of the underlying index is greater than (or less than, in the case of puts) the exercise price of the option. This amount of cash is equal to the difference between the closing price of the index and the exercise price of the option, expressed in dollars multiplied by a specified number. Thus, unlike options on individual securities, all settlements are in cash, and gain or loss depends on price movements in the particular market represented by the index generally, rather than the price movements in individual securities. The initial purchase (sale) of an option contract is an "opening transaction." In order to close out an option position, a Fund may enter into a "closing transaction," which is simply the sale (purchase) of an option contract on the same security with the same exercise price and expiration date as the option contract originally opened. If a Fund is unable to effect a closing purchase transaction with respect to an option it has written, it will not be able to sell the underlying security until the option expires or the Fund delivers the security upon exercise. A Fund may purchase and write options on an exchange or over-the-counter. Over-the-counter options ("OTC options") differ from exchange-traded options in several respects. They are transacted directly with dealers and not with a clearing corporation, and therefore entail the risk of non-performance by the dealer. OTC options are available for a greater variety of securities and for a wider range of expiration dates and exercise prices than are available for exchange-traded options. Because OTC options are not traded on an exchange, pricing is done normally by reference to information from a market maker. It is the SEC's position that OTC options are generally illiquid. The market value of an option generally reflects the market price of an underlying security. Other principal factors affecting market value include supply and demand, interest rates, the pricing volatility of the underlying security and the time remaining until the expiration date. The Fund must cover all options it writes. For example, when a Fund writes an option on a security, index or foreign currency, it will segregate or earmark liquid assets with the Fund's custodian in an amount at least equal to the market value of the option and will maintain such coverage while the option is open. A Fund may otherwise S-19 cover the transaction by means of an offsetting transaction or other means permitted by the 1940 Act or the rules and SEC interpretations thereunder. Each Fund may trade put and call options on securities, securities indices or currencies, as the investment adviser or sub-adviser determines is appropriate in seeking the Fund's investment objective. For example, a Fund may purchase put and call options on securities or indices to protect against a decline in the market value of the securities in its portfolio or to anticipate an increase in the market value of securities that the Fund may seek to purchase in the future. A Fund purchasing put and call options pays a premium therefor. If price movements in the underlying securities are such that exercise of the options would not be profitable for the Fund, loss of the premium paid may be offset by an increase in the value of the Fund's securities or by a decrease in the cost of acquisition of securities by the Fund. In another instance, a Fund may write covered call options on securities as a means of increasing the yield on its assets and as a means of providing limited protection against decreases in its market value. When a Fund writes an option, if the underlying securities do not increase or decrease to a price level that would make the exercise of the option profitable to the holder thereof, the option generally will expire without being exercised and the Fund will realize as profit the premium received for such option. When a call option written by the Fund is exercised, the Fund will be required to sell the underlying securities to the option holder at the strike price, and will not participate in any increase in the price of such securities above the strike price. When a put option written by the Fund is exercised, the Fund will be required to purchase the underlying securities at a price in excess of the market value of such securities. There are significant risks associated with a Fund's use of options, including the following: (1) the success of a hedging strategy may depend on the Adviser's 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 movement in prices of options held by the Fund and the securities underlying them; (3) there may not be a liquid secondary market for options; and (4) while a Fund will receive a premium when it writes covered call options, it may not participate fully in a rise in the market value of the underlying security. OTHER INVESTMENTS. The Funds are not prohibited from investing in bank obligations issued by clients of SEI Investments Company ("SEI Investments"), the parent company of the Administrator and the Distributor. The purchase of Fund shares by these banks or their customers will not be a consideration in deciding which bank obligations the Funds will purchase. The Funds will not purchase obligations issued by the Adviser. PARALLEL PAY SECURITIES; PAC BONDS. Parallel pay CMOs and REMICs are structured to provide payments of principal on each payment date to more than one class. These simultaneous payments are taken into account in calculating the stated maturity date or final distribution date of each class, which must be retired by its stated maturity date or final distribution date, but may be retired earlier. Planned Amortization Class CMOs ("PAC Bonds") generally require payments of a specified amount of principal on each payment date. PAC Bonds are always parallel pay CMOs with the required principal payment on such securities having the highest priority after interest has been paid to all classes. PAY-IN-KIND SECURITIES. Pay-In-Kind securities are debt obligations or preferred stock, that pay interest or dividends in the form of additional debt obligations or preferred stock. REAL ESTATE INVESTMENT TRUSTS. A REIT is a corporation or business trust (that would otherwise be taxed as a corporation) which meets the definitional requirements of the Code. The Code permits a qualifying REIT to deduct from taxable income the dividends paid, thereby effectively eliminating corporate level federal income tax and making the REIT a pass-through vehicle for federal income tax purposes. To meet the definitional requirements of the Code, a REIT must, among other things: invest substantially all of its assets in interests in real estate (including mortgages and other REITs), cash and government securities; derive most of its income from rents from real property or interest on loans secured by mortgages on real property; and distribute annually 95% or more of its otherwise taxable income to shareholders. S-20 REITs are sometimes informally characterized as Equity REITs and Mortgage REITs. An Equity REIT invests primarily in the fee ownership or leasehold ownership of land and buildings; a Mortgage REIT invests primarily in mortgages on real property, which may secure construction, development or long-term loans. REITs in which the Portfolio invests may be affected by changes in underlying real estate values, which may have an exaggerated effect to the extent that REITs in which the Portfolio invests may concentrate investments in particular geographic regions or property types. Additionally, rising interest rates may cause investors in REITs to demand a higher annual yield from future distributions, which may in turn decrease market prices for equity securities issued by REITs. Rising interest rates also generally increase the costs of obtaining financing, which could cause the value of the Portfolio's investments to decline. During periods of declining interest rates, certain Mortgage REITs may hold mortgages that the mortgagors elect to prepay, which prepayment may diminish the yield on securities issued by such Mortgage REITs. In addition, Mortgage REITs may be affected by the ability of borrowers to repay when due the debt extended by the REIT and Equity REITs may be affected by the ability of tenants to pay rent. Certain REITs have relatively small market capitalization, which may tend to increase the volatility of the market price of securities issued by such REITs. Furthermore, REITs are dependent upon specialized management skills, have limited diversification and are, therefore, subject to risks inherent in operating and financing a limited number of projects. By investing in REITs indirectly through the Portfolio, a shareholder will bear not only his proportionate share of the expenses of the Portfolio, but also, indirectly, similar expenses of the REITs. REITs depend generally on their ability to generate cash flow to make distributions to shareholders. In addition to these risks, Equity REITs may be affected by changes in the value of the underlying property owned by the trusts, while Mortgage REITs may be affected by the quality of any credit extended. Further, Equity and Mortgage REITs are dependent upon management skills and generally may not be diversified. Equity and Mortgage REITs are also subject to heavy cash flow dependency defaults by borrowers and self-liquidation. In addition, Equity and Mortgage REITs could possibly fail to qualify for tax free pass-through of income under the Code or to maintain their exemptions from registration under the Investment Company Act of 1940, as amended (the "1940 Act"). The above factors may also adversely affect a borrower's or a lessee's ability to meet its obligations to the REIT. In the event of default by a borrower or lessee, the REIT may experience delays in enforcing its rights as a mortgagee or lessor and may incur substantial costs associated with protecting its investments. REAL ESTATE SECURITIES. The Portfolio may be subject to the risks associated with the direct ownership of real estate because of its policy of concentration in the securities of companies principally engaged in the real estate industry. For example, real estate values may fluctuate as a result of general and local economic conditions, overbuilding and increased competition, increases in property taxes and operating expenses, demographic trends and variations in rental income, changes in zoning laws, casualty or condemnation losses, regulatory limitations on rents, changes in neighborhood values, related party risks, changes in how appealing properties are to tenants, changes in interest rates and other real estate capital market influences. The value of securities of companies which service the real estate business sector may also be affected by such risks. Because the Portfolio may invest a substantial portion of its assets in REITs, the Portfolio may also be subject to certain risks associated with the direct investments of the REITs. REITs may be affected by changes in the value of their underlying properties and by defaults by borrowers or tenants. Mortgage REITs may be affected by the quality of the credit extended. Furthermore, REITs are dependent on specialized management skills. Some REITs may have limited diversification and may be subject to risks inherent in financing a limited number of properties. REITs depend generally on their ability to generate cash flow to make distributions to shareholders or unitholders, and may be subject to defaults by borrowers and to self-liquidations. In addition, the performance of a REIT may be affected by its failure to qualify for tax-free pass-through of income under the Code or its failure to maintain exemption from registration under the 1940 Act. Changes in prevailing interest rates may inversely affect the value of the debt securities in which the Portfolio will invest. Changes in the value of portfolio securities will not necessarily affect cash income derived from these securities but will affect the Portfolio's net asset value. Generally, increases in interest rates will increase the costs of obtaining financing which could directly and indirectly decrease the value of the Portfolio's investments. S-21 REPURCHASE AGREEMENTS. A Fund may enter into repurchase agreements with financial institutions. The Funds each follow certain procedures designed to minimize the risks inherent in such agreements. These procedures include effecting repurchase transactions only with creditworthy financial institutions whose condition will be continually monitored by the Adviser. The repurchase agreements entered into by a Fund will provide that the underlying collateral at all times shall have a value at least equal to 102% of the resale price stated in the agreement (the Adviser monitors compliance with this requirement). Under all repurchase agreements entered into by a Fund, the custodian or its agent must take possession of the underlying collateral. In the event of a default or bankruptcy by a selling financial institution, a Fund will seek to liquidate such collateral. However, the exercising of each Fund's right to liquidate such collateral could involve certain costs or delays and, to the extent that proceeds from any sale upon a default of the obligation to repurchase were less than the repurchase price, the Fund could suffer a loss. It is the current policy of each of the Funds, not to invest in repurchase agreements that do not mature within seven days if any such investment, together with any other illiquid assets held by that Fund, amounts to more than 15% of the Fund's total assets. The investments of each of the Funds in repurchase agreements, at times, may be substantial when, in the view of the Adviser, liquidity or other considerations so warrant. RESOURCE RECOVERY BONDS. The Virginia Tax-Free Money Market Fund and the municipal bond funds may purchase resource recovery bonds, which are a type of revenue bond issued to build facilities such as solid waste incinerators or waste-to-energy plants. Typically, a private corporation will be involved, at least during the construction phase, and the revenue stream will be secured by fees or rents paid by municipalities for use of the facilities. The viability of a resource recovery project, environmental protection regulations, and project operator tax incentives may affect the value and credit quality of resource recovery bonds. RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS. Investments by a money market fund are subject to limitations imposed under regulations adopted by the SEC. Under these regulations, money market funds may acquire only 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 NRSROs (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"). In the case of taxable money market funds, investments in second tier securities are subject to further constraints in that (i) no more than 5% of a money market 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 money market fund's total assets or $1 million. A taxable money market fund may not purchase securities of any issuer (except securities issued or guaranteed by the U.S. government, its agencies of instrumentalities) if, as a result, more than 5% of the total assets of the Fund would be invested the securities of one issuer. 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). SECURITIES LENDING. Each Fund may lend portfolio securities to brokers, dealers and other financial organizations that meet capital and other credit requirements or other criteria established by the Fund's Board of Trustees. These loans, if and when made, may not exceed 33 1/3% of the total asset value of the Fund (including the loan collateral). No Fund will lend portfolio securities to its investment adviser, sub-adviser or their affiliates unless it has applied for and received specific authority to do so from the SEC. Loans of portfolio securities will be fully collateralized by cash, letters of credit or U.S. Government Securities, and the collateral will be maintained in an amount equal to at least 100% of the current market value of the loaned securities by marking to market daily. Any gain or loss in the market price of the securities loaned that might occur during the term of the loan would be for the account of the Fund. The Fund may pay a part of the interest earned from the investment of collateral, or other fee, to an unaffiliated third-party for acting as the Fund's securities lending agent. By lending its securities, a Fund may increase its income by receiving payments from the borrower that reflect the amount of any interest or any dividends payable on the loaned securities as well as by either investing cash collateral received from the borrower in short-term instruments or obtaining a fee from the borrower when U.S. Government Securities or letters of credit are used as collateral. Each Fund will adhere to the following conditions S-22 whenever its portfolio securities are loaned: (i) the Fund must receive at least 100% cash collateral or equivalent securities of the type discussed in the preceding paragraph from the borrower; (ii) the borrower must increase such collateral whenever the market value of the securities rises above the level of such collateral; (iii) the Fund must be able to terminate the loan on demand; (iv) the Fund must receive reasonable interest on the loan, as well as any dividends, interest or other distributions on the loaned securities and any increase in market value; (v) the Fund may pay only reasonable fees in connection with the loan (which fees may include fees payable to the lending agent, the borrower, the Fund's administrator and the custodian); and (vi) voting rights on the loaned securities may pass to the borrower, provided, however, that if a material event adversely affecting the investment occurs, the Fund must terminate the loan and regain the right to vote the securities. The Board has adopted procedures reasonably designed to ensure that the foregoing criteria will be met. Loan agreements involve certain risks in the event of default or insolvency of the borrower, including possible delays or restrictions upon a Fund's ability to recover the loaned securities or dispose of the collateral for the loan, which could give rise to loss because of adverse market action, expenses and/or delays in connection with the disposition of the underlying securities. SHORT SALES. As consistent with the Funds' investment objectives, the Funds may engage in short sales that are either "uncovered" or "against the box." A short sale is "against the box" if at all times during which the short position is open, the Funds own at least an equal amount of the securities or securities convertible into, or exchangeable without further consideration for, securities of the same issue as the securities that are sold short. A short sale "against-the-box" is a taxable transaction to the Fund with respect to the securities that are sold short. Uncovered short sales are transactions under which the Funds sell a security they do not own. To complete such a transaction, the Funds must borrow the security to make delivery to the buyer. The Funds then are obligated to replace the security borrowed by purchasing the security at the market price at the time of the replacement. The price at such time may be more or less than the price at which the security was sold by the Funds. Until the security is replaced, the Funds are required to pay the lender amounts equal to any dividends or interest that accrue during the period of the loan. To borrow the security, the Funds also may be required to pay a premium, which would increase the cost of the security sold. The proceeds of the short sale will be retained by the broker, to the extent necessary to meet margin requirements, until the short position is closed out. Until the Funds close their short position or replace the borrowed security, the Funds will: (a) maintain a segregated account containing cash or liquid securities at such a level that (i) the amount deposited in the account plus the amount deposited with the broker as collateral will equal the current value of the security sold short; and (ii) the amount deposited in the segregated account plus the amount deposited with the broker as collateral will not be less than the market value of the security at the time the security was sold short, or (b) otherwise cover the Funds' short positions. SHORT-TERM OBLIGATIONS. Short-term obligations are debt obligations maturing (becoming payable) in 397 days or less, including commercial paper and short-term corporate obligations. Short-term corporate obligations are short-term obligations issued by corporations. STANDBY COMMITMENTS AND PUTS. The 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 Adviser believes present minimal credit risks, and the Adviser 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 S-23 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 originally issued held in the Fund will not exceed one-half of 1% of the value of the total assets of such Fund calculated immediately after any such put is acquired. STRIPS. Separately Traded Interest and Principal Securities ("STRIPS") are component parts of U.S. Treasury securities traded through the Federal Book-Entry System. An Adviser 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 Adviser 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 Adviser 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. STRUCTURED INVESTMENTS. Structured Investments are derivatives in the form of a unit or units representing an undivided interest(s) in assets held in a trust that is not an investment company as defined in the Investment Company Act of 1940. A trust unit pays a return based on the total return of securities and other investments held by the trust and the trust may enter into one or more swaps to achieve its objective. For example, a trust may purchase a basket of securities and agree to exchange the return generated by those securities for the return generated by another basket or index of securities. The Fund will purchase structured investments in trusts that engage in such swaps only where the counterparties are approved by the Adviser in accordance with credit-risk guidelines established by the Board of Trustees. STRUCTURED NOTES. Notes are derivatives where the amount of principal repayment and or interest payments is based upon the movement of one or more factors. These factors include, but are not limited to, currency exchange rates, interest rates (such as the prime lending rate and LIBOR) and stock indices such as the S&P 500 Index. In some cases, the impact of the movements of these factors may increase or decrease through the use of multipliers or deflators. The use of structured notes allows the Fund to tailor its investments to the specific risks and returns the Adviser wishes to accept while avoiding or reducing certain other risks. SUPRANATIONAL AGENCY OBLIGATIONS. Supranational agency obligations are obligations of supranational entities established through the joint participation of several governments, including the Asian Development Bank, Inter-American Development Bank, International Bank for Reconstruction and Development (also known as the "World Bank"), African Development Bank, European Union, European Investment Bank, and the Nordic Investment Bank. SWAP AGREEMENTS. The Funds may enter into equity index or interest rate swap agreements for purposes of attempting to gain exposure to the stocks making up an index of securities in a market without actually purchasing those stocks, or to hedge a position. Swap agreements are two-party contracts entered into primarily by institutional investors for periods ranging from a day to more than one-year. In a standard "swap" transaction, two S-24 parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or instruments. The gross returns to be exchanged or "swapped" between the parties are calculated with respect to a "notional amount," I.E., the return on or increase in value of a particular dollar amount invested in a "basket" of securities representing a particular index. Forms of swap agreements include interest rate caps, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates exceed a specified rate, or "cap," interest rate floors, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates fall below a specified level, or "floor;" and interest rate dollars, under which a party sells a cap and purchases a floor or vice versa in an attempt to protect itself against interest rate movements exceeding given minimum or maximum levels. Most swap agreements entered into by the Funds calculate the obligations of the parties to the agreement on a "net basis." Consequently, a Fund's current obligations (or rights) under a swap agreement will generally be equal only to the net amount to be paid or received under the agreement based on the relative values of the positions held by each party to the agreement (the "net amount"). A Fund's current obligations under a swap agreement will be accrued daily (offset against any amounts owing to the Fund) and any accrued but unpaid net amounts owed to a swap counterparty will be covered by segregating assets determined to be liquid. Obligations under swap agreements so covered will not be construed to be "senior securities" for purposes of a Fund's investment restriction concerning senior securities. Because they are two party contracts and because they may have terms of greater than seven days, swap agreements may be considered to be illiquid for the Fund's illiquid investment limitations. A Fund will not enter into any swap agreement unless the Adviser believes that the other party to the transaction is creditworthy. A Fund bears the risk of loss of the amount expected to be received under a swap agreement in the event of the default or bankruptcy of a swap agreement counterparty. Each Fund may enter into swap agreements to invest in a market without owning or taking physical custody of securities in circumstances in which direct investment is restricted for legal reasons or is otherwise impracticable. The counterparty to any swap agreement will typically be a bank, investment banking firm or broker/dealer. The counter-party will generally agree to pay the Fund the amount, if any, by which the notional amount of the swap agreement would have increased in value had it been invested in the particular stocks, plus the dividends that would have been received on those stocks. The Fund will agree to pay to the counter-party a floating rate of interest on the notional amount of the swap agreement plus the amount, if any, by which the notional amount would have decreased in value had it been invested in such stocks. Therefore, the return to the Fund on any swap agreement should be the gain or loss on the notional amount plus dividends on the stocks less the interest paid by the Fund on the notional amount. Swap agreements typically are settled on a net basis, which means that the two payment streams are netted out, with the Fund receiving or paying, as the case may be, only the net amount of the two payments. Payments may be made at the conclusion of a swap agreement or periodically during its term. Swap agreements do not involve the delivery of securities or other underlying assets. Accordingly, the risk of loss with respect to swap agreements is limited to the net amount of payments that a Fund is contractually obligated to make. If the other party to a swap agreement defaults, a Fund's risk of loss consists of the net amount of payments that such Fund is contractually entitled to receive, if any. The net amount of the excess, if any, of a Fund's obligations over its entitlements with respect to each equity swap will be accrued on a daily basis and an amount of cash or liquid assets, having an aggregate net asset value at least equal to such accrued excess will be maintained in a segregated account by a Fund's custodian. In as much as these transactions are entered into for hedging purposes or are offset by segregated cash of liquid assets, as permitted by applicable law, the Funds and their Adviser believe that these transactions do not constitute senior securities under the 1940 Act and, accordingly, will not treat them as being subject to a Fund's borrowing restrictions. The swap market has grown substantially in recent years with a large number of banks and investment banking firms acting both as principals and as agents utilizing standardized swap documentation. As a result, the swap market has become relatively liquid in comparison with the markets for other similar instruments, which are traded S-25 in the over-the-counter market. The Adviser, under the supervision of the Board of Trustees, is responsible for determining and monitoring the liquidity of Fund transactions in swap agreements. The use of equity swaps is a highly specialized activity, which involves investment techniques and risks different from those associated with ordinary portfolio securities transactions. TRACKING ERROR. The following factors may affect the ability of the Funds to achieve correlation with the performance of their respective benchmarks: (1) Fund expenses, including brokerage (which may be increased by high portfolio turnover); (2) a Fund holding less than all of the securities in the benchmark and/or securities not included in the benchmark; (3) an imperfect correlation between the performance of instruments held by a Fund, such as futures contracts and options, and the performance of the underlying securities in the market; (4) bid-ask spreads (the effect of which may be increased by portfolio turnover); (5) a Fund holding instruments traded in a market that has become illiquid or disrupted; (6) Fund share prices being rounded to the nearest cent; (7) changes to the index hedged that are not disseminated in advance; (8) the need to conform a Fund's portfolio holdings to comply with investment restrictions or policies or regulatory or tax law requirements. In addition, the Adviser's use of hedging techniques will cause the Funds' performance to diverge from that of its respective index at times when hedges are employed. U.S. GOVERNMENT SECURITIES. Examples of types of U.S. Government obligations in which the Profile Series may invest include U.S. Treasury obligations and the obligations of U.S. Government Agencies such as Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, the Federal Housing Administration, Farmers Home Administration, Export-Import Bank of the United States, Small Business Administration, Federal National Mortgage Association, Government National Mortgage Association, General Services Administration, Student Loan Marketing Association, Central Bank for Cooperatives, Freddie Mac (formerly Federal Home Loan Mortgage Corporation), Federal Intermediate Credit Banks, Maritime Administration, and other similar agencies. Whether backed by the full faith and credit of the U.S. Treasury or not, U.S. Government Securities are not guaranteed against price movements due to fluctuating interest rates. o 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 Treasury Receipts ("TRs"). o RECEIPTS. Interests in separately traded interest and principal component parts of U.S. Government obligations that are issued by banks or brokerage firms and are created by depositing U.S. Government 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. TRs and STRIPS are interests in accounts sponsored by the U.S. Treasury. Receipts are sold as zero coupon securities. o ZERO COUPON OBLIGATIONS. Zero coupon obligations are debt obligations that do not bear any interest, but instead are issued at a deep discount from face value or par. The value of a zero coupon obligation increases over time to reflect the interest accumulated. These obligations will not result in the payment of interest until maturity, and will have greater price volatility than similar securities that are issued at face value or par and pay interest periodically. Investors will receive written notification at least thirty days prior to any change in a Fund's investment objective. The phrase "primarily invests" as used in the prospectuses means that the Fund invests at least 65% of its assets in the securities as described in the sentence. Each tax-exempt fund invests at least 80% of its total assets in securities with income exempt from federal income and alternative minimum taxes. o U.S. GOVERNMENT ZERO COUPON SECURITIES. STRIPS and receipts are sold as zero coupon securities, that is, fixed income securities that have been stripped of their unmatured interest coupons. Zero coupon securities are sold at a (usually substantial) discount and redeemed at face value at their maturity date without interim cash payments of interest or principal. The amount of this discount is accreted over the life of the security, and the S-26 accretion constitutes the income earned on the security for both accounting and tax purposes. Because of these features, the market prices of zero coupon securities are generally more volatile than the market prices of securities that have similar maturity but that pay interest periodically. Zero coupon securities are likely to respond to a greater degree to interest rate changes than are non-zero coupon securities with similar maturity and credit qualities. o U.S. GOVERNMENT AGENCIES. Some obligations issued or guaranteed by agencies of the U.S. Government are supported by the full faith and credit of the U.S. Treasury, others are supported by the right of the issuer to borrow from the Treasury, while still others are supported only by the credit of the instrumentality. 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 a Fund's shares. VARIABLE AND FLOATING RATE INSTRUMENTS. Certain of the obligations purchased by the Funds may carry variable or floating rates of interest, may involve a conditional or unconditional demand feature and may include variable amount master demand notes. Such instruments bear interest at rates that 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 securities. VARIABLE RATE MASTER DEMAND NOTES. Variable rate master demand 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 Adviser, be equivalent to the ratings applicable to permitted investments for the particular Fund. The Adviser 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. Variable rate master demand notes may or may nost be backed by bank letters of credit. VENTURE CAPITAL. The Fund may invest in venture capital limited partnerships and venture capital funds that, in turn, invest principally in securities of early stage, developing companies. Investments in venture capital limited partnerships and venture capital funds present a number of risks not found in investing in established enterprises including the facts that such a partnership's or fund's portfolio will be composed almost entirely of early-stage companies that may lack depth of management and sufficient resources, that may be marketing a new product for which there is no established market, and that may be subject to intense competition from larger companies. Any investment in a venture capital limited partnership or venture capital fund will lack liquidity, will be difficult to value, and the Fund will not be entitled to participate in the management of the partnership or fund. If for any reason the services of the general partners of a venture capital limited partnership were to become unavailable, such limited partnership could be adversely affected. In addition to investing in venture capital limited partnerships and venture capital funds, the Fund may directly invest in early-stage, developing companies. The risks associated with investing in these securities are substantially similar to the risks set forth above. The Fund will typically purchase equity securities in these early-stage, developing companies; however from time to time, the Fund may purchase non-investment grade debt securities in the form of convertible notes. Such investments involve costs at the venture capital level which are in addition to those of the Fund. S-27 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. To the extent required by the 1940 Act, a Fund will maintain with the custodian a separate account with liquid high-grade debt securities or cash in an amount at least equal to these commitments. The interest rate realized on these securities is fixed as of the purchase date and no interest accrues to the Fund before settlement. These securities are subject to market fluctuation due to changes in market interest rates and it is possible that the market value at the time of settlement could be higher or lower than the purchase price if the general level of interest rates has changed. Although a Fund generally purchases securities on a when-issued or forward commitment basis with the intention of actually acquiring securities for its portfolio, the Fund may dispose of a when-issued security or forward commitment prior to settlement if deems it appropriate. WHEN-ISSUED SECURITIES AND MUNICIPAL FORWARDS. When-issued securities are securities that are delivered and paid for normally within 45 days after the date of commitment to purchase. Municipal forwards call for delivery of the underlying municipal security normally after 45 days but before 1 year after the commitment date. Although a Fund will only make commitments to purchase when-issued securities and municipal forwards with the intention of actually acquiring the securities, a Fund 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. INVESTMENT LIMITATIONS FUNDAMENTAL POLICIES The following investment limitations are fundamental policies of the Funds. Fundamental policies cannot be changed without the consent of the holders of a majority of each Fund's outstanding shares. The term "majority of the outstanding shares" means the vote of (i) 67% or more of the Fund's shares present at a meeting, if more than 50% of the outstanding shares of the Fund are present or represented by proxy, or (ii) more than 50% of the Fund's outstanding shares, whichever is less. No Fund may: 1. With respect to 75% of each Fund's total assets (50% in the case of Maryland Municipal Bond Fund, Virginia Intermediate Municipal Bond Fund and Virginia Municipal Bond Fund), invest more than 5% of the value of the total assets of a Fund in the securities of any one issuer (other than securities issued or guaranteed by the U.S. government or any of its agencies or instrumentalities, repurchase agreements involving such securities, and securities issued by investment companies), or purchase the securities of any one issuer if such purchase would cause more than 10% of the voting securities of such issuer to be held by a Fund. 2. Borrow money in an amount exceeding 33 1/3% of the value of its total assets, provided that, for the purposes of this limitation, investment strategies that either obligate a Fund to purchase securities or require a Fund to segregate assets are not considered to be borrowing. Asset coverage of at least 300% is required for all borrowing, except where the Fund has borrowed money for temporary purposes (less than 60 days), and in an amount not exceeding 5% of its total assets. S-28 3. Underwrite securities issued by others, except to the extent that the Fund may be considered an underwriter within the meaning of the Securities Act of 1933 in the sale of portfolio securities. 4. Issue senior securities (as defined in the Investment Company Act of 1940 (the "1940 Act")), except as permitted by rule, regulation or order of the Securities and Exchange Commission ("SEC"). 5. Purchase the securities of any issuer (other than securities issued or guaranteed by the U.S. government or any of its agencies or instrumentalities and securities issued by investment companies) if, as a result, more than 25% of the Fund's total assets would be invested in the securities of companies who principal business activities are in the same industry. 5.1 With respect to the money market funds, this limitation does not apply to 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. 5.2 No Life Vision Fund may invest more than 25% of its assets in underlying STI Classic Funds that, as a matter of policy, concentrate their assets in any one industry. However, a Life Vision Fund may indirectly invest more than 25% of its total assets in one industry through its investments in the underlying STI Classic Funds. Each Life Vision Fund may invest up to 100% of its assets in securities issued by investment companies. 6. Purchase or sell real estate, unless acquired as a result of ownership of securities or other instruments (but this shall not prevent a Fund from investing in securities or other instruments either issued by companies that invest in real estate, backed by real estate or securities of companies engaged in the real estate business). 7. Purchase or sell physical commodities, unless acquired as a result of ownership of securities or other instruments. 8. Make loans, except that a Fund may: (i) purchase or hold debt instruments in accordance with its investment objectives and policies; (ii) enter into repurchase agreements; and (iii) lend its portfolio securities. NON-FUNDAMENTAL POLICIES The following investment limitations are non-fundamental and may be changed with respect to any Fund by the Board of Trustees. 1. Any change to a Fund's investment policy to invest at least 80% of such Fund's net assets in securities of companies in a specific sector is subject to 60 days' prior notice to shareholders. 2. No Fund may purchase or hold illiquid securities (I.E., securities that cannot be disposed of for their approximate carrying value in seven days or less (which term includes repurchase agreements and time deposits maturing in more than seven days) if, in the aggregate, more than 15% of its net assets (10% for the Prime Quality Money Market, U.S. Government Securities Money Market, U.S. Treasury Money Market Fund, and Tax-Exempt Money Market Funds) would be invested in illiquid securities. 3. No Life Vision Fund currently intends to purchase securities on margin, except that a Life Vision Fund may obtain such short-term credits as are necessary for the clearance of transactions. 4. No Life Vision Fund currently intends to sell securities short. S-29 5. No Life Vision Fund currently intends to purchase or sell futures contracts or put or call options. 6. No Life Vision Fund may invest in shares of unaffiliated money market funds, except as permitted by the SEC. With the exception of the limitations on liquidity standards, the foregoing percentages will apply at the time of the purchase of a security and shall not be considered violated unless an excess occurs or exists immediately after and as a result of a purchase of such security. INVESTMENT ADVISER GENERAL. Trusco Capital Management, Inc. ("Trusco" or the "Adviser") is a professional investment management firm registered with the SEC under the Investment Advisers Act of 1940 and serves as investment adviser to the Funds. The Adviser makes investment decisions for the Funds and continuously reviews, supervises and administers each Fund's respective investment program. The Board of Trustees supervises the Adviser and establishes policies that the Adviser must follow in its management activities. The principal business address of the Adviser is 50 Hurt Plaza, Suite 1400, Atlanta, Georgia 30303. As of June 30, 2002, Trusco had discretionary management authority with respect to approximately $45.5 billion of assets under management. ADVISORY AGREEMENTS WITH THE TRUST. Prior to January 1, 2000, STI Capital Management, N.A. ("STI"), a subsidiary of SunTrust Banks, Inc., served as investment adviser to the Balanced Fund, Capital Appreciation Fund, Florida Tax-Exempt Bond Fund, International Equity Fund, Investment Grade Bond Fund, Investment Grade Tax-Exempt Bond Fund, Limited-Term Federal Mortgage Securities Fund, Mid-Cap Equity Fund, Small Cap Value Equity Fund and Value Income Stock Fund. On January 1, 2000, SunTrust Bank (formerly SunTrust Bank, Atlanta), a subsidiary of SunTrust Banks, Inc. and the investment adviser of the Georgia Tax-Exempt Bond Fund, succeeded STI as the investment adviser to those Funds. On July 1, 2000, SunTrust Banks, Inc. reorganized its money management units, including those of SunTrust Bank, into Trusco. As a result, Trusco now serves as the investment adviser to each Fund pursuant to three separate agreements. The Advisory Agreements provide that the Adviser shall not be protected against any liability to the Trust or its Shareholders by reason of willful misfeasance, bad faith or gross negligence on its part in the performance of its duties or from reckless disregard of its obligations or duties thereunder. The Advisory Agreements provide that if, for any fiscal year, the ratio of expenses of any Fund (including amounts payable to the Adviser but excluding interest, taxes, brokerage, litigation, and other extraordinary expenses) exceeds limitations established by certain states, the Adviser and/or the Administrator will bear the amount of such excess. The Adviser will not be required to bear expenses of the Trust to an extent which would result in a Fund's inability to qualify as a regulated investment company under provisions of the Internal Revenue Code. The continuance of the Advisory Agreements, after the first 2 years, must be specifically approved at least annually (i) by the vote of the Trustees, and (ii) by the vote of a majority of the Trustees who are not parties to the Agreements or "interested persons" of any party thereto, as defined in the 1940 Act, cast in person at a meeting called for the purpose of voting on such approval. The Advisory Agreements will terminate automatically in the event of its assignment, and each is terminable at any time without penalty by the Trustees of the Trust or, with respect to the Funds, by a majority of the outstanding shares of the Funds, on not less than 30 days' nor more than 60 days' written notice to the Adviser, or by the Adviser on 90 days' written notice to the Trust. ADVISORY FEES PAID TO THE ADVISER. For its services under the Advisory Agreements, the Adviser is entitled to a fee, which is calculated daily and paid monthly, at the specified annual rate of each Fund's average daily net assets: S-30
---------------------------------------------------------- -------------------------------------- FUND FEES ---------------------------------------------------------- -------------------------------------- Balanced Fund 0.95% ---------------------------------------------------------- -------------------------------------- Capital Appreciation Fund 1.15% ---------------------------------------------------------- -------------------------------------- Florida Tax-Exempt Bond Fund 0.65% ---------------------------------------------------------- -------------------------------------- Georgia Tax-Exempt Bond Fund 0.65% ---------------------------------------------------------- -------------------------------------- Growth and Income Fund 0.90% ---------------------------------------------------------- -------------------------------------- High Income Fund 0.80% ---------------------------------------------------------- -------------------------------------- Information and Technology Fund 1.10% ---------------------------------------------------------- -------------------------------------- International Equity Fund 1.25% ---------------------------------------------------------- -------------------------------------- International Equity Index Fund 0.90% ---------------------------------------------------------- -------------------------------------- Investment Grade Bond Fund 0.74% ---------------------------------------------------------- -------------------------------------- Investment Grade Tax-Exempt Bond Fund 0.74% ---------------------------------------------------------- -------------------------------------- Life Vision Aggressive Growth Fund 0.25% ---------------------------------------------------------- -------------------------------------- Life Vision Growth and Income Fund 0.25% ---------------------------------------------------------- -------------------------------------- Life Vision Moderate Growth Fund 0.25% ---------------------------------------------------------- -------------------------------------- Limited-Term Federal Mortgage Securities Fund 0.65% ---------------------------------------------------------- -------------------------------------- Maryland Municipal Bond Fund 0.65% ---------------------------------------------------------- -------------------------------------- Mid-Cap Equity Fund 1.15% ---------------------------------------------------------- -------------------------------------- Mid Cap Value Equity Fund 1.25% ---------------------------------------------------------- -------------------------------------- Prime Quality Money Market Fund 0.65% ---------------------------------------------------------- -------------------------------------- Short-Term Bond Fund 0.65% ---------------------------------------------------------- -------------------------------------- Short-Term U.S. Treasury Securities Fund 0.65% ---------------------------------------------------------- -------------------------------------- Small Cap Growth Stock Fund 1.15% ---------------------------------------------------------- -------------------------------------- Small Cap Value Equity Fund 1.15% ---------------------------------------------------------- -------------------------------------- Strategic Income Fund 0.85% ---------------------------------------------------------- -------------------------------------- Tax-Exempt Money Market Fund 0.55% ---------------------------------------------------------- -------------------------------------- Tax Sensitive Growth Stock Fund 1.15% ---------------------------------------------------------- -------------------------------------- U.S. Government Securities Fund 0.74% ---------------------------------------------------------- -------------------------------------- U.S. Government Securities Money Market Fund 0.65% ---------------------------------------------------------- -------------------------------------- U.S. Treasury Money Market Fund 0.65% ---------------------------------------------------------- -------------------------------------- Value Income Stock Fund 0.80% ---------------------------------------------------------- -------------------------------------- Vantage Fund 1.60% ---------------------------------------------------------- -------------------------------------- Virginia Intermediate Municipal Bond Fund 0.65% ---------------------------------------------------------- -------------------------------------- Virginia Municipal Bond Fund 0.65% ---------------------------------------------------------- -------------------------------------- Virginia Tax-Free Money Market Fund 0.40% ---------------------------------------------------------- --------------------------------------
For the period from commencement of operations to the fiscal periods ended May 31, 2002, 2001, and 2000, the Trust paid the following advisory fees:
- ------------------------------------------------------------------------------------------------------------------------------------ FEES PAID ($) FEES WAIVED ($) - --------------------------------------- --------------------------------------------------- --------------------------------------- FUND 2002 2001 2000 2002 2001 2000 - --------------------------------------- --------------------------------------------------- --------------------------------------- Balanced Fund 2,772,000 2,637,000 2,779,000 85,000 113,000 335,000 - ------------------------------------------------------------------------------------------------------------------------------------ Capital Appreciation Fund 16,284,000 16,198,000 21,951,000 288,000 458,000 1,750,000 - ------------------------------------------------------------------------------------------------------------------------------------ Florida Tax-Exempt Bond Fund 823,000 665,000 650,000 61,000 67,000 130,000 - ------------------------------------------------------------------------------------------------------------------------------------ S-31 - ------------------------------------------------------------------------------------------------------------------------------------ FEES PAID ($) FEES WAIVED ($) - --------------------------------------- --------------------------------------------------- --------------------------------------- FUND 2002 2001 2000 2002 2001 2000 - --------------------------------------- --------------------------------------------------- --------------------------------------- Georgia Tax-Exempt Bond Fund 666,000 558,000 524,000 50,000 58,000 113,000 - ------------------------------------------------------------------------------------------------------------------------------------ Growth and Income Fund 8,312,000 8,959,000 7,269,000 0 0 1,000 - ------------------------------------------------------------------------------------------------------------------------------------ High Income Fund # 241,000 56,000 3,000 56,000 13,000 3,000 - ------------------------------------------------------------------------------------------------------------------------------------ Information and Technology Fund 772,000 1,536,000 469,000 0 5,000 69,000 - ------------------------------------------------------------------------------------------------------------------------------------ International Equity Fund 2,389,000 3,245,000 6,533,000 0 6,000 18,000 - ------------------------------------------------------------------------------------------------------------------------------------ International Equity Index Fund 1,970,000 2,465,000 1,359,000 208,000 261,000 190,000 - ------------------------------------------------------------------------------------------------------------------------------------ Investment Grade Bond Fund 6,721,000 6,616,000 7,739,000 196,000 284,000 798,000 - ------------------------------------------------------------------------------------------------------------------------------------ Investment Grade Tax-Exempt Bond Fund 1,286,000 1,094,000 1,176,000 59,000 64,000 109,000 - ------------------------------------------------------------------------------------------------------------------------------------ Life Vision Aggressive Growth Fund 23,000 14,000 11,000 45,000 36,000 31,000 - ------------------------------------------------------------------------------------------------------------------------------------ Life Vision Growth and Income Fund 59,000 43,000 18,000 69,000 52,000 40,000 - ------------------------------------------------------------------------------------------------------------------------------------ Life Vision Moderate Growth Fund 111,000 100,000 111,000 94,000 85,000 102,000 - ------------------------------------------------------------------------------------------------------------------------------------ Limited-Term Federal Mortgage Securities Fund 801,000 676,000 742,000 67,000 81,000 162,000 - ------------------------------------------------------------------------------------------------------------------------------------ Maryland Municipal Bond Fund 280,000 190,000 186,000 39,000 33,000 42,000 - ------------------------------------------------------------------------------------------------------------------------------------ Mid-Cap Equity Fund 2,196,000 2,315,000 2,763,000 49,000 77,000 191,000 - ------------------------------------------------------------------------------------------------------------------------------------ Mid Cap Value Equity Fund 627,000 * * 55,000 * * - ------------------------------------------------------------------------------------------------------------------------------------ Prime Quality Money Market Fund 31,332,000 27,738,000 21,362,000 6,382,000 6,020,000 6,310,000 - ------------------------------------------------------------------------------------------------------------------------------------ Short-Term Bond Fund 1,755,000 1,214,000 1,110,000 138,000 120,000 185,000 - ------------------------------------------------------------------------------------------------------------------------------------ Short-Term U.S. Treasury Securities Fund 864,000 552,000 347,000 88,000 73,000 88,000 - ------------------------------------------------------------------------------------------------------------------------------------ S-32 - ------------------------------------------------------------------------------------------------------------------------------------ FEES PAID ($) FEES WAIVED ($) - --------------------------------------- --------------------------------------------------- --------------------------------------- FUND 2002 2001 2000 2002 2001 2000 - --------------------------------------- --------------------------------------------------- --------------------------------------- Small Cap Growth Stock Fund 6,800,000 6,063,000 3,384,000 0 50,000 84,000 - ------------------------------------------------------------------------------------------------------------------------------------ Small Cap Value Equity Fund 5,714,000 3,005,000 3,363,000 0 21,000 76,000 - ------------------------------------------------------------------------------------------------------------------------------------ Strategic Income Fund 171,000 * * 23,000 * * - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Exempt Money Market Fund 5,338,000 4,695,000 3,098,000 1,172,000 1,084,000 1,060,000 - ------------------------------------------------------------------------------------------------------------------------------------ Tax Sensitive Growth Stock Fund 6,100,000 10,376,000 6,855,000 0 93,000 399,000 - ------------------------------------------------------------------------------------------------------------------------------------ U.S. Government Securities Fund 1,422,000 981,000 670,000 65,000 59,000 88,000 - ------------------------------------------------------------------------------------------------------------------------------------ U.S. Government Securities Money Market Fund 5,955,000 4,023,000 2,564,000 957,000 683,000 537,000 - ------------------------------------------------------------------------------------------------------------------------------------ U.S. Treasury Money Market Fund 4,771,000 4,320,000 4,236,000 766,000 741,000 855,000 - ------------------------------------------------------------------------------------------------------------------------------------ Value Income Stock Fund 6,380,000 7,155,000 13,106,000 0 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ Vantage Fund 52,000 * * 3,000 * * - ------------------------------------------------------------------------------------------------------------------------------------ Virginia Intermediate Municipal Bond Fund 1,296,000 1,289,000 1,551,000 0 62,000 0 - ------------------------------------------------------------------------------------------------------------------------------------ Virginia Municipal Bond Fund 448,000 378,000 280,000 0 6,000 20,000 - ------------------------------------------------------------------------------------------------------------------------------------ Virginia Tax-Free Money Market Fund 1,399,000 1,102,000 1,184,000 0 0 4,000 - ------------------------------------------------------------------------------------------------------------------------------------
* Not in operation during the period. # Prior to March 28, 2000, advisory fees were paid by the predecessor to this Fund pursuant to an agreement between the ESC Strategic Funds and SunTrust Equitable Securities Corporation. The amounts listed for 2000 represent the advisory fees paid to and/or waived by Equitable Securities Corporation for the fiscal periods ending March 28, 2000. THE ADMINISTRATOR GENERAL. SEI Investments Global Funds Services (the "Administrator"), a Delaware business trust, has its principal business offices at Oaks, Pennsylvania 19456. SEI Investments Management Corporation ("SIMC"), a wholly-owned subsidiary of SEI Investments Company ("SEI Investments"), is the owner of all beneficial interest in the Administrator. SEI Investments and its subsidiaries and affiliates, including the Administrator, are leading providers of funds evaluation services, trust accounting systems, and brokerage and information services to financial institutions, institutional investors, and money managers. The Administrator and its affiliates also serve as administrator or sub-administrator to the following other mutual funds including, but without limitation: The Advisors' Inner Circle Fund, Alpha Select Funds, Amerindo Funds Inc., The Arbor Fund, Armada Funds, The Armada Advantage Fund, Bishop Street Funds, Causeway Capital Management Trust, CNI Charter Funds, Excelsior Funds Inc., Excelsior Funds Trust, Excelsior Tax-Exempt Funds, Inc., Expedition Funds, First Focus S-33 Funds, Inc., HighMark Funds, JohnsonFamily Funds, Inc., The MDL Funds, The Nevis Fund, Inc., Oak Associates Funds, The PBHG Funds, Inc., PBHG Insurance Series Fund, Inc., Pitcairn Funds, Schroder Series Trust, Schroder Capital Funds, Schroder Fund Advisors Inc., SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI Institutional International Trust, SEI Institutional Investments Trust, SEI Institutional Managed Trust, SEI Insurance Products Trust, SEI Liquid Asset Trust, SEI Tax Exempt Trust, STI Classic Variable Trust, Turner Funds and UAM Funds Trust. ADMINISTRATION AGREEMENT WITH THE TRUST. The Trust and the Administrator have entered into an administration agreement (the "Administration Agreement") dated May 29, 1995, as amended. Under the Administration Agreement, the Administrator provides the Trust with administrative services, including regulatory reporting and all necessary office space, equipment, personnel and facilities. The Administration Agreement provides that the Administrator shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Trust in connection with the matters to which the Administration Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on the part of the Administrator in the performance of its duties or from reckless disregard by it of its duties and obligations thereunder. The Administration Agreement shall remain in effect for a period of five years after the date of the Agreement and shall continue in effect for successive periods of two years subject to review at least annually by the Trustees of the Trust unless terminated by either party on not less than 90 days' written notice to the other party. ADMINISTRATION FEES PAID TO THE ADMINISTRATOR. 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 Trust) of: 0.12% up to $1 billion, 0.09% on the next $4 billion, 0.07% on the next $3 billion, 0.065% on the next $2 billion and 0.06% for over $10 billion. For the period from commencement of operations to the fiscal periods ended May 31, 2002, 2001, and 2000, the Funds paid the following administrative fees:
- -------------------------------------------------- -------------------------------------------- ------------------------------- FUND FEES PAID ($) FEES WAIVED ($) - -------------------------------------------------- -------------------------------------------- ------------------------------- 2002 2001 2000 2002 2001 2000 - -------------------------------------------------- ------------- -------------- --------------- ---------- --------- ---------- Balanced Fund 207,000 203,000 232,000 0 0 0 - -------------------------------------------------- ------------- -------------- --------------- ---------- --------- ---------- Capital Appreciation Fund 993,000 1,013,000 1,458,000 0 0 0 - -------------------------------------------------- ------------- -------------- --------------- ---------- --------- ---------- Florida Tax-Exempt Bond Fund 94,000 79,000 85,000 0 0 0 - -------------------------------------------------- ------------- -------------- --------------- ---------- --------- ---------- Georgia Tax-Exempt Bond Fund 76,000 66,000 69,000 0 0 0 - -------------------------------------------------- ------------- -------------- --------------- ---------- --------- ---------- Growth and Income Fund 636,000 697,000 572,000 0 0 0 - -------------------------------------------------- ------------- -------------- --------------- ---------- --------- ---------- High Income Fund # 25,000 6,000 0 0 0 0 - -------------------------------------------------- ------------- -------------- --------------- ---------- --------- ---------- Information and Technology Fund 48,000 98,000 35,000 0 0 0 - -------------------------------------------------- ------------- -------------- --------------- ---------- --------- ---------- Investment Grade Bond Fund 644,000 652,000 817,000 0 0 0 - -------------------------------------------------- ------------- -------------- --------------- ---------- --------- ---------- Investment Grade Tax-Exempt Bond Fund 125,000 110,000 123,000 0 0 0 - -------------------------------------------------- ------------- -------------- --------------- ---------- --------- ---------- International Equity Fund 132,000 182,000 371,000 0 0 0 - -------------------------------------------------- ------------- -------------- --------------- ---------- --------- ---------- International Equity Index Fund 167,000 212,000 122,000 0 0 0 - -------------------------------------------------- ------------- -------------- --------------- ---------- --------- ---------- Life Vision Aggressive Growth Fund 19,000 14,000 18,000 0 0 0 - -------------------------------------------------- ------------- -------------- --------------- ---------- --------- ---------- Life Vision Growth and Income Fund 35,000 27,000 17,000 0 0 0 - -------------------------------------------------- ------------- -------------- --------------- ---------- --------- ---------- Life Vision Moderate Growth Fund 57,000 52,000 56,000 0 0 0 - -------------------------------------------------- ------------- -------------- --------------- ---------- --------- ---------- Limited-Term Federal Mortgage Securities Fund 92,000 82,000 98,000 0 0 0 - -------------------------------------------------- ------------- -------------- --------------- ---------- --------- ---------- Maryland Municipal Bond Fund 34,000 24,000 25,000 0 0 0 - -------------------------------------------------- ------------- -------------- --------------- ---------- --------- ---------- Mid-Cap Equity Fund 134,000 146,000 181,000 0 0 0 - -------------------------------------------------- ------------- -------------- --------------- ---------- --------- ---------- Mid Cap Value Equity Fund 37,000 * * 0 * * - -------------------------------------------------- ------------- -------------- --------------- ---------- --------- ---------- Prime Quality Money Market Fund 3,999,000 3,633,000 3,012,000 0 0 0 - -------------------------------------------------- ------------- -------------- --------------- ---------- --------- ---------- Short-Term Bond Fund 201,000 144,000 141,000 0 0 0 - -------------------------------------------------- ------------- -------------- --------------- ---------- --------- ---------- Short-Term U.S. Treasury Securities Fund 101,000 67,000 47,000 0 0 0 - -------------------------------------------------- ------------- -------------- --------------- ---------- --------- ---------- Small Cap Growth Stock Fund 407,000 372,000 218,000 0 0 0 - -------------------------------------------------- ------------- -------------- --------------- ---------- --------- ---------- Small Cap Value Equity Fund 342,000 184,000 212,000 0 0 0 - -------------------------------------------------- ------------- -------------- --------------- ---------- --------- ---------- Strategic Income Fund 16,000 * * 0 * * - -------------------------------------------------- ------------- -------------- --------------- ---------- --------- ---------- Tax-Exempt Money Market Fund 816,000 735,000 535,000 0 0 0 - -------------------------------------------------- ------------- -------------- --------------- ---------- --------- ---------- Tax Sensitive Growth Stock Fund 366,000 637,000 446,000 0 0 0 - -------------------------------------------------- ------------- -------------- --------------- ---------- --------- ---------- S-34 - -------------------------------------------------- ------------- -------------- --------------- ---------- --------- ---------- U.S. Government Securities Fund 138,000 98,000 73,000 0 0 0 - -------------------------------------------------- ------------- -------------- --------------- ---------- --------- ---------- U.S. Government Securities Money Market Fund 733,000 506,000 337,000 0 0 0 - -------------------------------------------------- ------------- -------------- --------------- ---------- --------- ---------- U.S. Treasury Money Market Fund 587,000 545,000 579,000 0 0 0 - -------------------------------------------------- ------------- -------------- --------------- ---------- --------- ---------- Value Income Stock Fund 549,000 626,000 1,154,000 0 0 0 - -------------------------------------------------- ------------- -------------- --------------- ---------- --------- ---------- Vantage Fund 2,000 * * 0 * * - -------------------------------------------------- ------------- -------------- --------------- ---------- --------- ---------- Virginia Intermediate Municipal Bond Fund 138,000 145,000 170,000 0 0 0 - -------------------------------------------------- ------------- -------------- --------------- ---------- --------- ---------- Virginia Municipal Bond Fund 47,000 41,000 36,000 0 0 0 - -------------------------------------------------- ------------- -------------- --------------- ---------- --------- ---------- Virginia Tax Free Money Market Fund 241,000 193,000 212,000 0 0 0 - -------------------------------------------------- ------------- -------------- --------------- ---------- --------- ----------
* Not in operation during the period. # Prior to March 28, 2000, administration fees were paid by the predecessor to this Fund pursuant to an agreement between the ESC Strategic Funds, Inc. and BISYS Fund Services. The amounts listed for 2000 represent the administration fees paid to and/or waived by Equitable Securities Corporation for the fiscal years ending March 28, 2000. THE DISTRIBUTOR The Trust and SEI Investments Distribution Co. (the "Distributor"), a wholly owned subsidiary of SEI Investments and an affiliate of the Administrator, are parties to a distribution agreement dated May 29, 1992 (the "Distribution Agreement") whereby the Distributor acts as principal underwriter for the Trust's shares. Under the Distribution Agreement, the Distributor must use all reasonable efforts, consistent with its other business, in connection with the continuous offering of shares of the Trust. The Distributor will receive no compensation for distribution of Trust Shares. In addition, the Investor Shares of the Funds have a distribution plan (the "Investor Plan"), and the Flex Shares of the Funds have a distribution and service plan (the "Flex Plan"). The continuance of the Distribution Agreement must be specifically approved at least annually (i) by the vote of the Trustees or by a vote of the shareholders of the Fund and (ii) by the vote of a majority of the Trustees who are not parties to the Distribution Agreement or "interested persons" of any party thereto, as defined in the 1940 Act, cast in person at a meeting called for the purpose of voting on such approval. The Distribution 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 any Fund, by a majority of the outstanding shares of that Fund, upon not more than 60 days' written notice by either party. The Distribution Agreement provides that the Distributor 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. With respect to the Trust, the Distributor may, from time to time and at its own expense, provide promotional incentives, in the form of cash or other compensation, to financial institutions whose representatives have sold or are expected to sell significant amounts of these Funds. For the period from commencement of operations to the fiscal years ended May 31, 2002, 2001 and 2000, the aggregate sales charge payable to the Distributor with respect to the Investor Shares of the Funds were as follows:
- ---------------------------------------------------------------------------------------------------------------------------------- AGGREGATE SALES CHARGE AMOUNT RETAINED FUND PAYABLE TO DISTRIBUTOR ($) BY DISTRIBUTOR ($) - ---------------------------------------------------------------------------------------------------------------------------------- 2002 2001 2000 2002 2001 2000 - ---------------------------------------------------------------------------------------------------------------------------------- Balanced Fund 23,000 25,000 36,000 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- Capital Appreciation Fund 1,220,000 1,539,000 1,984,000 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- Florida Tax-Exempt Bond Fund 5,000 5,000 6,000 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- Georgia Tax-Exempt Bond Fund 5,000 5,000 6,000 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- Growth and Income Fund 95,000 104,000 100,000 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- S-35 - ---------------------------------------------------------------------------------------------------------------------------------- International Equity Fund 25,000 23,000 41,000 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- International Equity Index Fund 15,000 11,000 19,000 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- Investment Grade Bond Fund 94,000 91,000 129,000 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- Investment Grade Tax-Exempt Bond Fund 84,000 83,000 96,000 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- Limited-Term Federal Mortgage Securities Fund 3,000 2,000 4,000 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- Mid-Cap Equity Fund 47,000 57,000 72,000 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- Prime Quality Money Market Fund 3,842,000 3,431,000 1,973,000 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- Small Cap Growth Stock Fund 128,000 163,000 56,000 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- Short-Term Bond Fund 11,000 4,000 4,000 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- Short-Term U.S. Treasury Securities Fund 5,000 4,000 5,000 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market Fund 336,000 269,000 194,000 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- U.S. Government Securities Fund 28,000 8,000 8,000 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- U.S. Government Securities Money Market Fund 364,000 177,000 108,000 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- Value Income Stock Fund 256,000 293,000 504,00 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- Virginia Intermediate Municipal Bond Fund 9,000 10,000 11,000 0 0 0 - ---------------------------------------------------------------------------------------------------------------------------------- Virginia Tax-Free Money Market Fund 399,000 266,000 51,000 0 0 0 - ----------------------------------------------------------------------------------------------------------------------------------
The following table shows the amount of front-end sales charge that is paid to Investment Consultants (Dealers) as a percentage of the offering price of Investor Shares:
- ------------------------------------------------------------------------------------------------------------------------------------ DEALERS' REALLOWANCE AS A PERCENTAGE OF OFFERING PRICE - ------------------------------------------------------------------------------------------------------------------------------------ LESS THAN $100,000 BUT $250,000 BUT $1,000,000 FUND(S) $100,000 LESS THAN $250,000 LESS THAN $1,000,000 AND OVER - ------------------------------------------------------------------------------------------------------------------------------------ Balanced, Capital Appreciation, Florida Tax-Exempt Bond, Georgia Tax-Exempt Bond, Growth and Income Fund, Information and Technology, International Equity, International Equity Index, Investment 3.75% 3.25% 2.50% 1.50% Grade Bond, Investment Grade Tax-Exempt Bond, Mid-Cap Equity, Small Cap Value Equity, Small Cap Growth Stock, U.S. Government Securities, Value Income Stock, and Virginia Intermediate Municipal Bond Funds - ------------------------------------------------------------------------------------------------------------------------------------ Limited-Term Federal Mortgage Securities Fund 2.50% 1.75% 1.25% 0% - ------------------------------------------------------------------------------------------------------------------------------------ S-36 - ------------------------------------------------------------------------------------------------------------------------------------ DEALERS' REALLOWANCE AS A PERCENTAGE OF OFFERING PRICE - ------------------------------------------------------------------------------------------------------------------------------------ Short-Term Bond Fund 2.00% 1.50% 1.00% 0% - ------------------------------------------------------------------------------------------------------------------------------------ Short-Term U.S. Treasury Securities Fund 1.00% 0.79% 0.50% 0% - ------------------------------------------------------------------------------------------------------------------------------------
For the fiscal years ended May 31, 2002, 2001 and 2000, the aggregate sales charge payable to the Distributor with respect to the Flex Shares of the Funds were as follows:
- ------------------------------------------------------------------------------------------------------------------------------------ AGGREGATE SALES CHARGE AMOUNT RETAINED FUND PAYABLE TO DISTRIBUTOR ($) BY DISTRIBUTOR ($) - ------------------------------------------------------------------------------------------------------------------------------------ 2002 2001 2000 2002 2001 2000 - ------------------------------------------------------------------------------------------------------------------------------------ Balanced Fund 707,000 626,000 765,000 0 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ Capital Appreciation Fund 1,067,000 1,138,000 1,528,000 0 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ Florida Tax-Exempt Bond Fund 177,000 104,000 127,000 0 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ Georgia Tax-Exempt Bond Fund 157,000 102,000 113,000 0 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ Growth and Income Fund 837,000 658,000 497,000 0 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ High Income Fund 315,000 86,000 4,000 0 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ Information and Technology Fund 154,000 254,000 52,000 0 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ International Equity Fund 69,000 73,000 146,000 0 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ International Equity Index Fund 41,000 40,000 32,000 0 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ Investment Grade Bond Fund 328,000 200,000 249,000 0 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ Investment Grade Tax-Exempt Bond Fund 227,000 155,000 163,000 0 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ Limited-Term Federal Mortgage Securities Fund 69,000 16,000 22,000 0 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ Maryland Municipal Bond Fund 190,000 72,000 75,000 0 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ Mid-Cap Equity Fund 132,000 134,000 139,000 0 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ Mid Cap Value Equity Fund 13,000 * * 0 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ S-37 - ------------------------------------------------------------------------------------------------------------------------------------ AGGREGATE SALES CHARGE AMOUNT RETAINED FUND PAYABLE TO DISTRIBUTOR ($) BY DISTRIBUTOR ($) - ------------------------------------------------------------------------------------------------------------------------------------ 2002 2001 2000 2002 2001 2000 - ------------------------------------------------------------------------------------------------------------------------------------ Prime Quality Money Market Fund 63,000 24,000 14,000 0 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ Short-Term Bond Fund 169,000 33,000 21,000 0 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ Short-Term U.S. Treasury Securities Fund 441,000 93,000 56,000 0 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ Small Cap Growth Stock Fund 256,000 253,000 112,000 0 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ Small Cap Value Equity Fund 172,000 86,000 139,000 0 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ Strategic Income Fund 106,000 * * 0 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ Tax Sensitive Growth Stock Fund 1,945,000 2,828,000 1,867,000 0 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ U.S. Government Securities Fund 314,000 99,000 104,000 0 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ Value Income Stock Fund 602,000 672,000 1,321,000 0 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ Vantage Fund 1,000 * * 0 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ Virginia Municipal Bond Fund 114,000 58,000 62,000 0 0 0 - ------------------------------------------------------------------------------------------------------------------------------------
* Not in operation during the period. INVESTOR SHARES AND FLEX SHARES DISTRIBUTION PLANS The Distribution Agreement and the Investor Plan adopted by the Trust provide that Investor Shares of the Funds will pay the Distributor fees of up to the following respective levels:
-------------------------------------------------- -------------------------- FUND: DISTRIBUTION FEE: -------------------------------------------------- -------------------------- Balanced Fund 0.28% -------------------------------------------------- -------------------------- Capital Appreciation Fund 0.68% -------------------------------------------------- -------------------------- Florida Tax-Exempt Bond Fund 0.18% -------------------------------------------------- -------------------------- Georgia Tax-Exempt Bond Fund 0.18% -------------------------------------------------- -------------------------- Growth and Income Fund 0.25% -------------------------------------------------- -------------------------- S-38 -------------------------------------------------- -------------------------- International Equity Index Fund 0.38% -------------------------------------------------- -------------------------- International Equity Fund 0.33% -------------------------------------------------- -------------------------- Investment Grade Bond Fund 0.43% -------------------------------------------------- -------------------------- Investment Grade Tax-Exempt Bond Fund 0.43% -------------------------------------------------- -------------------------- Limited-Term Federal Mortgage Securities Fund 0.23% -------------------------------------------------- -------------------------- Mid-Cap Equity Fund 0.43% -------------------------------------------------- -------------------------- Prime Quality Money Market Fund 0.20% -------------------------------------------------- -------------------------- Short-Term Bond Fund 0.23% -------------------------------------------------- -------------------------- Short-Term U.S. Treasury Securities Fund 0.18% -------------------------------------------------- -------------------------- Small Cap Growth Stock Fund 0.50% -------------------------------------------------- -------------------------- Tax-Exempt Money Market Fund 0.15% -------------------------------------------------- -------------------------- U.S. Government Securities Money Market Fund 0.17% -------------------------------------------------- -------------------------- U.S. Government Securities Fund 0.38% -------------------------------------------------- -------------------------- Value Income Stock Fund 0.33% -------------------------------------------------- -------------------------- Virginia Intermediate Municipal Bond Fund 0.15% -------------------------------------------------- -------------------------- Virginia Tax-Free Money Market Fund 0.40% -------------------------------------------------- --------------------------
The Distribution Agreement and the Flex Plan adopted by the Trust provide that Flex Shares of each applicable 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 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, S-39 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 disinterested 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 disinterested 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', 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, 2002, 2001 and 2000, the Funds paid the following amounts pursuant to the Investor Plan:
- -------------------------------------------------------------------------------------------------------- DISTRIBUTION FEES - AMOUNT PAID OR REIMBURSED ($) ----------------------------------------------------- FUND 2002 2001 2000 - -------------------------------------------------------------------------------------------------------- Balanced Fund 7,000 9,000 19,000 - -------------------------------------------------------------------------------------------------------- Capital Appreciation Fund 1,061,000 1,343,000 1,686,000 - -------------------------------------------------------------------------------------------------------- Florida Tax-Exempt Bond Fund (7,000)* 0 0 - -------------------------------------------------------------------------------------------------------- Georgia Tax-Exempt Bond Fund (7,000)* 0 0 - -------------------------------------------------------------------------------------------------------- Growth and Income Fund 26,000 33,000 50,000 - -------------------------------------------------------------------------------------------------------- International Equity Fund 6,000 7,000 28,000 - -------------------------------------------------------------------------------------------------------- International Equity Index Fund 2,000 0 7,000 - -------------------------------------------------------------------------------------------------------- Investment Grade Bond Fund 59,000 54,000 91,000 - -------------------------------------------------------------------------------------------------------- Investment Grade Tax-Exempt Bond Fund 62,000 60,000 74,000 - -------------------------------------------------------------------------------------------------------- Limited-Term Federal Mortgage Securities Fund (10,000)* 0 1,000 - -------------------------------------------------------------------------------------------------------- Mid-Cap Equity Fund 27,000 36,000 53,000 - -------------------------------------------------------------------------------------------------------- Prime Quality Money Market Fund 3,407,000 2,911,000 1,653,000 - -------------------------------------------------------------------------------------------------------- S-40 - -------------------------------------------------------------------------------------------------------- Short-Term Bond Fund (4,000) 0 0 - -------------------------------------------------------------------------------------------------------- Short-Term U.S. Treasury Securities Fund (8,000)* 0 0 - -------------------------------------------------------------------------------------------------------- Small Cap Growth Stock 58,000 80,000 32,000 - -------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market Fund 264,000 204,000 145,000 - -------------------------------------------------------------------------------------------------------- U.S. Government Securities Fund 17,000 0 0 - -------------------------------------------------------------------------------------------------------- U.S. Government Securities Money Market Fund 292,000 132,000 77,000 - -------------------------------------------------------------------------------------------------------- Value Income Stock Fund 233,000 268,000 502,000 - -------------------------------------------------------------------------------------------------------- Virginia Intermediate Municipal Bond Fund (12,000)* 0 0 - -------------------------------------------------------------------------------------------------------- Virginia Tax-Free Money Market Fund 167,000 100,000 26,000 - --------------------------------------------------------------------------------------------------------
* The Distributor reimbursed the Funds for other expenses. For the fiscal years ended May 31, 2002, 2001 and 2000, the Funds paid the following amounts pursuant to the Flex Plan:
- -------------------------------------------------------------------------------------------------- DISTRIBUTION FEES - AMOUNT PAID ($) ------------------------------------------ FUND 2002 2001 2000 - -------------------------------------------------------------------------------------------------- Balanced Fund 677,000 596,000 727,000 - -------------------------------------------------------------------------------------------------- Capital Appreciation Fund 1,047,000 1,102,000 1,483,000 - -------------------------------------------------------------------------------------------------- Florida Tax-Exempt Bond Fund 111,000 60,000 74,000 - -------------------------------------------------------------------------------------------------- Georgia Tax-Exempt Bond Fund 99,000 59,000 66,000 - -------------------------------------------------------------------------------------------------- Growth and Income Fund 648,000 515,000 371,000 - -------------------------------------------------------------------------------------------------- High Income Fund 167,000 36,000 2,000 - -------------------------------------------------------------------------------------------------- Information and Technology Fund 104,000 204,000 51,000 - -------------------------------------------------------------------------------------------------- International Equity Fund 42,000 65,000 118,000 - -------------------------------------------------------------------------------------------------- International Equity Index Fund 25,000 38,000 20,000 - -------------------------------------------------------------------------------------------------- Investment Grade Bond Fund 254,000 147,000 184,000 - -------------------------------------------------------------------------------------------------- Investment Grade Tax-Exempt Bond Fund 184,000 120,000 125,000 - -------------------------------------------------------------------------------------------------- Limited-Term Federal Mortgage Securities Fund 26,000 0 0 - -------------------------------------------------------------------------------------------------- S-41 - -------------------------------------------------------------------------------------------------- DISTRIBUTION FEES - AMOUNT PAID ($) ------------------------------------------ FUND 2002 2001 2000 - -------------------------------------------------------------------------------------------------- Maryland Municipal Bond Fund 169,000 55,000 57,000 - -------------------------------------------------------------------------------------------------- Mid-Cap Equity Fund 106,000 112,000 127,000 - -------------------------------------------------------------------------------------------------- Mid Cap Value Equity Fund 4,000 * * - -------------------------------------------------------------------------------------------------- Prime Quality Money Market Fund 59,000 15,000 8,000 - -------------------------------------------------------------------------------------------------- Short-Term Bond Fund 74,000 5,000 0 - -------------------------------------------------------------------------------------------------- Short-Term U.S. Treasury Securities Fund 159,000 21,000 9,000 - -------------------------------------------------------------------------------------------------- Small Cap Growth Stock Fund 231,000 230,000 95,000 - -------------------------------------------------------------------------------------------------- Small Cap Value Equity Fund 136,000 56,000 103,000 - -------------------------------------------------------------------------------------------------- Strategic Income Fund 59,000 * * - -------------------------------------------------------------------------------------------------- Tax Sensitive Growth Stock Fund 1,844,000 2,732,000 1,796,000 - -------------------------------------------------------------------------------------------------- U.S. Government Securities Fund 260,000 71,000 56,000 - -------------------------------------------------------------------------------------------------- Value Income Stock Fund 581,000 645,000 1,298,000 - -------------------------------------------------------------------------------------------------- Vantage Fund 0 * * - -------------------------------------------------------------------------------------------------- Virginia Municipal Bond Fund 94,000 41,000 36,000 - --------------------------------------------------------------------------------------------------
* Not in operation during the period. Other than any portion of the sales charges imposed on purchases, the following table shows the level of compensation paid by the Distributor to broker-dealers selling Investor and Flex shares, unless otherwise agreed upon by the Distributor and such broker-dealer.
- ---------------------------------------------------------------------------------------------------------------------------------- ANNUAL PAYOUT INITIAL PAYMENT ANNUAL FIRST YEAR PAYOUT ANNUAL PAYOUT 12(B)-1 EFFECTIVE - AT TIME 12(B)-1 EFFECTIVE 12(B)-1 EFFECTIVE FUND IMMEDIATELY (INVESTOR) OF SALE (FLEX) IMMEDIATELY (FLEX) 13TH MONTH (FLEX) - ---------------------------------------------------------------------------------------------------------------------------------- EQUITY - ---------------------------------------------------------------------------------------------------------------------------------- Capital Appreciation 0.35% 0.25% 0.50% 0.65% - ---------------------------------------------------------------------------------------------------------------------------------- Balanced 0.20% 0.25% 0.50% 0.65% - ---------------------------------------------------------------------------------------------------------------------------------- Growth and Income 0.20% 0.25% 0.45% 0.60% - ---------------------------------------------------------------------------------------------------------------------------------- Information and Technology N/A 0.25% 0.50% 0.65% - ---------------------------------------------------------------------------------------------------------------------------------- International Equity 0.25% 0.25% 0.45% 0.60% - ---------------------------------------------------------------------------------------------------------------------------------- International Equity Index 0.30% 0.25% 0.40% 0.50% - ---------------------------------------------------------------------------------------------------------------------------------- Mid-Cap Equity 0.30% 0.25% 0.45% 0.60% - ---------------------------------------------------------------------------------------------------------------------------------- S-42 - ---------------------------------------------------------------------------------------------------------------------------------- Mid Cap Value Equity N/A 0.25% 0.45% 0.60% - ---------------------------------------------------------------------------------------------------------------------------------- Small Cap Growth Stock 0.35% 0.25% 0.50% 0.65% - ---------------------------------------------------------------------------------------------------------------------------------- Small Cap Value Equity N/A 0.25% 0.45% 0.60% - ---------------------------------------------------------------------------------------------------------------------------------- Tax Sensitive Growth Stock N/A 0.25% 0.45% 0.60% - ---------------------------------------------------------------------------------------------------------------------------------- Value Income Stock 0.20% 0.25% 0.50% 0.65% - ---------------------------------------------------------------------------------------------------------------------------------- Vantage Fund N/A 0.25% 0.40% 0.60% - ---------------------------------------------------------------------------------------------------------------------------------- FIXED INCOME - ---------------------------------------------------------------------------------------------------------------------------------- High Income N/A 0.25% 0.20% 0.30% - ---------------------------------------------------------------------------------------------------------------------------------- Florida Tax-Exempt Bond 0.10% 0.15% 0.20% 0.30% - ---------------------------------------------------------------------------------------------------------------------------------- Georgia Tax-Exempt Bond 0.10% 0.15% 0.20% 0.30% - ---------------------------------------------------------------------------------------------------------------------------------- Investment Grade Bond 0.20% 0.20% 0.20% 0.30% - ---------------------------------------------------------------------------------------------------------------------------------- Investment Grade Tax-Exempt Bond 0.20% 0.20% 0.20% 0.30% - ---------------------------------------------------------------------------------------------------------------------------------- Limited Term Federal Mortgage Securities 0.15% 0.15% 0.20% 0.25% - ---------------------------------------------------------------------------------------------------------------------------------- Maryland Municipal Bond N/A 0.15% 0.20% 0.30% - ---------------------------------------------------------------------------------------------------------------------------------- Short Term Bond 0.15% 0.10% 0.20% 0.25% - ---------------------------------------------------------------------------------------------------------------------------------- Short-Term U.S. Treasury Securities 0.10% 0.10% 0.20% 0.25% - ---------------------------------------------------------------------------------------------------------------------------------- Strategic Income N/A 0.25% 0.20% 0.30% - ---------------------------------------------------------------------------------------------------------------------------------- U.S. Government Securities 0.15% 0.20% 0.20% 0.30% - ---------------------------------------------------------------------------------------------------------------------------------- Virginia Intermediate Municipal Bond 0.10% N/A N/A N/A - ---------------------------------------------------------------------------------------------------------------------------------- Virginia Municipal Bond N/A 0.15% 0.20% 0.30% - ----------------------------------------------------------------------------------------------------------------------------------
*Initial Front End Sales Charge for Investor Share Class ranges from 3.75% maximum to .50% depending on Fund and breakpoints (outlined in prospectus). THE TRANSFER AGENT Federated Services Company, Federated Investors Tower, Pittsburgh, PA 15222-3779 serves as the Trust's transfer agent. THE CUSTODIAN SunTrust Bank, 303 Peachtree Street N.E., 14th Floor, Atlanta, GA 30308 serves as the custodian for all of the Funds except for the International Equity, International Equity Index and Strategic Income Funds. The Bank of New York, One Wall Street, New York, NY 10286 serves as custodian for the International Equity, International Equity Index and Strategic Income Funds. INDEPENDENT PUBLIC ACCOUNTANTS For the fiscal year ended May 31, 2002, PricewaterhouseCoopers LLP, 2001 Market Street, Philadelphia, PA 19103, served as independent public accountants for the Trust. S-43 LEGAL COUNSEL Morgan, Lewis & Bockius LLP serves as legal counsel to the Trust. TRUSTEES AND OFFICERS OF THE TRUST BOARD RESPONSIBILITIES. The management and affairs of the Trust and each of the Funds are supervised by the Trustees under the laws of the Commonwealth of Massachusetts. Each Trustee is responsible for overseeing each of the Funds and each of the Trust's nineteen funds, which includes funds not described in this SAI. The Trustees have approved contracts, as described above, under which certain companies provide essential management services to the Trust. MEMBERS OF THE BOARD. Set forth below are the names, dates of birth, position with the Trust, length of term of office, and the principal occupations for the last five years of each of the persons currently serving as Trustees of the Trust. Unless otherwise noted, the business address of each Trustee is SEI Investments Company, Oaks, Pennsylvania 19456. THOMAS GALLAGHER (11/25/47) - Trustee - President, Genuine Parts Company Wholesale Distribution, 1970 to the present; Director, National Service Industries; Director, Oxford Industries. F. WENDELL GOOCH (12/03/32) - Trustee - Retired. President, Orange County Publishing Co., Inc., 1981 to 1997; Publisher of the Paoli News and the Paoli Republican and Editor of the Paoli Republican, 1981 to 1997; President, H & W Distribution, Inc., 1984 to 1997; 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. JAMES O. ROBBINS (7/04/42) - Trustee - President and Chief Executive Officer, Cox Communications, Inc., 1983 to the present; Director, NCR; Director, Cox Communications. JONATHAN T. WALTON (3/28/30) - Trustee - Retired. Executive Vice President, NBD Bank, N.A. and NBD Bancorp, October 1956 to March 1995; Trustee, W.K. Kellogg Trust. RICHARD W. COURTS, II (1/18/36) - Trustee* - Chairman of the Board, Atlantic Investment Company, 1970 to the present. CLARENCE H. RIDLEY (6/03/42) - Trustee* - Chairman of the Board; Haverty Furniture Companies, 2001 to the present; Partner, King and Spaulding LLP (law firm), 1971 to 2000. * Messrs. Courts and Ridley each may be deemed an "interested person" of the Trust as that term is defined in the 1940 Act. Mr. Courts may be deemed an interested Trustee because of his directorships with affiliates of the Adviser. Mr. Ridley may be deemed an interested Trustee because his former law firm has a material business relationship with the parent to the Adviser. BOARD STANDING COMMITTEES. The Board has established the following standing committees: o AUDIT COMMITTEE. The Board has a standing Audit Committee that is composed of each of the independent Trustees of the Trust. The Audit Committee operates under a written charter approved by the Board. The principal responsibilities of the Audit Committee include: recommending which firm to engage as the Trust's independent auditor and whether to terminate this relationship; reviewing the independent auditors' compensation, the proposed scope and terms of its engagement, and the firm's independence; serving as a channel of communication between the independent auditor and the Trustees; reviewing the results of each external audit, including any qualifications in the independent auditors' opinion, any related management letter, management's responses to recommendations made by the independent auditors in connection with the audit, reports submitted to the Committee by the internal auditing department of the Trust's Administrator that are material to the Trust as a whole, if any, and management's responses to any such reports; reviewing the Trust's audited financial statements and considering any significant disputes between the Trust's management and the independent auditor that arose in connection with the preparation of those financial statements; considering, in S-44 consultation with the independent auditors and the Trust's senior internal accounting executive, if any, the independent auditors' report on the adequacy of the Trust's internal financial controls; reviewing, in consultation with the Trust's independent auditors, major changes regarding auditing and accounting principles and practices to be followed when preparing the Trust's financial statements; and other audit related matters. Messrs. Gallagher, Gooch, Robbins and Walton currently serve as members of the Audit Committee. The Audit Committee meets periodically, as necessary, and met two times in the most recently completed fiscal year. o FAIR VALUE PRICING COMMITTEE. The Board has a standing Fair Value Pricing Committee that is composed of various representatives of the Trust's service providers, as appointed by the Board. The Fair Value Pricing Committee operates under procedures approved by the Board. The principal responsibilities of the Fair Value Pricing Committee are to determine the fair value of securities for which current market quotations are not readily available. The Fair Value Pricing Committee's determinations are reviewed by the Board. The Fair Value Pricing Committee meets periodically, as necessary, and met twenty-two times in the most recently completed fiscal year. o NOMINATING COMMITTEE. The Trust has a standing Nominating Committee that is composed of each of the independent Trustees of the Trust. The principal responsibility of the Nominating Committee are to consider, recommend and nominate candidates to fill vacancies on the Trust's Board, if any. The Nominating Committee does not have specific procedures in place to consider nominees recommended by shareholders, but would consider such nominees if submitted in accordance with Rule 14a-8 of the 1934 Act in conjunction with a shareholder meeting to consider the election of Trustees. Messrs. Gallagher, Gooch, Robbins and Walton currently serve as members of the Nominating Committee. The Nominating Committee meets periodically, as necessary, and met one time during the most recently completed fiscal year. BOARD CONSIDERATIONS IN APPROVING THE ADVISORY AGREEMENT. As discussed in the section of this SAI entitled "The Adviser," the Board continuance of the Advisory Agreements must be specifically approved at least annually (i) by the vote of the Trustees or by a vote of the shareholders of the Fund and (ii) by the vote of a majority of the Trustees who are not parties to the Advisory Agreements or "interested persons" of any party thereto, as defined in the 1940 Act, cast in person at a meeting called for the purpose of voting on such approval. Each year, the Board of Trustees calls and holds a meeting to decide whether to renew the Advisory Agreements for the upcoming year. In preparation for the meeting, the Board requests and reviews a wide variety of information from the Adviser. The Trustees use this information, as well as other information that the Adviser and other Fund service providers may submit to the Board, to help them decide whether to renew the Advisory Agreements for another year. Before this year's meeting , the Board requested and received written materials from the Adviser about: (a) the quality of the Adviser's investment management and other services; (b) the Adviser's investment management personnel; (c) the Adviser's operations and financial condition; (d) the Adviser's brokerage practices (including any soft dollar arrangements) and investment strategies; (e) the level of the advisory fees that the Adviser charges the Fund compared with the fees it charges to comparable mutual funds or accounts(if any); (f) the Fund's overall fees and operating expenses compared with similar mutual funds; (g) the level of the Adviser's profitability from its Fund-related operations; (h) the Adviser's compliance systems; (i) the Adviser's policies on and compliance procedures for personal securities transactions; (j) the Adviser' reputation, expertise and resources in domestic financial markets; and (k) the Fund's performance compared with similar mutual funds. At the meeting, representatives from the Adviser presented additional oral and written information to the Board to help the Board evaluate the Adviser's fee and other aspects of the Agreement. Other Fund service providers also provided the Board with additional information at the meeting. The Trustees then discussed the written materials that the Board received before the meeting and the Adviser's oral presentation and any other information that the Board received at the meeting, and deliberated on the renewal of the Advisory Agreements in light of this information. In its deliberations, the Board did not identify any single piece of information that was all-important, controlling or determinative of its decision. Based on the Board's deliberations and its evaluation of the information described above, the Board, including the independent Trustees, unanimously: (a) concluded that terms of the Agreements are fair and reasonable; (b) S-45 concluded that the Adviser's fees are reasonable in light of the services that the Adviser provides to the Fund; and (c) agreed to renew the Agreements for another year. FUND SHARES OWNED BY BOARD MEMBERS. The following table shows the dollar amount range of each Trustee's "beneficial ownership" of shares of each of the Funds as of the end of the most recently completed calendar year. Dollar amount ranges disclosed are established by the SEC. "Beneficial ownership" is determined in accordance with Rule 16a-1(a)(2) under the Securities Exchange Act of 1934 ("1934 Act"). The Trustees and officers of the Trust own less than 1% of the outstanding shares of the Trust.
- ---------------------- ---------------------------------------------------------------- ------------------------------ AGGREGATE DOLLAR RANGE OF SHARES NAME DOLLAR RANGE OF FUND SHARES (FUND)* (ALL FUNDS)* - ---------------------- ---------------------------------------------------------------- ------------------------------ None (Balanced Fund) $8,046 (Capital Appreciation Fund) None (Florida Tax-Exempt Bond Fund) None (Georgia Tax-Exempt Bond Fund) $3,940 (Growth and Income Fund) None (High Income Fund) $7,120 (Information and Technology Fund) None (Investment Grade Bond Fund) None (Investment Grade Tax-Exempt Bond Fund) None (International Equity Fund) None (International Equity Index Fund) None (Life Vision Aggressive Growth Fund) None (Life Vision Growth and Income Fund) None (Life Vision Moderate Growth Fund) None (Limited-Term Federal Mortgage Securities Fund) Courts, None (Maryland Municipal Bond Fund) Gallagher, Gooch, None (Mid-Cap Equity Fund) $61,940 Ridley, Robbins, and None (Mid Cap Value Equity Fund) Walton $33 (Prime Quality Money Market Fund) None (Short-Term Bond Fund) None (Short-Term U.S. Treasury Securities Fund) $9,802 (Small Cap Value Equity Fund) $8,620 (Small Cap Growth Stock Fund) None (Strategic Income Fund) None (Tax-Exempt Money Market Fund) $11,781 (Tax Sensitive Growth Stock Fund) None (U.S. Government Securities Fund) None (U.S. Government Securities Money Market Fund) None (U.S. Treasury Money Market Fund) $12,598 (Value Income Stock Fund) None (Vantage Fund) None (Virginia Intermediate Municipal Bond Fund) None (Virginia Municipal Bond Fund) None (Virginia Tax-Free Money Market Fund) - ---------------------- ---------------------------------------------------------------- ------------------------------
*Valuation date is December 31, 2001. BOARD COMPENSATION. The Trust paid the following fees to the Trustees during its most recently completed fiscal year: S-46
- -------------------------------- ----------------- ------------------------- ------------------- ----------------------------------- NAME OF PERSON AND POSITION AGGREGATE PENSION OR RETIREMENT ESTIMATED ANNUAL TOTAL COMPENSATION FROM THE COMPENSATION BENEFITS ACCRUED AS PART BENEFITS UPON TRUST AND FUND COMPLEX* OF FUND EXPENSES RETIREMENT - -------------------------------- ----------------- ------------------------- ------------------- ----------------------------------- Richard W. Courts, II, Trustee1 $17,000 N/A N/A $18,000 for services on two boards - ------------------------------------------------------------------------------------------------------------------------------------ Thomas Gallagher, Trustee $38,000 N/A N/A $40,000 for services on two boards - ------------------------------------------------------------------------------------------------------------------------------------ F. Wendell Gooch, Trustee $36,000 N/A N/A $38,000 for services on two boards - ------------------------------------------------------------------------------------------------------------------------------------ Wilton Looney, Trustee2 $1,500 N/A N/A $2,000 for services on two boards - ------------------------------------------------------------------------------------------------------------------------------------ Clarence H. Ridley, Trustee1 $17,500 N/A N/A $18,500 for services on two boards - ------------------------------------------------------------------------------------------------------------------------------------ James Robbins, Trustee $34,500 N/A N/A $36,500 for services on two boards - ------------------------------------------------------------------------------------------------------------------------------------ Jonathan T. Walton, Trustee $34,500 N/A N/A $36,500 for services on two boards - ------------------------------------------------------------------------------------------------------------------------------------
* The Trust is one of two investment companies in the "Fund Complex," in addition to the STI Classic Variable Trust. (1) Messrs. Courts and Ridley were appointed as Trustees on November 13, 2001. (2) Mr. Looney retired on August 21, 2001. TRUST OFFICERS. Set forth below are the names, dates of birth, position with the Trust, length of term of office, and the principal occupations for the last five years of each of the persons currently serving as Executive Officers of the Trust. Unless otherwise noted, the business address of each Officer is SEI Investments Company, Oaks, Pennsylvania 19456. None of the Officers receive compensation from the Trust for their services. Certain officers of the Trust also serve as officers of some or all of the following: The Advisors' Inner Circle Fund, Alpha Select Funds, Amerindo Funds Inc., The Arbor Fund, Armada Funds, The Armada Advantage Fund, Bishop Street Funds, Causeway Capital Management Trust, CNI Charter Funds, Excelsior Funds Inc., Excelsior Funds Trust, Excelsior Tax-Exempt Funds, Inc., Expedition Funds, First Focus Funds, Inc., HighMark Funds, JohnsonFamily Funds, Inc., The MDL Funds, The Nevis Fund, Inc., Oak Associates Funds, The PBHG Funds, Inc., PBHG Insurance Series Fund, Inc., Pitcairn Funds, Schroder Series Trust, Schroder Capital Funds, Schroder Fund Advisors Inc., SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI Institutional International Trust, SEI Institutional Investments Trust, SEI Institutional Managed Trust, SEI Insurance Products Trust, SEI Liquid Asset Trust, SEI Tax Exempt Trust, STI Classic Variable Trust, Turner Funds, UAM Funds Trust, UAM Funds, Inc. and UAM Funds, Inc. II., each of which is an open-end management investment company managed by SEI Investments Global Funds Services or its affiliates and, except for PBHG Advisor Funds, Inc., distributed by SEI Investments Distribution Co. JAMES R. FOGGO (06/30/64) - President - Vice President and Assistant Secretary of SEI Investments since 1998; Vice President and Assistant Secretary of the Administrator and the Distributor since May 1999; Associate, Paul Weiss, Rifkind, Wharton & Garrison (law firm), 1998; Associate, Baker & McKenzie (law firm), 1995 to 1998; Associate, Battle Fowler L.L.P. (law firm), 1993 to 1995; Operations Manager, The Shareholder Services Group, Inc., 1986 to 1990. JENNIFER E. SPRATLEY, CPA (02/13/69) - Treasurer and Chief Financial Officer - Director, SEI Funds Accounting since November 1999; Audit Manager, Ernst & Young LLP, 1991 to 1999. LYDIA GAVALIS (06/05/64) - Vice President and Assistant Secretary - Vice President and Assistant Secretary of SEI Investments, the Administrator and the Distributor since 1998; Assistant General Counsel and Director of Arbitration, Philadelphia Stock Exchange, 1989 to 1998. S-47 TIMOTHY D. BARTO (03/28/68) - Vice President and Secretary - Employed by SEI Investments since October 1999; Vice President and Assistant Secretary of the Administrator and Distributor since December 1999; Associate, Dechert Price & Rhoads, 1997 to 1999; Associate, Richter, Miller & Finn, 1994 to 1997. TODD B. CIPPERMAN (02/14/66) - Vice President and Assistant Secretary - Senior Vice President and General Counsel of SEI Investments; Senior Vice President, General Counsel and Secretary of the Administrator and the Distributor since 2000; Vice President and Assistant Secretary of SEI Investments, the Administrator and the Distributor, 1995 to 2000; Associate, Dewey Ballantine (law firm), 1994 to 1995; Associate, Winston & Strawn (law firm), 1991 to 1994. CHRISTINE M. MCCULLOUGH (12/02/60) - Vice President and Assistant Secretary - Employed by SEI Investments since November 1, 1999; Vice President and Assistant Secretary of the Administrator and the Distributor since December 1999; Associate, White & Williams LLP, 1991 to 1999; Associate, Montgomery, McCracken, Walker & Rhoads, 1990 to 1991. WILLIAM E. ZITELLI, JR. (06/14/68) - Vice President and Assistant Secretary - Vice President and Assistant Secretary of the Administrator and Distributor since August 2000; Vice President, Merrill Lynch & Co. Asset Management Group, 1998 to 2000; Associate, Pepper Hamilton LLP, 1997 to 1998; Associate, Reboul, MacMurray, Hewitt, Maynard & Kristol, 1995 to 1997. SHERRY KAJDAN VETTERLEIN (06/22/62) - Vice President & Assistant Secretary - Vice President and Assistant Secretary of the Administrator and Distributor since January 2001; Shareholder/Partner, Buchanan Ingersoll Professional Corporation, 1992 to 2000. JOHN C. MUNCH (05/07/71) - Vice President and Assistant Secretary - Vice President and Assistant Secretary of the Administrator and Distributor since November 2001; Associate at Howard Rice Nemorvoski Canady Falk & Rabkin, 1998 to 2001; Associate at Seward & Kissel, 1996 to 1998. JOSIE C. ROSSON (03/23/53) - Vice President and Assistant Secretary - Vice President and Compliance Officer of Trusco Capital Management, Inc. since March 2000; Vice President and Compliance Officer of Crestar Bank, 1998 to 2000; Vice President and Compliance Officer of Signet Banking Corporation, 1994 to 1998. PERFORMANCE INFORMATION From time to time, each of the Funds may include the Fund's yield, effective yield, total return or any other type of performance information permitted by applicable regulatory requirements in advertisements or reports to shareholders or prospective shareholders. The yield of the Funds refers to the annualized income generated by an investment in that Fund over a specified 30-day period. Quotations of average annual total return for a Fund will be expressed in terms of the average annual compounded rate of return on a hypothetical investment in the Fund over a period of at least one, five, and ten years (up to the life of the Fund) (the ending date of the period will be stated). Total return of a Fund is calculated from two factors: the amount of dividends earned by each Fund share and by the increase or decrease in value of the Fund's share price. Performance figures are based on historical results and are not intended to indicate future performance. See "Computation of Yield" and "Calculation of Total Return" for more information on methodology of calculations. 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 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. Performance information for each of the Funds contained in reports to shareholders or prospective shareholders, advertisements, and other promotional literature may be compared to the record of various unmanaged indices. Such unmanaged indices may assume the reinvestment of dividends, but generally do not reflect deductions for operating costs and expenses. In addition, a Fund's total return may be compared to the performance of broad S-48 groups of comparable mutual funds with similar investment goals, as such performance is tracked and published by such independent organizations as Lipper Analytical Services, Inc. ("Lipper"), among others. When Lipper's tracking results are used, the Fund will be compared to Lipper's appropriate fund category, that is, by fund objective and portfolio holdings. In addition, rankings, ratings, and comparisons of investment performance and/or assessments of the quality of shareholder service appear in numerous financial publications such as MONEY, FORBES, KIPLINGER'S MAGAZINE, PERSONAL INVESTOR, MORNINGSTAR, INC., and similar sources. COMPUTATION OF YIELD SEVEN-DAY YIELD The current yield of the Money Market Funds will be calculated daily based upon the seven days ending on the date of calculation (the "base period"). The yield is computed by determining the net change (exclusive of capital changes) in the value of a hypothetical pre-existing shareholder account having a balance of one share at the beginning of the period, subtracting a hypothetical charge reflecting deductions from shareholder accounts, and dividing such net change by the value of the account at the beginning of the same period to obtain the base period return and multiplying the result by (365/7). Realized and unrealized gains and losses are not included in the calculation of the yield. The effective compound yield of the 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. The Tax-Exempt Money Market Fund's "tax equivalent yield" and "tax equivalent effective yield" are calculated by determining the rate of return that would have to be achieved on a fully taxable 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 E equals the 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 = the portion of the yield which is tax-exempt P = stated income tax rate T = the portion of the yield which is taxable For the seven-day period ended May 31, 2002, the Money Market Funds' current effective and tax equivalent yields were as follows: S-49
- ------------------------------------------------------------------------------------------------------- SEVEN-DAY SEVEN-DAY TAX SEVEN-DAY TAX CLASS OF SEVEN-DAY EFFECTIVE EQUIVALENT EQUIVALENT FUND SHARES YIELD (%) YIELD (%) YIELD (%) EFFECTIVE YIELD (%) - ------------------------------------------------------------------------------------------------------- Prime Quality Money Trust 1.49 1.50 N/A N/A Market Fund --------------------------------------------------------------------------- Investor 1.31 1.32 N/A N/A - ------------------------------------------------------------------------------------------------------- Tax-Exempt Money Trust 0.99 1.00 1.61 1.63 Market Fund --------------------------------------------------------------------------- Investor 0.87 0.87 1.42 1.42 - ------------------------------------------------------------------------------------------------------- U.S. Government Trust 1.46 1.47 N/A N/A Securities Money Market --------------------------------------------------------------------------- Fund Investor 1.31 1.32 N/A N/A - ------------------------------------------------------------------------------------------------------- U.S. Treasury Money Trust 1.28 1.29 N/A N/A Market Fund - ------------------------------------------------------------------------------------------------------- Virginia Tax-Free Money Trust 1.08 1.08 1.76 1.76 Market Fund --------------------------------------------------------------------------- Investor 0.90 0.91 1.47 1.48 - -------------------------------------------------------------------------------------------------------
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. 30-DAY YIELD The Bond, Short-Term U.S. Treasury, Tax-Exempt Bond, Equity Funds and Life Vision 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 average 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, 2002, yields on the Funds other than the money market funds were as follows: S-50
------------------------------------------------------- ------------------------------------- ------------------------------ FUND CLASS OF SHARES YIELD (%) ------------------------------------------------------- ------------------------------------- ------------------------------ Balanced Fund Trust Shares 1.77 ------------------------------------- ------------------------------ Investor Shares 1.41 ------------------------------------- ------------------------------ Flex Shares 0.71 ------------------------------------------------------- ------------------------------------- ------------------------------ Capital Appreciation Fund Trust Shares 0 ------------------------------------- ------------------------------ Investor Shares 0 ------------------------------------- ------------------------------ Flex Shares 0 ------------------------------------------------------- ------------------------------------- ------------------------------ Florida Tax-Exempt Bond Fund Trust Shares 3.33 ------------------------------------- ------------------------------ Investor Shares 3.01 ------------------------------------- ------------------------------ Flex Shares 2.64 ------------------------------------------------------- ------------------------------------- ------------------------------ Georgia Tax-Exempt Bond Fund Trust Shares 3.13 ------------------------------------- ------------------------------ Investor Shares 2.81 ------------------------------------- ------------------------------ Flex Shares 2.43 ------------------------------------------------------- ------------------------------------- ------------------------------ Growth and Income Fund Trust Shares 0.71 ------------------------------------- ------------------------------ Investor Shares 0.50 ------------------------------------- ------------------------------ Flex Shares 0 ------------------------------------------------------- ------------------------------------- ------------------------------ High Income Fund Trust Shares 8.46 ------------------------------------- ------------------------------ Flex Shares 7.89 ------------------------------------------------------- ------------------------------------- ------------------------------ Information and Technology Fund Trust Shares 0 ------------------------------------- ------------------------------ Flex Shares 0 ------------------------------------------------------- ------------------------------------- ------------------------------ International Equity Fund Trust Shares 0 ------------------------------------- ------------------------------ Investor Shares 0 ------------------------------------- ------------------------------ Flex Shares 0 ------------------------------------------------------- ------------------------------------- ------------------------------ International Equity Index Fund Trust Shares 0 ------------------------------------- ------------------------------ Investor Shares 0 ------------------------------------- ------------------------------ Flex Shares 0 ------------------------------------------------------- ------------------------------------- ------------------------------ Investment Grade Bond Fund Trust Shares 5.49 ------------------------------------- ------------------------------ Investor Shares 4.89 ------------------------------------- ------------------------------ Flex Shares 4.60 ------------------------------------------------------- ------------------------------------- ------------------------------ Investment Grade Tax-Exempt Bond Fund Trust Shares 1.84 ------------------------------------- ------------------------------ Investor Shares 1.38 ------------------------------------- ------------------------------ Flex Shares 0.96 ------------------------------------------------------- ------------------------------------- ------------------------------ Limited-Term Federal Mortgage Securities Fund Trust Shares 4.69 ------------------------------------- ------------------------------ Investor Shares 4.25 ------------------------------------- ------------------------------ Flex Shares 4.16 ------------------------------------------------------- ------------------------------------- ------------------------------ Maryland Municipal Bond Fund Trust Shares 3.40 ------------------------------------- ------------------------------ Flex Shares 2.48 ------------------------------------------------------- ------------------------------------- ------------------------------ Mid-Cap Equity Fund Trust Shares 0 ------------------------------------- ------------------------------ Investor Shares 0 ------------------------------------- ------------------------------ Flex Shares 0 ------------------------------------------------------- ------------------------------------- ------------------------------ Mid Cap Value Equity Fund Trust Shares 0.32 ------------------------------------- ------------------------------ Flex Shares 0 ------------------------------------------------------- ------------------------------------- ------------------------------ Short-Term Bond Fund Trust Shares 4.08 ------------------------------------- ------------------------------ Investor Shares 3.78 ------------------------------------- ------------------------------ Flex Shares 3.56 ------------------------------------------------------- ------------------------------------- ------------------------------ Short-Term U.S. Treasury Securities Fund Trust Shares 2.10 ------------------------------------- ------------------------------ Investor Shares 1.92 ------------------------------------- ------------------------------ Flex Shares 1.70 ------------------------------------------------------- ------------------------------------- ------------------------------ Small Cap Growth Stock Fund Trust Shares 0 ------------------------------------- ------------------------------ Investor Shares 0 ------------------------------------- ------------------------------ Flex Shares 0 ------------------------------------------------------- ------------------------------------- ------------------------------ Small Cap Value Equity Fund Trust Shares 0.69 ------------------------------------- ------------------------------ Flex Shares 0 ------------------------------------------------------- ------------------------------------- ------------------------------ Strategic Income Fund Trust Shares 6.29 ------------------------------------- ------------------------------ Flex Shares 5.71 ------------------------------------------------------- ------------------------------------- ------------------------------ S-51 ------------------------------------------------------- ------------------------------------- ------------------------------ Tax Sensitive Growth Stock Fund Trust Shares 0 ------------------------------------- ------------------------------ Flex Shares 0 ------------------------------------------------------- ------------------------------------- ------------------------------ U.S. Government Securities Fund Trust Shares 5.11 ------------------------------------- ------------------------------ Investor Shares 4.52 ------------------------------------- ------------------------------ Flex Shares 4.19 ------------------------------------------------------- ------------------------------------- ------------------------------ Value Income Stock Fund Trust Shares 1.15 ------------------------------------- ------------------------------ Investor Shares 0.74 ------------------------------------- ------------------------------ Flex Shares 0.03 ------------------------------------------------------- ------------------------------------- ------------------------------ Vantage Fund Trust Shares 0 ------------------------------------- ------------------------------ Flex Shares 0 ------------------------------------------------------- ------------------------------------- ------------------------------ Virginia Intermediate Municipal Bond Fund Trust Shares 3.28 ------------------------------------- ------------------------------ Investor Shares 3.13 ------------------------------------------------------- ------------------------------------- ------------------------------ Virginia Municipal Bond Fund Trust Shares 3.58 ------------------------------------- ------------------------------ Flex Shares 2.66 ------------------------------------------------------- ------------------------------------- ------------------------------ ------------------------------------------------------- ------------------------------------- ------------------------------ LIFE VISION FUND CLASS OF SHARES YIELD (%) ------------------------------------------------------- ------------------------------------- ------------------------------ Life Vision Aggressive Growth Fund Trust Shares 0 ------------------------------------------------------- ------------------------------------- ------------------------------ Life Vision Growth and Income Fund Trust Shares 0.54 ------------------------------------------------------- ------------------------------------- ------------------------------ Life Vision Moderate Growth Fund Trust Shares 0.85 ------------------------------------------------------- ------------------------------------- ------------------------------
The Tax-Exempt Bond Funds' "tax equivalent yield" and "tax equivalent effective yield" are calculated by determining the rate of return that would have to be achieved on a fully taxable 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 E equals the 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 = the portion of the yield which is tax-exempt P = stated income tax rate T = the portion of the yield which is taxable Tax equivalent yields assume the payment of federal income taxes at a rate of 38.60%, for the Georgia Tax-Exempt Bond Fund, Georgia income taxes at a rate of 6.00%, for the Maryland Municipal Bond Fund, Maryland taxes at a rate of 4.80%, and for the Virginia Intermediate Municipal and Virginia Municipal Bond Funds, Virginia taxes at a rate of 5.75%. For the 30-day period ended May 31, 2002, the tax-equivalent yields for the Trust Shares were as follows: for the Florida Tax-Exempt Bond Fund 5.37%, Georgia Tax-Exempt Bond Fund 5.65%, Investment Grade Tax-Exempt Bond Fund 3.00%, Maryland Municipal Bond Fund 6.01%, Virginia Intermediate Municipal Bond Fund 5.89%, and Virginia Municipal Bond Fund 6.43%. For the 30-day period ended May 31, 2002, the tax-equivalent yields for the Investor Shares of the Tax-Exempt Funds were as follows: for the Florida Tax-Exempt Bond Fund 4.91%, Georgia Tax-Exempt Bond Fund 5.07%, Investment Grade Tax-Exempt Bond Fund 2.25%, and Virginia Intermediate Municipal Bond Fund 5.62%. For the 30-day period ended May 31, 2002, the tax-equivalent yields for the Flex Shares of the Tax-Exempt Funds were as follows: for the, Florida Tax-Exempt Bond Fund 4.30%, Georgia Tax-Exempt Bond Fund 4.39%, Investment Grade Tax-Exempt Bond Fund 1.56% Maryland Municipal Bond Fund 4.38%, and Virginia Municipal Bond Fund 4.78%. S-52 CALCULATION OF TOTAL RETURN TOTAL RETURN QUOTATION (BEFORE TAXES). The total return of a Fund refers to the average annual compounded rate of return of a hypothetical investment for designated time periods (including but not limited to, the period from which that Fund commenced operations through the specified date), assuming that the entire investment is redeemed at the end of each period. In particular, total return will be calculated according to the following formula: P (1 + T)n = ERV, where P = a hypothetical initial investment of $1,000; T = average annual total return; n = number of years; and ERV = ending redeemable value, as of the end of the designated time period, of a hypothetical $1,000 investment made at the beginning of the designated time period. TOTAL RETURN QUOTATION (AFTER-TAXES ON DISTRIBUTIONS). The total return (after-taxes on distributions) of a Fund refers to the average annual compounded rate of return, taking into account the tax impact of Fund dividends and distributions made to shareholders, of a hypothetical investment for designated time periods (including but not limited to, the period from which that Fund commenced operations through the specified date), assuming no liquidation of the investment at the end of each period. In particular, average annual total return (after-taxes on distributions) is determined by finding the average annual compounded rate of return over the one-, five-, and ten-year periods (or for periods of the Fund's operations) that would equate the initial amount invested to the after-tax value, according to the following formulas: P (1+T)n = ATVD, where P = a hypothetical initial investment of $1,000; T = average annual total return (after-taxes on distributions); n = number of years; and ATVD = value at the end of the one-, five-, or ten-year periods of a hypothetical $1,000 investment made at the beginning of the time period, after taxes on Fund distributions, and assuming no liquidation of the investment at the end of the measurement periods. The calculation assumes that all distributions by the Funds are reinvested, less the taxes due on such distributions, at the price on the reinvestment dates during the period (adjustments may be made for subsequent recharacterizations of distributions). The calculation further assumes that no taxes are due on the portions of any distributions classified as exempt interest or non-taxable (I.E., return of capital). Taxes due on distributions by the Funds are calculated by applying the highest federal marginal tax rates to each component of the distributions on the reinvestment date (E.G., ordinary income, short-term capital gain, long-term capital gain, etc.). Applicable tax rates may vary over the measurement period. Potential tax liabilities other than federal tax liabilities (E.G., state and local taxes) are not factored into the calculation. TOTAL RETURN QUOTATION (AFTER-TAXES ON DISTRIBUTIONS AND REDEMPTION). The total return (after-taxes on distributions and redemption) of a Fund refers to the average annual compounded rate of return, taking into account the tax impact of Fund dividends and distributions made to shareholders, of a hypothetical investment for designated time periods (including but not limited to, the period from which that Fund commenced operations through the specified date), assuming that the entire investment is redeemed at the end of each period. In particular, average annual total return (after-taxes on distributions) is determined by finding the average annual compounded rate of return over the one-, five-, and ten-year periods (or for periods of the Fund's operations) that would equate the initial amount invested to the after-tax value, according to the following formulas: P (1+T)n = ATVDR, where P = a hypothetical initial investment of $1,000; T = average annual total return (after-taxes on distributions and redemption); n = number of years; and ATVDR = value at the end of the one-, five-, or ten-year periods of a hypothetical $1,000 investment made at the beginning of the time period, after taxes on Fund distributions, assuming that the entire investment is redeemed at the end of each measurement period. The calculation assumes that all distributions by the Funds are reinvested, less the taxes due on such distributions, at the price on the reinvestment dates during the period (adjustments may be made for subsequent recharacterizations of distributions). The calculation further assumes that no taxes are due on the portions of any distributions classified as exempt interest or non-taxable (I.E., return of capital). Taxes due on distributions by the Funds are calculated by applying the highest federal marginal tax rates to each component of the distributions on the reinvestment date (E.G., ordinary income, short-term capital gain, long-term capital gain, etc.). Taxes due on redemptions by shareholders are calculated by subtracting the capital gains taxes resulting from the redemption and adding the tax benefit from capital losses resulting from the redemption. Applicable tax rates may vary over the measurement period. Potential tax liabilities other than federal tax liabilities (E.G., state and local taxes) are not factored into the calculation. S-53 HISTORICAL PERFORMANCE. The average annual total return (before taxes) for each fund, and the total return (after-taxes on distributions) and total return (after-taxes on distributions and redemption) for the Tax Sensitive Growth Stock Fund was as follows for the one-year, five-year, ten-year and since inception periods ended May 31, 2002.
- ---------------------------------------------------------------------------- ----------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN (%) - ---------------------------------------------------------------------------- ----------------------------------------------------- SINCE FUND (INCEPTION DATE) ONE YEAR FIVE YEAR TEN YEAR INCEPTION - ---------------------------------------------------------------------------- ------------ ------------ ------------- ------------- Balanced Fund Trust Shares (01/03/94) (3.29) 7.29 * 9.08 --------------------------------------- ------------ ------------ ------------- ------------- Investor Shares--With Sales Load (01/03/94) (7.21) 6.13 * 8.20 --------------------------------------- ------------ ------------ ------------- ------------- Investor Shares--Without Sales Load (01/03/94) (3.57) 6.95 * 8.70 --------------------------------------- ------------ ------------ ------------- ------------- Flex Share--With Sales Load (06/14/95) (6.18) 6.14 * 8.71 --------------------------------------- ------------ ------------ ------------- ------------- Flex Shares--Without Sales Load (06/14/95) (4.33) 6.14 * 8.71 - ---------------------------------------------------------------------------- ------------ ------------ ------------- ------------- Capital Appreciation Fund Trust Shares (07/01/92) (11.06) 7.32 * 11.53 --------------------------------------- ------------ ------------ ------------- ------------- Investor Shares--With Sales Load (06/09/92) (14.99) 5.83 * 10.72 --------------------------------------- ------------ ------------ ------------- ------------- Investor Shares--Without Sales Load (06/09/92) (11.68) 6.65 * 11.15 --------------------------------------- ------------ ------------ ------------- ------------- Flex Shares--With Sales Load (06/01/95) (13.79) 6.14 * 11.31 --------------------------------------- ------------ ------------ ------------- ------------- Flex Shares--Without Sales Load (06/01/95) (12.05) 6.14 * 11.31 - ---------------------------------------------------------------------------- ------------ ------------ ------------- ------------- Florida Tax-Exempt Bond Fund Trust Shares (01/25/94) 5.88 5.86 * 5.78 --------------------------------------- ------------ ------------ ------------- ------------- Investor Shares--With Sales Load (01/18/94) 1.70 4.83 * 5.08 --------------------------------------- ------------ ------------ ------------- ------------- Investor Shares--Without Sales Load (01/18/94) 5.66 5.63 * 5.56 --------------------------------------- ------------ ------------ ------------- ------------- Flex Shares--With Sales Load (06/01/95) 3.15 5.14 * 5.06 --------------------------------------- ------------ ------------ ------------- ------------- Flex Shares--Without Sales Load (06/01/95) 5.15 5.14 * 5.06 - ---------------------------------------------------------------------------- ------------ ------------ ------------- ------------- Georgia Tax-Exempt Bond Fund Trust Shares (01/18/94) 5.81 5.38 * 4.74 --------------------------------------- ------------ ------------ ------------- ------------- Investor Shares--With Sales Load (01/19/94) 1.66 4.37 * 4.07 --------------------------------------- ------------ ------------ ------------- ------------- Investor Shares--Without Sales Load (01/19/94) 5.58 5.17 * 4.55 --------------------------------------- ------------ ------------ ------------- ------------- Flex Shares--With Sales Load (06/06/95) 3.07 4.67 * 4.53 --------------------------------------- ------------ ------------ ------------- ------------- Flex Shares--Without Sales Load (06/06/95) 5.07 4.67 * 4.53 - ---------------------------------------------------------------------------- ------------ ------------ ------------- ------------- Growth and Income Fund Trust Shares (09/26/92) (7.80) 7.05 * 11.43 --------------------------------------- ------------ ------------ ------------- ------------- Investor Shares--With Load (05/07/93) (11.42) 6.11 * 10.37 --------------------------------------- ------------ ------------ ------------- ------------- Investor Shares--Without Load (05/07/93) (7.97) 6.93 * 10.84 --------------------------------------- ------------ ------------ ------------- ------------- Flex Shares--With Load (04/05/95) (10.52) 6.15 * 10.99 --------------------------------------- ------------ ------------ ------------- ------------- Flex Shares--Without Load (04/05/95) (8.69) 6.15 * 10.99 - ---------------------------------------------------------------------------- ------------ ------------ ------------- ------------- High Income Fund Trust Shares (10/03/01) N/A * * N/A --------------------------------------- ------------ ------------ ------------- ------------- Flex Shares--With Sales Load (05/04/94) (0.43) 1.16 * 3.04 --------------------------------------- ------------ ------------ ------------- ------------- Flex Shares--Without Sales Load (05/04/94) 1.46 1.16 * 3.04 - ---------------------------------------------------------------------------- ------------ ------------ ------------- ------------- Information and Technology Fund Trust Shares (09/30/99) (39.58) * * (7.77) --------------------------------------- ------------ ------------ ------------- ------------- Flex Shares--With Load (01/24/00) (41.42) * * (8.62) --------------------------------------- ------------ ------------ ------------- ------------- Flex Shares--Without Load (01/24/00) (40.23) * * (8.62) - ---------------------------------------------------------------------------- ------------ ------------ ------------- ------------- S-54 - ---------------------------------------------------------------------------- ------------ ------------ ------------- ------------- International Equity Fund Trust Shares (12/01/95) (8.64) 0.33 * 9.17 --------------------------------------- ------------ ------------ ------------- ------------- Investor Shares--With Sales Load (01/02/96) (12.29) (0.80) * 8.25 --------------------------------------- ------------ ------------ ------------- ------------- Investor Shares--Without Sales Load (01/02/96) (8.90) (0.04) * 8.81 --------------------------------------- ------------ ------------ ------------- ------------- Flex Shares--With Sales Load (01/02/96) (11.42) (0.75) * 8.17 --------------------------------------- ------------ ------------ ------------- ------------- Flex Shares--Without Sales Load (01/02/96) (9.61) (0.75) * 8.17 - ---------------------------------------------------------------------------- ------------ ------------ ------------- ------------- International Equity Index Fund Trust Shares (06/06/94) (12.43) 2.84 * 4.19 --------------------------------------- ------------ ------------ ------------- ------------- Investor Shares--With Sales Load (06/06/94) (15.92) 1.62 * 3.26 --------------------------------------- ------------ ------------ ------------- ------------- Investor Shares--Without Sales Load (06/06/94) (12.65) 2.40 * 3.76 --------------------------------------- ------------ ------------ ------------- ------------- Flex Shares--With Sales Load (06/08/95) (15.00) 1.74 * 3.30 --------------------------------------- ------------ ------------ ------------- ------------- Flex Shares--Without Sales Load (06/08/95) (13.27) 1.74 * 3.30 - ---------------------------------------------------------------------------- ------------ ------------ ------------- ------------- Investment Grade Bond Fund Trust Shares (07/16/92) 5.18 6.29 * 6.27 --------------------------------------- ------------ ------------ ------------- ------------- Investor Shares--With Sales Load (06/11/92) 0.86 5.07 * 5.53 --------------------------------------- ------------ ------------ ------------- ------------- Investor Shares--Without Sales Load (06/11/92) 4.81 5.88 * 5.94 --------------------------------------- ------------ ------------ ------------- ------------- Flex Shares--With Sales Load (06/07/95) 2.27 5.37 * 5.07 --------------------------------------- ------------ ------------ ------------- ------------- Flex Shares -Without Sales Load (06/07/95) 4.27 5.37 * 5.07 - ---------------------------------------------------------------------------- ------------ ------------ ------------- ------------- Investment Grade Tax-Exempt Trust Shares (10/21/93) 7.15 6.50 * 6.30 Bond Fund --------------------------------------- ------------ ------------ ------------- ------------- Investor Shares--With Sales Load (06/09/92) 2.74 5.23 * 6.51 --------------------------------------- ------------ ------------ ------------- ------------- Investor Shares--Without Sales Load (06/09/92) 6.71 6.05 * 6.92 --------------------------------------- ------------ ------------ ------------- ------------- Flex Shares--With Sales Load (06/01/95) 4.21 5.54 * 5.55 --------------------------------------- ------------ ------------ ------------- ------------- Flex Shares--Without Sales Load (06/01/95) 6.21 5.54 * 5.55 - ---------------------------------------------------------------------------- ------------- ------------ ------------- ------------- Limited-Term Federal Mortgage Trust Shares (06/06/94) 7.53 6.32 * 6.31 Securities Fund --------------------------------------- ------------ ------------ ------------- ------------- Investor Shares--With Sales Load (07/18/94) 4.45 5.49 * 5.80 --------------------------------------- ------------ ------------ ------------- ------------- Investor Shares--Without Sales Load (07/18/94) 7.16 6.04 * 6.15 --------------------------------------- ------------ ------------ ------------- ------------- Flex Shares--With Sales Load (06/07/95) 4.83 5.70 * 5.49 --------------------------------------- ------------ ------------ ------------- ------------- Flex Shares--Without Sales Load (06/07/95) 6.83 5.70 * 5.49 - ---------------------------------------------------------------------------- ------------ ------------ ------------- ------------- Maryland Municipal Bond Fund Trust Shares (03/01/96) 5.80 5.66 * 4.78 --------------------------------------- ------------ ------------ ------------- ------------- Flex Shares--With Sales Load (04/25/96) 2.84 4.73 * 4.71 --------------------------------------- ------------ ------------ ------------- ------------- Flex Shares--Without Sales Load (04/25/96) 4.84 4.73 * 4.71 - ---------------------------------------------------------------------------- ------------ ------------ ------------- ------------- Mid-Cap Equity Fund Trust Shares (02/02/94) (10.59) 4.06 * 8.30 --------------------------------------- ------------ ------------ ------------- ------------- Investor Shares--With Sales Load (01/31/94) (14.30) 2.80 * 7.29 --------------------------------------- ------------ ------------ ------------- ------------- Investor Shares--Without Sales Load (01/31/94) (11.00) 3.58 * 7.78 --------------------------------------- ------------ ------------ ------------- ------------- Flex Shares -With Sales Load (06/05/95) (13.31) 2.96 * 7.02 --------------------------------------- ------------ ------------ ------------- ------------- Flex Shares--Without Sales Load (06/05/95) (11.54) 2.96 * 7.02 - ---------------------------------------------------------------------------- ------------ ------------ ------------- ------------- S-55 - ---------------------------------------------------------------------------- ------------ ------------ ------------- ------------- Mid Cap Value Equity Fund Trust Shares (11/30/01) N/A * * N/A --------------------------------------- ------------ ------------ ------------- ------------- Flex Shares - With Sales Load (11/30/01) N/A * * N/A --------------------------------------- ------------ ------------ ------------- ------------- Flex Shares - Without Sales Load (11/30/01) N/A * * N/A - ---------------------------------------------------------------------------- ------------ ------------ ------------- ------------- Prime Quality Money Market Fund Trust Shares (06/08/02) 2.29 4.65 * 4.41 --------------------------------------- ------------ ------------ ------------- ------------- Investor Shares (06/08/92) 2.11 4.47 * 4.23 --------------------------------------- ------------ ------------ ------------- ------------- Flex Shares (10/04/99) 1.36 * * 3.40 - ---------------------------------------------------------------------------- ------------ ------------ ------------- ------------- Short-Term Bond Fund Trust Shares (03/15/93) 4.29 5.70 * 5.40 --------------------------------------- ------------ ------------ ------------- ------------- Investor Shares--With Sales Load (03/22/93) 2.06 5.11 * 4.91 --------------------------------------- ------------ ------------ ------------- ------------- Investor Shares--Without Sales Load (03/22/93) 4.19 5.53 * 5.15 --------------------------------------- ------------ ------------ ------------- ------------- Flex Shares--With Sales Load (06/20/95) 1.76 5.17 * 5.04 --------------------------------------- ------------ ------------ ------------- ------------- Flex Shares--Without Sales Load (06/20/95) 3.75 5.17 * 5.04 - ---------------------------------------------------------------------------- ------------ ------------ ------------- ------------- Short-Term U.S. Treasury Trust Shares (03/15/93) 4.69 5.46 * 5.05 Securities Fund --------------------------------------- ------------ ------------ ------------- ------------- Investor Shares--With Sales Load (03/18/93) 3.42 5.07 * 4.76 --------------------------------------- ------------ ------------ ------------- ------------- Investor Shares--Without Sales Load (03/18/93) 4.44 5.28 * 4.88 --------------------------------------- ------------ ------------ ------------- ------------- Flex Shares--With Sales Load (06/22/95) 2.29 5.09 * 4.92 --------------------------------------- ------------ ------------ ------------- ------------- Flex Shares--Without Sales Load (06/22/95) 4.29 5.09 * 4.92 - ---------------------------------------------------------------------------- ------------ ------------ ------------- ------------- Small Cap Growth Stock Fund Trust Shares (10/08/98) (5.55) * * 19.20 --------------------------------------- ------------ ------------ ------------- ------------- Investor Shares--With Sales Load (12/12/99) (9.38) * * 17.66 --------------------------------------- ------------ ------------ ------------- ------------- Investor Shares--Without Sales Load (12/12/99) (5.86) * * 18.90 --------------------------------------- ------------ ------------ ------------- ------------- Flex Shares--With Sales Load (10/08/98) (8.36) * * 17.99 --------------------------------------- ------------ ------------ ------------- ------------- Flex Shares--Without Sales Load (10/08/98) (6.50) * * 17.99 - ---------------------------------------------------------------------------- ------------ ------------ ------------- ------------- Small Cap Value Equity Fund Trust Shares (01/31/97) 20.06 9.32 * 15.93 --------------------------------------- ------------ ------------ ------------- ------------- Flex Shares--With Sales Load (06/06/97) 16.92 8.20 * 15.16 --------------------------------------- ------------ ------------ ------------- ------------- Flex Shares--Without Sales Load (06/06/97) 18.92 8.20 * 15.16 - ---------------------------------------------------------------------------- ------------ ------------ ------------- ------------- Strategic Income Fund Trust Shares (11/30/01) N/A * * N/A --------------------------------------- ------------ ------------ ------------- ------------- Flex Shares - With Sales Load (11/30/01) N/A * * N/A --------------------------------------- ------------ ------------ ------------- ------------- Flex Shares - Without Sales Load (11/30/01) N/A * * N/A - ---------------------------------------------------------------------------- ------------ ------------ ------------- ------------- Tax-Exempt Money Market Fund Trust Shares (06/08/92) 1.38 2.81 * 2.77 --------------------------------------- ------------ ------------ ------------- ------------- Investor Shares (06/08/92) 1.26 2.69 * 2.65 - ---------------------------------------------------------------------------- ------------ ------------ ------------- ------------- Tax Sensitive Growth Stock Fund Trust Shares (12/11/98) (13.05) 4.47 * 9.00 --------------------------------------- ------------ ------------ ------------- ------------- AFTER-TAX ON DISTRIBUTIONS (TRUST SHARES) (13.05) N/A * (2.74) --------------------------------------- ------------ ------------ ------------- ------------- AFTER-TAX ON DISTRIBUTIONS AND REDEMPTION (TRUST SHARES) (8.01) N/A * (2.17) --------------------------------------- ------------ ------------ ------------- ------------- Flex Shares--With Sales Load (12/15/98) (15.70) 3.73 * 8.40 --------------------------------------- ------------ ------------ ------------- ------------- Flex Shares--Without Sales Load (12/15/98) (13.98) 3.73 * 8.40 - ---------------------------------------------------------------------------- ------------ ------------ ------------- ------------- U.S. Government Securities Trust Shares (06/08/92) 2.25 4.45 * 4.25 Money Market Fund --------------------------------------- ------------ ------------ ------------- ------------- Investor Shares (06/08/92) 2.11 4.30 * 4.10 - ---------------------------------------------------------------------------- ------------ ------------ ------------- ------------- S-56 - ---------------------------------------------------------------------------- ------------ ------------ ------------- ------------- U.S. Government Securities Fund Trust Shares (08/01/94) 7.90 7.05 * 6.91 --------------------------------------- ------------ ------------ ------------- ------------- Investor Shares--With Sales Load (06/09/94) 3.49 5.80 * 5.91 --------------------------------------- ------------ ------------ ------------- ------------- Investor Shares--Without Sales Load (06/09/94) 7.47 6.61 * 6.42 --------------------------------------- ------------ ------------ ------------- ------------- Flex Shares-With Sales Load (06/07/95) 5.06 6.13 * 5.52 --------------------------------------- ------------ ------------ ------------- ------------- Flex Shares--Without Sales Load (06/07/95) 7.06 6.13 * 5.52 - ---------------------------------------------------------------------------- ------------ ------------ ------------- ------------- U.S. Treasury Money Market Fund Trust Shares (02/18/87) 1.96 4.32 4.14 5.09 - ---------------------------------------------------------------------------- ------------ ------------ ------------- ------------- Value Income Stock Fund Trust Shares (02/12/93) (3.68) 6.11 11.76 12.93 --------------------------------------- ------------ ------------ ------------- ------------- Investor Shares--With Sales Load (02/17/93) (7.73) 4.90 10.92 12.25 --------------------------------------- ------------ ------------ ------------- ------------- Investor Shares--Without Sales Load (02/17/93) (4.14) 5.70 11.35 12.60 --------------------------------------- ------------ ------------ ------------- ------------- Flex Shares--With Sales Load (06/01/95) (6.73) 4.93 10.90 12.24 --------------------------------------- ------------ ------------ ------------- ------------- Flex Shares--Without Sales Load (06/01/95) (4.82) 4.93 10.90 12.24 - ---------------------------------------------------------------------------- ------------ ------------ ------------- ------------- Vantage Fund Trust Shares (11/30/01) N/A * * N/A --------------------------------------- ------------ ------------ ------------- ------------- Flex Shares - With Sales Load (03/11/02) N/A * * N/A --------------------------------------- ------------ ------------ ------------- ------------- Flex Shares - Without Sales Load (03/11/02) N/A * * N/A - ---------------------------------------------------------------------------- ------------ ------------ ------------- ------------- Virginia Intermediate Trust Shares (01/11/93) 5.52 5.01 * 4.88 Municipal Bond Fund --------------------------------------- ------------ ------------ ------------- ------------- Investor Shares--With Sales Load (05/05/93) 1.47 4.22 * 4.18 --------------------------------------- ------------ ------------ ------------- ------------- Investor Shares--Without Sales Load (05/05/93) 5.47 5.02 * 4.63 - ---------------------------------------------------------------------------- ------------ ------------ ------------- ------------- Virginia Municipal Bond Fund Trust Shares (04/04/95) 5.90 5.34 * 5.40 --------------------------------------- ------------ ------------ ------------- ------------- Flex Shares-- With Sales Load (04/04/95) 2.93 4.40 * 4.42 --------------------------------------- ------------ ------------ ------------- ------------- Flex Shares-- Without Sales Load (04/04/95) 4.93 4.40 * 4.42 - ---------------------------------------------------------------------------- ------------ ------------ ------------- ------------- Virginia Tax-Free Money Trust Shares (06/15/89) 1.44 2.80 2.70 3.25 Market Fund --------------------------------------- ------------ ------------ ------------- ------------- Investor Shares (05/05/93) 1.27 2.70 * 2.67 - ---------------------------------------------------------------------------- ------------ ------------ ------------- -------------
-------------------------------------------- -------------------- ------------------ ----------------- ------------------- LIFE VISION FUND ONE YEAR (%) FIVE YEARS (%) TEN YEARS (%) SINCE INCEPTION -------------------------------------------- -------------------- ------------------ ----------------- ------------------- Life Vision Aggressive Growth Fund (06/30/97) (6.96) 6.15 * 9.35 -------------------------------------------- -------------------- ------------------ ----------------- ------------------- Life Vision Growth and Income Fund (06/30/97) (2.97) 6.57 * 8.50 -------------------------------------------- -------------------- ------------------ ----------------- ------------------- Life Vision Moderate Growth Fund (06/30/97) (1.52) 6.19 * 7.79 -------------------------------------------- -------------------- ------------------ ----------------- -------------------
* An asterisk indicates that the Fund was not in operation for the entire period. PURCHASING AND REDEEMING 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. Shares of each Fund are offered and redeemed on a continuous basis. Currently, the NYSE is closed on the days the following holidays are observed: New Year's Day, Presidents' Day, Martin Luther King, Jr. Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. S-57 While the Trust does not accept cash as payment for Fund shares, it is currently the Trust's policy to pay for all redemptions in cash. The Trust retains the right, however, to alter this policy to provide for redemptions in whole or in part by a distribution in-kind of readily marketable securities held by the Funds in lieu of cash. Shareholders may incur brokerage charges on the sale of any such securities so received in payment of redemptions. A Shareholder will at all times be entitled to aggregate cash redemptions from all Funds of the Trust up to the lesser of $250,000 or 1% of the Trust's net assets during any 90-day period. The Trust has obtained an exemptive order from the SEC that permits the Trust to make in-kind redemptions to those shareholders of the Trust that are affiliated with the Trust solely by their ownership of a certain percentage of the Trust's investment portfolios. 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 SEC by rule or regulation) as a result of disposal or valuation of a Fund's securities is not reasonably practicable, or for such other periods as the SEC has by order permitted. The Trust also reserves the right to suspend sales of shares of a Fund for any period during which the NYSE, the Adviser, the Administrator and/or the Custodian are not open for business. The Trust reserves the right to waive any minimum investment requirements or sales charges for immediate family members of the Trustees or officers of the Trust or employees of the Adviser. "Immediate family" means a spouse, mother, father, mother-in-law, father-in-law or children (including step-children) age 21 years or under. If determined to be in the best interests of shareholders, the Trust also reserves the right to impose a redemption fee of up to 2% on Market Times as described in the Trust's prospectuses payable directly to the Fund. DETERMINATION OF NET ASSET VALUE GENERAL POLICY. Each of the Funds adheres to Section 2(a)(41), and Rules 2a-4 and 2a-7 thereunder, of the 1940 Act with respect to the valuation of portfolio securities. In general, securities for which market quotations are readily available are valued at current market value, and all other securities are valued at fair value as determined in good faith by the Trusts' Board of Trustees. In complying with the 1940 Act, the Trust relies on guidance provided by the SEC and by the SEC staff in various interpretive letters and other guidance. EQUITY SECURITIES. Securities listed on a securities exchange, market or automated quotation system for which quotations are readily available, including securities traded over the counter, are valued at the last quoted sale price on the principal exchange or market (foreign or domestic) on which they are traded on valuation date (or at approximately 4:00 p.m., ET if a security's principal exchange is normally open at that time), or, if there is no such reported sale on the valuation date, at the most recent quoted bid price. If such prices are not available, the security will be valued at fair value as determined in good faith by the Trust's Board of Trustees. MONEY MARKET SECURITIES AND OTHER DEBT SECURITIES. If available, Money Market Securities and other debt securities are priced based upon valuations provided by recognized independent, third-party pricing agents. Such values generally reflect the last reported sales price if the security is actively traded. The third-party pricing agents may also value debt securities by employing methodologies that utilize actual market transactions, broker-supplied valuations, or other methodologies designed to identify the market value for such securities. Such methodologies generally consider such factors as security prices, yields, maturities, call features, ratings and developments relating to specific securities in arriving at valuations. Money Market Securities and other debt securities with remaining maturities of sixty days or less may be valued at their amortized cost, which approximates market value. If such prices are not available, the security will be valued at fair value as determined in good faith by the Trust's Board of Trustees. USE OF THIRD-PARTY INDEPENDENT PRICING AGENTS. Pursuant to contracts with the Trust's Administrator, prices for most securities held by the Funds are provided daily by third-party independent pricing agents that are approved by the Board of Trustees of the Trust. The valuations provided by third-party independent pricing agents are reviewed daily by the Administrator. S-58 AMORTIZED COST METHOD OF VALUATION. The amortized cost method 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. 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 one-half 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. TAXES The following is a summary of certain Federal income tax considerations generally affecting the Funds and their shareholders. No attempt is made to present a detailed explanation of the Federal tax treatment of a Fund or its shareholders, and the discussion here and in the Trust's prospectuses is not intended as a substitute for careful tax planning. Further, this discussion does not address the tax considerations affecting any Contract Owner. Federal income tax considerations affecting such Owners is discussed in the prospectuses and the statement of additional information for such Contract. FEDERAL INCOME TAX This discussion of Federal income tax considerations is based on the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations issued thereunder, in effect on the date of this Statement of Additional Information. New legislation, as well as administrative changes or court decisions may change the conclusions expressed herein, and may have a retroactive effect with respect to the transactions contemplated herein. In order to qualify for treatment as a regulated investment company ("RIC") under the Code, the Funds must distribute annually to its shareholders at least the sum of 90% of its net investment income excludable from gross income plus 90% of its investment company taxable income (generally, net investment income plus net short-term capital gain) (the "Distribution Requirement") and also must meet several additional requirements. Among these requirements are the following: (i) at least 90% of a Fund's gross income each taxable year must be derived from dividends, interest, payments with respect to securities loans, and gains from the sale or other disposition of stock or securities, or certain other income, (ii) at the close of each quarter of a Fund's taxable year, at least 50% of the S-59 value of its total assets must be represented by cash and cash items, U.S. government securities, securities of other RICs and other securities, with such other securities limited, in respect to any one issuer, to an amount that does not exceed 5% of the value of a Fund's assets and that does not represent more than 10% of the outstanding voting securities of such issuer; and (iii) at the close of each quarter of a Fund's taxable year, not more than 25% of the value of the Fund's assets may be invested in securities (other than U.S. government securities or the securities of other RICs) of any one issuer, or of two or more issuers engaged in same or similar businesses if a Fund owns at least 20% of the voting power of such issuers. Notwithstanding the Distribution Requirement described above, which only requires a Fund to distribute at least 90% of its annual investment company taxable income and does not require any minimum distribution of net capital gains (the excess of net long-term capital gains over net short-term capital loss), a Fund will be subject to a nondeductible 4% excise tax to the extent it fails to distribute by the end of any calendar year 98% of its ordinary income for that year and 98% of its capital gain net income for the one-year period ending on October 31 of that year (and any retained amount from that prior calendar year on which the Fund paid no federal income tax). The Funds intend to make sufficient distributions prior to the end of each calendar year to avoid liability for the Federal excise tax applicable to regulated investment companies but can make no assurances that distributions will be sufficient to avoid this tax. If a Fund fails to maintain qualification as a RIC for a tax year, that Fund will be subject to federal income tax on its taxable income and gains at corporate rates, without any benefit for distributions paid to shareholders, and distributions to shareholders will be taxed as ordinary income to the extent of that Fund's current and accumulated earnings and profits. In such case, the dividends received deduction generally will be available for eligible corporate shareholders (subject to certain limitations). The board reserve the right not to maintain qualification of a Fund as a RIC if it determines such course of action to be beneficial to shareholders. Each Fund may invest in complex securities. The Vantage Fund expects to invest a significant portion of its portfolio in such securities. These investments may be subject to numerous special and complex tax rules. These rules could affect whether gains and losses recognized by a Fund are treated as ordinary income or capital gains, accelerate the recognition of income to a Fund, and/or defer a Fund's ability to recognize losses. In turn, these rules may affect the amount, timing or character of the income distributed to shareholders by a Fund. The Bond Funds and Money Market Funds receive income generally in the form of interest derived from Fund investments. This income, less expenses incurred in the operation of a Fund, constitutes its net investment income from which dividends may be paid to shareholders. Any distributions by a Fund may be taxable to shareholders regardless of whether they are received in cash or additional shares. A Fund may derive capital gains and losses in connection with sales or other dispositions of its portfolio securities. Distributions of net short-term capital gains will be taxable to shareholders as ordinary income. In general, the Bond Funds and Money Market Funds do not expect to realize net-long term capital gains because the Bond Funds and the portion of such Funds' distributions are expected to be eligible for the corporate dividends received deduction. Gains and losses on the sale of a Money Market Fund's portfolio securities and unrealized appreciation or depreciation in the value of such securities may require a Fund to adjust distributions in order to maintain a $1.00 net asset value. These procedures may result in under- or over- distributions of net investment income. The Equity Funds receive income generally in the form of dividends and interest on Fund investments. This income, less expenses incurred in the operation of a Fund, constitutes its net investment income from which dividends may be paid to you. Any distributions by a Fund may be taxable to shareholders regardless of whether they are received in cash or in additional shares. The Equity Funds may derive capital gains and losses in connection with sales or other dispositions of each Fund's portfolio securities. Distributions from net short-term capital gains will be taxable to you as ordinary income. Distributions from net long-term capital gains will be taxable to you as long-term capital gains regardless of how long you have held your shares in the fund. Shareholders who have not held Fund shares for a full year should be aware that a Fund may designate and distribute, as ordinary income or capital gain, a percentage of income that is not equal to the actual amount of such income earned during the period of investment in a Fund. S-60 If a Fund's distributions exceed its taxable income and capital gains realized during a taxable year, all or a portion of the distributions made in the same taxable year may be recharacterized as a return of capital to shareholders. A return of capital distribution will generally not be taxable, but will reduce each shareholder's cost basis in a Fund and result in higher reported capital gain or lower reported capital loss when those shares on which distribution was received are sold. If a shareholder that is a tax-exempt investor (E.G., a pension plan, individual retirement account, 401(k), similar tax-advantaged plan, charitable organization, etc.) incurs debt to finance the acquisition of its shares, a portion of the income received by that shareholder with respect to its shares would constitute unrelated business taxable income ("UBTI"). A tax-exempt investor is generally subject to federal income tax to the extent that its UBTI for a taxable year exceeds its annual $1,000 exclusion. SALE, REDEMPTION OR EXCHANGE OF FUND SHARES Sales, redemptions and exchanges of Fund shares are generally taxable transactions for federal, state and local income tax purposes. Any gain or loss recognized on a sale or redemption of shares of a Fund by a shareholder who holds their shares as a capital asset will generally be treated as long-term capital gain or loss if the shares have been held for more than one year, and short-term if for a year or less. If shares held for six months or less are sold or redeemed for a loss, two special rules apply. First, 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 long-term capital loss to the extent of the long-term capital gain distributions. Second, any loss recognized by a shareholder upon the sale or redemption of shares of a tax-exempt fund held for six months or less will be disallowed to the extent of any exempt-interest dividends received by the shareholder with respect to such shares. All or a portion of any loss that you realize upon the redemption of your fund shares will be disallowed to the extent that you buy other shares in a Fund (through reinvestment of dividends or otherwise) within 30 days before or after your share redemption. Any loss disallowed under these rules will be added to your tax basis in the new shares you buy. With respect to the Money Market Funds, because each Fund seeks to maintain a stable $1.00 net asset value per share, you should not expect to realize a capital gain or loss upon redemption or exchange of your Fund shares. TAX-EXEMPT FUNDS If, at the close of each quarter of its taxable year, at least 50% of the value of a Fund's total assets consists of obligations the interest on which is excludable from gross income, such Fund may pay "exempt-interest dividends," as defined in Section 852(b)(5) of the Code, to its shareholders. As noted in their prospectuses, the Tax-Exempt Money Market Fund, the Virginia Tax-Free 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. The Alternative Minimum Tax is imposed at 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 Alternative Minimum 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 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. S-61 Distributions of exempt-interest dividends may result in additional federal income tax consequences to shareholders in tax-exempt funds. For example, interest on indebtedness incurred by shareholders to purchase or carry shares of a tax-exempt 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 U. S. 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% 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-exempt 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 in a trade or business a facility financed from the proceeds of industrial development bonds or private activity bonds. Such entities or persons should consult their tax advisor before purchasing shares of a tax-exempt fund. Issuers of bonds purchased by a tax-exempt 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 of issuance of the bonds to which such dividends are attributable 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. The Funds will make annual reports to shareholders of the federal income tax status of all distributions. In certain cases, a Fund will be required to withhold, at the applicable witholding rates, an amount from any distributions and redemptions to shareholders, and to remit such amount to the Internal Revenue Service ("IRS") if the shareholder: (1) has failed to provide a correct taxpayer identification number, (2) is subject to backup withholding by the IRS, or (3) has failed to provide the Fund with certain certifications that are required by the IRS, or (4) has failed to certify that he or she is a U.S. person (including a U.S. resident alien). STATE TAXES A Fund is not liable for any income or franchise tax in Massachusetts if it qualifies as a RIC for federal income tax purposes. Distributions by the Funds to Investors and the ownership of shares may be subject to state and local taxes. Shareholders are urged to consult their tax advisor regarding state and local taxes affecting an investment in shares of a Fund. Many states grant tax-free status to dividends paid to you from interest earned on direct obligations of the U.S. government, subject in some states to minimum investment requirements that must be met by a Fund. Investments in Government National Mortgage Association and Fannie Mae securities, bankers' acceptances, commercial paper and repurchase agreements collaterized by U.S. government securities do not generally qualify for tax-free treatment. The rules on exclusion of this income are different for corporations. S-62 FOREIGN TAXES Dividends and interests received by a Fund may be subject to income, withholding or other taxes imposed by foreign countries and U.S. possessions that would reduce the yield on the Fund's stock or securities. Tax conventions between certain countries and the United States may reduce or eliminate these taxes. Foreign countries generally do not impose taxes on capital gains with respect to investments by foreign investors. If the International Equity Index and International Equity Funds meet the Distribution Requirement, and if more than 50% of the value of each such Fund's total assets at the close of their respective taxable years consist of stocks or securities of foreign corporations, each Fund will be eligible to, and will, file an election with the Internal Revenue Service that may enable shareholders, in effect, to receive either the benefit of a foreign tax credit, or a deduction from such taxes, with respect to any foreign and U.S. possessions income taxes paid by the Funds, subject to certain limitations. Pursuant to the election, each Fund will treat those taxes as dividends paid to its shareholders. Each such 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 any foreign tax credit they may be entitled to use against the shareholders' federal income tax. If either of the two above-mentioned 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 the Funds (I.E., may affect whether gains or losses are ordinary or capital), accelerate recognition of income to the Funds and defer 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 positions in their portfolios (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 intends to monitor its transactions, intends to make the appropriate tax elections, and intends to make the appropriate entries in its books and records when it acquires any foreign currency or forward foreign currency contract in order to mitigate the effect of these rules so as to prevent disqualification of the Fund as a RIC and minimize the imposition of income and excise taxes. FUND TRANSACTIONS The Trust has no obligation to deal with any dealer or group of dealers in the execution of transactions in portfolio securities. Subject to policies established by the Trustees, an Adviser is responsible for placing the orders to execute transactions for a Fund. In placing orders, it is the policy of the Trust to seek to obtain the best net results taking into account such factors as price (including the applicable dealer spread), the size, type and difficulty of the transaction involved, the firm's general execution and operational facilities, and the firm's risk in positioning the securities involved. While the Adviser generally seeks reasonably competitive spreads or commissions, the Trust will not necessarily be paying the lowest spread or commission available. The money market securities in which the Funds invest are traded primarily in the over-the-counter market. Bonds and debentures are usually traded over-the-counter, but may be traded on an exchange. Where possible, the Adviser 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. BROKERAGE TRANSACTIONS. 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 S-63 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. The Trust may allocate out of all commission business generated by all of the funds and accounts under management by the Adviser, brokerage business to brokers or dealers who provide brokerage and research services. These research services include advice, either directly or through publications or writings, as to the value of securities, the advisability of investing in, purchasing or selling securities, and the availability of securities or purchasers or sellers of securities; furnishing of analyses and reports concerning issuers, securities or industries; providing information on economic factors and trends, assisting in determining portfolio strategy, providing computer software used in security analyses, and providing portfolio performance evaluation and technical market analyses. Such services are used by the Adviser 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. In addition, the Adviser may place a combined order for two or more accounts it manages, including a Fund, 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. Although it is recognized that, in some cases, the joint execution of orders could adversely affect the price or volume of the security that a particular account or the Fund may obtain, it is the opinion of the Adviser and the Trust's Board of Trustees that the advantages of combined orders outweigh the possible disadvantages of separate transactions. Nonetheless, the Adviser believes that the ability of a Fund to participate in higher volume transactions will generally be beneficial to the Fund. Consistent with the Conduct Rules of the National Association of Securities Dealers, Inc., and subject to seeking best price and execution, the Funds, at the request of the Distributor, give consideration to sales of shares of the Trust as a factor in the selection of brokers and dealers to execute Trust portfolio transactions. It is expected that the Trust may execute brokerage or other agency transactions through the Distributor or an affiliate of the Adviser, both of which are registered broker-dealers, for a commission in conformity with the 1940 Act, the 1934 Act and rules promulgated by the SEC. Under these provisions, the Distributor or an affiliate of the Adviser is permitted to receive and retain compensation for effecting portfolio transactions for the Trust on an exchange if a written contract is in effect between the Distributor and the Trust expressly permitting the Distributor or an affiliate of the Adviser 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 S-64 fair compared to the commission, fee or other remuneration received or to be received by other brokers in connection with comparable transactions involving similar securities being purchased or sold on a securities exchange during a comparable period of time." In addition, the Trust may direct commission business to one or more designated broker-dealers in connection with such broker/dealer's provision of services to the Trust or payment of certain Trust expenses (E.G., custody, pricing and professional fees). The Trustees, including those who are not "interested persons" of the Trust, as defined in the 1940 Act, have adopted procedures for evaluating the reasonableness of commissions paid to the Distributor, and will review these procedures periodically. For the fiscal years ended May 31, 2002, 2001 and 2000, the Funds paid the following aggregate brokerage commissions on portfolio transactions:
-------------------------------------------------- ----------------------------------------------------------- AGGREGATE DOLLAR AMOUNT OF BROKERAGE COMMISSIONS PAID ($) ----------------------------------------------------------- FUND 2002 2001 2000 -------------------------------------------------- ----------------- ---------------------- ------------------ Balanced Fund 347,574 318,692 721,707 -------------------------------------------------- ----------------- ---------------------- ------------------ Capital Appreciation Fund 2,962,862 2,834,653 6,562,103 -------------------------------------------------- ----------------- ---------------------- ------------------ Florida Tax-Exempt Bond Fund 7,494 N/A 1,800 -------------------------------------------------- ----------------- ---------------------- ------------------ Georgia Tax-Exempt Bond Fund 5,061 N/A 0 -------------------------------------------------- ----------------- ---------------------- ------------------ Growth and Income Fund 2,103,432 2,006,043 1,520,932 -------------------------------------------------- ----------------- ---------------------- ------------------ High Income Fund 2,000 0 3 -------------------------------------------------- ----------------- ---------------------- ------------------ Information and Technology Fund (formerly E-Commerce Opportunity Fund) 2,142,579 1,213,863 191,269 -------------------------------------------------- ----------------- ---------------------- ------------------ International Equity Fund 1,404,641 1,074,564 5,076,703 -------------------------------------------------- ----------------- ---------------------- ------------------ International Equity Index Fund 358,549 267,113 606,700 -------------------------------------------------- ----------------- ---------------------- ------------------ Investment Grade Bond Fund 44,758 N/A 19,989 -------------------------------------------------- ----------------- ---------------------- ------------------ Investment Grade Tax-Exempt Bond Fund 80,565 N/A 6,409 -------------------------------------------------- ----------------- ---------------------- ------------------ Limited-Term Federal Mortgage Securities Fund 8,134 N/A 3,623 -------------------------------------------------- ----------------- ---------------------- ------------------ Maryland Municipal Bond Fund 1,218 N/A 0 -------------------------------------------------- ----------------- ---------------------- ------------------ Mid-Cap Equity Fund 458,284 405,454 826,022 -------------------------------------------------- ----------------- ---------------------- ------------------ Mid Cap Value Equity Fund 516,020 * * -------------------------------------------------- ----------------- ---------------------- ------------------ Prime Quality Money Market Fund 220,347 N/A 226,376 -------------------------------------------------- ----------------- ---------------------- ------------------ Short-Term Bond Fund 7,234 N/A 0 -------------------------------------------------- ----------------- ---------------------- ------------------ Short-Term U.S. Treasury Securities Fund 3,639 N/A 0 -------------------------------------------------- ----------------- ---------------------- ------------------ Small Cap Value Equity Fund 1,165,793 1,179,524 1,007,234 -------------------------------------------------- ----------------- ---------------------- ------------------ Small Cap Growth Stock Fund 1,475,533 1,216,168 879,037 -------------------------------------------------- ----------------- ---------------------- ------------------ Strategic Income Fund 802 * * -------------------------------------------------- ----------------- ---------------------- ------------------ Tax-Exempt Money Market Fund 29,400 N/A 0 -------------------------------------------------- ----------------- ---------------------- ------------------ Tax Sensitive Growth Stock Fund 922,329 1,454,576 778,609 -------------------------------------------------- ----------------- ---------------------- ------------------ U.S. Government Securities Fund 5,112 N/A 0 -------------------------------------------------- ----------------- ---------------------- ------------------ U.S. Government Securities Money Market Fund 157,937 N/A 188,047 -------------------------------------------------- ----------------- ---------------------- ------------------ U.S. Treasury Money Market Fund 320,083 N/A 331,610 -------------------------------------------------- ----------------- ---------------------- ------------------ Value Income Stock Fund 1,554,061 2,409,152 3,356,918 -------------------------------------------------- ----------------- ---------------------- ------------------ Vantage Fund 433,513 * * -------------------------------------------------- ----------------- ---------------------- ------------------ Virginia Intermediate Municipal Bond Fund 5,758 N/A 0 -------------------------------------------------- ----------------- ---------------------- ------------------ Virginia Municipal Bond Fund 1,711 N/A 0 -------------------------------------------------- ----------------- ---------------------- ------------------ Virginia Tax-Free Money Market Fund 8,685 N/A 0 -------------------------------------------------- ----------------- ---------------------- ------------------
BROKERAGE SELECTION. The Trust does not expect to use one particular broker or dealer, and when one or more brokers is believed capable of providing the best combination of price and execution, the Funds' Adviser may select a broker based upon brokerage or research services provided to the Adviser. The Adviser may pay a higher commission than otherwise obtainable from other brokers in return for such services only if a good faith determination is made that the commission is reasonable in relation to the services provided. S-65 Section 28(e) of the 1934 Act permits the Adviser, under certain circumstances, to cause each Fund to pay a broker or dealer a commission for effecting a transaction in excess of the amount of commission another broker or dealer would have charged for effecting the transaction in recognition of the value of brokerage and research services provided by the broker or dealer. In addition to agency transactions, the Adviser may receive brokerage and research services in connection with certain riskless principal transactions, in accordance with applicable SEC guidance. Brokerage and research services include: (1) furnishing advice 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; (2) furnishing analyses and reports concerning issuers, industries, securities, economic factors and trends, portfolio strategy, and the performance of accounts; and (3) effecting securities transactions and performing functions incidental thereto (such as clearance, settlement, and custody). In the case of research services, the Adviser believes that access to independent investment research is beneficial to their investment decision-making processes and, therefore, to each Fund. To the extent research services may be a factor in selecting brokers, such services may be in written form or through direct contact with individuals and may include information as to particular companies and securities as well as market, economic, or institutional areas and information which assists in the valuation and pricing of investments. Examples of research-oriented services for which the Adviser might utilize Fund commissions include research reports and other information on the economy, industries, sectors, groups of securities, individual companies, statistical information, political developments, technical market action, pricing and appraisal services, credit analysis, risk measurement analysis, performance and other analysis. The Adviser may use research services furnished by brokers in servicing all client accounts and not all services may necessarily be used in connection with the account that paid commissions to the broker providing such services. Information so received by the Adviser will be in addition to and not in lieu of the services required to be performed by the Funds' Adviser under the Advisory Agreement. Any advisory or other fees paid to the Adviser are not reduced as a result of the receipt of research services. In some cases the Adviser may receive a service from a broker that has both a "research" and a "non-research" use. When this occurs, the Adviser makes a good faith allocation, under all the circumstances, between the research and non-research uses of the service. The percentage of the service that is used for research purposes may be paid for with client commissions, while the Adviser will use its own funds to pay for the percentage of the service that is used for non-research purposes. In making this good faith allocation, the Adviser faces a potential conflict of interest, but the Adviser believes that its allocation procedures are reasonably designed to ensure that it appropriately allocates the anticipated use of such services to their research and non-research uses. From time to time, the Fund may purchase new issues of securities for clients in a fixed price offering. In these situations, the seller may be a member of the selling group that will, in addition to selling securities, provide the Adviser with research services. The NASD has adopted rules expressly permitting these types of arrangements under certain circumstances. Generally, the seller will provide research "credits" in these situations at a rate that is higher than that which is available for typical secondary market transactions. These arrangements may not fall within the safe harbor of Section 28(e). For the Trust's most recently completed fiscal year, the Funds' paid the following commissions on brokerage transactions directed to brokers pursuant to an agreement or understanding whereby the broker provides research or other brokerage services to the Adviser:
- --------------------------------------------------- -------------------------------- --------------------------------- TOTAL DOLLAR AMOUNT OF TOTAL DOLLAR AMOUNT OF TRANSACTIONS INVOLVING FUND BROKERAGE COMMISSIONS FOR BROKERAGE COMMISSIONS FOR RESEARCH SERVICES ($) RESEARCH SERVICES ($) - --------------------------------------------------- -------------------------------- --------------------------------- STI Classic Funds 2,650,297.81 1,417,730,064.31 - --------------------------------------------------- -------------------------------- ---------------------------------
BROKERAGE WITH FUND AFFILIATES. A Fund may execute brokerage or other agency transactions through registered broker-dealer affiliates of either the Fund, the Adviser or the Distributor for a commission in conformity with the 1940 Act, the 1934 Act and rules promulgated by the SEC. Under the 1940 Act and the 1934 Act, affiliated broker-dealers are permitted to receive and retain compensation for effecting portfolio transactions for the Fund on an exchange if a written contract is in effect between the affiliate and the Fund expressly permitting the affiliate to receive and retain such compensation. These rules further require that commissions paid to the affiliate by the Fund for exchange transactions not exceed "usual and customary" brokerage commissions. The rules define "usual and customary" commissions to include amounts which are "reasonable and fair compared to the commission, fee or other remuneration received or to be received by other brokers in connection with comparable transactions S-66 involving similar securities being purchased or sold on a securities exchange during a comparable period of time." The Trustees, including those who are not "interested persons" of the Fund, as defined in the 1940 Act, have adopted procedures for evaluating the reasonableness of commissions paid to affiliates and review these procedures periodically. For the fiscal years ended May 31, 2000, 2001 and 2002, the Funds paid the following aggregate brokerage commissions on portfolio transactions effected by affiliated brokers. All amounts shown were paid to the Distributor and reflect fees paid in connection with Fund repurchase agreement transactions.
- ------------------------------------------------------------------------------------------------------------------------------------ AGGREGATE DOLLAR PERCENTAGE OF TOTAL PERCENTAGE OF TOTAL AMOUNT OF BROKERAGE BROKERAGE COMMISSIONS BROKERAGE TRANSACTIONS COMMISSIONS PAID TO PAID TO AFFILIATED EFFECTED THROUGH FUND AFFILIATED BROKERS ($) BROKERS (%) AFFILIATED BROKERS (%) - ------------------------------------------------------------------------------------------------------------------------------------ 2002 2001 2000 2002 2001 2000 2002 2001 2000 - ------------------------------------------------------------------------------------------------------------------------------------ Balanced Fund 22,701 10,146 10,348 6.53 3.09 1.40 49.80 20.05 8.60 - ------------------------------------------------------------------------------------------------------------------------------------ Capital Appreciation Fund 50,843 18,644 48,837 1.72 0.07 0.70 36.59 29.16 4.40 - ------------------------------------------------------------------------------------------------------------------------------------ Florida-Tax Exempt Bond Fund 7,494 1,445 1,800 100 100 100 100 100 100 - ------------------------------------------------------------------------------------------------------------------------------------ Georgia Tax-Exempt Bond Fund 5,061 303 3 100 100 100 100 100 100 - ------------------------------------------------------------------------------------------------------------------------------------ Growth and Income Fund 22,938 0 623 1.09 0 0.40 25.95 0 33.50 - ------------------------------------------------------------------------------------------------------------------------------------ High Income Fund 2,000 507 5 100 100 100 100 100 100 - ------------------------------------------------------------------------------------------------------------------------------------ Information and Technology Fund (formerly E-Commerce Opportunity Fund) 3,226 4,226 2,203 0.15 0 1.20 13.37 9.17 3.40 - ------------------------------------------------------------------------------------------------------------------------------------ International Equity Fund 4,747 0 0 0.34 0 0 2.10 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ International Equity Index Fund 6,013 0 0 1.68 0 0 0.62 0 0 - ------------------------------------------------------------------------------------------------------------------------------------ Investment Grade Bond Fund 44,758 24,802 19,989 100 100 100 100 100 100 - ------------------------------------------------------------------------------------------------------------------------------------ Investment Grade Tax-Exempt Bond Fund 80,565 5,436 6,409 100 100 100 100 100 100 - ------------------------------------------------------------------------------------------------------------------------------------ Limited-Term Federal - ------------------------------------------------------------------------------------------------------------------------------------ Mortgage Securities Fund 8,134 4,935 3,623 100 100 100 100 100 100 - ------------------------------------------------------------------------------------------------------------------------------------ Maryland Municipal Bond Fund 1,218 N/A 0 100 N/A 0 100 N/A 0 - ------------------------------------------------------------------------------------------------------------------------------------ Mid-Cap Equity Fund 12,971 8,000 4,278 2.83 1.94 0.50 30.65 27.78 28.60 - ------------------------------------------------------------------------------------------------------------------------------------ Mid Cap Value Equity Fund 4,850 N/A N/A 0.94 N/A N/A 14.70 N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ Prime Quality Money Market Fund 220,347 104,046 226,376 100 100 100 100 100 100 - ------------------------------------------------------------------------------------------------------------------------------------ Short-Term Bond Fund 7,234 N/A 0 100 N/A 0 100 N/A 0 - ------------------------------------------------------------------------------------------------------------------------------------ Short-Term U.S. Treasury Securities Fund 3,639 N/A 0 100 N/A 0 100 N/A 0 - ------------------------------------------------------------------------------------------------------------------------------------ Small Cap Growth Stock Fund 17,884 5,890 1,927 1.21 0.05 0.20 10.37 10.58 12.10 - ------------------------------------------------------------------------------------------------------------------------------------ Small Cap Value Equity Fund 68,387 10,269 4,817 5.87 0.09 0.50 28.01 14.29 7.50 - ------------------------------------------------------------------------------------------------------------------------------------ Strategic Income Fund 802 N/A N/A 100 N/A N/A 14.45 N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Exempt Money Market Fund 29,400 N/A 0 100 N/A 0 100 N/A 0 - ------------------------------------------------------------------------------------------------------------------------------------ U.S. Government Securities Fund 5,112 0 0 100 N/A 0 100 N/A 0 - ------------------------------------------------------------------------------------------------------------------------------------ U.S. Government Securities Money Market Fund 157,937 239,522 188,047 100 100 100 100 100 100 - ------------------------------------------------------------------------------------------------------------------------------------ U.S. Treasury Money Market Fund 320,083 329,522 331,610 100 100 100 100 100 100 - ------------------------------------------------------------------------------------------------------------------------------------ Value Income Stock Fund 50,767 31,848 60,581 3.22 1.30 1.80 47.71 34.39 43.20 - ------------------------------------------------------------------------------------------------------------------------------------ Vantage Fund 606 N/A N/A 0.14 N/A N/A 9.24 N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ Virginia Intermediate Municipal Bond Fund 4,953 N/A 0 86.02 N/A 0 57.54 N/A 0 - ------------------------------------------------------------------------------------------------------------------------------------ Virginia Municipal Bond Fund 1,711 N/A 0 100 N/A 0 100 N/A 0 - ------------------------------------------------------------------------------------------------------------------------------------ Virginia Tax-Free Money Market Fund 8,685 N/A 0 100 N/A 0 100 N/A 0 - ------------------------------------------------------------------------------------------------------------------------------------
* For most Fixed Income Funds, transactions in repurchase agreements, which are generally traded through an affiliated broker-dealer, are the only transactions that result in the payment of commission. Therefore, it might appear, based on the percentage of commissions paid, that all of the Fixed Income Fund's portfolio transactions are made through affiliated broker-dealers. Nonetheless, transactions in repurchase agreements make up only a small part of a Fixed Income Fund's portfolio transactions. S-67 1 These amounts refer to brokerage commissions paid to, or brokered transactions effected through, SEI Investments Distribution Co., the Trust's principal underwriter. SECURITIES OF "REGULAR BROKER-DEALERS." SECURITIES OF "REGULAR BROKER-DEALERS." The Funds are required to identify any securities of its "regular brokers and dealers" (as such term is defined in the 1940 Act) which the Funds may hold at the close of their most recent fiscal year. As of May 31, 2002, the STI Classic Balanced Fund held $34,095,000 of repurchase agreements with UBS Warburg, $2,546,000 of Goldman Sachs notes, $1,258,000 of JP Morgan Chase notes, $2,659,000 of Merrill Lynch notes, $2,494,000 of Morgan Stanley notes, and $3,649,000 of Salomon Smith Barney notes. The STI Classic Capital Appreciation Fund held $28,457,000 of repurchase agreements with UBS Warburg. The STI Classic Growth and Income Fund held $14,249,000 of Merrill Lynch common stock. The STI Classic High Income Fund held $11,000 of repurchase agreements with Morgan Stanley. The STI Classic Investment Grade Bond Fund held $17,946,000 par value of Morgan Stanley Dean Witter notes, $26,062,000 of Salomon Smith Barney notes, $9,363,000 of JP Morgan Chase notes, $17,818,000 of Goldman Sachs notes, $19,943,000 of Merrill Lynch notes, $20,162,000 of repurchase agreements with Greenwich, and $11,801,000 of repurchase agreements with UBS Warburg. The STI Classic Limited-Term Federal Mortgage Securities Fund held $10,379,000 of repurchase agreements with Morgan Stanley. The STI Classic Mid-Cap Equity Fund held $17,943,000 of repurchase agreements with UBS Warburg. The STI Classic Mid-Cap Value Fund held $21,349,000 of repurchase agreements with UBS Warburg. The STI Classic Prime Quality Money Market Fund held $50,368,000 of repurchase agreements with JP Morgan Chase, $141,418,000 of repurchase agreements and notes with Lehman Brothers, $27,280,000 of repurchase agreements with Paribas, $234,634,000 of repurchase agreements and notes with UBS Warburg, $134,918,000 of Morgan Stanley Dean Witter notes, $100,000,000 of Credit Suisse First Boston notes, and $4,004,000 of Goldman Sachs notes. The STI Classic Short-Term Bond Fund held $2,180,00 of repurchase agreements with Morgan Stanley. The STI Classic Small Cap Value Equity Fund held $53,014,000 of repurchase agreements with Morgan Stanley. The STI Classic Tax-Sensitive Growth Stock Fund held $4,377,000 of repurchase agreements with Morgan Stanley and $2,716,000 of JP Morgan Chase common stock. The STI Classic U.S. Government Securities Money Market Fund held $19,161,000 of repurchase agreements with Merrill Lynch, $74,390,000 of repurchase agreements with JP Morgan Chase, $64,433,000 of repurchase agreements with UBS Warburg, $39,332,000 of repurchase agreements with Lehman Brothers, and $18,761,000 of repurchase agreements with Paribas. The STI Classic U.S. Treasury Money Market Fund held $182,446,000 of repurchase agreements with JP Morgan Chase, $41,788,000 of repurchase agreements with Deutsche Bank, $203,357,000 of repurchase agreements with Dresdner, $41,072,000 of repurchase agreements with Lehman Brothers, $40,032,000 of repurchase agreements with Bear Stearns, $42,315,000 of repurchase agreements with Paribas, $41,680,000 of repurchase agreements with Salomon Smith Barney, and $33,165,000 of repurchase agreements with UBS Warburg. The STI Classic Value Income Stock Fund held $23,214,000 of repurchase agreements with UBS Warburg, $59,399,000 of repurchase agreements with Greenwich Capital, $12,267,000 of JP Morgan Chase common stock, $7,656,000 of Morgan Stanley Dean Witter common stock, $4,608,000 of Merrill Lynch common stock. PORTFOLIO TURNOVER RATE Portfolio turnover rate is defined under SEC rules as the value of the securities purchased or securities sold, excluding all securities whose maturities at the time of acquisition were one-year or less, divided by the average monthly value of such securities owned during the year. Based on this definition, instruments with remaining maturities of less than one-year are excluded from the calculation of the portfolio turnover rate. Instruments excluded from the calculation of portfolio turnover generally would include the futures contracts and option contracts in which the Funds invest since such contracts generally have remaining maturities of less than one-year. The Funds may at times hold most of their investments in short-term options and futures contracts, which are excluded for purposes of computing portfolio turnover. Because each Fund's portfolio turnover rate to a great extent will depend on the hedging and investment activity of the Adviser, it is very difficult to estimate what the Fund's actual turnover rate will be in the future, although it is expected to be high. For the Funds' two most recently completed fiscal periods ended May 31, 2002 and 2001, the portfolio turnover rate for each of the non-money market Funds was as follows: S-68 - ------------------------------------------------------------------ TURNOVER RATE (%) -------------------- FUND 2002 2001 - --------------------------------------------- ---------- -------- Balanced Fund 95 99 - --------------------------------------------- -------------------- Capital Appreciation Fund 75 75 - --------------------------------------------- -------------------- Florida Tax-Exempt Bond Fund 91 59 - --------------------------------------------- -------------------- Georgia Tax-Exempt Bond Fund 23 21 - --------------------------------------------- -------------------- Growth and Income Fund 68 73 - --------------------------------------------- -------------------- High Income Fund 59 10 - --------------------------------------------- -------------------- Information and Technology Fund 1,102 750 - --------------------------------------------- -------------------- International Equity Fund 102 68 - --------------------------------------------- -------------------- International Equity Index Fund 35 13 - --------------------------------------------- -------------------- Investment Grade Bond Fund 123 131 - --------------------------------------------- -------------------- Investment Grade Tax-Exempt Bond Fund 311 285 - --------------------------------------------- -------------------- Limited-Term Federal Mortgage Securities Fund 410 532 - --------------------------------------------- -------------------- Maryland Municipal Bond Fund 45 42 - --------------------------------------------- -------------------- Mid-Cap Equity Fund 87 100 - --------------------------------------------- -------------------- Mid Cap Value Equity Fund 30 * - --------------------------------------------- -------------------- Short-Term Bond Fund 142 87 - --------------------------------------------- -------------------- Short-Term U.S. Treasury Securities Fund 117 87 - --------------------------------------------- -------------------- Small Cap Growth Stock Fund 100 112 - --------------------------------------------- -------------------- Small Cap Value Equity Fund 29 86 - --------------------------------------------- -------------------- Strategic Income Fund 43 * - --------------------------------------------- -------------------- Tax Sensitive Growth Stock Fund 69 103 - --------------------------------------------- -------------------- U.S. Government Securities Fund 262 207 - --------------------------------------------- -------------------- Value Income Stock Fund 60 77 - --------------------------------------------- -------------------- Vantage Fund 1,063 * - --------------------------------------------- -------------------- Virginia Intermediate Municipal Bond Fund 33 32 - --------------------------------------------- -------------------- S-69 - --------------------------------------------- -------------------- Virginia Municipal Bond Fund 38 60 - --------------------------------------------- -------------------- * Not in operation during the period. DESCRIPTION OF SHARES The Declaration of Trust authorizes the issuance of an unlimited number of shares of the Funds each of which represents an equal proportionate interest in that Fund with each other share. Shares are entitled upon liquidation to a PRO RATA share in the net assets of the Funds. Shareholders have no preemptive rights. The Declaration of Trust provides that the Trustees of the Trust may create additional series of shares. All consideration received by the Trust for shares of any additional series and all assets in which such consideration is invested would belong to that series and would be subject to the liabilities related thereto. Share certificates representing shares will not be issued. VOTING RIGHTS Each share held entitles the shareholder of record to one vote for each dollar invested. In other words, each shareholder of record is entitled to one vote for each full share held on the record date for any shareholder meeting. Each Fund will vote separately on matters relating solely to it. As a Massachusetts business trust, the Trust is not required, and does not intend, to hold annual meetings of shareholders. Shareholders approval will be sought, however, for certain changes in the operation of the Trust and for the election of Trustees under certain circumstances. Under the Declaration of Trust, the Trustees have the power to liquidate one or more Funds without shareholder approval. While the Trustees have no present intention of exercising this power, they may do so if a Fund fails to reach or maintain a viable size or for some other extraordinary reason. 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. SHAREHOLDER LIABILITY The Trust is an entity of the type commonly known as a "Massachusetts business trust." Under Massachusetts law, shareholders of such a trust could, under certain circumstances, be held personally liable as partners for the obligations of the trust. Even if, however, the Trust were held to be a partnership, the possibility of the shareholders' incurring financial loss for that reason appears remote because the Trust's Declaration of Trust contains an express disclaimer of shareholder liability for obligations of the Trust and requires that notice of such disclaimer be given in each agreement, obligation or instrument entered into or executed by or on behalf of the Trust or the Trustees, and because the Declaration of Trust provides for indemnification out of the Trust property for any Investor held personally liable for the obligations of the Trust. 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 advisers, 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. S-70 CODES OF ETHICS The Board of Trustees of the Trust has adopted a Code of Ethics pursuant to Rule 17j-1 under the Investment Company Act of 1940. In addition, the Adviser and Distributor have adopted Codes of Ethics pursuant to Rule 17j-1. These Codes of Ethics (each a "Code" and together the "Codes") apply to the personal investing activities of trustees, officers and certain employees ("access persons"). Rule 17j-1 and the Codes are designed to prevent unlawful practices in connection with the purchase or sale of securities by access persons. Under each Code, access persons are permitted to engage in personal securities transactions, but are required to report their personal securities transactions for monitoring purposes. In addition, certain access persons of the Trust and the Adviser are prohibited from acquiring beneficial ownership of securities offered in connection with initial public offerings. Certain access persons of the Adviser are further prohibited from acquiring beneficial ownership of securities offered in connection with a limited offering. The Distributor's Code requires certain access persons to obtain approval before investing in initial public offerings and limited offerings. Copies of these Code of Ethics are on file with the Securities and Exchange Commission, and are available to the public. 5% AND 25% SHAREHOLDERS As of September 18, 2002, the following persons were the only persons who were record owners (or to the knowledge of the Trust, beneficial owners) of 5% or 25% or more of the shares of the Funds. Persons who owned of record or beneficially more than 25% of a Fund's outstanding shares may be deemed to control the Fund within the meaning of the 1940 Act. The Trust believes that most of the shares of the Funds were held for the record owner's fiduciary, agency or custodial customers.
- ------------------------------------------------------------------------------------------------------------------------------------ FUND NAME AND ADDRESS NUMBER OF SHARES CLASS % OF CLASS - ------------------------------------------------------------------------------------------------------------------------------------ Balanced Fund Trustman 3,284,782.6990 Trust 16.66% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Balanced Fund SunTrust Bank TTEE 15,034,984.5320 Trust 76.27% FBO Various Benefit Plans FASCORP Recordkeeper 8515 E Orchard Rd. #2T2 Greenwood Village, CO 8011-5037 - ------------------------------------------------------------------------------------------------------------------------------------ Balanced Fund NFSC FEBO # G1F-031682 77,498.3510 Investor 11.22% NFS/FMTC Roll IRA FBO Charles K. Newman 1301 Costley Mill Rd. NE Conyers, GA 30013-1127 - ------------------------------------------------------------------------------------------------------------------------------------ Capital Appreciation Fund Trustman 24,387,300.8050 Trust 24.87% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Capital Appreciation Fund Trustman 21,703,261.3000 Trust 22.13% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ S-71 - ------------------------------------------------------------------------------------------------------------------------------------ Capital Appreciation Fund Trustman 16,921,511.9220 Trust 17.25% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Capital Appreciation Fund Trustman 11,911,581.0140 Trust 12.14% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Capital Appreciation Fund SunTrust Bank TTEE 20,319,285.0780 Trust 20.72% FBO Various Benefit Plans FASCORP Recordkeeper 8515 E Orchard Rd. #2T2 Greenwood Village, CO 8011-5037 - ------------------------------------------------------------------------------------------------------------------------------------ Capital Appreciation Fund Nationwide Insurance Company Trust 743,389.1130 Investor 5.41% c/o IPO Portfolio Accounting PO Box 182029 Columbus, OH 43218-2029 - ------------------------------------------------------------------------------------------------------------------------------------ Florida Tax-Exempt Bond Fund Trustman 1,409,631.2570 Trust 12.53% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Florida Tax-Exempt Bond Fund Trustman 4,441,540.8160 Trust 39.48% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Florida Tax-Exempt Bond Fund Trustman 5,398,037.0280 Trust 47.99% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ S-72 - ------------------------------------------------------------------------------------------------------------------------------------ Florida Tax-Exempt Bond Fund Mildred Meinhart Rast 37,223.9740 Investor 7.11% 821 Lake Port Blvd. Apt. # A404 Leesburg, FL 34748-7698 - ------------------------------------------------------------------------------------------------------------------------------------ Florida Tax-Exempt Bond Fund NFSC FEBO # F9R-017132 90,865.8300 Investor 17.36% George T. Anthony Collateral Account 5264 Fisher Island Dr. Miami, FL 33109-0279 - ------------------------------------------------------------------------------------------------------------------------------------ Florida Tax-Exempt Bond Fund NFSC FEBO # F1F-037850 165,545.6400 Investor 31.63% Walter W. Stephens Jill Stephens 3063 Temple Trl Winter Park, FL 32789-1167 - ------------------------------------------------------------------------------------------------------------------------------------ Georgia Tax-Exempt Bond Fund Trustman 1,565,545.1690 Trust 16.82% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Georgia Tax-Exempt Bond Fund Trustman 6,890,946.7150 Trust 74.04% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Georgia Tax-Exempt Bond Fund Trustman 850,580.4020 Trust 9.14% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Georgia Tax-Exempt Bond Fund John L. Conyers 14,524.8920 Investor 5.79% 124 Etowah Drive Cartersville, GA 30120-3730 - ------------------------------------------------------------------------------------------------------------------------------------ Georgia Tax-Exempt Bond Fund NFSC FEBO # T9F-000922 28,957.5290 Investor 11.55% Thomas O. Duff Jr. PO Box 143 Lookout Mountain, TN 37350-0143 - ------------------------------------------------------------------------------------------------------------------------------------ Georgia Tax-Exempt Bond Fund NFSC FEBO # G1R-162566 54,651.6860 Investor 21.80% M C Tatro 5360 Deer Run Drive Conyers, GA 30094-4706 - ------------------------------------------------------------------------------------------------------------------------------------ S-73 - ------------------------------------------------------------------------------------------------------------------------------------ Georgia Tax-Exempt Bond Fund NFSC FEBO # G1R-237060 12,726.9710 Investor 5.08% Robert A. Minchin Margaret I. Minchin 1570 Kinglet Lane Marietta, GA 30062-2848 - ------------------------------------------------------------------------------------------------------------------------------------ Georgia Tax-Exempt Bond Fund NFSC FEBO # G1R-167924 102,006.6930 Flex 7.27% James A. Dixon 7005 Carlisle Ln Alpharetta, GA 30022-5145 - ------------------------------------------------------------------------------------------------------------------------------------ Georgia Tax-Exempt Bond Fund NFSC FEBO # G1R-007838 98,999.0500 Flex 7.06% Francis E. Cook 1210 Peachtree Rd. Augusta, GA 30909-3822 - ------------------------------------------------------------------------------------------------------------------------------------ Georgia Tax-Exempt Bond Fund NFSC FEBO # G5R-000159 112,606.6410 Flex 8.03% John Dennard Miller Hazel M. Miller 6 Priority Rd. Savannah, GA 31411-1731 - ------------------------------------------------------------------------------------------------------------------------------------ Growth & Income Fund Trustman 9,750,488.6290 Trust 18.54% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Growth & Income Fund Trustman 12,429,371.5170 Trust 23.64% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Growth & Income Fund Trustman 20,702,853.9870 Trust 39.37% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Growth & Income Fund Trustman 6,202,818.9590 Trust 11.80% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ S-74 - ------------------------------------------------------------------------------------------------------------------------------------ Growth & Income Fund SunTrust Bank TTEE 2,737,860.9590 Trust 5.21% FBO Various Benefit Plans FASCORP Recordkeeper 8515 E Orchard Rd. #2T2 Greenwood Village, CO 8011-5037 - ------------------------------------------------------------------------------------------------------------------------------------ Growth & Income Fund Nationwide Insurance Company Trust 221,394.5090 Investor 8.17% c/o IPO Portfolio Accounting PO Box 182029 Columbus, OH 43218-2029 - ------------------------------------------------------------------------------------------------------------------------------------ High Income Fund Trustman 2,619,087.2870 Trust 50.27% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ High Income Fund Trustman 2,105,392.8660 Trust 40.41% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ High Income Fund Trustman 485,599.1950 Trust 9.32% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Information & Technology Fund Trustman 1,041,414.2060 Trust 33.32% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Information & Technology Fund Trustman 1,216,548.1210 Trust 38.92% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Information & Technology Fund Trustman 587,933.3160 Trust 18.81% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ S-75 - ------------------------------------------------------------------------------------------------------------------------------------ Information & Technology Fund SunTrust Bank TTEE 279,457.0240 Trust 8.94% FBO Various Benefit Plans FASCORP Recordkeeper 8515 E Orchard Rd. #2T2 Greenwood Village, CO 8011-5037 - ------------------------------------------------------------------------------------------------------------------------------------ International Equity Fund Trustman 9,607,625.8390 Trust 34.67% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ International Equity Fund Trustman 10,524,273.0470 Trust 37.97% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ International Equity Fund Trustman 5,759,527.5080 Trust 20.78% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ International Equity Fund SunTrust Bank TTEE 1,542,629.6610 Trust 5.57% FBO Various Benefit Plans FASCORP Recordkeeper 8515 E Orchard Rd. #2T2 Greenwood Village, CO 8011-5037 - ------------------------------------------------------------------------------------------------------------------------------------ International Equity Fund Nationwide Insurance Company Trust 110,073.3370 Investor 16.41% c/o IPO Portfolio Accounting PO Box 182029 Columbus, OH 43218-2029 - ------------------------------------------------------------------------------------------------------------------------------------ International Equity Index Fund Trustman 14,058,937.6070 Trust 46.54% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ International Equity Index Fund Trustman 3,557,203.2640 Trust 11.78% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ S-76 - ------------------------------------------------------------------------------------------------------------------------------------ International Equity Index Fund Trustman 2,295,424.0850 Trust 7.60% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ International Equity Index Fund State Street Bank and Trust Co. 8,798,722.8380 Trust 29.13% FBO: Emory University Endowment 1 Enterprise Drive Quincy, MA 02171-2126 - ------------------------------------------------------------------------------------------------------------------------------------ International Equity Index Fund NFSC FEBO # WXW-000108 40,856.1740 Investor 10.09% Judith C. Worland 635 Walsing Drive Richmond, VA 23229-8136 - ------------------------------------------------------------------------------------------------------------------------------------ Investment Grade Bond Fund Trustman 16,529,976.0440 Trust 19.76% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Investment Grade Bond Fund Trustman 22,174,473.1940 Trust 26.51% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Investment Grade Bond Fund Trustman 27,624,415.8620 Trust 33.02% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Investment Grade Bond Fund SunTrust Bank TTEE 12,401,118.8110 Trust 14.83% FBO Various Benefit Plans FASCORP Recordkeeper 8515 E Orchard Rd. #2T2 Greenwood Village, CO 8011-5037 - ------------------------------------------------------------------------------------------------------------------------------------ Investment Grade Bond Fund Nationwide Insurance Company Trust 408,805.7860 Investor 16.91% C/O IPO Portfolio Accounting PO Box 182029 Columbus, OH 43218-2029 - ------------------------------------------------------------------------------------------------------------------------------------ Investment Grade Tax- Trustman 2,200,432.8720 Trust 17.10% Exempt Bond Fund SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ S-77 - ------------------------------------------------------------------------------------------------------------------------------------ Investment Grade Tax- Trustman 6,565,260.5420 Trust 51.02% Exempt Bond Fund SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Investment Grade Tax- Trustman 4,101,409.1790 Trust 31.88% Exempt Bond Fund SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Investment Grade Bond Fund Marion G. Nelson 100,000.000 Investor 5.98% PO Box 2531 Panama City, FL 32402-2531 - ------------------------------------------------------------------------------------------------------------------------------------ Life Vision Aggressive Trustman 583,384.6010 Trust 17.47% Growth Fund SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Life Vision Aggressive SunTrust Bank TTEE 2,747,733.8000 Trust 82.26% Growth Fund FBO Various Benefit Plans FASCORP Recordkeeper 8515 E Orchard Rd. #2T2 Greenwood Village, CO 80111-5037 - ------------------------------------------------------------------------------------------------------------------------------------ Life Vision Growth and Trustman 1,398,915.3450 Trust 19.26% Income Fund SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Life Vision Growth and SunTrust Bank TTEE 5,829,768.1390 Trust 80.28% Income Fund FBO Various Benefit Plans FASCORP Recordkeeper 8515 E Orchard Rd. #2T2 Greenwood Village, CO 80111-5037 - ------------------------------------------------------------------------------------------------------------------------------------ Life Vision Moderate Trustman 2,725,527.1240 Trust 26.64% Growth Fund SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ S-78 - ------------------------------------------------------------------------------------------------------------------------------------ Life Vision Moderate SunTrust Bank TTEE 7,453,778.8040 Trust 72.86% Growth Fund FBO Various Benefit Plans FASCORP Recordkeeper 8515 E Orchard Rd. #2T2 Greenwood Village, CO 80111-5037 - ------------------------------------------------------------------------------------------------------------------------------------ Limited-Term Federal Trustman 7,981,548.4090 Trust 40.93% Mortgage Securities Fund SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Limited-Term Federal Trustman 5,877,815.6550 Trust 30.14% Mortgage Securities Fund SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Limited-Term Federal Trustman 4,345,686.6940 Trust 22.29% Mortgage Securities Fund SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Limited-Term Federal Nationwide Insurance Company 30,129.6770 Investor 5.73% Mortgage Securities Fund Trust c/o IPO Portfolio Accounting PO Box 182029 Columbus, OH 43218-2029 - ------------------------------------------------------------------------------------------------------------------------------------ Limited-Term Federal NFSC FEBO # FFR-060925 96,013.4690 Investor 18.26% Mortgage Securities Fund Meshulam Zonis Revoc Trust Meshulam Zonis U/A 08/22/2002 3801 NE 207th St. Apt. 2802 Miami, FL 33180-3788 - ------------------------------------------------------------------------------------------------------------------------------------ Limited-Term Federal NFSC FEBO # A1F-685950 191,754.5540 Investor 36.47% Mortgage Securities Fund Bedford Weaving PO Box 449 Bedford, VA 24523-0449 - ------------------------------------------------------------------------------------------------------------------------------------ Maryland Municipal Bond Fund Trustman 800,766.1640 Trust 21.16% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ S-79 - ------------------------------------------------------------------------------------------------------------------------------------ Maryland Municipal Bond Fund Trustman 2,399,324.8710 Trust 63.40% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Maryland Municipal Bond Fund Trustman 253,750.6070 Trust 6.71% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Maryland Municipal Bond Fund HAMAC & Co. 330,278.9560 Trust 8.73% Attn: Barbara Holloway PO Box 26665 HDQ 5706 Richmond, VA 23261-6665 - ------------------------------------------------------------------------------------------------------------------------------------ Mid-Cap Equity Fund Trustman 6,128,754.7890 Trust 37.78% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Mid-Cap Equity Fund Trustman 3,650,084.6340 Trust 22.50% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Mid-Cap Equity Fund Trustman 4,160,909.9890 Trust 25.65% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Mid-Cap Equity Fund SunTrust Bank TTEE 1,308,345.2830 Trust 8.07% FBO Various Benefit Plans FASCORP Recordkeeper 8515 E Orchard Rd. #2T2 Greenwood Village, CO 80111-5037 - ------------------------------------------------------------------------------------------------------------------------------------ Mid-Cap Equity Fund Anthony R. Gray 65,522.9130 Investor 5.58% 460 Virginia Drive Winter Park, FL 32789-5805 - ------------------------------------------------------------------------------------------------------------------------------------ S-80 - ------------------------------------------------------------------------------------------------------------------------------------ Mid-Cap Equity Fund Nationwide Insurance Company Trust 149,953.6010 Investor 12.76% C/O IPO Portfolio Accounting PO Box 182029 Columbus, OH 43218-2029 - ------------------------------------------------------------------------------------------------------------------------------------ Mid Cap Value Equity Fund Trustman 3,334,618.3440 Trust 25.41% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Mid Cap Value Equity Fund Trustman 6,510,842.1360 Trust 49.61% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Mid Cap Value Equity Fund Trustman 2,703,128.5830 Trust 20.60% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Prime Quality Money SunTrust Bank 3,170,166,732.3800 Trust 91.96% Market Fund Attn: Susan Grider Mail Center 3133 PO Box 105504 Atlanta, GA 30348-5504 - ------------------------------------------------------------------------------------------------------------------------------------ Prime Quality Money SunTrust Bank TTEE 222,865,797.5400 Trust 5.52% Market Fund FBO Various Benefit Plans FASCORP Recordkeeper 8515 E Orchard Rd. #2T2 Greenwood Village, CO 80111-5037 - ------------------------------------------------------------------------------------------------------------------------------------ Prime Quality Money National Finance Services Corp. 1,872,503,791.1400 Investor 97.00% Market Fund For Exclusive Benefit of our Cust. Attn: Mutual Funds Dept. One World Financial Center 200 Liberty St., Fl. 5 New York, NY 10281-5500 - ------------------------------------------------------------------------------------------------------------------------------------ Prime Quality Money NFSC FEBO # A1F-345814 2,119,991.5200 Flex 11.77% Market Fund Telestrategies Inc. PO Box 4109 McLean, VA 22103-4109 - ------------------------------------------------------------------------------------------------------------------------------------ S-81 - ------------------------------------------------------------------------------------------------------------------------------------ Short-Term Bond Fund Trustman 4,590,197.4890 Trust 14.94% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Short-Term Bond Fund Trustman 15,763,565.9850 Trust 51.30% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Short-Term Bond Fund Trustman 5,754,396.4460 Trust 18.73% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Short-Term Bond Fund Trustman 2,266,571.2420 Trust 7.38% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Short-Term Bond Fund SunTrust Bank TTEE 1,643,879.2720 Trust 5.35% FBO Various Benefit Plans FASCORP Recordkeeper 8515 E Orchard Rd. #2T2 Greenwood Village, CO 80111-5037 - ------------------------------------------------------------------------------------------------------------------------------------ Short-Term Bond Fund Nationwide Insurance Company Trust 47,322.4470 Investor 13.32% c/o IPO Portfolio Accounting PO Box 182029 Columbus, OH 43218-2029 - ------------------------------------------------------------------------------------------------------------------------------------ Short-Term Bond Fund NFSC FEBO # G1R-255289 47,434.3800 Investor 13.35% NFS/FMTC Roll IRA FBO W H Massey 2740 Woods Ridge Drive Alphararetta, GA 30022-4828 - ------------------------------------------------------------------------------------------------------------------------------------ Short-Term Bond Fund NFSC FEBO # 01W-184462 283,062.6270 Flex 9.76% Homer Martha Gudelsky Fam FNDTN Inc 11900 Tech Rd. Silver Spring, MD 20904-19102 - ------------------------------------------------------------------------------------------------------------------------------------ S-82 - ------------------------------------------------------------------------------------------------------------------------------------ Short-Term US Treasury Trustman 1,213,210.4760 Trust 10.79% Securities Fund SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Short-Term US Treasury Trustman 5,515,025.9850 Trust 49.06% Securities Fund SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Short-Term US Treasury Trustman 2,037,327.3480 Trust 18.12% Securities Fund SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Short-Term US Treasury CENCO 1,795,505.8060 Trust 15.97% Securities Fund AMG 7th Floor PO Box 10566 Birmingham, AL 35296-0566 - ------------------------------------------------------------------------------------------------------------------------------------ Short-Term US Treasury SunTrust Bank TTEE 681,328.2480 Trust 6.06% Securities Fund FBO Various Benefit Plans FASCORP Recordkeeper 8515 E Orchard Rd. #2T2 Greenwood Village, CO 80111-5037 - ------------------------------------------------------------------------------------------------------------------------------------ Short-Term US Treasury Nationwide Insurance Company Trust 105,937.7100 Investor 12.29% Securities Fund C/O IPO Portfolio Accounting PO Box 182029 Columbus, OH 43218-2029 - ------------------------------------------------------------------------------------------------------------------------------------ Short-Term US Treasury NFSC FEBO # F1F-065110 49,296.5280 Investor 5.72% Securities Fund William Kitchen SunTrust Bank Collateral Acct. 8815 Southern Breeze Dr. Orlando, FL 32836-5034 - ------------------------------------------------------------------------------------------------------------------------------------ Short-Term US Treasury NFSC FEBO # TAR-062880 99,068.2200 Investor 11.49% Securities Fund Morristown Power System Attn: Clark H. Rucker 441 W Main St. Morristown, TN 37814-4615 - ------------------------------------------------------------------------------------------------------------------------------------ S-83 - ------------------------------------------------------------------------------------------------------------------------------------ Short-Term US Treasury NFSC FEBO # F1F-082171 145,508.7100 Investor 16.88% Securities Fund W Jeptha Thornton Ingrid Thornton 1017 Temple Grv. Winter Park, FL 32789-27142 - ------------------------------------------------------------------------------------------------------------------------------------ Small Cap Growth Stock Fund Trustman 15,755,826.1130 Trust 46.11% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Small Cap Growth Stock Fund Trustman 6,821,498.6930 Trust 19.96% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Small Cap Growth Stock Fund Trustman 4,663,521.7340 Trust 13.65% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Small Cap Growth Stock Fund Trustman 3,991,474.4510 Trust 11.68% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Small Cap Growth Stock Fund SunTrust Bank TTEE 1,945,498.6070 Trust 5.69% FBO Various Benefit Plans FASCORP Recordkeeper 8515 E Orchard Rd. #2T2 Greenwood Village, CO 80111-5037 - ------------------------------------------------------------------------------------------------------------------------------------ Small Cap Growth Stock Fund Nationwide Insurance Company Trust 102,602.6640 Investor 7.80% C/O IPO Portfolio Accounting PO Box 182029 Columbus, OH 43218-2029 - ------------------------------------------------------------------------------------------------------------------------------------ Small Cap Value Equity Fund Trustman 17,272,590.1360 Trust 43.05% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ S-84 - ------------------------------------------------------------------------------------------------------------------------------------ Small Cap Value Equity Fund Trustman 13,327,865.4080 Trust 33.22% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Small Cap Value Equity Fund Trustman 4,830,519.0080 Trust 12.04% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Small Cap Value Equity Fund SunTrust Bank TTEE 3,491,533.7080 Trust 8.70% FBO Various Benefit Plans FASCORP Recordkeeper 8515 E Orchard Rd. #2T2 Greenwood Village, CO 80111-5037 - ------------------------------------------------------------------------------------------------------------------------------------ Strategic Income Fund Trustman 910,639.1030 Trust 17.25% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Strategic Income Fund Trustman 2,746,907.8920 Trust 52.04% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Strategic Income Fund Trustman 1,419,463.2060 Trust 26.89% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Exempt Money Market Fund SunTrust Bank 941,888,828.9700 Trust 99.97% Attn: Susan Grider Mail Center 3133 PO Box 105504 Atlanta, GA 30348-5504 - ------------------------------------------------------------------------------------------------------------------------------------ Tax-Exempt Money Market Fund National Finance Services Corp. 234,416,375.6500 Investor 97.86% For Exclusive Benefit of our Cust. Attn: Mutual Funds Dept. One World Financial Center 200 Liberty St., Fl. 5 New York, NY 10281-5500 - ------------------------------------------------------------------------------------------------------------------------------------ S-85 - ------------------------------------------------------------------------------------------------------------------------------------ Tax Sensitive Growth Stock Fund Trustman 1,724,990.2320 Trust 17.54% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Tax Sensitive Growth Stock Fund Trustman 4,051,792.4780 Trust 41.21% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Tax Sensitive Growth Stock Fund Trustman 3,660,289.6700 Trust 37.23% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ US Government Securities Fund Trustman 2,888,911.7160 Trust 14.86% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ US Government Securities Fund Trustman 8,034,408.1200 Trust 41.34% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ US Government Securities Fund Trustman 5,120,674.7210 Trust 26.35% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ US Government Securities Fund SunTrust Bank TTEE 2,831,758.6910 Trust 14.57% FBO Various Benefit Plans FASCORP Recordkeeper 8515 E Orchard Rd. #2T2 Greenwood Village, CO 80111-5037 - ------------------------------------------------------------------------------------------------------------------------------------ US Government Securities Fund Mid Florida Regional 23,093.4120 Investor 6.03% Multiple Listing SVS INC Loan Collateral Account PO Box 609400 Orlando, FL 32860-9400 - ------------------------------------------------------------------------------------------------------------------------------------ S-86 - ------------------------------------------------------------------------------------------------------------------------------------ US Government Securities Fund NFSC FEBO # G1R-255483 22,046.0000 Investor 5.76% NFS/FMTC Roll IRA FBO Hersie B. McCauley Jr. 2910 Hamilton Sq. Decatur, GA 30033-1137 - ------------------------------------------------------------------------------------------------------------------------------------ US Government Securities SunTrust Bank 776,662,677.3800 Trust 86.08% Money Market Fund Attn: Susan Grider Mail Center 3133 PO Box 105504 Atlanta, GA 30348-5504 - ------------------------------------------------------------------------------------------------------------------------------------ US Government Securities SunTrust Bank TTEE 125,563,609.9160 Trust 13.92% Money Market Fund FBO Various Benefit Plans FASCORP Recordkeeper 8515 E Orchard Rd. #2T2 Greenwood Village, CO 80111-5037 - ------------------------------------------------------------------------------------------------------------------------------------ US Government Securities National Finance Services Corp. 218,531,518.3200 Investor 91.58% Money Market Fund For Exclusive Benefit of our Cust. Attn: Mutual Funds Dept. One World Financial Center 200 Liberty St., Fl. 5 New York, NY 10281-5500 - ------------------------------------------------------------------------------------------------------------------------------------ US Treasury Securities SunTrust Bank 903,207,121.2800 Trust 98.16% Money Market Fund Attn: Susan Grider Mail Center 3133 PO Box 105504 Atlanta, GA 30348-5504 - ------------------------------------------------------------------------------------------------------------------------------------ Value Income Stock Fund Trustman 28,925,691.8020 Trust 45.70% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Value Income Stock Fund Trustman 7,799,885.3900 Trust 12.32% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Value Income Stock Fund Trustman 6,722,845.4160 Trust 10.62% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ S-87 - ------------------------------------------------------------------------------------------------------------------------------------ Value Income Stock Fund SunTrust Bank TTEE 12,144,365.8920 Trust 19.19% FBO Various Benefit Plans FASCORP Recordkeeper 8515 E Orchard Rd. #2T2 Greenwood Village, CO 80111-5037 - ------------------------------------------------------------------------------------------------------------------------------------ Value Income Stock Fund Nationwide Insurance Company Trust 383,291.1780 Investor 5.55% C/O IPO Portfolio Accounting PO Box 182029 Columbus, OH 43218-2029 - ------------------------------------------------------------------------------------------------------------------------------------ Vantage Fund Trustman 772,710.8730 Trust 81.39% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Vantage Fund Trustman 145,175.0090 Trust 15.29% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Vantage Fund NFSC FEBO # TAF-000167 9,438.2610 Flex 9.90% Harold Lambert TTEE Lambert Fam Char Remiander Tr 1211 S. Heritage Dr. Maryville, TN 37803-6413 - ------------------------------------------------------------------------------------------------------------------------------------ Vantage Fund NFSC FEBO # TAF-000167 9,532.8880 Flex 9.99% Harold Lambert TTEE Lambert Fam Char Remiander Tr 1211 S. Heritage Dr. Maryville, TN 37803-6413 - ------------------------------------------------------------------------------------------------------------------------------------ Vantage Fund NFSC FEBO # GBR-030511 5,010.0200 Flex 5.25% NFS/FMTC IRA FBO Douglas J. Houser 76 Grandwater Dr. Suwanee, GA 30024-5420 - ------------------------------------------------------------------------------------------------------------------------------------ Virginia Intermediate Trustman 982,949.1500 Trust 5.09% Municipal Bond Fund SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ S-88 - ------------------------------------------------------------------------------------------------------------------------------------ Virginia Intermediate Trustman 5,070,812.7010 Trust 26.24% Municipal Bond Fund SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Virginia Intermediate Trustman 12,993,046.5290 Trust 67.22% Municipal Bond Fund SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Virginia Intermediate Donaldson Lufkin Jenrette 52,969.7840 Investor 7.48% Municipal Bond Fund Securities Corporation Inc. PO Box 2052 Jersey City, NJ 07303-2052 - ------------------------------------------------------------------------------------------------------------------------------------ Virginia Municipal Bond Fund Trustman 402,441.7520 Trust 7.43% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Virginia Municipal Bond Fund Trustman 2,684,131.7930 Trust 49.58% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Virginia Municipal Bond Fund Trustman 2,237,910.1950 Trust 41.33% SunTrust Banks Mutual Fund Reconciliation Unit Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------------------------------------------------------------------------------------------------------------ Virginia Tax-Free SunTrust Bank 195,482,273.8700 Trust 91.79% Money Market Fund Attn: Susan Grider Mail Center 3133 PO Box 105504 Atlanta, GA 30348-5504 - ------------------------------------------------------------------------------------------------------------------------------------ Virginia Tax-Free STI Classic VA Tax Free 17,129,335.5500 Trust 8.04% Money Market Fund Attn: Cindy Gay 303 Peachtree St, Fl. 24 Atlanta, GA 30308-3201 - ------------------------------------------------------------------------------------------------------------------------------------ S-89 - ------------------------------------------------------------------------------------------------------------------------------------ Virginia Tax-Free National Finance Services Corp. 99,709,762.6300 Investor 100.00% Money Market Fund For Exclusive Benefit of our Cust. Attn: Mutual Funds Dept. One World Financial Center 200 Liberty St., Fl. 5 New York, NY 10281-5500 - ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS The financial statements for the STI Classic Fund's fiscal year ended May 31, 2002, including notes thereto and the report of PricewaterhouseCoopers LLP thereon, are herein incorporated by reference, except for the Financial Highlights of the STI Classic International Equity Fund, STI Classic Mid-Cap Equity Fund and STI Classic Vantage Fund, which statements are included herein and reflect the correction of clerical errors that were contained in such financial statements. A copy of the 2002 Annual Report to Shareholders must accompany the delivery of this Statement of Additional Information. S-90 APPENDIX DESCRIPTION OF RATINGS The following descriptions are summaries of published ratings. DESCRIPTION OF COMMERCIAL PAPER RATINGS A-1 This is the highest category by Standard and Poor's (S&P) and indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation. A-2 Capacity for timely payment on issues with this designation is satisfactory and the obligation is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rating categories. PRIME-1 Issues rated Prime-1 (or supporting institutions) by Moody's have a superior ability for repayment of senior short-term debt obligations. Prime-1 repayment ability will often be evidenced by many of the following characteristics: - Leading market positions in well-established industries. - High rates of return on funds employed. - Conservative capitalization structure with moderate reliance on debt and ample asset protection. - Broad margins in earnings coverage of fixed financial charges and high internal cash generation. - Well-established access to a range of financial markets and assured sources of alternate liquidity. The rating F1 (Highest Credit Quality) is the highest commercial rating assigned by Fitch, Inc. ("Fitch"). Paper rated F1 is regarded as having the strongest capacity for timely payment of financial commitments. The rating F2 (Good Credit Quality) is the second highest commercial paper rating assigned by Fitch which reflects a satisfactory capacity for timely payment of financial commitments, but the margin of safety is not as great as in the case of the higher ratings. The rating TBW-1 by Thomson BankWatch ("Thomson") indicates a very high likelihood that principal and interest will be paid on a timely basis. DESCRIPTION OF MUNICIPAL NOTE RATINGS Moody's highest rating for state and municipal and other short-term notes is MIG-1 and VMIG-l. Short-term municipal securities rated MIG-1 or VMIG-1 are of the best quality. They have strong protection from established cash flows, superior liquidity support, or demonstrated broad-based access to the market for refinancing or both. Short-term municipal securities rated MIG-2 or VMIG-2 are of high quality. Margins of protection are ample although not so large as in the MIG-I/VMIG-2 group. An S&P note rating reflects the liquidity concerns and market access risks unique to notes. Notes due in three years or less will likely receive a note rating. Notes maturing beyond three 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, and A-1 - 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. S&P note rating symbols are as follows: SP-1 Strong capacity to pay principal and interest. Those issues determined to possess a very strong capacity to pay a debt service is given a plus (+) designation. SP-2 Satisfactory capacity to pay principal and interest with some vulnerability to adverse financial and economic changes over the term of the votes. DESCRIPTION OF CORPORATE BOND RATINGS S&P 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. Debt rated BBB 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. Debt rated BB and B is regarded as having predominantly 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 exposures to adverse conditions. Debt rated BB has less near-term vulnerability to default than other speculative grade debt. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions that could lead to inadequate capacity to meet timely interest and principal payments. The BB rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BBB- rating. Debt rate B has greater vulnerability to default but presently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions would likely impair capacity or willingness to pay interest and repay principal. The B rating category also is used for debt subordinated to senior debt that is assigned an actual or implied BB or BB- rating. MOODY'S 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 the 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. Bonds which are rated Baa are considered as 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 Ba are judged to have speculative elements; their future cannot be considered as well-assured. Often the protection A-2 of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Moody's bond ratings, where specified, are applied to financial contracts, senior bank obligations and insurance company senior policyholder and claims obligations with an original maturity in excess of one-year. Obligations relying upon support mechanisms such as letters-of-credit and bonds of indemnity are excluded unless explicitly rated. Obligations of a branch of a bank are considered to be domiciled in the country in which the branch is located. Unless noted as an exception, Moody's rating on a bank's ability to repay senior obligations extends only to branches located in countries which carry a Moody's sovereign rating. Such branch obligations are rated at the lower of the bank's rating or Moody's sovereign rating for the bank deposits for the country in which the branch is located. When the currency in which an obligation is denominated is not the same as the currency of the country in which the obligation is domiciled, Moody's ratings do not incorporate an opinion as to whether payment of the obligation will be affected by the actions of the government controlling the currency of denomination. In addition, risk associated with bilateral conflicts between an investor's home country and either the issuer's home country or the country where an issuer branch is located are not incorporated into Moody's ratings. Moody's makes no representation that rated bank obligations or insurance company obligations are exempt from registration under the U.S. Securities Act of 1933 or issued in conformity with any other applicable law or regulation. Nor does Moody's represent that any specific bank or insurance company obligation is legally enforceable or is a valid senior obligation of a rated issuer. Moody's ratings are opinions, not recommendations to buy or sell, and their accuracy is not guaranteed. A rating should be weighed solely as one factor in an investment decision and you should make your own study and evaluation of any issuer whose securities or debt obligations you consider buying or selling. FITCH Bonds rated AAA by Fitch are judged by Fitch to be strictly high grade, broadly marketable, suitable for investment by trustees and fiduciary institutions liable to but slight market fluctuation other than through changes in the money rate. The prime feature of an AAA bond is a showing of earnings several times or many times interest requirements, with such stability of applicable earnings that safety is beyond reasonable question whatever changes occur in conditions. Bonds rated AA by Fitch are judged by Fitch to be of safety virtually beyond question and are readily salable, whose merits are not unlike those of the AAA class, but whose margin of safety is less strikingly broad. The issue may be the obligation of a small company, strongly secured but influenced as to rating by the lesser financial power of the enterprise and more local type market. Bonds rated A are considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings. Bonds rated BBB are considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds, and therefore impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings. Bonds rated BB are considered speculative. The obligor's ability to pay interest and repay principal may be affected over time by adverse economic changes. However, business and financial alternatives can be identified which could assist the obligor in satisfying its debt service requirements. Bonds rated B are considered highly speculative. While bonds in this class are currently meeting debt service requirements, the probability of continued timely payment of principal and interest reflects the obligor's limited margin of safety and the need for reasonable business and economic activity throughout the life of the issue. A-3 THOMSON Bonds rated AAA by Thomson BankWatch indicate that the ability to repay principal and interest on a timely basis is extremely high. Bonds rated AA indicate a very strong ability to repay principal and interest on a timely basis, with limited incremental risk compared to issues rated in the highest category. Bonds rated A indicate the ability to repay principal and interest is strong. Issues rated A could be more vulnerable to adverse developments (both internal and external) than obligations with higher ratings. Bonds rated BBB (the lowest investment-grade category) indicate an acceptable capacity to repay principal and interest. Issues rated "BBB" are, however, more vulnerable to adverse developments (both internal and external) than obligations with higher ratings. While not investment grade, the BB rating suggests that the likelihood of default is considerably less than for lower-rated issues. However, there are significant uncertainties that could affect the ability to adequately service debt obligations. Issues rated B show a higher degree of uncertainty and therefore greater likelihood of default than higher-rated issues. Adverse developments could negatively affect the payment of interest and principal on a timely basis. A-4 FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- STI CLASSIC EQUITY FUNDS FOR THE PERIODS ENDED MAY 31, FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS
NET ASSET NET REALIZED AND DISTRIBUTIONS VALUE NET UNREALIZED GAINS FROM NET DISTRIBUTIONS NET ASSET BEGINNING INVESTMENT (LOSSES) INVESTMENT FROM REALIZED VALUE END TOTAL OF PERIOD INCOME (LOSS) ON INVESTMENTS INCOME CAPITAL GAINS OF PERIOD RETURN+ --------- ------------- --------------- ---------------- --------------- ------------ -------- INTERNATIONAL EQUITY FUND Trust Shares 2002 $10.19 $ 0.19 $(1.07) $ -- $ -- $ 9.31 (8.64)% 2001 12.56 -- (1.22) (0.04) (1.11) 10.19 (10.79) 2000 12.97 (0.10) 1.42 (0.07) (1.66) 12.56 10.58 1999 15.00 -- (1.14) (0.05) (0.84) 12.97 (7.43) 1998 13.63 0.04 2.69 (0.04) (1.32) 15.00 21.87 Investor Shares 2002 $10.11 $ 0.14 $(1.04) $ -- $ -- $ 9.21 (8.90)% 2001 12.47 (0.02) (1.23) -- (1.11) 10.11 (11.13) 2000 12.89 (0.11) 1.37 (0.02) (1.66) 12.47 10.15 1999 14.92 (0.09) (1.10) -- (0.84) 12.89 (7.82) 1998 13.58 0.02 2.64 -- (1.32) 14.92 21.39 Flex Shares 2002 $ 9.68 $ 0.04 $(0.97) $ -- $ -- $ 8.75 (9.61)% 2001 12.06 (0.16) (1.11) -- (1.11) 9.68 (11.71) 2000 12.58 (0.32) 1.46 -- (1.66) 12.06 9.38 1999 14.68 (0.29) (0.97) -- (0.84) 12.58 (8.48) 1998 13.47 0.07 2.46 -- (1.32) 14.68 20.54 MID CAP EQUITY FUND Trust Shares 2002 $10.95 $ 0.01 (3) $(1.17) (3) $ -- $ -- $ 9.79 (10.59)% 2001 14.10 (0.03) (0.61) -- (2.51) 10.95 (6.92) 2000 12.68 (0.04) 2.32 -- (0.86) 14.10 19.10 1999 13.79 0.01 0.07 -- (1.19) 12.68 1.61 1998 13.21 -- 2.54 -- (1.96) 13.79 21.14 Investor Shares 2002 $10.64 $(0.03) $(1.14) $ -- $ -- $ 9.47 (11.00)% 2001 13.82 (0.05) (0.62) -- (2.51) 10.64 (7.34) 2000 12.50 (0.19) 2.37 -- (0.86) 13.82 18.55 1999 13.67 (0.06) 0.08 -- (1.19) 12.50 1.17 1998 13.17 (0.03) 2.49 -- (1.96) 13.67 20.56 Flex Shares 2002 $10.14 $ 0.02 (3) $(1.19) (3) $ -- $ -- $ 8.97 (11.54)% 2001 13.35 (0.07) (0.63) -- (2.51) 10.14 (7.88) 2000 12.17 (0.22) 2.26 -- (0.86) 13.35 17.87 1999 13.42 (0.14) 0.08 -- (1.19) 12.17 0.56 1998 13.04 (0.04) 2.38 -- (1.96) 13.42 19.80 VANTAGE FUND Trust Shares 2002 (1) $10.00 $(0.03) $(0.32) $ -- $ -- $ 9.65 (3.50)% Flex Shares 2002 (2) $10.49 $(0.02) (3) $(0.83) $ -- (3) $ -- $ 9.64 (8.10)% (3) + Returns are for the period indicated and have not been annualized. Total return figures do not include applicable sales loads. (1) Trust shares were offered beginning on November 30, 2001. All ratios for the period have been annualized. (2) Flex shares were offered beginning on March 11, 2002. All ratios for the period have been annualized. (3) This amount/ratio has been changed to reflect the correction of a clerical error contained in the Fund's 2002 Annual Report to Shareholders. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Amounts designated as "--" are either $0 or have been rounded to $0. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS STI CLASSIC EQUITY FUNDS FOR THE PERIODS ENDED MAY 31, FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS RATIO OF RATIO OF RATIO OF NET INVESTMENT NET ASSETS RATIO OF NET INVESTMENT EXPENSES TO INCOME (LOSS) TO PORTFOLIO END OF EXPENSES TO INCOME (LOSS) TO AVERAGE NET ASSETS AVERAGE NET ASSETS TURNOVER PERIOD (000) AVERAGE NET ASSETS AVERAGE NET ASSETS (EXCLUDING WAIVERS) (EXCLUDING WAIVERS) RATE ------------- ------------------ ----------------- ------------------- ------------------ -------------- INTERNATIONAL EQUITY FUND Trust Shares 2002 $ 252,991 1.48% 0.48% 1.48% 0.48% 102% 2001 208,120 1.45 0.50 1.45 0.50 68 2000 299,100 1.48 0.59 1.48 0.59 179 1999 573,255 1.47 0.68 1.52 0.63 161 1998 628,870 1.47 0.61 1.48 0.60 108 Investor Shares 2002 $ 5,272 1.83% (0.21)% 2.08% (3) (0.46)% (3) 102% 2001 7,517 1.79 0.18 1.97 -- 68 2000 10,462 1.83 0.33 1.95 0.21 179 1999 14,145 1.83 0.30 1.93 0.20 161 1998 17,383 1.82 0.24 1.91 0.15 108 Flex Shares 2002 $ 6,567 2.53% (0.73)% 2.93% (3) (1.13)% (3) 102% 2001 7,765 2.48 (0.51) 2.57 (0.60) 68 2000 10,891 2.53 (0.38) 2.74 (0.59) 179 1999 17,103 2.53 (0.40) 2.82 (0.69) 161 1998 21,164 2.52 (0.46) 2.58 (0.52) 108 MID CAP EQUITY FUND Trust Shares 2002 $ 171,813 1.22% (0.18)% 1.24% (0.20)% 87% 2001 156,111 1.21 (0.24) 1.25 (0.28) 100 2000 206,545 1.17 -- 1.25 (0.08) 131 1999 254,055 1.17 (0.47) 1.28 (0.58) 76 1998 337,825 1.16 (0.29) 1.27 (0.40) 129 Investor Shares 2002 $ 10,766 1.68% (0.63)% 1.89% (0.84)% 87% 2001 12,316 1.66 (0.69) 1.86 (0.89) 100 2000 14,513 1.62 (0.43) 1.81 (0.62) 131 1999 19,230 1.62 (0.90) 1.76 (1.04) 76 1998 24,930 1.61 (0.75) 1.84 (0.98) 129 Flex Shares 2002 $ 13,937 2.28% (1.23)% 2.50% (1.45)% 87% 2001 12,910 2.26 (1.29) 2.46 (1.49) 100 2000 14,588 2.22 (1.05) 2.44 (1.27) 131 1999 15,804 2.22 (1.52) 2.48 (1.78) 76 1998 19,042 2.21 (1.37) 2.47 (1.63) 129 VANTAGE FUND Trust Shares 2002 (1) $ 8,816 2.03% (0.78)% 2.13% (3) (0.88)% (3) 1,063% Flex Shares 2002 (2) $ 860 2.73% (1.44)% (3) 3.32% (3) (2.03)% (3) 1,063%
(1) Trust shares were offered beginning on November 30, 2001. All ratios for the period have been annualized. (2) Flex shares were offered beginning on March 11, 2002. All ratios for the period have been annualized. (3) This amount/ratio has been changed to reflect the correction of a clerical error contained in the Fund's 2002 Annual Report to Shareholders. Amounts designated as "--" are either $0 or have been rounded to $0. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS STATEMENT OF ADDITIONAL INFORMATION STI CLASSIC FUNDS OCTOBER 1, 2002 INVESTMENT ADVISER: TRUSCO CAPITAL MANAGEMENT, INC. This Statement of Additional Information ("SAI") is not a prospectus. It is intended to provide additional information regarding the activities and operations of the Classic Institutional Money Market and Bond Funds of the STI Classic Funds (the "Trust"). This SAI relates to the following series of the Trust (each a "Fund" and collectively, the "Funds"): CLASSIC INSTITUTIONAL CASH MANAGEMENT MONEY MARKET FUND CLASSIC INSTITUTIONAL U.S. GOVERNMENT SECURITIES MONEY MARKET FUND CLASSIC INSTITUTIONAL U.S. TREASURY SECURITIES MONEY MARKET FUND CLASSIC INSTITUTIONAL SHORT-TERM BOND FUND CLASSIC INSTITUTIONAL SUPER SHORT INCOME PLUS FUND CLASSIC INSTITUTIONAL U.S. GOVERNMENT SECURITIES SUPER SHORT INCOME PLUS FUND This SAI is incorporated by reference into, and should be read in conjunction with, the Funds' prospectuses dated October 1, 2002. Capitalized terms not defined herein are defined in the prospectuses. Prospectuses may be obtained by writing to the Trust or calling toll-free 1-800-428-6970. TABLE OF CONTENTS THE TRUST.....................................................................1 DESCRIPTION OF PERMITTED INVESTMENTS..........................................1 INVESTMENT POLICIES..........................................................17 INVESTMENT ADVISER...........................................................18 THE ADMINISTRATOR............................................................19 THE DISTRIBUTOR..............................................................21 THE TRANSFER AGENT...........................................................23 THE CUSTODIAN................................................................23 INDEPENDENT PUBLIC ACCOUNTANTS...............................................23 LEGAL COUNSEL................................................................23 TRUSTEES AND OFFICERS OF THE TRUST...........................................23 PERFORMANCE INFORMATION......................................................28 COMPUTATION OF YIELD.........................................................28 CALCULATION OF TOTAL RETURN..................................................30 PURCHASING AND REDEEMING SHARES..............................................30 DETERMINATION OF NET ASSET VALUE.............................................31 TAXES ....................................................................32 FUND TRANSACTIONS............................................................34 PORTFOLIO TURNEROVER RATE....................................................39 DESCRIPTION OF SHARES........................................................39 VOTING RIGHTS................................................................39 SHAREHOLDER LIABILITY........................................................40 LIMITATION OF TRUSTEES' LIABILITY............................................40 CODES OF ETHICS..............................................................40 5% AND 25% SHAREHOLDERS......................................................40 FINANCIAL STATEMENTS.........................................................42 APPENDIX .................................................................. A-1 -i- THE TRUST Each Fund is a separate series of the Trust, an 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 (each a "fund" and collectively, the "funds") of units of beneficial interest ("shares") and different classes of shares of each Fund. The Trust reserves the right to create and issue shares of additional funds and/or classes. This Statement of Additional Information relates to shares of the Classic Institutional Super Short Income Plus Fund and Classic Institutional U.S. Government Securities Super Short Income Plus Fund, which are offered through three separate classes (Institutional, Trust and Flex shares), the Classic Institutional U.S. Treasury Money Market Fund which are offered through two separate classes (Institutional Shares and Corporate Trust Shares) and shares of the Classic Institutional Cash Management Money Market Fund, Classic Institutional Short-Term Bond Fund and the Classic Institutional U.S. Government Securities Money Market Fund which are offered through a single class (Institutional Shares). DESCRIPTION OF PERMITTED INVESTMENTS ASSET-BACKED SECURITIES. Asset-backed securities are securities backed by non-mortgage assets such as company receivables, truck and auto loans, leases and credit card receivables. Other asset-backed securities may be created in the future. These securities may be traded over-the-counter and typically have a short-intermediate maturity structure depending on the pay-down characteristics of the underlying financial assets which are passed through to the security holder. These securities are generally issued as pass-through certificates, which represent undivided fractional ownership interests in the underlying pool of assets. Asset-backed securities may also be debt obligations, which are 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 these assets and issuing debt obligations. 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 is also the possibility that recoveries on repossessed collateral may not, in some cases, be available to support payments on those securities. Asset-backed securities entail pre-payment risk, which may vary depending on the type of asset, but is generally less than the pre-payment 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. BANK INVESTMENT CONTRACTS (BICS). A BIC is a general obligation of the issuing bank or savings and loan institution and not a separate account. The purchase price paid for a BIC becomes part of the general assets of the issuer, and the contract is paid at maturity from the general assets of the issuer. Pursuant to such contracts, the Institutional Cash Management Money Market Fund makes cash contributions to a -1- deposit fund of the general account of the bank or savings and loan institution. The bank or savings and loan institution then credits to the Fund on a monthly basis guaranteed interest at either a fixed, variable or floating rate. A BIC provides that this guaranteed interest will not be less than a certain minimum rate. BICs are generally not assignable or transferable without the permission of the issuing bank or savings and loan institution. For this reason, an active secondary market in BICs currently does not exist. Therefore, BICs are considered to be illiquid investments. The Fund may invest up to an aggregate amount of 5% of its total assets in BICs. BANK OBLIGATIONS. Bank obligations are short-term obligations issued by U.S. and foreign banks, including bankers' acceptances, certificates of deposit, custodial receipts, and time deposits. Eurodollar and Yankee Bank Obligations are U.S. dollar-denominated certificates of deposit or time deposits issued outside the U.S. by foreign branches of U.S. banks or by foreign banks. 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 BONDS. Debt instruments issued by a private corporation, as distinct from one issued by a governmental agency or municipality. Corporate bonds generally have the following features: (1) they are taxable; (2) they have a par value of $1,000; and (3) they have term maturity. They are sometimes traded on major exchanges. CUSTODIAL RECEIPTS. A custodial receipt represents an indirect interest in a tax-exempt bond that is deposited with a custodian. For example, custodial receipts may be used to permit the sale of the deposited bond in smaller denominations than would otherwise be permitted. Frequently, custodial receipts are issued to attach bond insurance or other forms of credit enhancement to the deposited tax-exempt bond. Note, because a "separate security" is not created by the issuance of a receipt, many of the tax advantages bestowed upon holders of the deposited tax-exempt bond are also conferred upon the custodial receipt holder. DEBT SECURITIES. Debt securities represent money borrowed that obligates the issuer (E.G., a corporation, municipality, government, government agency) to repay the borrowed amount at maturity (when the obligation is due and payable) and usually to pay the holder interest at specific times (E.G., bonds, notes, debentures). DOLLAR ROLLS. Dollar rolls are transactions in which securities are sold for delivery in the current month and the seller contracts to repurchase substantially similar securities on a specified future date. Any difference between the sale price and the purchase price (plus interest earned on the cash proceeds of the sale) is applied against the past interest income on the securities sold to arrive at an implied borrowing rate. 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. -2- If the broker-dealer to whom a 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 DOLLAR 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 dollar obligations are U.S. dollar denominated obligations issued in the United States by foreign banks. FIXED INCOME SECURITIES. Fixed income securities are debt obligations issued by corporations, municipalities and other borrowers. The market value of 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. Moreover, while securities with longer maturities tend to produce higher yields, the prices of longer maturity securities are also subject to greater market fluctuations as a result of changes in interest rates. Changes by recognized agencies in the rating of any fixed income security and in the ability of an issuer to make payments of interest and principal will also affect the value of these investments. Changes in the value of portfolio securities will not affect cash income derived from these securities but will affect the Funds' net asset value. FLOATING RATE INSTRUMENTS. Floating rate instruments have a rate of interest that is set as a specific percentage of a designated base rate (such as the prime rate) at a major commercial bank. The Funds 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. The Funds may use the longer of the period required before the Funds are entitled to prepayment under such obligations or the period remaining until the next interest rate adjustment date for purposes of determining the maturity of the instrument. 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 Adviser's opinion be equivalent to the long-term bond or commercial paper ratings stated in the Prospectus. The Adviser 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. FOREIGN SECURITIES. Foreign securities may include U.S. dollar denominated 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, Europaper and foreign securities. These instruments may subject the Fund to investment risks that differ in some respects from those related to investments in obligations of U.S. domestic issuers. Such risks include future adverse political and economic developments, the possible imposition of withholding taxes on interest or other income, possible seizure, nationalization, or expropriation of foreign deposits, the possible establishment of exchange controls or taxation at the source, greater fluctuations in value due to changes in exchange rates, or the adoption of other foreign governmental restrictions which might adversely affect the payment of principal and interest on such obligations. Such investments may also entail higher 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. -3- In making investment decisions for the Fund, the Adviser evaluates the risks associated with investing Fund assets in a particular country, including risks stemming from a country's financial infrastructure and settlement practices; the likelihood of expropriation, nationalization or confiscation of invested assets; prevailing or developing custodial practices in the country; the country's laws and regulations regarding the safekeeping, maintenance and recovery of invested assets, the likelihood of government-imposed exchange control restrictions which could impair the liquidity of Fund assets maintained with custodians in that country, as well as risks from political acts of foreign governments ("country risks"). Of course, the Adviser cannot assure that the Fund will not suffer losses resulting from investing in foreign countries. Holding Fund assets in foreign countries through specific foreign custodians presents additional risks, including but not limited to the risks that a particular foreign custodian or depository will not exercise proper care with respect to Fund assets or will not have the financial strength or adequate practices and procedures to properly safeguard Fund assets. GUARANTEED INVESTMENT CONTRACTS (GICS). 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. Pursuant to such contracts, the Institutional Cash Management Money Market 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. 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 sold or disposed of in the ordinary course of business (within seven days) at approximately the prices at which they are valued. Because of their illiquid nature, illiquid securities must be priced at fair value as determined in good faith pursuant to procedures approved by the Trust's Board of Trustees. Despite such good faith efforts to determine fair value prices, the Fund's illiquid securities are subject to the risk that the security's fair value price may differ from the actual price which the Fund may ultimately realize upon its sale or disposition. Difficulty in selling illiquid securities may result in a loss or may be costly to a fund. Under the supervision of the Trust's Board of Trustees, the Adviser determines the liquidity of the Fund's investments. In determining the liquidity of the Fund's investments, the Adviser may consider various factors, including (1) the frequency and volume of trades and quotations, (2) the number of dealers and prospective purchasers in the marketplace, (3) dealer undertakings to make a market, and (4) the nature of the security and the market in which it trades (including any demand, put or tender features, the mechanics and other requirements for transfer, any letters of credit or other credit enhancement features, any ratings, the number of holders, the method of soliciting offers, the time required to dispose of the security, and the ability to assign or offset the rights and obligations of the security). A Fund will not invest more than 15% of its net assets in illiquid securities. INVESTMENT COMPANY SHARES. The Funds may invest in shares of other investment companies, to the extent permitted by applicable law and subject to certain restrictions. These investment companies typically incur fees that are separate from those fees incurred directly by the Funds. The Funds' 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, in addition to paying the Funds' expenses. Under applicable regulations, the Funds are prohibited from acquiring the securities of another investment company if, as a result of such acquisition: (1) the Funds own more than 3% of the total voting stock of the other company; (2) securities issued by -4- any one investment company represent more than 5% of the Funds' total assets; or (3) securities (other than treasury stock) issued by all investment companies represent more than 10% of the total assets of the Funds. INVESTMENT GRADE OBLIGATIONS. Investment Grade Obligations are fixed income obligations rated by one or more of the rating agencies in one of the four highest rating categories at the time of purchase (e.g., AAA, AA, A or BBB by Standard & Poor's Ratings Group ("S&P") or Fitch, Inc. ("Fitch"), or Aaa, Aa, A or Baa by Moody's Investors Service, Inc. ("Moody's") or determined to be of equivalent quality by the Sub-Advisers. Securities rated BBB or Baa represent the lowest of four levels of Investment Grade Obligations and are regarded as borderline between sound obligations and those in which the speculative element begins to predominate. Ratings assigned to fixed income securities represent only the opinion of the rating agency assigning the rating and are not dispositive of the credit risk associated with the purchase of a particular Fixed Income Obligation. Moreover, market risk also will affect the prices of even the highest rated fixed income obligation so that their prices may rise or fall even if the issuer's capacity to repay its obligation remains unchanged. 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. In a loan participation, the borrower corporation is 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 the 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 the 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 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 30-year fixed rate mortgages, graduated payment mortgages, adjustable rate mortgages, and floating mortgages. Government Pass-Through Securities 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"), Fannie Mae, and the Federal Home Loan Mortgage Corporation ("FHLMC"). Fannie Mae and FHLMC obligations are not backed by the full faith and credit of the U.S. government as GNMA certificates are, but Fannie Mae and FHLMC securities are supported by the instrumentalities' right to borrow from the U.S. Treasury. GNMA, Fannie Mae, and FHLMC each guarantees timely distributions of interest to certificate holders. GNMA and Fannie Mae also guarantee timely distributions of scheduled principal. In the past, -5- FHLMC has only guaranteed 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. Obligations of GNMA are backed by the full faith and credit of the U.S. government. Obligations of Fannie Mae and FHLMC are not backed by the full faith and credit of the U.S. government, but are considered to be of high quality since they are considered to be instrumentalities of the United States. The market value and interest yield of these mortgage-backed securities can vary due to market interest rate fluctuations and early prepayments of underlying mortgages. These securities represent ownership in a pool of federally insured mortgage loans with a maximum maturity of 30 years. However, due to scheduled and unscheduled principal payments on the underlying loans, these securities have a shorter average maturity and, therefore, less principal volatility than a comparable 30-year bond. Since prepayment rates vary widely, it is not possible to accurately predict the average maturity of a particular mortgage-backed security. The scheduled monthly interest and principal payments relating to mortgages in the pool will be "passed through" to investors. Government mortgage-backed securities differ from conventional bonds in that principal is paid back to the certificate holders over the life of the loan rather than at maturity. As a result, there will be monthly scheduled payments of principal and interest. In addition, there may be unscheduled principal payments representing prepayments on the underlying mortgages. Although these securities may offer yields higher than those available from other types of U.S. government securities, mortgage-backed securities may be less effective than other types of securities as a means of "locking in" attractive long-term rates because of the prepayment feature. For instance, when interest rates decline, the value of these securities likely will not rise as much as comparable debt securities due to the prepayment feature. In addition, these prepayments can cause the price of a mortgage-backed security originally purchased at a premium to decline in price to its par value, which may result in a loss. Private Pass-Through Securities are mortgage-backed securities issued by a non-governmental agency, such as a trust. While they are generally structured with one or more types of credit enhancement, private pass-through securities generally lack a guarantee by an entity having the credit status of a governmental agency or instrumentality. The two principal types of private mortgage-backed securities are collateralized mortgage obligations ("CMOs") and real estate mortgage investment conduits ("REMICs"). 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). CMOs are rated in one of the two highest categories by S&P or Moody's and are issued with a number of classes or series which have different expected maturities. Investors purchasing such CMOs are credited with their portion of the scheduled payments of interest and principal on the underlying mortgages plus all unscheduled prepayments of principal based on a predetermined priority schedule. Accordingly, the CMOs in the longer maturity series are less likely than other mortgage pass-throughs to be prepaid prior to their stated maturity. Although some of the mortgages underlying CMOs may be supported by various types of insurance, and some CMOs may be backed by GNMA certificates or other mortgage pass-throughs issued or guaranteed by U.S. government agencies or instrumentalities, the CMOs themselves are not generally guaranteed. REMICs 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 and are rated in one of the two highest categories by S&P or Moody's. -6- 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 Fannie Mae or FHLMC represent beneficial ownership interests in a REMIC trust consisting principally of mortgage loans or Fannie Mae, FHLMC or GNMA-guaranteed mortgage pass-through certificates. For FHLMC REMIC Certificates, FHLMC guarantees the timely payment of interest. GNMA REMIC Certificates are backed by the full faith and credit of the U.S. government. Stripped Mortgage-Backed Securities 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. 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 Adviser believes that the estimated average life is the most appropriate measure of the maturity of a mortgage-backed security. Accordingly, in order to determine whether such security is a permissible investment for a Fund, it will be deemed to have a remaining maturity equal to its average life as estimated by the Adviser. An average life estimate is a function of an assumption regarding anticipated prepayment patterns. The assumption is based upon current interest rates, current conditions in the relevant housing markets and other factors. The assumption is necessarily subjective, and thus different market participants could produce somewhat different average life estimates with regard to the same security. There can be no assurance that the average life as estimated by the Adviser will be the 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 (see "When-Issued Securities and Municipal Forwards" for more information). 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. MUNICIPAL SECURITIES. The Institutional Cash Management Money Market Fund may invest in municipal securities. Municipal bonds include general obligation bonds, revenue or special obligation bonds, private activity and industrial development bonds and participation interests in municipal bonds. 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 (for example, tolls from a bridge). 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 totally dependent 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 the payment. -7- Municipal notes 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 investment by S&P, or (iv) which, if not rated by S&P or Moody's, are in the Adviser's judgment, of at least comparable quality to MIG-2, VMIG-2 or SP-2. Private activity bonds are issued by or on behalf of states, or political subdivisions thereof, to finance privately owned or operated facilities for business and manufacturing, housing, sports, and pollution control, and to finance activities of and facilities for charitable institutions. Private activity bonds are also used to finance public facilities such as airports, mass transit systems, ports parking and low-income housing. The payment of the principal and interest on private activity bonds is dependent solely on the ability of the facility's user to meet its financial obligations and may be secured by a pledge of real and personal property so financed. Investments in 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 Adviser's opinion, be equivalent to the long-term bond or commercial paper ratings stated above. The Adviser 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 Adviser 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. The Adviser has the authority to 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 in order to meet redemptions and remain as fully invested as possible in municipal securities. The right to put the securities depends on the writer's ability to pay for the securities at the time the put is exercised. The Funds will limit their put transactions to those with institutions which the Adviser believes present minimum credit risks, and the Adviser will use its best efforts to initially determine and thereafter monitor the financial strength of the put providers 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 where adequate current financial information is not available. In the event that any writer is unable to honor a put for financial reasons, the affected Fund would be a general creditor (I.E., on parity with all other unsecured creditors) of the writer. Furthermore, particular provisions of the contract between a Fund and the writer may excuse the writer from repurchasing the securities in certain circumstances (for example, a change in the published rating of the underlying municipal securities or any similar event that has an adverse effect on the issuer's credit); or a provision in the contract may provide that the put will not be exercised except in certain special cases, for example, to maintain portfolio liquidity. A Fund could, however, 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. Municipal securities purchased subject to a put may be -8- 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. Sale of the securities to third parties or lapse of time with the put unexercised may terminate the right to put the securities. Prior to the expiration of any put option, a Fund could seek to negotiate terms for the extension of such an option. If such a renewal cannot be negotiated on terms satisfactory to a Fund, the 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 Funds may purchase subject to a put. For the purpose of determining the "maturity" of securities purchased subject to an option to put, and for the purpose of determining the dollar-weighted average maturity of the Funds including such securities, the Trust will consider "maturity" to be the first date on which it has the right to demand payment from the writer of the put although the final maturity of the security is later than such date. Other types of tax-exempt instruments which are permissible investments 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 Adviser's opinion, be equivalent to the long-term bond or commercial paper ratings stated above. The Adviser 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 a Fund's investment limitations restricting its 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 issuance. Neither the Funds nor the Adviser will review the proceedings relating to the issuance of municipal securities or the basis for such opinions. OBLIGATIONS OF DOMESTIC BANKS, FOREIGN BANKS AND FOREIGN BRANCHES OF U.S. BANKS. A Fund may invest in obligations issued by banks and other savings institutions. Investments in bank obligations include obligations of domestic branches of foreign banks and foreign branches of domestic banks. Such investments in domestic branches of foreign banks and foreign branches of domestic banks may involve risks that are different from investments in securities of domestic branches of U.S. banks. These risks may include future unfavorable political and economic developments, possible withholding taxes on interest income, seizure or nationalization of foreign deposits, currency controls, interest limitations, or other governmental restrictions which might affect the payment of principal or interest on the securities held by a Fund. Additionally, these institutions may be subject to less stringent reserve requirements and to different accounting, auditing, reporting and recordkeeping requirements than those applicable to domestic branches of U.S. banks. The Funds may invest in U.S. dollar-denominated obligations of domestic branches of foreign banks and foreign branches of domestic banks only when the Adviser -9- believes that the risks associated with such investment are minimal and that all applicable quality standards have been satisfied. Bank obligations include the following: o BANKERS' ACCEPTANCES. Bankers' acceptances are bills of exchange or time drafts drawn on and accepted by a commercial bank. Corporations use bankers' acceptances to finance the shipment and storage of goods and to furnish dollar exchange. Maturities are generally six months or less. o 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. o 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 with a withdrawal penalty or that mature in more than seven days are considered to be illiquid securities. OPTIONS. A Fund may write call options on a covered basis only, and will not engage in option writing strategies for speculative purposes. A call option gives the purchaser of such option the right to buy, and the writer, in this case the Fund, the obligation to sell the underlying security at the exercise price during the option period. The advantage to 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. 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. -10- The market value of a call option generally reflects the market price of an underlying security. Other principal factors affecting market value include supply and demand, interest rates, the price volatility of the underlying security, and the time remaining until the expiration date. The Funds will write call options only on a covered basis, which means that a Fund will own the underlying security subject to a call option at all times during the option period. Unless a closing purchase transaction is effected, a Fund would be required to continue to hold a security which it might otherwise wish to sell, or deliver a security it would want to hold. Options written by the Funds will normally have expiration dates between one and nine months from the date written. The exercise price of a call option may be below, equal to, or above the current market value of the underlying security at the time the option is written. OTHER INVESTMENTS. The Funds are not prohibited from investing in bank obligations issued by clients of SEI Investments Company ("SEI Investments"), the parent company of the Administrator and the Distributor. The purchase of Fund shares by these banks or their customers will not be a consideration in deciding which bank obligations the Funds will purchase. The Funds will not purchase obligations issued by the Adviser. PAY-IN-KIND SECURITIES. Pay-In-Kind securities are debt obligations or preferred stock, that pay interest or dividends in the form of additional debt obligations or preferred stock. REPURCHASE AGREEMENTS. A Fund may enter into repurchase agreements with financial institutions. The Funds each follow certain procedures designed to minimize the risks inherent in such agreements. These procedures include effecting repurchase transactions only with creditworthy financial institutions whose condition will be continually monitored by the Adviser. The repurchase agreements entered into by a Fund will provide that the underlying collateral at all times shall have a value at least equal to 102% of the resale price stated in the agreement (the Adviser monitors compliance with this requirement). Under all repurchase agreements entered into by a Fund, the custodian or its agent must take possession of the underlying collateral. In the event of a default or bankruptcy by a selling financial institution, a Fund will seek to liquidate such collateral. However, the exercising of each Fund's right to liquidate such collateral could involve certain costs or delays and, to the extent that proceeds from any sale upon a default of the obligation to repurchase were less than the repurchase price, the Fund could suffer a loss. It is the current policy of each of the Funds, not to invest in repurchase agreements that do not mature within seven days if any such investment, together with any other illiquid assets held by that Fund, amounts to more than 15% of the Fund's total assets. The investments of each of the Funds in repurchase agreements, at times, may be substantial when, in the view of the Adviser, liquidity or other considerations so warrant. RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS. Investments by a money market fund are subject to limitations imposed under regulations adopted by the SEC. Under these regulations, money market funds may acquire only 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 NRSROs (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"). In the case of taxable money market funds, investments in second tier securities are subject to further constraints in that (i) no more than 5% of a money market 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 money market fund's total assets or $1 million. A taxable money market fund may not purchase securities of any issuer (except securities issued or guaranteed by the U.S. government, its agencies of instrumentalities) if, as a result, more than 5% of the total assets of the Fund would be invested the securities of one issuer. A taxable money market fund may also hold more than 5% of its assets in first -11- 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 to the public without registration under the Securities Act of 1933 (the "1933 Act") or an exemption from registration. The Funds may invest in restricted securities, and each such Fund may invest up to 15% of its net assets (10% for the money market funds) 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 the Adviser pursuant to guidelines adopted by the Trust's Board of Trustees. Under these guidelines, the Adviser will consider the frequency of trades and quotes for the security, the number of dealers in, and potential purchasers for, the securities, dealer undertakings to make a market in the security, and the nature of the security and of the marketplace trades. In purchasing such Restricted Securities, the Adviser intends to purchase securities that are exempt from registration under Rule 144A under the 1933 Act. SECURITIES LENDING. Each Fund may lend portfolio securities to brokers, dealers and other financial organizations that meet capital and other credit requirements or other criteria established by the Fund's Board of Trustees. These loans, if and when made, may not exceed 33 1/3% of the total asset value of the Fund (including the loan collateral). No Fund will lend portfolio securities to its investment adviser, sub-adviser or their affiliates unless it has applied for and received specific authority to do so from the SEC. Loans of portfolio securities will be fully collateralized by cash, letters of credit or U.S. Government Securities, and the collateral will be maintained in an amount equal to at least 100% of the current market value of the loaned securities by marking to market daily. Any gain or loss in the market price of the securities loaned that might occur during the term of the loan would be for the account of the Fund. The Fund may pay a part of the interest earned from the investment of collateral, or other fee, to an unaffiliated third party for acting as the Fund's securities lending agent. By lending its securities, a Fund may increase its income by receiving payments from the borrower that reflect the amount of any interest or any dividends payable on the loaned securities as well as by either investing cash collateral received from the borrower in short-term instruments or obtaining a fee from the borrower when U.S. Government Securities or letters of credit are used as collateral. Each Fund will adhere to the following conditions whenever its portfolio securities are loaned: (i) the Fund must receive at least 100% cash collateral or equivalent securities of the type discussed in the preceding paragraph from the borrower; (ii) the borrower must increase such collateral whenever the market value of the securities rises above the level of such collateral; (iii) the Fund must be able to terminate the loan on demand; (iv) the Fund must receive reasonable interest on the loan, as well as any dividends, interest or other distributions on the loaned securities and any increase in market value; (v) the Fund may pay only reasonable fees in connection with the loan (which fees may include fees payable to the lending agent, the borrower, the Fund's administrator and the custodian); and (vi) voting rights on the loaned securities may pass to the borrower, provided, however, that if a material event adversely affecting the investment occurs, the Fund must terminate the loan and regain the right to vote the securities. The Board has adopted procedures reasonably designed to ensure that the foregoing criteria will be met. Loan agreements involve certain risks in the event of default or insolvency of the borrower, including possible delays or restrictions upon a Fund's ability to recover the loaned securities or dispose of the collateral for the loan, which could give rise to loss because of adverse market action, expenses and/or delays in connection with the disposition of the underlying securities. -12- SHORT-TERM OBLIGATIONS. Short-term obligations are debt obligations maturing (becoming payable) in 397 days or less, including commercial paper and short-term corporate obligations. Short-term corporate obligations are short-term obligations issued by corporations. STANDBY COMMITMENTS AND PUTS. The Institutional Cash Management Money Market Fund may purchase securities at a price which would result in a yield-to-maturity lower than that generally offered by the seller at the time of purchase when it 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 Fund to meet redemptions and remain as fully invested as possible in municipal securities. The Fund reserves the right to engage in put transactions. The right to put the securities depends on the writer's ability to pay for the securities at the time the put is exercised. The Institutional Cash Management Money Market Fund would limit its put transactions to institutions which the Adviser believes present minimal credit risks, and the Adviser would use its best efforts to initially determine and continue to monitor the financial strength of the sellers of the options by evaluating their financial statements and such other information as is available in the marketplace. It may, however be difficult to monitor the financial strength of the writers because adequate current financial information may not be available. In the event that any writer is unable to honor a put for financial reasons, the Fund would be a general creditor (I.E., on a parity with all other unsecured creditors) of the writer. Furthermore, particular provisions of the contract between the Fund and the writer may excuse the writer from repurchasing the securities; for example, a change in the published rating of the underlying securities or any similar event that has an adverse effect on the issuer's credit or a provision in the contract that the put will not be exercised except in certain special cases, for example, to maintain portfolio liquidity. The Fund could, however, at any time sell the underlying portfolio security in the open market or wait until the portfolio security matures, at which time it should realize the full par value of the security. The securities purchased subject to a put may be sold to third persons at any time, even though the put is outstanding, but the put itself, unless it is an integral part of the security as originally issued, may not be marketable or otherwise assignable. Therefore, the put would have value only to the Fund. Sale of the securities to third parties or lapse of time with the put unexercised may terminate the right to put the securities. Prior to the expiration of any put option, the Fund could seek to negotiate terms for the extension of such an option. If such a renewal cannot be negotiated on terms satisfactory to the Fund, the Fund could, of course, sell the portfolio security. The maturity of the underlying security will generally be different from that of the put. There will be no limit to the percentage of portfolio securities that the Fund may purchase subject to a standby commitment or put, but the amount paid directly or indirectly for all standby commitments or puts which are not integral parts of the security as originally issued held in the Fund will not exceed _ of 1% of the value of its total assets of such Fund calculated immediately after any such put is acquired. STRIPS. Separately Traded Interest and Principal Securities ("STRIPS") are component parts of U.S. Treasury securities traded through the Federal Book-Entry System. An Adviser 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 Adviser 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 Adviser 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. -13- SUPRANATIONAL AGENCY OBLIGATIONS. Supranational agency obligations are obligations of supranational entities established through the joint participation of several governments, including the Asian Development Bank, Inter-American Development Bank, International Bank for Reconstruction and Development (also known as the "World Bank"), African Development Bank, European Union, European Investment Bank, and the Nordic Investment Bank. The Institutional Cash Management Money Market Fund may purchase obligations of supranational agencies. Currently the Fund intends to invest only in obligations issued or guaranteed by the Asian Development Bank, Inter-American Development Bank, International Bank for Reconstruction and Development (World Bank), African Development Bank, European Coal and Steel Community, European Economic Community, European Investment Bank and the Nordic Investment Bank. SWAPS, CAPS, FLOORS, COLLARS. Swaps, caps, floors and collars are hedging tools designed to permit a Fund to preserve a return or spread on a particular investment or portion of its portfolio. They are also used to protect against any increase in the price of securities a 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." This is done 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. This is 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. Meanwhile, 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 subject to risks related to the counterparty's ability to perform, and may decline in value if the counterparty's creditworthiness deteriorates. A Fund may also suffer losses if it is unable to terminate outstanding swap agreements or reduce its exposure through offsetting transactions. An obligation a Fund may have under these types of arrangements will be covered by setting aside liquid high-grade securities in a segregated account. The Funds will enter into swaps only with counterparties believed to be creditworthy. TAXABLE MUNICIPAL SECURITIES. The Institutional Cash Management Money Market Fund may invest in taxable municipal securities. Taxable municipal securities are municipal securities the interest on which is not exempt from federal income tax. Taxable municipal securities include "private activity bonds" that are issued by or on behalf of states or political subdivisions thereof to finance privately-owned or operated facilities for business and manufacturing, housing, sports, and pollution control and to finance activities of and facilities for charitable institutions. Private activity bonds are also used to finance public facilities such as airports, mass transit systems, ports, parking lots, and low income housing. The payment of the principal and interest on private activity bonds is not backed by a pledge of tax revenues, and is dependent solely on the ability of the facility's user to meet its financial obligations, and may be secured by a pledge of real and personal property so financed. Interest on these bonds may not be exempt from federal income tax. U.S. GOVERNMENT SECURITIES Certain investments of the Institutional Cash Management Money Market Fund and the U.S. Government Securities Money Market Fund may include U.S. Government Agency Securities. Examples of types of U.S. Government obligations in which the Funds may invest include U.S. Treasury Obligations and the obligations of U.S. Government Agencies such as Federal Home Loan Banks, Federal Farm Credit -14- Banks, Federal Land Banks, the Federal Housing Administration, Farmers Home Administration, Export-Import Bank of the United States, Small Business Administration, Federal National Mortgage Association, Government National Mortgage Association, General Services Administration, Student Loan Marketing Association, Central Bank for Cooperatives, Freddie Mac (formerly Federal Home Loan Mortgage Corporation), Federal Intermediate Credit Banks, Maritime Administration, and other similar agencies. Whether backed by the full faith and credit of the U.S. Treasury or not, U.S. Government Securities are not guaranteed against price movements due to fluctuating interest rates. o 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 Treasury Receipts ("TRs"). o RECEIPTS. Interests in separately traded interest and principal component parts of U.S. Government obligations that are issued by banks or brokerage firms and are created by depositing U.S. Government 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. TRs and STRIPS are interests in accounts sponsored by the U.S. Treasury. Receipts are sold as zero coupon securities. o U.S. GOVERNMENT ZERO COUPON SECURITIES. STRIPS and receipts are sold as zero coupon securities, that is, fixed income securities that have been stripped of their unmatured interest coupons. Zero coupon securities are sold at a (usually substantial) discount and redeemed at face value at their maturity date without interim cash payments of interest or principal. The amount of this discount is accreted over the life of the security, and the accretion constitutes the income earned on the security for both accounting and tax purposes. Because of these features, the market prices of zero coupon securities are generally more volatile than the market prices of securities that have similar maturity but that pay interest periodically. Zero coupon securities are likely to respond to a greater degree to interest rate changes than are non-zero coupon securities with similar maturity and credit qualities. o U.S. GOVERNMENT AGENCIES. Some obligations issued or guaranteed by agencies of the U.S. Government are supported by the full faith and credit of the U.S. Treasury, others are supported by the right of the issuer to borrow from the Treasury, while still others are supported only by the credit of the instrumentality. 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 a Fund's shares. VARIABLE AND FLOATING RATE INSTRUMENTS. Certain of the obligations purchased by the Funds may carry variable or floating rates of interest, may involve a conditional or unconditional demand feature and may include variable amount master demand notes. Such instruments bear interest at rates that 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 securities. VARIABLE RATE MASTER DEMAND NOTES. Variable rate master demand notes permit the investment of fluctuating amounts at varying market rates of interest pursuant to direct arrangements between a Fund, as -15- 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 Adviser, be equivalent to the ratings applicable to permitted investments for the particular Fund. The Adviser 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. Variable rate master demand notes may or may not be backed by bank letters of credit. WARRANTS. Warrants are instruments that entitle the holder to buy an equity security at a specific price for a specific period of time. Changes in the value of a warrant do not necessarily correspond to changes in the value of its underlying security. The price of a warrant may be more volatile than the price of its underlying security, and a warrant may offer greater potential for capital appreciation as well as capital loss. Warrants do not entitle a holder to dividends or voting rights with respect to the underlying security and do not represent any rights in the assets of the issuing company. A warrant ceases to have value if it is not exercised prior to its expiration date. These factors can make warrants more speculative than other types of investments. WHEN-ISSUED SECURITIES AND MUNICIPAL FORWARDS. When-issued securities are securities that are delivered and paid for normally within 45 days after the date of commitment to purchase. Municipal forwards call for delivery of the underlying municipal security normally after 45 days but before 1 year after the commitment date. Although a Fund will only make commitments to purchase when-issued securities and municipal forwards with the intention of actually acquiring the securities, a Fund 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. ZERO COUPON OBLIGATIONS. Zero coupon obligations are debt obligations that do not bear any interest, but instead are issued at a deep discount from face value or par. The value of a zero coupon obligation increases over time to reflect the interest accumulated. These obligations will not result in the payment of interest until maturity, and will have greater price volatility than similar securities that are issued at face value or par and pay interest periodically. Investors will receive written notification at least thirty days prior to any change in a Fund's investment objective. The phrase "primarily invests" as used in the prospectus means that the Fund invests at least 65% of its assets in the securities as described in the sentence. Each tax-exempt fund invests at least 80% of its total assets in securities with income exempt from federal income and alternative minimum taxes. -16- INVESTMENT POLICIES FUNDAMENTAL POLICIES The following investment limitations are fundamental policies of the Funds. Fundamental policies cannot be changed without the consent of the holders of a majority of each Fund's outstanding shares. The term "majority of the outstanding shares" means the vote of (i) 67% or more of the Fund's shares present at a meeting, if more than 50% of the outstanding shares of the Fund are present or represented by proxy, or (ii) more than 50% of the Fund's outstanding shares, whichever is less. No Fund may: 1. With respect to 75% of each Fund's total assets, invest more than 5% of the value of the total assets of a Fund in the securities of any one issuer (other than securities issued or guaranteed by the U.S. government or any of its agencies or instrumentalities, repurchase agreements involving such securities, and securities issued by investment companies), or purchase the securities of any one issuer if such purchase would cause more than 10% of the voting securities of such issuer to be held by a Fund. 2. Borrow money in an amount exceeding 33 1/3% of the value of its total assets, provided that, for the purposes of this limitation, investment strategies that either obligate a Fund to purchase securities or require a Fund to segregate assets are not considered to be borrowing. Asset coverage of at least 300% is required for all borrowing, except where the Fund has borrowed money for temporary purposes (less than 60 days), and in an amount not exceeding 5% of its total assets. 3. Underwrite securities issued by others, except to the extent that the Fund may be considered an underwriter within the meaning of the Securities Act of 1933 in the sale of portfolio securities. 4. Issue senior securities (as defined in the Investment Company Act of 1940 (the "1940 Act")), except as permitted by rule, regulation or order of the Securities and Exchange Commission ("SEC"). 5. Purchase the securities of any issuer (other than securities issued or guaranteed by the U.S. government or any of its agencies or instrumentalities and securities issued by investment companies) if, as a result, more than 25% of the Fund's total assets would be invested in the securities of companies who principal business activities are in the same industry. 5.1 With respect to the money market funds, this limitation does not apply to 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. 6. Purchase or sell real estate, unless acquired as a result of ownership of securities or other instruments (but this shall not prevent a Fund from investing in securities or other instruments either issued by companies that invest in real estate, backed by real estate or securities of companies engaged in the real estate business). -17- 7. Purchase or sell physical commodities, unless acquired as a result of ownership of securities or other instruments. 8. Make loans, except that a Fund may: (i) purchase or hold debt instruments in accordance with its investment objectives and policies; (ii) enter into repurchase agreements; and (iii) lend its portfolio securities. NON-FUNDAMENTAL POLICIES The following investment limitations are non-fundamental and may be changed with respect to any Fund by the Board of Trustees. 1. Any change to a Fund's investment policy to invest at least 80% of such Fund's net assets in securities of companies in a specific sector is subject to 60 days' prior notice to shareholders. 2. No Fund may purchase or hold illiquid securities (I.E., securities that cannot be disposed of for their approximate carrying value in seven days or less (which term includes repurchase agreements and time deposits maturing in more than seven days) if, in the aggregate, more than 15% of its net assets (10% for the Money Market Funds) would be invested in illiquid securities. With the exception of the limitations on liquidity standards, the foregoing percentages will apply at the time of the purchase of a security and shall not be considered violated unless an excess occurs or exists immediately after and as a result of a purchase of such security. INVESTMENT ADVISER GENERAL. Trusco Capital Management, Inc. ("Trusco" or the "Adviser") is a professional investment management firm registered with the SEC under the Investment Advisers Act of 1940 and serves as investment adviser to the Funds. The Adviser makes investment decisions for the Funds and continuously reviews, supervises and administers each Fund's respective investment program. The Board of Trustees supervises the Adviser and establishes policies that the Adviser must follow in its management activities. The principal business address of the Adviser is 50 Hurt Plaza, Suite 1400, Atlanta, Georgia 30303. As of June 30, 2002, Trusco had discretionary management authority with respect to approximately $45.5 billion of assets under management. ADVISORY AGREEMENTS WITH THE TRUST. The Advisory Agreements provide that the Adviser shall not be protected against any liability to the Trust or its Shareholders by reason of willful misfeasance, bad faith or gross negligence on its part in the performance of its duties or from reckless disregard of its obligations or duties thereunder. The Advisory Agreements provide that if, for any fiscal year, the ratio of expenses of any Fund (including amounts payable to the Adviser but excluding interest, taxes, brokerage, litigation, and other extraordinary expenses) exceeds limitations established by certain states, the Adviser and/or the Administrator will bear the amount of such excess. The Adviser will not be required to bear expenses of the Trust to an extent which would result in a Fund's inability to qualify as a regulated investment company under provisions of the Internal Revenue Code. The continuance of the Advisory Agreements, after the first 2 years, must be specifically approved at least annually (i) by the vote of the Trustees, and (ii) by the vote of a majority of the Trustees who are not parties to the Agreements or "interested persons" of any party thereto, as defined in the 1940 Act, cast in person at a meeting called for the purpose of voting on such approval. The Advisory Agreements will -18- terminate automatically in the event of its assignment, and each is terminable at any time without penalty by the Trustees of the Trust or, with respect to the Funds, by a majority of the outstanding shares of the Funds, on not less than 30 days' nor more than 60 days' written notice to the Adviser, or by the Adviser on 90 days' written notice to the Trust. ADVISORY FEES PAID TO THE ADVISER. For its services under the Advisory Agreements, the Adviser is entitled to a fee, which is calculated daily and paid monthly, at the specified annual rate of each Fund's average daily net assets:
- ------------------------------------------------------------ --------------------------------------------------------- FUND FEES - ------------------------------------------------------------ --------------------------------------------------------- Classic Institutional Cash Management Money Market Fund 0.20% - ------------------------------------------------------------ --------------------------------------------------------- Classic Institutional U.S. Government Securities Money Market Fund 0.20% - ------------------------------------------------------------ --------------------------------------------------------- Classic Institutional U.S. Treasury Securities Money Market Fund 0.20% - ------------------------------------------------------------ --------------------------------------------------------- Classic Institutional Short-Term Bond Fund 0.60% - ------------------------------------------------------------ --------------------------------------------------------- Classic Institutional Super Short Income Plus Fund 0.50% - ------------------------------------------------------------ --------------------------------------------------------- Classic Institutional U.S. Government Securities Super Short Income Plus Fund 0.40% - ------------------------------------------------------------ ---------------------------------------------------------
For the period from commencement of operations to the fiscal periods ended May 31, 2002, 2001, and 2000, the Trust paid the following advisory fees:
- --------------------------------------- -------------------------------------------- ------------------------------------------ FUND FEES PAID ($) FEES WAIVED ($) - --------------------------------------- -------------------------------------------- ------------------------------------------ 2002 2001 2000 2002 2001 2000 - --------------------------------------- --------------- -------------- ------------- ------------ -------------- -------------- Classic Institutional Cash Management Money Market Fund 5,919,000 4,546,000 4,393,000 924,000 718,000 679,000 - --------------------------------------- --------------- -------------- ------------- ------------ -------------- -------------- Classic Institutional U.S. Government Securities Money Market Fund 1,909,000 1,442,000 1,355,000 88,000 91,000 181,000 - --------------------------------------- --------------- -------------- ------------- ------------ -------------- -------------- Classic Institutional U.S. Treasury Securities Money Market Fund 4,202,000 3,083,000 2,746,000 316,000 251,000 305,000 - --------------------------------------- --------------- -------------- ------------- ------------ -------------- -------------- Classic Institutional Short-Term Bond Fund 2,000 * * 2,000 * * - --------------------------------------- --------------- -------------- ------------- ------------ -------------- -------------- Classic Institutional Super Short Income Plus Fund 6,000 * * 9,000 * * - --------------------------------------- --------------- -------------- ------------- ------------ -------------- -------------- Classic Institutional U.S. Government Securities Super Short Income Plus Fund 3,000 * * 7,000 * * - --------------------------------------- --------------- -------------- ------------- ------------ -------------- --------------
* Not in operation during the period. THE ADMINISTRATOR GENERAL. SEI Investments Global Funds Services (the "Administrator"), a Delaware business trust, has its principal business offices at Oaks, Pennsylvania 19456. SEI Investments Management Corporation ("SIMC"), a wholly-owned subsidiary of SEI Investments Company ("SEI Investments"), is the owner of all beneficial interest in the Administrator. SEI Investments and its subsidiaries and affiliates, including -19- 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 or sub-administrator to the following other mutual funds including, but without limitation: The Advisors' Inner Circle Fund, Alpha Select Funds, Amerindo Funds Inc., The Arbor Fund, Armada Funds, The Armada Advantage Fund, Bishop Street Funds, Causeway Capital Management Trust, CNI Charter Funds, Excelsior Funds Inc., Excelsior Funds Trust, Excelsior Tax-Exempt Funds, Inc., Expedition Funds, First Focus Funds, Inc., HighMark Funds, JohnsonFamily Funds, Inc., The MDL Funds, The Nevis Fund, Inc., Oak Associates Funds, The PBHG Funds, Inc., PBHG Insurance Series Fund, Inc., Pitcairn Funds, Schroder Series Trust, Schroder Capital Funds, Schroder Fund Advisors Inc., SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI Institutional International Trust, SEI Institutional Investments Trust, SEI Institutional Managed Trust, SEI Insurance Products Trust, SEI Liquid Asset Trust, SEI Tax Exempt Trust, STI Classic Variable Trust, Turner Funds and UAM Funds Trust. ADMINISTRATION AGREEMENT WITH THE TRUST. The Trust and the Administrator have entered into an administration agreement (the "Administration Agreement") dated May 29, 1995, as amended. Under the Administration Agreement, the Administrator provides the Trust with administrative services, including regulatory reporting and all necessary office space, equipment, personnel and facilities. The Administration Agreement provides that the Administrator shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Trust in connection with the matters to which the Administration Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on the part of the Administrator in the performance of its duties or from reckless disregard by it of its duties and obligations thereunder. The Administration Agreement shall remain in effect for a period of five years after the date of the Agreement and shall continue in effect for successive periods of two years subject to review at least annually by the Trustees of the Trust unless terminated by either party on not less than 90 days' written notice to the other party. ADMINISTRATION FEES PAID TO THE ADMINISTRATOR. 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 Trust) of: 0.12% up to $1 billion, 0.09% on the next $4 billion, 0.07% on the next $3 billion, 0.065% on the next $2 billion and 0.06% for over $10 billion. For the period from commencement of operations to the fiscal periods ended May 31, 2002, 2001, and 2000, the Funds paid the following administrative fees:
- --------------------------------------- ------------------------------------------ -------------------------------------------- FUND FEES PAID ($) FEES WAIVED ($) - --------------------------------------- ------------------------------------------ -------------------------------------------- 2002 2001 2000 2002 2001 2000 - --------------------------------------- ------------ -------------- -------------- -------------- -------------- -------------- Classic Institutional Cash Management Money Market Fund 1,674,000 1,315,000 1,554,000 684,000 526,000 439,000 - --------------------------------------- ------------ -------------- -------------- -------------- -------------- -------------- Classic Institutional U.S. Government Securities Money Market Fund 488,000 383,000 486,000 200,000 153,000 121,000 - --------------------------------------- ------------ -------------- -------------- -------------- -------------- -------------- Classic Institutional U.S. Treasury Securities Money Market Fund 1,105,000 833,000 972,000 452,000 333,000 275,000 - --------------------------------------- ------------ -------------- -------------- -------------- -------------- -------------- Classic Institutional Short-Term Bond Fund 1,000 * * 0 * * - --------------------------------------- ------------ -------------- -------------- -------------- -------------- --------------
-20-
- --------------------------------------- ------------------------------------------ -------------------------------------------- FUND FEES PAID ($) FEES WAIVED ($) - --------------------------------------- ------------------------------------------ -------------------------------------------- 2002 2001 2000 2002 2001 2000 - --------------------------------------- ------------ -------------- -------------- -------------- -------------- -------------- Classic Institutional Super Short Income Plus Fund 2,000 * * 0 * * - --------------------------------------- ------------ -------------- -------------- -------------- -------------- -------------- Classic Institutional U.S. Government Securities Super Short Income Plus Fund 2,000 * * 0 * * - --------------------------------------- ------------ -------------- -------------- -------------- -------------- --------------
* Not in operation during the period. THE DISTRIBUTOR The Trust and SEI Investments Distribution Co. (the "Distributor"), a wholly owned subsidiary of SEI Investments and an affiliate of the Administrator, are parties to distribution agreements dated May 29, 1995 with respect to the Trust's Flex Class Shares and November 21, 1995 with respect to its Trust and Investor Class Shares (together, the "Distribution Agreement") whereby the Distributor acts as principal underwriter for the Trust's shares. Under the Distribution Agreement, the Distributor must use all reasonable efforts, consistent with its other business, in connection with the continuous offering of shares of the Trust. The Distributor will receive no compensation for distribution of Trust shares, other than compensation received under the Shareholder Servicing Plan for Corporate Trust Shares, described below. The continuance of the Distribution Agreement must be specifically approved at least annually (i) by the vote of the Trustees or by a vote of the shareholders of the Fund and (ii) by the vote of a majority of the Trustees who are not parties to the Distribution Agreement or "interested persons" of any party thereto, as defined in the 1940 Act, cast in person at a meeting called for the purpose of voting on such approval. The Distribution 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 any Fund, by a majority of the outstanding shares of that Fund, upon not more than 60 days' written notice by either party. The Distribution Agreement provides that the Distributor 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. TRUST AND FLEX SHARES DISTRIBUTION PLANS The Distribution Agreement and the Flex Plan adopted by the Trust provide that Flex Shares of each applicable Fund will pay the Distributor a fee of up to 0.75% 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 0.25% 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 -21- 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 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 Flex Plan 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 Flex Plan must be approved annually by a majority of the Trustees of the Trust and by a majority of the disinterested Trustees. The Flex Plan requires that quarterly written reports of amounts spent under the Flex Plan and the purposes of such expenditures be furnished to and reviewed by the Trustees. 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 Flex Plan will require approval by a majority of the Trustees of the Trust and of the disinterested 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 Funds' aggregate average daily net assets attributable to its Flex Shares. SHAREHOLDER SERVICING PLANS. The Trust has adopted shareholder service plans for the Corporate Trust Shares and the Institutional Shares (together, the "Service Plan"). Under the Service Plan, the Fund will pay SunTrust Bank ("SunTrust") a fee of up to 0.25% of the average daily net assets attributable to the Corporate Trust Shares or Institutional Shares of that Fund, respectively. SunTrust may perform, or may compensate other service providers for performing, the following shareholder services: maintaining client accounts; arranging for bank wires; responding to client inquiries concerning services provided on investments; assisting clients in changing dividend options, account designations and addresses; sub-accounting; providing information on share positions to clients; forwarding shareholder communications to clients; processing purchase, exchange and redemption orders; and processing dividend payments. Under the Service Plan, the Distributor may retain as a profit any difference between the fee it receives and the amount it pays to third parties. For the fiscal years ended May 31, 2002, 2001 and 2000, the Fund paid the following amount pursuant to the Service Plan:
- --------------------------------------- ------------------------------------------ -------------------------------------------- AGGREGATE SALES CHARGE AMOUNT RETAINED FUND PAYABLE TO DISTRIBUTOR ($) BY DISTRIBUTOR ($) - --------------------------------------- ------------------------------------------ -------------------------------------------- 2002 2001 2000 2002 2001 2000 - --------------------------------------- ------------ -------------- -------------- -------------- -------------- -------------- Classic Institutional U.S. Treasury Securities Money Market Fund - Corporate Trust Shares 3,492,000 2,546,000 2,182,000 $0 $0 $0 - --------------------------------------- ------------ -------------- -------------- -------------- -------------- --------------
-22-
- --------------------------------------- ------------------------------------------ -------------------------------------------- FUND AGGREGATE SALES CHARGE AMOUNTS RETAINED PAYABLE TO DISTRIBUTOR ($) BY DISTRIBUTOR ($) - --------------------------------------- ------------------------------------------ -------------------------------------------- 2002 2001 2000 2002 2001 2000 - --------------------------------------- ------------ -------------- -------------- -------------- -------------- -------------- Classic Institutional Short-term Bond Fund - Institutional Shares 0 * * 2,000 * * - --------------------------------------- ------------ -------------- -------------- -------------- -------------- -------------- Classic Institutional Super Short Income Plus Fund- Institutional Shares 0 * * 7,000 * * - --------------------------------------- ------------ -------------- -------------- -------------- -------------- -------------- Classic Institutional U.S. Government Securities Super Short Income Plus Fund- Institutional Shares 0 * * 6,000 * * - --------------------------------------- ------------ -------------- -------------- -------------- -------------- -------------- * Not in operation for the periods indicated.
THE TRANSFER AGENT Federated Services Company, Federated Towers, Pittsburgh, PA 15222-3779 serves as the Trust's transfer agent. THE CUSTODIAN SunTrust Bank, 303 Peachtree Street N.E., 14th Floor, Atlanta, GA 30308 serves as the custodian for the Funds. INDEPENDENT PUBLIC ACCOUNTANTS For the fiscal year ended May 31, 2002, PricewaterhouseCoopers LLP, 2001 Market Street, Philadelphia, PA 19103, served as independent public accountants for the Trust. LEGAL COUNSEL Morgan, Lewis & Bockius LLP serves as legal counsel to the Trust. TRUSTEES AND OFFICERS OF THE TRUST BOARD RESPONSIBILITIES. The management and affairs of the Trust and each of the Funds are supervised by the Trustees under the laws of the Commonwealth of Massachusetts. Each Trustee is responsible for overseeing each of the Funds and each of the Trust's forty-one funds, which includes funds not described in this SAI. The Trustees have approved contracts, as described above, under which certain companies provide essential management services to the Trust. MEMBERS OF THE BOARD. Set forth below are the names, dates of birth, position with the Trust, length of term of office, and the principal occupations for the last five years of each of the persons currently serving as Trustees of the Trust. Unless otherwise noted, the business address of each Trustee is SEI Investments Company, Oaks, Pennsylvania 19456. THOMAS GALLAGHER (11/25/47) - Trustee - President, Genuine Parts Company Wholesale Distribution, 1970 to the present; Director, National Service Industries; Director, Oxford Industries. -23- F. WENDELL GOOCH (12/03/32) - Trustee - Retired. President, Orange County Publishing Co., Inc., 1981 to 1997; Publisher of the Paoli News and the Paoli Republican and Editor of the Paoli Republican, 1981 to 1997; President, H & W Distribution, Inc., 1984 to 1997; 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. JAMES O. ROBBINS (7/04/42) - Trustee - President and Chief Executive Officer, Cox Communications, Inc., 1983 to the present; Director, NCR; Director, Cox Communications. JONATHAN T. WALTON (3/28/30) - Trustee - Retired. Executive Vice President, NBD Bank, N.A. and NBD Bancorp, October 1956 to March 1995; Trustee, W.K. Kellogg Trust. RICHARD W. COURTS, II (1/18/36) - Trustee* - Chairman of the Board, Atlantic Investment Company, 1970 to the present. CLARENCE H. RIDLEY (6/03/42) - Trustee* - Chairman of the Board; Haverty Furniture Companies, 2001 to the present; Partner, King and Spaulding LLP (law firm), 1971 to 2000. - ------------------------------------------------------------- * Messrs. Courts and Ridley each may be deemed an "interested person" of the Trust as that term is defined in the 1940 Act. Mr. Courts may be deemed an interested Trustee because of his directorships with affiliates of the Adviser. Mr. Ridley may be deemed an interested Trustee because his former law firm has a material business relationship with the parent to the Adviser. BOARD STANDING COMMITTEES. The Board has established the following standing committees: o AUDIT COMMITTEE. The Board has a standing Audit Committee that is composed of each of the independent Trustees of the Trust. The Audit Committee operates under a written charter approved by the Board. The principal responsibilities of the Audit Committee include: recommending which firm to engage as the Trust's independent auditor and whether to terminate this relationship; reviewing the independent auditors' compensation, the proposed scope and terms of its engagement, and the firm's independence; serving as a channel of communication between the independent auditor and the Trustees; reviewing the results of each external audit, including any qualifications in the independent auditors' opinion, any related management letter, management's responses to recommendations made by the independent auditors in connection with the audit, reports submitted to the Committee by the internal auditing department of the Trust's Administrator that are material to the Trust as a whole, if any, and management's responses to any such reports; reviewing the Trust's audited financial statements and considering any significant disputes between the Trust's management and the independent auditor that arose in connection with the preparation of those financial statements; considering, in consultation with the independent auditors and the Trust's senior internal accounting executive, if any, the independent auditors' report on the adequacy of the Trust's internal financial controls; reviewing, in consultation with the Trust's independent auditors, major changes regarding auditing and accounting principles and practices to be followed when preparing the Trust's financial statements; and other audit related matters. Messrs. Gallagher, Gooch, Robbins and Walton currently serve as members of the Audit Committee. The Audit Committee meets periodically, as necessary, and met two times in the most recently completed fiscal year. o FAIR VALUE PRICING COMMITTEE. The Board has a standing Fair Value Pricing Committee that is composed of various representatives of the Trust's service providers, as appointed by the Board. The -24- Fair Value Pricing Committee operates under procedures approved by the Board. The principal responsibilities of the Fair Value Pricing Committee are to determine the fair value of securities for which current market quotations are not readily available. The Fair Value Pricing Committee's determinations are reviewed by the Board. The Fair Value Pricing Committee meets periodically, as necessary, and met twenty-two times in the most recently completed fiscal year. o NOMINATING COMMITTEE. The Trust has a standing Nominating Committee that is composed of each of the independent Trustees of the Trust. The principal responsibility of the Nominating Committee are to consider, recommend and nominate candidates to fill vacancies on the Trust's Board, if any. The Nominating Committee does not have specific procedures in place to consider nominees recommended by shareholders, but would consider such nominees if submitted in accordance with Rule 14a-8 of the 1934 Act in conjunction with a shareholder meeting to consider the election of Trustees. Messrs. Gallagher, Gooch, Robbins and Walton currently serve as members of the Nominating Committee. The Nominating Committee meets periodically, as necessary, and met one time during the most recently completed fiscal year. BOARD CONSIDERATIONS IN APPROVING THE ADVISORY AGREEMENT. As discussed in the section of this SAI entitled "The Adviser," the Board continuance of the Advisory Agreements must be specifically approved at least annually (i) by the vote of the Trustees or by a vote of the shareholders of the Fund and (ii) by the vote of a majority of the Trustees who are not parties to the Advisory Agreements or "interested persons" of any party thereto, as defined in the 1940 Act, cast in person at a meeting called for the purpose of voting on such approval. Each year, the Board of Trustees calls and holds a meeting to decide whether to renew the Advisory Agreements for the upcoming year. In preparation for the meeting, the Board requests and reviews a wide variety of information from the Adviser. The Trustees use this information, as well as other information that the Adviser and other Fund service providers may submit to the Board, to help them decide whether to renew the Advisory Agreements for another year. Before this year's meeting , the Board requested and received written materials from the Adviser about: (a) the quality of the Adviser's investment management and other services; (b) the Adviser's investment management personnel; (c) the Adviser's operations and financial condition; (d) the Adviser's brokerage practices (including any soft dollar arrangements) and investment strategies; (e) the level of the advisory fees that the Adviser charges the Fund compared with the fees it charges to comparable mutual funds or accounts(if any); (f) the Fund's overall fees and operating expenses compared with similar mutual funds; (g) the level of the Adviser's profitability from its Fund-related operations; (h) the Adviser's compliance systems; (i) the Adviser's policies on and compliance procedures for personal securities transactions; (j) the Adviser's reputation, expertise and resources in domestic financial markets; and (k) the Fund's performance compared with similar mutual funds. At the meeting, representatives from the Adviser presented additional oral and written information to the Board to help the Board evaluate the Adviser's fee and other aspects of the Agreement. Other Fund service providers also provided the Board with additional information at the meeting. The Trustees then discussed the written materials that the Board received before the meeting and the Adviser's oral presentation and any other information that the Board received at the meeting, and deliberated on the renewal of the Advisory Agreements in light of this information. In its deliberations, the Board did not identify any single piece of information that was all-important, controlling or determinative of its decision. Based on the Board's deliberations and its evaluation of the information described above, the Board, including the independent Trustees, unanimously: (a) concluded that terms of the Agreements are fair and reasonable; (b) concluded that the Adviser's fees are reasonable in light of the services that the Adviser provides to the Fund; and (c) agreed to renew the Agreements for another year. -25- FUND SHARES OWNED BY BOARD MEMBERS. The following table shows the dollar amount range of each Trustee's "beneficial ownership" of shares of each of the Funds as of the end of the most recently completed calendar year. Dollar amount ranges disclosed are established by the SEC. "Beneficial ownership" is determined in accordance with Rule 16a-1(a)(2) under the Securities Exchange Act of 1934 ("1934 Act"). The Trustees and officers of the Trust own less than 1% of the outstanding shares of the Trust.
- ----------------------- --------------------------------------------------------------- ------------------------------ NAME DOLLAR RANGE OF FUND SHARES (FUND)* AGGREGATE DOLLAR RANGE OF SHARES (ALL FUNDS)* - ----------------------- --------------------------------------------------------------- ------------------------------ Courts, Gallagher, None (Institutional Cash Management Money Market Fund) Gooch, Ridley, None (Institutional U.S. Government Securities None Robbins and Walton Money Market Fund) None (Institutional U.S. Treasury Securities Money Market Fund) None (Institutional Short-Term Bond Fund) None (Institutional Super Short Income Plus Fund) None (Institutional U.S. Government Securities Super Short Income Plus Fund) - ----------------------- --------------------------------------------------------------- ------------------------------
*Valuation date is December 31, 2001. BOARD COMPENSATION. The Trust paid the following fees to the Trustees during its most recently completed fiscal year:
- ------------------------------ ----------------- ------------------------- -------------------- ------------------------------- Name of Person and Position Aggregate Pension or Retirement Estimated Annual Total Compensation From Compensation Benefits Accrued as Part Benefits Upon the Trust and Fund Complex* of Fund Expenses Retirement - ------------------------------ ----------------- ------------------------- -------------------- ------------------------------- Richard W. Courts, II, $18,000 for services on two Trustee(1) $17,000 N/A N/A boards - ------------------------------ ----------------- ------------------------- -------------------- ------------------------------- Thomas Gallagher, $40,000 for services on two Trustee $38,000 N/A N/A boards - ------------------------------ ----------------- ------------------------- -------------------- ------------------------------- F. Wendell Gooch, $38,000 for services on two Trustee $36,000 N/A N/A boards - ------------------------------ ----------------- ------------------------- -------------------- ------------------------------- Wilton Looney, $2,000 for services on two Trustee(2) $1,500 N/A N/A boards - ------------------------------ ----------------- ------------------------- -------------------- ------------------------------- Clarence H. Ridley, $18,500 for services on two Trustee(1) $17,500 N/A N/A boards - ------------------------------ ----------------- ------------------------- -------------------- ------------------------------- James Robbins, $36,500 for services on two Trustee $34,500 N/A N/A boards - ------------------------------ ----------------- ------------------------- -------------------- ------------------------------- Jonathan T. Walton, $36,500 for services on two Trustee $34,500 N/A N/A boards - ------------------------------ ----------------- ------------------------- -------------------- -------------------------------
* The Trust is one of two investment companies in the "Fund Complex," in addition to the STI Classic Variable Trust. (1) Messrs. Courts and Ridley were appointed as Trustees on November 13, 2001. (2) Mr. Looney retired on August 21, 2001. TRUST OFFICERS. Set forth below are the names, dates of birth, position with the Trust, length of term of office, and the principal occupations for the last five years of each of the persons currently serving as Executive Officers of the Trust. Unless otherwise noted, the business address of each Officer is SEI Investments Company, Oaks, Pennsylvania 19456. None of the Officers receive compensation from the Trust for their services. -26- Certain officers of the Trust also serve as officers of some or all of the following: The Advisors' Inner Circle Fund, Alpha Select Funds, Amerindo Funds Inc., The Arbor Fund, Armada Funds, The Armada Advantage Fund, Bishop Street Funds, Causeway Capital Management Trust, CNI Charter Funds, Excelsior Funds Inc., Excelsior Funds Trust, Excelsior Tax-Exempt Funds, Inc., Expedition Funds, First Focus Funds, Inc., HighMark Funds, JohnsonFamily Funds, Inc., The MDL Funds, The Nevis Fund, Inc., Oak Associates Funds, The PBHG Funds, Inc., PBHG Insurance Series Fund, Inc., Pitcairn Funds, Schroder Series Trust, Schroder Capital Funds, Schroder Fund Advisors Inc., SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI Institutional International Trust, SEI Institutional Investments Trust, SEI Institutional Managed Trust, SEI Insurance Products Trust, SEI Liquid Asset Trust, SEI Tax Exempt Trust, STI Classic Variable Trust, Turner Funds, UAM Funds Trust, UAM Funds, Inc. and UAM Funds, Inc. II., each of which is an open-end management investment company managed by SEI Investments Global Funds Services or its affiliates and, except for PBHG Advisor Funds, Inc., distributed by SEI Investments Distribution Co. JAMES R. FOGGO (06/30/64) - President - Vice President and Assistant Secretary of SEI Investments since 1998; Vice President and Assistant Secretary of the Administrator and the Distributor since May 1999; Associate, Paul Weiss, Rifkind, Wharton & Garrison (law firm), 1998; Associate, Baker & McKenzie (law firm), 1995 to 1998; Associate, Battle Fowler L.L.P. (law firm), 1993 to 1995; Operations Manager, The Shareholder Services Group, Inc., 1986 to 1990. JENNIFER E. SPRATLEY, CPA (02/13/69) - Treasurer and Chief Financial Officer - Director, SEI Funds Accounting since November 1999; Audit Manager, Ernst & Young LLP, 1991 to 1999. LYDIA GAVALIS (06/05/64) - Vice President and Assistant Secretary - Vice President and Assistant Secretary of SEI Investments, the Administrator and the Distributor since 1998; Assistant General Counsel and Director of Arbitration, Philadelphia Stock Exchange, 1989 to 1998. TIMOTHY D. BARTO (03/28/68) - Vice President and Secretary - Employed by SEI Investments since October 1999; Vice President and Assistant Secretary of the Administrator and Distributor since December 1999; Associate, Dechert Price & Rhoads, 1997 to 1999; Associate, Richter, Miller & Finn, 1994 to 1997. TODD B. CIPPERMAN (02/14/66) - Vice President and Assistant Secretary - Senior Vice President and General Counsel of SEI Investments; Senior Vice President, General Counsel and Secretary of the Administrator and the Distributor since 2000; Vice President and Assistant Secretary of SEI Investments, the Administrator and the Distributor, 1995 to 2000; Associate, Dewey Ballantine (law firm), 1994 to 1995; Associate, Winston & Strawn (law firm), 1991 to 1994. CHRISTINE M. MCCULLOUGH (12/02/60) - Vice President and Assistant Secretary - Employed by SEI Investments since November 1, 1999; Vice President and Assistant Secretary of the Administrator and the Distributor since December 1999; Associate, White & Williams LLP, 1991 to 1999; Associate, Montgomery, McCracken, Walker & Rhoads, 1990 to 1991. WILLIAM E. ZITELLI, JR. (06/14/68) - Vice President and Assistant Secretary - Vice President and Assistant Secretary of the Administrator and Distributor since August 2000; Vice President, Merrill Lynch & Co. Asset Management Group, 1998 to 2000; Associate, Pepper Hamilton LLP, 1997 to 1998; Associate, Reboul, MacMurray, Hewitt, Maynard & Kristol, 1995 to 1997. SHERRY KAJDAN VETTERLEIN (06/22/62) - Vice President & Assistant Secretary - Vice President and Assistant Secretary of the Administrator and Distributor since January 2001; Shareholder/Partner, Buchanan Ingersoll Professional Corporation, 1992 to 2000. -27- JOHN C. MUNCH (05/07/71) - Vice President and Assistant Secretary - Vice President and Assistant Secretary of the Administrator and Distributor since November 2001; Associate at Howard Rice Nemorvoski Canady Falk & Rabkin, 1998 to 2001; Associate at Seward & Kissel, 1996 to 1998. JOSIE C. ROSSON (03/23/53) - Vice President and Assistant Secretary - Vice President and Compliance Officer of Trusco Capital Management, Inc. since March 2000; Vice President and Compliance Officer of Crestar Bank, 1998 to 2000; Vice President and Compliance Officer of Signet Banking Corporation, 1994 to 1998. PERFORMANCE INFORMATION From time to time, each of the Funds may include the Fund's yield, effective yield, total return or any other type of performance information permitted by applicable regulatory requirements in advertisements or reports to shareholders or prospective shareholders. The yield of the Funds refers to the annualized income generated by an investment in that Fund over a specified 30-day period. Quotations of average annual total return for a Fund will be expressed in terms of the average annual compounded rate of return on a hypothetical investment in the Fund over a period of at least one, five, and ten years (up to the life of the Fund) (the ending date of the period will be stated). Total return of a Fund is calculated from two factors: the amount of dividends earned by each Fund share and by the increase or decrease in value of the Fund's share price. Performance figures are based on historical results and are not intended to indicate future performance. See "Computation of Yield" and "Calculation of Total Return" for more information on methodology of calculations. Performance information for each of the Funds contained in reports to shareholders or prospective shareholders, advertisements, and other promotional literature may be compared to the record of various unmanaged indices. Such unmanaged indices may assume the reinvestment of dividends, but generally do not reflect deductions for operating costs and expenses. In addition, a Fund's total return may be compared to the performance of broad groups of comparable mutual funds with similar investment goals, as such performance is tracked and published by such independent organizations as Lipper Analytical Services, Inc. ("Lipper"), among others. When Lipper's tracking results are used, the Fund will be compared to Lipper's appropriate fund category, that is, by fund objective and portfolio holdings. In addition, rankings, ratings, and comparisons of investment performance and/or assessments of the quality of shareholder service appear in numerous financial publications such as MONEY, FORBES, KIPLINGER'S MAGAZINE, PERSONAL INVESTOR, MORNINGSTAR, INC., and similar sources. COMPUTATION OF YIELD 7-DAY 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 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 -28- 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 seven-day period ended May 31, 2002, the Fund's current effective yields were as follows:
------------------------------------------------------------------- ------------------- ---------------- FUND 7-DAY YIELD 7-DAY EFFECTIVE YIELD ------------------------------------------------------------------- ------------------- ---------------- Classic Institutional Cash Management Money Market Fund - Institutional Shares (10/25/95) 1.88% 1.90% ------------------------------------------------------------------- ------------------- ---------------- Classic Institutional U.S. Government Securities Money Market 1.80% 1.82% Fund - Institutional Shares (08/01/94) ------------------------------------------------------------------- ------------------- ---------------- Classic Institutional U.S. Treasury Securities Money Market Fund - 1.60% 1.61% Institutional Shares (12/12/96) ------------------------------------------------------------------- ------------------- ---------------- Classic Institutional U.S. Treasury Securities Money Market Fund - 1.40% 1.41% Corporate Trust Shares (06/03/99) ------------------------------------------------------------------- ------------------- ----------------
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 the Fund invests in, changes in interest rates on money market instruments, changes in the expenses of the Fund and other factors. Yield is 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. 30-DAY YIELD. The Bond 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 average 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.
- -------------------------------------------------- --------------------------------- --------------------------------- FUND CLASS OF SHARES YIELD (%) - -------------------------------------------------- --------------------------------- --------------------------------- Trust Shares N/A --------------------------------- --------------------------------- Classic Institutional Short Term Bond Fund Institutional Shares -- --------------------------------- --------------------------------- Flex Shares N/A - -------------------------------------------------- --------------------------------- --------------------------------- Trust Shares N/A Classic Institutional Super Short Income Plus --------------------------------- --------------------------------- Fund Institutional Shares 2.91 --------------------------------- --------------------------------- Flex Shares N/A - -------------------------------------------------- --------------------------------- --------------------------------- Trust Shares N/A Classic Institutional U.S. Government Securities --------------------------------- --------------------------------- Super Short Income Plus Fund Institutional Shares 2.78 --------------------------------- --------------------------------- Flex Shares N/A - -------------------------------------------------- --------------------------------- ---------------------------------
-29- CALCULATION OF TOTAL RETURN TOTAL RETURN QUOTATION. The total return of a Fund refers to the average annual compounded rate of return of a hypothetical investment for designated time periods (including but not limited to, the period from which that Fund commenced operations through the specified date), assuming that the entire investment is redeemed at the end of each period. In particular, total return will be calculated according to the following formula: P (1 + T)n = ERV, where P = a hypothetical initial investment of $1,000; T = average annual total return; n = number of years; and ERV = ending redeemable value, as of the end of the designated time period, of a hypothetical $1,000 investment made at the beginning of the designated time period. Based on the foregoing, the average annual total returns for the Funds from inception through May 31, 2002 and for one-year periods ended May 31, 2002 were as follows:
----------------------------------------------------------------- ----------------------------------- FUND AVERAGE ANNUAL TOTAL RETURN ----------------------------------------------------------------- ---------------- ------------------ ONE-YEAR SINCE INCEPTION ----------------------------------------------------------------- ---------------- ------------------ Classic Institutional Cash Management Money Market Fund - 2.68% 5.16% Institutional Shares (10/25/95) ----------------------------------------------------------------- ---------------- ------------------ Classic Institutional U.S. Government Securities Money Market 2.61% 5.12% Fund - Institutional Shares (08/01/94) ----------------------------------------------------------------- ---------------- ------------------ Classic Institutional U.S. Treasury Securities Money Market 2.28% 4.79% Fund - Institutional Shares (12/12/96) ----------------------------------------------------------------- ---------------- ------------------ Classic Institutional U.S. Treasury Securities Money Market 2.08% 4.21% Fund - Corporate Trust Shares (06/08/99) ----------------------------------------------------------------- ---------------- ------------------ Classic Institutional Short-Term Bond Fund Institutional Shares (05/14/02) N/A N/A ----------------------------------------------------------------- ---------------- ------------------ Classic Institutional Super Short Income Plus Fund Institutional Shares (04/15/02) N/A N/A ----------------------------------------------------------------- ---------------- ------------------ Classic Institutional U.S. Government Securities Super Short Income Plus Fund N/A N/A Institutional Shares (04/11/02) ----------------------------------------------------------------- ---------------- ------------------
PURCHASING AND REDEEMING SHARES Purchases and redemptions of shares of the Funds may be made on any day the New York Stock Exchange ("NYSE") is open for business. Currently, the NYSE is closed on the days the following holidays are observed: New Year's Day, Presidents' Day, Martin Luther King, Jr. Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. While the Trust does not accept cash as payment for Fund shares, it is currently the Trust's policy to pay for all redemptions in cash. The Trust retains the right, however, to alter this policy to provide for redemptions in whole or in part by a distribution in-kind of readily marketable securities held by the Funds in lieu of cash. Shareholders may incur brokerage charges on the sale of any such securities so received in payment of redemptions. A Shareholder will at all times be entitled to aggregate cash redemptions from all Funds of the Trust up to the lesser of $250,000 or 1% of the Trust's net assets during any 90-day period. -30- 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 SEC by rule or regulation) as a result of disposal or valuation of a Fund's securities is not reasonably practicable, or for such other periods as the SEC has by order permitted. The Trust also reserves the right to suspend sales of shares of a Fund for any period during which the NYSE, the Adviser, the Administrator and/or the Custodian are not open for business. The Trust reserves the right to waive any minimum investment requirements or sales charges for immediate family members of the Trustees or officers of the Trust or employees of the Adviser. "Immediate family" means a spouse, mother, father, mother-in-law, father-in-law or children (including step-children) age 21 years or under. DETERMINATION OF NET ASSET VALUE GENERAL POLICY. Each of the Funds adheres to Section 2(a)(41), and Rules 2a-4 and 2a-7 thereunder, of the 1940 Act with respect to the valuation of portfolio securities. In general, securities for which market quotations are readily available are valued at current market value, and all other securities are valued at fair value as determined in good faith by the Trusts' Board of Trustees. In complying with the 1940 Act, the Trust relies on guidance provided by the SEC and by the SEC staff in various interpretive letters and other guidance. MONEY MARKET SECURITIES AND OTHER DEBT SECURITIES. If available, Money Market Securities and other debt securities are priced based upon valuations provided by recognized independent, third-party pricing agents. Such values generally reflect the last reported sales price if the security is actively traded. The third-party pricing agents may also value debt securities by employing methodologies that utilize actual market transactions, broker-supplied valuations, or other methodologies designed to identify the market value for such securities. Such methodologies generally consider such factors as security prices, yields, maturities, call features, ratings and developments relating to specific securities in arriving at valuations. Money Market Securities and other debt securities with remaining maturities of sixty days or less may be valued at their amortized cost, which approximates market value. If such prices are not available, the security will be valued at fair value as determined in good faith by the Trust's Board of Trustees. USE OF THIRD-PARTY INDEPENDENT PRICING AGENTS. Pursuant to contracts with the Trust's Administrator, prices for most securities held by the Funds are provided daily by third-party independent pricing agents that are approved by the Board of Trustees of the Trust. The valuations provided by third-party independent pricing agents are reviewed daily by the Administrator. AMORTIZED COST METHOD OF VALUATION. The amortized cost method 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. -31- 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. 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 one-half 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. TAXES The following is a summary of certain federal income tax considerations generally affecting the Funds and their shareholders that are not described in the Funds' prospectuses. No attempt is made to present a detailed explanation of the federal tax treatment of the funds or their shareholders, and the discussion here and in the Funds' prospectuses is not intended as a substitute for careful tax planning. This discussion of federal income tax consequences is based on the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations issued thereunder, in effect on the date of this Statement of Additional Information. New legislation, as well as administrative changes or court decisions, may change the conclusions expressed herein, and may have a retroactive effect with respect to the transactions contemplated herein. FEDERAL INCOME TAX In order to qualify for treatment as a regulated investment company ("RIC") under the Code each Fund must distribute annually to its shareholders at least the sum of 90% of its net investment income excludable from gross income plus 90% of its investment company taxable income (generally, net investment income plus net short-term capital gain) ("Distribution Requirement") and also must meet several additional requirements. Among these requirements are the following: (i) at least 90% of a Fund's gross income each taxable year must be derived from dividends, interest, payments with respect to securities loans, and gains from the sale or other disposition of stock or securities, or certain other income; (ii) at the close of each quarter of a Fund's taxable year, at least 50% of the value of its total assets must be represented by cash and cash items, U.S. government securities, securities of other RICs and other securities, with such other securities limited, in respect of any one issuer, to an amount that does not exceed 5% of the value of a Fund's total assets and that does not represent more than 10% of the outstanding voting securities of such issuer; and (iii) at the close of each quarter of a Fund's taxable year, not more than 25% of the value of its total assets may be invested in securities (other than U.S. government securities or the securities of other RICs) of any one issuer, or of two or more issuers engaged in same or similar trades or businesses if the Fund owns at least 20% of the voting power of such issuers. -32- The Board reserves the right not to maintain the qualification of a Fund as a RIC if it determines such course of action to be beneficial to shareholders. Each Fund will generally be subject to a nondeductible 4% federal excise tax if it does not comply with certain additional distribution requirements. To comply with such requirements, each Fund will 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. 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 RICs, but can make no assurances that all such tax will be eliminated. If a Fund fails to maintain qualification as a RIC for a tax year, that Fund will be subject to income tax on its taxable income and gains, without any benefit for distributions paid to shareholders, and distributions to shareholders will be taxed as ordinary income to the extent of that Fund's current and accumulated earnings and profits. In such case, the dividends reserved deduction generally will be available for eligible corporate shareholders (subject to certain limitations). Each Fund may invest in complex securities. These investments may be subject to numerous special and complex tax rules. These rules could affect whether gains and losses recognized by a Fund are treated as ordinary income or capital gains, accelerate the recognition of income to a Fund, and/or defer a Fund's ability to recognize losses. In turn, these rules may affect the amount, timing or character of the income distributed to shareholders by a Fund. The Funds receive income generally in the form of interest derived from Fund investments. This income, less expenses incurred in the operation of a Fund, constitutes its net investment income from which dividends may be paid to shareholders. Any distributions by a Fund may be taxable to shareholders regardless of whether they are received in cash or additional shares. A Fund may derive capital gains and losses in connection with sales or other dispositions of its portfolio securities. Distributions of net short-term capital gains will be taxable to shareholders as ordinary income. In general, the Funds do not expect to realize net-long term capital gains because the portion of such Funds' distributions are expected to be eligible for the corporate dividends received deduction. Shareholders who have not held Fund shares for a full year should be aware that a Fund may designate and distribute, as ordinary income or capital gain, a percentage of income that is not equal to the actual amount of such income earned during the period of investment in a Fund. If a Fund's distributions exceed its taxable income and capital gains realized during a taxable year, all or a portion of the distributions made in the same taxable year may be recharacterized as a return of capital to shareholders. A return of capital distribution will generally not be taxable, but will reduce each shareholder's cost basis in a Fund and result in higher reported capital gain or lower reported capital loss when those shares on which distribution was received are sold. SALE, REDEMPTION OR EXCHANGE OF FUND SHARES Sales, redemptions and exchanges of Fund shares are generally taxable transactions for federal, state and local income tax purposes. Any gain or loss recognized on a sale or redemption of shares of a Fund by a shareholder who holds their shares as a capital asset will generally be treated as long-term capital gain or loss if the shares have been held for more than one year, and short-term if for a year or less. If shares held for six months or less are sold or redeemed for a loss, two special rules apply. First, if shares on which a net capital gain -33- 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 long-term capital loss to the extent of the long-term capital gain distributions. Second, any loss recognized by a shareholder upon the sale or redemption of shares of a tax-exempt fund held for six months or less will be disallowed to the extent of any exempt- interest dividends received by the shareholder with respect to such shares. All or a portion of any loss that you realize upon the redemption of your fund shares will be disallowed to the extent that you buy other shares in a Fund (through reinvestment of dividends or otherwise) within 30 days before or after your share redemption. Any loss disallowed under these rules will be added to your tax basis in the new shares you buy. FOREIGN TAXES Dividends and interests received by a Fund may be subject to income, withholding or other taxes imposed by foreign countries and U.S. possessions that would reduce the yield on the Fund's stock or securities. Tax conventions and treaties 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. STATE AND LOCAL TAXES Distributions from a Fund and ownership of Fund shares may be subject to state and local taxation. Shareholders are urged to consult their tax advisor regarding state and local taxes affecting an investment in shares of a Fund. Many states grant tax-free status to dividends paid to you from interest earned on direct obligations of the U.S. government, subject in some states to minimum investment requirements that must be met by a Fund. Investments in Government National Mortgage Association and Fannie Mae securities, bankers' acceptances, commercial paper and repurchase agreements collaterized by U.S. government securities do not generally qualify for tax-free treatment. The rules on exclusion of this income are different for corporations. FUND TRANSACTIONS The Trust has no obligation to deal with any dealer or group of dealers in the execution of transactions in portfolio securities. Subject to policies established by the Trustees, the Adviser is responsible for placing the orders to execute transactions for a Fund. In placing orders, it is the policy of the Trust to seek to obtain the best net results taking into account such factors as price (including the applicable dealer spread), the size, type and difficulty of the transaction involved, the firm's general execution and operational facilities, and the firm's risk in positioning the securities involved. While the Adviser generally seeks reasonably competitive spreads or commissions, the Trust will not necessarily be paying the lowest spread or commission available. The money market securities in which the Funds invest are traded primarily in the over-the-counter market. Bonds and debentures are usually traded over-the-counter, but may be traded on an exchange. Where possible, the Adviser 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. -34- BROKERAGE TRANSACTIONS. 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. The Trust may allocate out of all commission business generated by all of the funds and accounts under management by an Adviser, 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 Adviser 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. In addition, the Adviser may place a combined order for two or more accounts it manages, including a Fund, 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. Although it is recognized that, in some cases, the joint execution of orders could adversely affect the price or volume of the security that a particular account or the Fund may obtain, it is the opinion of the Adviser and the Trust's Board of Trustees that the advantages of combined orders outweigh the possible disadvantages of separate transactions. Nonetheless, the Adviser believes that the ability of a Fund to participate in higher volume transactions will generally be beneficial to the Fund. Consistent with the Conduct Rules of the National Association of Securities Dealers, Inc., and subject to seeking best price and execution, the Funds, at the request of the Distributor, give consideration to sales -35- of shares of the Trust as a factor in the selection of brokers and dealers to execute Trust portfolio transactions. It is expected that the Trust may execute brokerage or other agency transactions through the Distributor or an affiliate of an Adviser, 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 Adviser 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 Adviser 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, 2002, 2001 and 2000 the Funds paid the following aggregate brokerage commissions on portfolio transactions:
- ------------------------------------------- -------------------------------------------------------------------------------- FUND AGGREGATE DOLLAR AMOUNT OF BROKERAGE COMMISSIONS PAID ($) - ------------------------------------------- -------------------------------------------------------------------------------- 2002 2001 2000 - ------------------------------------------- --------------------------- -------------------------- ------------------------- Classic Institutional Cash Management Money Market Fund 208,247 269,625 0 - ------------------------------------------- --------------------------- -------------------------- ------------------------- Classic Institutional U.S. Government Securities Money Market Fund 123,866 179,492 0 - ------------------------------------------- --------------------------- -------------------------- ------------------------- Classic Institutional U.S. Treasury Securities Money Market Fund 835,499 762,294 0 - ------------------------------------------- --------------------------- -------------------------- ------------------------- Classic Institutional Short-Term Bond Fund 0 * * - ------------------------------------------- --------------------------- -------------------------- ------------------------- Classic Institutional Super Short Income Plus Fund 270,303 * * - ------------------------------------------- --------------------------- -------------------------- ------------------------- Classic Institutional U.S. Government Securities Super Short Income Plus Fund 270 * * - ------------------------------------------- --------------------------- -------------------------- -------------------------
* Not in operation during the period. BROKERAGE SELECTION. The Trust does not expect to use one particular broker or dealer, and when one or more brokers is believed capable of providing the best combination of price and execution, the Funds' Adviser may select a broker based upon brokerage or research services provided to the Adviser. The Adviser may pay a higher commission than otherwise obtainable from other brokers in return for such services only if a good faith determination is made that the commission is reasonable in relation to the services provided. Section 28(e) of the 1934 Act permits the Adviser, under certain circumstances, to cause each Fund to pay a broker or dealer a commission for effecting a transaction in excess of the amount of commission another broker or dealer would have charged for effecting the transaction in recognition of the value of brokerage -36- and research services provided by the broker or dealer. In addition to agency transactions, the Adviser may receive brokerage and research services in connection with certain riskless principal transactions, in accordance with applicable SEC guidance. Brokerage and research services include: (1) furnishing advice 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; (2) furnishing analyses and reports concerning issuers, industries, securities, economic factors and trends, portfolio strategy, and the performance of accounts; and (3) effecting securities transactions and performing functions incidental thereto (such as clearance, settlement, and custody). In the case of research services, the Adviser believes that access to independent investment research is beneficial to their investment decision-making processes and, therefore, to each Fund. To the extent research services may be a factor in selecting brokers, such services may be in written form or through direct contact with individuals and may include information as to particular companies and securities as well as market, economic, or institutional areas and information which assists in the valuation and pricing of investments. Examples of research-oriented services for which the Adviser might utilize Fund commissions include research reports and other information on the economy, industries, sectors, groups of securities, individual companies, statistical information, political developments, technical market action, pricing and appraisal services, credit analysis, risk measurement analysis, performance and other analysis. The Adviser may use research services furnished by brokers in servicing all client accounts and not all services may necessarily be used in connection with the account that paid commissions to the broker providing such services. Information so received by the Adviser will be in addition to and not in lieu of the services required to be performed by the Funds' Adviser under the Advisory Agreement. Any advisory or other fees paid to the Adviser are not reduced as a result of the receipt of research services. In some cases the Adviser may receive a service from a broker that has both a "research" and a "non-research" use. When this occurs, the Adviser makes a good faith allocation, under all the circumstances, between the research and non-research uses of the service. The percentage of the service that is used for research purposes may be paid for with client commissions, while the Adviser will use its own funds to pay for the percentage of the service that is used for non-research purposes. In making this good faith allocation, the Adviser faces a potential conflict of interest, but the Adviser believes that its allocation procedures are reasonably designed to ensure that it appropriately allocates the anticipated use of such services to their research and non-research uses. From time to time, the Fund may purchase new issues of securities for clients in a fixed price offering. In these situations, the seller may be a member of the selling group that will, in addition to selling securities, provide the Adviser with research services. The NASD has adopted rules expressly permitting these types of arrangements under certain circumstances. Generally, the seller will provide research "credits" in these situations at a rate that is higher than that which is available for typical secondary market transactions. These arrangements may not fall within the safe harbor of Section 28(e). For the Trust's most recently completed fiscal year, the Funds' paid the following commissions on brokerage transactions directed to brokers pursuant to an agreement or understanding whereby the broker provides research or other brokerage services to the Adviser:
- --------------------------------------------------- -------------------------------- --------------------------------- TOTAL DOLLAR AMOUNT OF TOTAL DOLLAR AMOUNT OF TRANSACTIONS INVOLVING FUND BROKERAGE COMMISSIONS FOR BROKERAGE COMMISSIONS FOR RESEARCH SERVICES ($) RESEARCH SERVICES ($) - --------------------------------------------------- -------------------------------- --------------------------------- STI Classic Funds 2,650,297.81 1,417,730,064.31 - --------------------------------------------------- -------------------------------- ---------------------------------
BROKERAGE WITH FUND AFFILIATES. A Fund may execute brokerage or other agency transactions through registered broker-dealer affiliates of either the Fund, the Adviser or the Distributor for a commission in conformity with the 1940 Act, the 1934 Act and rules promulgated by the SEC. Under the 1940 Act and the 1934 Act, affiliated broker-dealers are permitted to receive and retain compensation for effecting portfolio transactions for the Fund on an exchange if a written contract is in effect between the affiliate and the Fund expressly permitting the affiliate to receive and retain such compensation. These rules further require that commissions paid to the affiliate by the Fund for exchange transactions not exceed "usual and customary" brokerage commissions. The rules define "usual and customary" commissions to include amounts which are "reasonable and fair compared to the commission, fee or other remuneration received or to be received by other brokers in connection with comparable transactions involving similar securities being purchased or sold on a securities exchange during a comparable period of time." The -37- Trustees, including those who are not "interested persons" of the Fund, as defined in the 1940 Act, have adopted procedures for evaluating the reasonableness of commissions paid to affiliates and review these procedures periodically. For the fiscal years ended May 31, 2000, 2001 and 2002, the Funds paid the following aggregate brokerage commissions on portfolio transactions effected by affiliated brokers. All amounts shown were paid to the Distributor and reflect fees paid in connection with Fund repurchase agreement transactions.
- ------------------------ ----------------------------------- --------------------------- ----------------------------- FUND AGGREGATE DOLLAR AMOUNT OF PERCENTAGE OF TOTAL PERCENTAGE OF TOTAL BROKERAGE COMMISSIONS PAID TO BROKERAGE COMMISSIONS BROKERAGE TRANSACTIONS AFFILIATED BROKERS ($) PAID TO AFFILIATED EFFECTED THROUGH AFFILIATED BROKERS (%) BROKERS (%) - ------------------------ ----------------------------------- --------------------------- ----------------------------- 2002 2001 2000 2002 2001 2000 2002 2001 2000 - ------------------------ ----------- ----------- ----------- --------- -------- -------- -------- --------- ---------- Classic Institutional Cash Management Money Market Fund 208,247 269,625 169,140 100 100 100 100 100 100 - ------------------------ ----------- ----------- ----------- --------- -------- -------- -------- --------- ---------- Classic Institutional U.S. Government Securities Money Market Fund 123,866 179,492 99,268 100 100 100 100 100 100 - ------------------------ ----------- ----------- ----------- --------- -------- -------- -------- --------- ---------- Classic Institutional U.S. Treasury Securities Money Market Fund 835,499 762,294 641,816 100 100 100 100 100 100 - ------------------------ ----------- ----------- ----------- --------- -------- -------- -------- --------- ---------- Classic Institutional Short-Term Bond Fund 0 * * 100 * * 100 * * - ------------------------ ----------- ----------- ----------- --------- -------- -------- -------- --------- ---------- Classic Institutional Super Short Income 303 * * 100 * * 100 * * Plus Fund - ------------------------ ----------- ----------- ----------- --------- -------- -------- -------- --------- ---------- Classic Institutional U.S. Government Securities Super Short 270 * * 100 * * 100 * * Income Plus Fund - ------------------------ ----------- ----------- ----------- --------- -------- -------- -------- --------- ----------
* Not in operation during the period. SECURITIES OF "REGULAR BROKER-DEALERS." SECURITIES OF "REGULAR BROKER-DEALERS." The Funds are required to identify any securities of its "regular brokers and dealers" (as such term is defined in the 1940 Act) which the Funds may hold at the close of their most recent fiscal year. As of May 31, 2002, the Classic Institutional Cash Management Money Market Fund held $79,868,000 of repurchase agreements with JP Morgan Chase, $37,961,000 of repurchase agreements with Lehman Brothers, $37,065,000 of repurchase agreements with Paribas, and $100,222,000 of repurchase agreements with UBS Warburg. The Classic Institutional U.S. Government Securities Money Market Fund held $74,751,000 of repurchase agreements with JP Morgan Chase, $6,973,000 of repurchase agreements with Lehman Brothers, $19,487,000 of repurchase agreements with Merrill Lynch, and $52,400,000 of repurchase agreements with UBS Warburg. The Classic Institutional U.S. Treasury Securities Money Market Fund held $100,109,000 of repurchase agreements with Bear Stearns, $99,758,000 of repurchase agreements with Dresdner Bank, $104,155,000 of repurchase agreements with Deutsche Bank, $525,620,000 of -38- repurchase agreements with Paribas, $100,003,000 of repurchase agreements with Merrill Lynch, $102,877,000 of repurchase agreements with Salomon Smith Barney, $96,670,000 of repurchase agreements with JP Morgan Chase, $535,280,000 of repurchase agreements with UBS Warburg, and $101,778,000 of repurchase agreements with Lehman Brothers. The Classic Institutional Super Short Income Plus Fund held $1,470,000 of repurchase agreements with Merrill Lynch, $523,000 of Lehman Brothers Holdings notes, and $361,000 of Morgan Stanley Dean Witter notes. The Classic Institutional U.S. Government Securities Super Short Income Plus Fund held $1,018,000 of repurchase agreements with Merrill Lynch. PORTFOLIO TURNOVER RATE Portfolio turnover rate is defined under SEC rules as the value of the securities purchased or securities sold, excluding all securities whose maturities at the time of acquisition were one-year or less, divided by the average monthly value of such securities owned during the year. Based on this definition, instruments with remaining maturities of less than one-year are excluded from the calculation of the portfolio turnover rate. Instruments excluded from the calculation of portfolio turnover generally would include the futures contracts and option contracts in which the Funds invest since such contracts generally have remaining maturities of less than one-year. The Funds may at times hold most of their investments in short-term options and futures contracts, which are excluded for purposes of computing portfolio turnover. Because each Fund's portfolio turnover rate to a great extent will depend on the hedging and investment activity of the Adviser, it is very difficult to estimate what the Fund's actual turnover rate will be in the future, although it is expected to be high. For the Funds' most recently completed fiscal period ended May 31, 2002, the portfolio turnover rate for each of the non-money market Funds was as follows:
- ------------------------------------------------------------------------------------- --------------------------------- FUND TURNOVER RATE (%) - ------------------------------------------------------------------------------------- --------------------------------- Classic Institutional Short-Term Bond Fund 0 - ------------------------------------------------------------------------------------- --------------------------------- Classic Institutional Super Short Income Plus Fund 30 - ------------------------------------------------------------------------------------- --------------------------------- Classic Institutional U.S. Government Securities Super Short Income Plus Fund 34 - ------------------------------------------------------------------------------------- ---------------------------------
DESCRIPTION OF SHARES The Declaration of Trust authorizes the issuance of an unlimited number of shares of the Funds each of which represents an equal proportionate interest in that Fund with each other share. Shares are entitled upon liquidation to a PRO RATA share in the net assets of the Funds. Shareholders have no preemptive rights. The Declaration of Trust provides that the Trustees of the Trust may create additional series of shares. All consideration received by the Trust for shares of any additional series and all assets in which such consideration is invested would belong to that series and would be subject to the liabilities related thereto. Share certificates representing shares will not be issued. VOTING RIGHTS Each share held entitles the shareholder of record to one vote for each dollar invested. In other words, each shareholder of record is entitled to one vote for each full share held on the record date for any shareholder meeting. Each Fund will vote separately on matters relating solely to it. As a Massachusetts business trust, the Trust is not required, and does not intend, to hold annual meetings of shareholders. Shareholders approval will be sought, however, for certain changes in the operation of the Trust and for the election of Trustees under certain circumstances. Under the Declaration of Trust, the Trustees have the power to liquidate one or more Funds without shareholder approval. While the Trustees have no present intention of exercising this power, they may do so if a Fund fails to reach or maintain a viable size or for some other extraordinary reason. -39- 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. SHAREHOLDER LIABILITY The Trust is an entity of the type commonly known as a "Massachusetts business trust." Under Massachusetts law, shareholders of such a trust could, under certain circumstances, be held personally liable as partners for the obligations of the trust. Even if, however, the Trust were held to be a partnership, the possibility of the shareholders' incurring financial loss for that reason appears remote because the Trust's Declaration of Trust contains an express disclaimer of shareholder liability for obligations of the Trust and requires that notice of such disclaimer be given in each agreement, obligation or instrument entered into or executed by or on behalf of the Trust or the Trustees, and because the Declaration of Trust provides for indemnification out of the Trust property for any Investor held personally liable for the obligations of the Trust. 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 advisers, 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. CODES OF ETHICS The Board of Trustees of the Trust has adopted a Code of Ethics pursuant to Rule 17j-1 under the Investment Company Act of 1940. In addition, the Adviser and Distributor have adopted Codes of Ethics pursuant to Rule 17j-1. These Codes of Ethics (each a "Code" and together the "Codes") apply to the personal investing activities of trustees, officers and certain employees ("access persons"). Rule 17j-1 and the Codes are designed to prevent unlawful practices in connection with the purchase or sale of securities by access persons. Under each Code, access persons are permitted to engage in personal securities transactions, but are required to report their personal securities transactions for monitoring purposes. In addition, certain access persons of the Trust and the Adviser are prohibited from acquiring beneficial ownership of securities offered in connection with initial public offerings. Certain access persons of the Adviser are further prohibited from acquiring beneficial ownership of securities offered in connection with a limited offering. The Distributor's Code requires certain access persons to obtain approval before investing in initial public offerings and limited offerings. Copies of these Code of Ethics are on file with the Securities and Exchange Commission, and are available to the public. 5% AND 25% SHAREHOLDERS As of September 18, 2002, 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 Institutional Class of the Funds were held for the record owner's fiduciary, agency or custodial customers. -40-
- ------------------------------- ----------------------------------- ---------------------- --------------- ------------ FUND NAME AND ADDRESS NUMBER OF SHARES CLASS % OF CLASS - ------------------------------- ----------------------------------- ---------------------- --------------- ------------ SunTrust Bank Classic Institutional Cash Attn: Susan Grider 1,187,894,693.4300 Institutional 36.78% Management Money Market Fund Mail Center 3133 PO Box 105504 Atlanta, GA 30348-5504 - ------------------------------- ----------------------------------- ---------------------- --------------- ------------ SunTrust Capital Markets ACH Acct. Classic Institutional Cash Attn: Anita Woods CTR 3910 1,945,120,413.6400 Institutional 60.23% Management Money Market Fund 303 Peachtree Street, 24th Floor Atlanta, GA 30308-3201 - ------------------------------- ----------------------------------- ---------------------- --------------- ------------ SunTrust Bank Classic Institutional US Attn: Susan Grider Government Securities Money Mail Center 3133 633,074,285.7200 Institutional 64.85% Market Fund PO Box 105504 Atlanta, GA 30348-5504 - ------------------------------- ----------------------------------- ---------------------- --------------- ------------ SunTrust Capital Markets ACH Acct. Classic Institutional US Attn: Anita Woods CTR 3910 Government Securities Money 303 Peachtree Street, 24th Floor 343,199,285.1600 Institutional 35.15% Market Fund Atlanta, GA 30308-3201 - ------------------------------- ----------------------------------- ---------------------- --------------- ------------ SunTrust Bank Classic Institutional US Attn: Susan Grider Treasury Securities Money Mail Center 3133 128,935,644.6900 Institutional 23.63% Market Fund PO Box 105504 Atlanta, GA 30348-5504 - ------------------------------- ----------------------------------- ---------------------- --------------- ------------ Classic Institutional US SunTrust Capital Markets ACH Acct. Treasury Securities Money Attn: Anita Woods CTR 3910 416,645,106.6600 Institutional 76.37% Market Fund 303 Peachtree Street, 24th Floor Atlanta, GA 30308-3201 - ------------------------------- ----------------------------------- ---------------------- --------------- ------------ SunTrust Bank Classic Institutional US Attn: Susan Grider Treasury Securities Money Mail Center 3133 1,433,648,255.7700 Corporate 100.00% Market Fund PO Box 105504 Trust Atlanta, GA 30348-5504 - ------------------------------- ----------------------------------- ---------------------- --------------- ------------ Trustman SunTrust Banks Classic Institutional Mutual Fund Reconciliation Unit 694,735.7930 Institutional 38.09% Short-Term Bond Fund Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------- ----------------------------------- ---------------------- --------------- ------------
-41-
- ------------------------------- ----------------------------------- ---------------------- --------------- ------------ FUND NAME AND ADDRESS NUMBER OF SHARES CLASS % OF CLASS - ------------------------------- ----------------------------------- ---------------------- --------------- ------------ Trustman SunTrust Banks Classic Institutional Mutual Fund Reconciliation Unit 419,158.3160 Institutional 22.98% Short-Term Bond Fund Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------- ----------------------------------- ---------------------- --------------- ------------ Trustman SunTrust Banks Classic Institutional Mutual Fund Reconciliation Unit 709,923.4260 Institutional 38.92% Short-Term Bond Fund Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------- ----------------------------------- ---------------------- --------------- ------------ Trustman SunTrust Banks Classic Institutional Super Mutual Fund Reconciliation Unit 3,305,335.0640 Institutional 7.94% Short Income Plus Fund Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------- ----------------------------------- ---------------------- --------------- ------------ Trustman SunTrust Banks Classic Institutional Super Mutual Fund Reconciliation Unit 41,640,887.6370 Institutional 100.00% Short Income Plus Fund Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------- ----------------------------------- ---------------------- --------------- ------------ Trustman Classic Institutional US SunTrust Banks Government Securities Super Mutual Fund Reconciliation Unit 11,446,508.5380 Institutional 31.21% Short Income Plus Fund Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------- ----------------------------------- ---------------------- --------------- ------------ Trustman Classic Institutional US SunTrust Banks Government Securities Super Mutual Fund Reconciliation Unit 11,978,983.7560 Institutional 32.66% Short Income Plus Fund Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 - ------------------------------- ----------------------------------- ---------------------- --------------- ------------ National Public Radio Inc. Classic Institutional US Attn: James Elder Government Securities Super 635 Massachusetts Avenue, NW 11,519,611.7340 Institutional 31.41% Short Income Plus Fund Washington, DC 20001-3740 - ------------------------------- ----------------------------------- ---------------------- --------------- ------------
FINANCIAL STATEMENTS The financial statements for the STI Classic Fund's fiscal year ended May 31, 2002, including notes thereto and the report of PricewaterhouseCoopers LLP thereon, are herein incorporated by reference, except for the Statement of Operations of the STI Classic Institutional Short-Term Bond Fund, STI Classic Institutional Super Short Income Plus Fund and STI Classic Institutional U.S. Government Securities Super Short Income Plus Fund, and the Financial Highlights of the STI Classic Institutional Short-Term Bond Fund, STI Classic Institutional Super Short Income Plus Fund and STI Classic Institutional U.S. Government Securities Super Short Income Plus Fund, which statements are included herein and reflect the correction of clerical errors that were contained in such financial statements. A copy of the 2002 Annual Report to Shareholders must accompany the delivery of this Statement of Additional Information. -42- APPENDIX DESCRIPTION OF RATINGS The following descriptions are summaries of published ratings. Description of Commercial Paper Ratings A-1 This is the highest category by Standard and Poor's (S&P) and indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation. A-2 Capacity for timely payment on issues with this designation is satisfactory and the obligation is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rating categories. PRIME-1 Issues rated Prime-1 (or supporting institutions) by Moody's have a superior ability for repayment of senior short-term debt obligations. Prime-1 repayment ability will often be evidenced by many of the following characteristics: o Leading market positions in well-established industries. o High rates of return on funds employed. o Conservative capitalization structure with moderate reliance on debt and ample asset protection. o Broad margins in earnings coverage of fixed financial charges and high internal cash generation. o Well-established access to a range of financial markets and assured sources of alternate liquidity. The rating F1 (Highest Credit Quality) is the highest commercial rating assigned by Fitch, Inc. "Fitch." Paper rated F1 is regarded as having the strongest capacity for timely payment of financial commitments. The rating F2 (Good Credit Quality) is the second highest commercial paper rating assigned by Fitch which reflects a satisfactory capacity for timely payment of financial commitments, but the margin of safety is not as great as in the case of the higher ratings. The rating TBW-1 by Thomson BankWatch ("Thomson") indicates a very high likelihood that principal and interest will be paid on a timely basis. DESCRIPTION OF MUNICIPAL NOTE RATINGS Moody's highest rating for state and municipal and other short-term notes is MIG-1 and VMIG-l. Short-term municipal securities rated MIG-1 or VMIG-1 are of the best quality. They have strong protection from established cash flows, superior liquidity support, or demonstrated broad-based access to the market for refinancing or both. Short-term municipal securities rated MIG-2 or VMIG-2 are of high quality. Margins of protection are ample although not so large as in the MIG-I/VMIG-2 group. A-1 An S&P note rating reflects the liquidity concerns and market access risks unique to notes. Notes due in three years or less will likely receive a note rating. Notes maturing beyond three 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, and 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. S&P NOTE RATING SYMBOLS ARE AS FOLLOWS: SP-1 Strong capacity to pay principal and interest. Those issues determined to possess a very strong capacity to pay a debt service is given a plus (+) designation. SP-2 Satisfactory capacity to pay principal and interest with some vulnerability to adverse financial and economic changes over the term of the votes. DESCRIPTION OF CORPORATE BOND RATINGS S&P 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. Debt rated BBB 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. Debt rated BB and B is regarded as having predominantly 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 exposures to adverse conditions. Debt rated BB has less near-term vulnerability to default than other speculative grade debt. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions that could lead to inadequate capacity to meet timely interest and principal payments. The BB rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BBB- rating. Debt rate B has greater vulnerability to default but presently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions would likely impair capacity or willingness to pay interest and repay principal. The B rating category also is used for debt subordinated to senior debt that is assigned an actual or implied BB or BB- rating. MOODY'S 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 A-2 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 the 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. Bonds which are rated Baa are considered as 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 Ba are judged to have speculative elements; their future cannot be considered as well-assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Moody's bond ratings, where specified, are applied to financial contracts, senior bank obligations and insurance company senior policyholder and claims obligations with an original maturity in excess of one-year. Obligations relying upon support mechanisms such as letters-of-credit and bonds of indemnity are excluded unless explicitly rated. Obligations of a branch of a bank are considered to be domiciled in the country in which the branch is located. Unless noted as an exception, Moody's rating on a bank's ability to repay senior obligations extends only to branches located in countries which carry a Moody's sovereign rating. Such branch obligations are rated at the lower of the bank's rating or Moody's sovereign rating for the bank deposits for the country in which the branch is located. When the currency in which an obligation is denominated is not the same as the currency of the country in which the obligation is domiciled, Moody's ratings do not incorporate an opinion as to whether payment of the obligation will be affected by the actions of the government controlling the currency of denomination. In addition, risk associated with bilateral conflicts between an investor's home country and either the issuer's home country or the country where an issuer branch is located are not incorporated into Moody's ratings. Moody's makes no representation that rated bank obligations or insurance company obligations are exempt from registration under the U.S. Securities Act of 1933 or issued in conformity with any other applicable law or regulation. Nor does Moody's represent that any specific bank or insurance company obligation is legally enforceable or is a valid senior obligation of a rated issuer. Moody's ratings are opinions, not recommendations to buy or sell, and their accuracy is not guaranteed. A rating should be weighed solely as one factor in an investment decision and you should make your own study and evaluation of any issuer whose securities or debt obligations you consider buying or selling. A-3 FITCH Bonds rated AAA by Fitch are judged by Fitch to be strictly high grade, broadly marketable, suitable for investment by trustees and fiduciary institutions liable to but slight market fluctuation other than through changes in the money rate. The prime feature of an AAA bond is a showing of earnings several times or many times interest requirements, with such stability of applicable earnings that safety is beyond reasonable question whatever changes occur in conditions. Bonds rated AA by Fitch are judged by Fitch to be of safety virtually beyond question and are readily salable, whose merits are not unlike those of the AAA class, but whose margin of safety is less strikingly broad. The issue may be the obligation of a small company, strongly secured but influenced as to rating by the lesser financial power of the enterprise and more local type market. Bonds rated A are considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings. Bonds rated BBB are considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds, and therefore impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings. Bonds rated BB are considered speculative. The obligor's ability to pay interest and repay principal may be affected over time by adverse economic changes. However, business and financial alternatives can be identified which could assist the obligor in satisfying its debt service requirements. Bonds rated B are considered highly speculative. While bonds in this class are currently meeting debt service requirements, the probability of continued timely payment of principal and interest reflects the obligor's limited margin of safety and the need for reasonable business and economic activity throughout the life of the issue. THOMSON Bonds rated AAA by Thomson BankWatch indicate that the ability to repay principal and interest on a timely basis is extremely high. Bonds rated AA indicate a very strong ability to repay principal and interest on a timely basis, with limited incremental risk compared to issues rated in the highest category. Bonds rated A indicate the ability to repay principal and interest is strong. Issues rated A could be more vulnerable to adverse developments (both internal and external) than obligations with higher ratings. Bonds rated BBB (the lowest investment-grade category) indicate an acceptable capacity to repay principal and interest. Issues rated "BBB" are, however, more vulnerable to adverse developments (both internal and external) than obligations with higher ratings. While not investment grade, the BB rating suggests that the likelihood of default is considerably less than for lower-rated issues. However, there are significant uncertainties that could affect the ability to adequately service debt obligations. Issues rated B show a higher degree of uncertainty and therefore greater likelihood of default than higher-rated issues. Adverse developments could negatively affect the payment of interest and principal on a timely basis. A-4 FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- STI CLASSIC FUNDS FOR THE PERIODS ENDED MAY 31, FOR A SHARE OUTSTANDING THROUGHOUT THE PERIODS
NET ASSET DISTRIBUTIONS VALUE NET NET REALIZED AND FROM NET NET ASSET BEGINNING INVESTMENT UNREALIZED GAINS INVESTMENT VALUE END TOTAL OF PERIOD INCOME ON INVESTMENTS INCOME OF PERIOD RETURN+ ---------- ----------- ----------------- -------------- ---------- -------- CLASSIC INSTITUTIONAL SHORT-TERM BOND FUND Institutional Shares 2002 (1) $10.00 $ 0.01 $ 0.03 $ (0.01) $10.03 0.41% CLASSIC INSTITUTIONAL SUPER SHORT INCOME PLUS FUND Institutional Share 2002 (2) $ 2.00 $ 0.01 $ -- $ (0.01) $ 2.00 0.30% CLASSIC INSTITUTIONAL U.S. GOVERNMENT SECURITIES SUPER SHORT INCOME PLUS FUND Institutional Shares 2002 (3) $ 2.00 $ 0.01 $ -- $ (0.01) $ 2.00 0.32% + Returns are for the period indicated and have not been annualized. (The performance in the above table does not reflect the deduction of taxes the shareholder would pay on fund distributions or redemption of fund shares.) (1) Commenced operations on May 14, 2002. All ratios have been annualized. (2) Commenced operations on April 15, 2002. All ratios have been annualized. (3) Commenced operations on April 11, 2002. All ratios have been annualized. Amounts designated as "--" are either $0 or rounded to $0. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS RATIO OF RATIO OF RATIO OF NET INVESTMENT NET ASSETS RATIO OF NET INVESTMENT EXPENSES TO INCOME TO PORTFOLIO END OF EXPENSES TO INCOME TO AVERAGE NET ASSETS AVERAGE NET ASSETS TURNOVER PERIOD (000) AVERAGE NET ASSETS AVERAGE NET ASSETS (EXCLUDING WAIVERS) (EXCLUDING WAIVERS) RATE ------------- ------------------ ------------------ ------------------- ------------------- ------------ CLASSIC INSTITUTIONAL SHORT-TERM BOND FUND Institutional Shares 2002 (1) $ 16,176 0.57% (4) 2.60% (4) 1.07% (4) 2.10% (4) 0% CLASSIC INSTITUTIONAL SUPER SHORT INCOME PLUS FUND Institutional Shares 2002 (2) $ 33,730 0.36% (4) 2.44% (4) 0.91% (4) 1.89% (4) 30% CLASSIC INSTITUTIONAL U.S. GOVERNMENT SECURITIES SUPER SHORT INCOME PLUS FUND Institutional Shares 2002 (3) $ 28,138 0.30% (4) 2.42% (4) 0.83% (4) 1.89% (4) 34%
(1) Commenced operations on May 14, 2002. All ratios have been annualized. (2) Commenced operations on April 15, 2002. All ratios have been annualized. (3) Commenced operations on April 11, 2002. All ratios have been annualized. (4) This ratio has been changed to reflect the correction of a clerical error contained in the Fund's 2002 Annual Report to Shareholders. Amounts designated as "--" are either $0 or rounded to $0. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS STATEMENTS OF OPERATIONS (000) - -------------------------------------------------------------------------------- STI CLASSIC FUNDS FOR THE PERIOD ENDED MAY 31, 2002
CLASSIC CLASSIC INSTITUTIONAL CLASSIC INSTITUTIONAL U.S. GOVERNMENT INSTITUTIONAL SUPER SHORT SECURITIES SUPER SHORT-TERM INCOME SHORT INCOME BOND FUND* PLUS FUND** PLUS FUND*** ---------------- -------------------- -------------------- Income: Interest Income $22 $78 $ 64 ---- ---- ----- Expenses: Investment Advisory Fees 4 15 10 Administrator Fees 1 2 2 Transfer Agent Fees -- -- -- Transfer Agent Out of Pocket Expenses and Shareholder Servicing Fees -- -- -- Printing Fees -- 1 1 Custody Fees -- -- -- Professional Fees -- -- -- Trustee Fees -- -- -- Registration Fees 1 1 2 Shareholder Service Fees 2(1) 7(1) 6(1) Other Fees -- -- -- ---- ---- ----- Total Expenses 8 26 21 ---- ---- ----- Less: Investment Advisory Fees Waived (2) (9) (7) Shareholder Service Fees Waived (2)(1) (7)(1) (6)(1) ---- ---- ----- Net Expenses 4 10 8 ---- ---- ----- Net Investment Income 18 68 56 ---- ---- ----- Net Realized Loss on Securities Sold -- -- (5) Net Change in Unrealized Appreciation on Investments 52 30 60 ---- ---- ----- Increase in Net Assets Resulting from Operations $70 $98 $111 ==== ==== =====
* Commenced operations on May 14, 2002. ** Commenced operations on April 15, 2002. *** Commenced operations on April 11, 2002. (1) This amount has been changed to reflect the correction of a clerical error contained in the Fund's 2002 Annual Report to Shareholders. Amounts designated as "--" are either $0 or round to $0. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS STATEMENT OF ADDITIONAL INFORMATION STI CLASSIC FUNDS OCTOBER 1, 2002 INVESTMENT ADVISER: TRUSCO CAPITAL MANAGEMENT, INC. This Statement of Additional Information ("SAI") is not a prospectus. It is intended to provide additional information regarding the activities and operations of STI Classic Funds (the "Trust") and should be read in conjunction with the Trust's prospectuses dated October 1, 2002. This SAI relates to the following series of the Trust (the "Fund"): STI CLASSIC LIFE VISION CONSERVATIVE FUND This SAI is incorporated by reference into the Trust's prospectuses. Capitalized terms not defined herein are defined in the prospectuses. Prospectuses may be obtained by writing to the Trust or calling toll-free 1-800-428-6970. TABLE OF CONTENTS ----------------- THE TRUST................................................................S-1 ADDITIONAL INFORMATION ABOUT INVESTMENT OBJECTIVES AND POLICIES..........S-1 DESCRIPTION OF THE UNDERLYING FUNDS' PERMITTED INVESTMENTS...............S-2 INVESTMENT LIMITATIONS..................................................S-24 INVESTMENT ADVISER......................................................S-25 THE ADMINISTRATOR.......................................................S-26 THE DISTRIBUTOR.........................................................S-27 THE TRANSFER AGENT......................................................S-27 THE CUSTODIAN...........................................................S-27 INDEPENDENT PUBLIC ACCOUNTANTS..........................................S-27 LEGAL COUNSEL...........................................................S-28 TRUSTEES AND OFFICERS OF THE TRUST......................................S-28 PERFORMANCE INFORMATION.................................................S-31 CALCULATION OF TOTAL RETURN.............................................S-32 PURCHASING AND REDEEMING SHARES.........................................S-32 DETERMINATION OF NET ASSET VALUE........................................S-32 TAXES...................................................................S-33 FUND TRANSACTIONS.......................................................S-35 DESCRIPTION OF SHARES...................................................S-38 SHAREHOLDER LIABILITY...................................................S-38 LIMITATION OF TRUSTEES' LIABILITY.......................................S-38 CODES OF ETHICS.........................................................S-38 APPENDIX ............................................................... A-1 i THE TRUST GENERAL. The Fund is an open-end investment management 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 shares of beneficial interest ("Shares"). Each Fund reserves the right to create and issue shares of additional funds. Each fund is a separate mutual fund, and each share of each fund represents an equal proportionate interest in that fund. All consideration received by the Trust for shares of any fund and all assets of such fund belong solely to that fund and would be subject to liabilities related thereto. Each Fund currently offers at least one of the following classes of Shares: Trust Class, Investor Class and Flex Class Shares. The different classes provide for variations in certain distribution and shareholder servicing expenses and in minimum initial investment requirements. Additional Funds and/or classes may be created from time to time. This Statement of Additional Information refers to the Trust Shares of the Life Vision Conservative Fund. Each Fund pays its (i) operating expenses, including fees of its service providers, expenses of preparing prospectuses, proxy solicitation material and reports to shareholders, costs of custodial services and registering its shares under federal and state securities laws, pricing and insurance expenses, brokerage costs, interest charges, taxes and organization expenses, and (ii) pro rata share of the Trust's other expenses, including audit and legal expenses. Expenses not attributable to a specific fund are allocated across all of the funds on the basis of relative net assets. For more information on shareholder servicing and distribution expenses, see the "Distributor." VOTING RIGHTS. Each share held entitles the shareholder of record to one vote for each dollar invested. In other words, each shareholder of record is entitled to one vote for each dollar of net asset value of the shares held on the record date for the meeting. Each Fund will vote separately on matters relating solely to it. As a Massachusetts business trust, the Trust is not required, and does not intend, to hold annual meetings of shareholders. Shareholders approval will be sought, however, for certain changes in the operation of the Trust and for the election of Trustees under certain circumstances. Under the Declaration of Trust, the Trustees have the power to liquidate one or more Funds without shareholder approval. While the Trustees have no present intention of exercising this power, they may do so if a Fund fails to reach a viable size within a reasonable amount of time or for some other extraordinary reason. 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. ADDITIONAL INFORMATION ABOUT INVESTMENT OBJECTIVES AND POLICIES The Funds' investment objectives and principal investment strategies are described in the Trust's prospectuses. The following information supplements, and should be read in conjunction with the prospectuses. For a description of certain permitted investments discussed below, see "Description of the Underlying Funds' Permitted Investments." STI CLASSIC LIFE VISION FUNDS (LIFE VISION FUNDS). The Life Vision Funds provide investors with the opportunity to pursue four distinct asset allocation strategies implemented through investments in shares of selected STI Classic Funds. By investing in the Life Vision Funds, investors have the opportunity to diversify and allocate their assets among the broad range of STI Classic Funds. The Adviser simplifies the diversification and asset allocation process by reviewing, analyzing, selecting, monitoring, reallocating and rebalancing each Life Vision Fund's holdings of STI Classic Funds for investors. The assets of each Life Vision Fund will be allocated among underlying STI Classic Funds in accordance with its investment objective, the Adviser's outlook for the economy, the financial markets and the relative market valuations of the underlying STI Classic Funds. Each Life Vision Fund has the ability to invest its assets allocated to a particular asset class in one or more of the underlying STI Classic Funds, which have differing investment objectives, policies and risk characteristics. The risks associated with investing in a Life Vision Fund will vary depending upon how the assets within its asset classes are allocated from time to time among the underlying STI Classic Funds. Although the Life Vision Funds currently expect to invest in a number of the underlying STI Classic Funds identified below, the Adviser has the discretion to change the particular STI Classic Funds used as S-1 underlying investments for the Life Vision Funds. If the Adviser determines in the future that it is in a Life Vision Fund's best interest, the Adviser may substitute or include other underlying STI Classic Funds, including STI Classic Funds that do not currently exist. The Adviser will manage each Life Vision Fund Fund consistent with that Life Vision Fund's investment objective and policies. There is no assurance that the Life Vision Fund will achieve its investment objective. CAPITAL APPRECIATION FUND GROWTH AND INCOME FUND INVESTMENT GRADE BOND FUND PRIME QUALITY MONEY MARKET FUND SHORT-TERM BOND FUND SMALL CAP GROWTH STOCK FUND SMALL CAP VALUE EQUITY FUND U.S. GOVERNMENT SECURITIES FUND DESCRIPTION OF THE UNDERLYING FUNDS' PERMITTED INVESTMENTS The Funds' respective investment objectives and principal investment strategies are described in the prospectuses. The following information supplements, and should be read in conjunction with, the prospectuses. Following are descriptions of the permitted investments and investment practices discussed in the Funds' "Investment Objectives and Policies" section and the associated risk factors. The Adviser will only invest in any of the following instruments or engage in any of the following investment practices if such investment or activity is consistent with and permitted by the Funds' stated investment policies. AMERICAN DEPOSITARY RECEIPTS (ADRS), EUROPEAN DEPOSITARY RECEIPTS (EDRS) AND GLOBAL DEPOSITARY RECEIPTS (GDRS). ADRs, EDRs, and GDRs are securities, typically issued by a U.S. financial institution or a non-U.S. financial institution in the case of an EDR or GDR (a "depositary"). The institution has ownership interests in a security, or a pool of securities, issued by a foreign issuer and deposited with the depositary. ADRs, EDRs and GDRs 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. 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 backed by non-mortgage assets such as company receivables, truck and auto loans, leases and credit card receivables. Other asset-backed securities may be created in the future. These securities may be traded over-the-counter and typically have a short-intermediate maturity structure depending on the pay down characteristics of the underlying financial assets which are passed through to the security holder. These securities are generally issued as pass-through certificates, which represent undivided fractional ownership interests in the underlying pool of assets. Asset-backed securities may also be debt obligations, which are 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 these assets and issuing debt obligations. 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. S-2 The market for asset-backed securities is at a relatively early stage of development. Accordingly, there may be a limited secondary market for these securities. BORROWING. The Funds may borrow money. Each Fund may borrow money to facilitate management of a Fund's portfolio by enabling the Fund to meet redemption requests when the liquidation of portfolio instruments would be inconvenient or disadvantageous. Such borrowing is not for investment purposes and will be repaid by the borrowing Fund promptly. As required by the 1940 Act, a Fund must maintain continuous asset coverage (total assets, including assets acquired with borrowed funds, less liabilities exclusive of borrowings) of 300% of all amounts borrowed. If, at any time, the value of the Fund's assets should fail to meet this 300% coverage test, the Fund, within three days (not including Sundays and holidays), will reduce the amount of the Fund's borrowings to the extent necessary to meet this 300% coverage. Maintenance of this percentage limitation may result in the sale of portfolio securities at a time when investment considerations otherwise indicate that it would be disadvantageous to do so. In addition to the foregoing, the Funds are authorized to borrow money as a temporary measure for extraordinary or emergency purposes in amounts not in excess of 5% of the value of the Fund's total assets. This borrowing is not subject to the foregoing 300% asset coverage requirement. The Funds are authorized to pledge portfolio securities as the Adviser deems appropriate in connection with any borrowings. Borrowing may subject the Funds to interest costs, which may exceed the interest received on the securities purchased with the borrowed funds. The Funds may borrow at times to meet redemption requests rather than sell portfolio securities to raise the necessary cash. Borrowing can involve leveraging when securities are purchased with the borrowed money. To avoid this situation, neither Fund will purchase securities while borrowing represent more than 5% of its total assets. COMMERCIAL PAPER. Commercial paper is the term used to designate unsecured short-term promissory notes issued by corporations and other entities. Maturities on these issues vary from a few to 270 days. CUSTODIAL RECEIPTS. A custodial receipt represents an indirect interest in a tax-exempt bond that is deposited with a custodian. For example, custodial receipts may be used to permit the sale of the deposited bond in smaller denominations than would otherwise be permitted. Frequently, custodial receipts are issued to attach bond insurance or other forms of credit enhancement to the deposited tax-exempt bond. Note, because a "separate security" is not created by the issuance of a receipt, many of the tax advantages bestowed upon holders of the deposited tax-exempt bond are also conferred upon the custodial receipt holder. DEBT SECURITIES. Debt securities represent money borrowed that obligates the issuer (E.G., a corporation, municipality, government, government agency) to repay the borrowed amount at maturity (when the obligation is due and payable) and usually to pay the holder interest at specific times (E.G., bonds, notes, debentures). DOLLAR ROLLS. Dollar rolls are transactions in which securities are sold for delivery in the current month and the seller contracts to repurchase substantially similar securities on a specified future date. Any difference between the sale price and the purchase price (plus interest earned on the cash proceeds of the sale) is applied against the past interest income on the securities sold to arrive at an implied borrowing rate. 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 a 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. S-3 EQUITY SECURITIES. Equity securities represent ownership interests in a company and consist of common stocks, preferred stocks, warrants to acquire common stock, and securities convertible into common stock. Investments in equity securities in general are subject to market risks that may cause their prices to fluctuate over time. Fluctuations in the value of equity securities in which a fund invests will cause the net asset value of a fund to fluctuate. The Fund purchases equity securities traded in the U.S. on registered exchanges or the over-the-counter market. Equity securities are described in more detail below: o COMMON STOCK. Common stock represents an equity or ownership interest in an issuer. In the event an issuer is liquidated or declares bankruptcy, the claims of owners of bonds and preferred stock take precedence over the claims of those who own common stock. o PREFERRED STOCK. Preferred stock represents an equity or ownership interest in an issuer that pays dividends at a specified rate and that has precedence over common stock in the payment of dividends. In the event an issuer is liquidated or declares bankruptcy, the claims of owners of bonds take precedence over the claims of those who own preferred and common stock. o WARRANTS. Warrants are instruments that entitle the holder to buy an equity security at a specific price for a specific period of time. Changes in the value of a warrant do not necessarily correspond to changes in the value of its underlying security. The price of a warrant may be more volatile than the price of its underlying security, and a warrant may offer greater potential for capital appreciation as well as capital loss. Warrants do not entitle a holder to dividends or voting rights with respect to the underlying security and do not represent any rights in the assets of the issuing company. A warrant ceases to have value if it is not exercised prior to its expiration date. These factors can make warrants more speculative than other types of investments. o CONVERTIBLE SECURITIES. Convertible securities are bonds, debentures, notes, preferred stocks or other securities that may be converted or exchanged (by the holder or by the issuer) into shares of the underlying common stock (or cash or securities of equivalent value) at a stated exchange ratio. A convertible security may also be called for redemption or conversion by the issuer after a particular date and under certain circumstances (including a specified price) established upon issue. If a convertible security held by a fund is called for redemption or conversion, the fund could be required to tender it for redemption, convert it into the underlying common stock, or sell it to a third party. o Convertible securities generally have less potential for gain or loss than common stocks. Convertible securities generally provide yields higher than the underlying common stocks, but generally lower than comparable non-convertible securities. Because of this higher yield, convertible securities generally sell at a price above their "conversion value," which is the current market value of the stock to be received upon conversion. The difference between this conversion value and the price of convertible securities will vary over time depending on changes in the value of the underlying common stocks and interest rates. When the underlying common stocks decline in value, convertible securities will tend not to decline to the same extent because of the interest or dividend payments and the repayment of principal at maturity for certain types of convertible securities. However, securities that are convertible other than at the option of the holder generally do not limit the potential for loss to the same extent as securities convertible at the option of the holder. When the underlying common stocks rise in value, the value of convertible securities may also be expected to increase. At the same time, however, the difference between the market value of convertible securities and their conversion value will narrow, which means that the value of convertible securities will generally not increase to the same extent as the value of the underlying common stocks. Because convertible securities may also be interest-rate sensitive, their value may increase as interest rates fall and decrease as interest rates rise. Convertible securities are also subject to credit risk, and are often lower-quality securities. o MEDIUM CAPITALIZATION ISSUERS. Investing in equity securities of small and medium capitalization companies often involves greater risk than is customarily associated with investments in larger capitalization companies. This increased risk may be due to the greater business risks of smaller size, limited markets and financial resources, narrow product lines and frequent lack of depth of management. The securities of smaller companies are often traded in the over-the-counter market and even if listed on a national securities exchange may not be traded in volumes typical for that exchange. Consequently, the securities of smaller companies are S-4 less likely to be liquid, may have limited market stability, and may be subject to more abrupt or erratic market movements than securities of larger, more established growth companies or the market averages in general. EQUITY-LINKED SECURITIES. A Fund may invest in equity-linked securities, including, among others, PERCS, ELKS or LYONs, which are securities that are convertible into, or the value of which is based upon the value of, equity securities upon certain terms and conditions. The amount received by an investor at maturity of such securities is not fixed but is based on the price of the underlying common stock. It is impossible to predict whether the price of the underlying common stock will rise or fall. Trading prices of the underlying common stock will be influenced by the issuer's operational results, by complex, interrelated political, economic, financial or other factors affecting the capital markets, the stock exchanges on which the underlying common stock is traded and the market segment of which the issuer is a part. In addition, it is not possible to predict how equity-linked securities will trade in the secondary market. The market for such securities may be shallow, and high volume trades may be possible only with discounting. In addition to the foregoing risks, the return on such securities depends on the creditworthiness of the issuer of the securities, which may be the issuer of the underlying securities or a third party investment banker or other lender. The creditworthiness of such third party issuer equity-linked securities may, and often does, exceed the creditworthiness of the issuer of the underlying securities. The advantage of using equity-linked securities over traditional equity and debt securities is that the former are income producing vehicles that may provide a higher income than the dividend income on the underlying equity securities while allowing some participation in the capital appreciation of the underlying equity securities. Another advantage of using equity-linked securities is that they may be used for hedging to reduce the risk of investing in the generally more volatile underlying equity securities. The following are three examples of equity-linked securities. A Fund may invest in the securities described below or other similar equity-linked securities. o PERCS. Preferred Equity Redemption Cumulative Stock ("PERCS") technically is preferred stock with some characteristics of common stock. PERCS are mandatorily convertible into common stock after a period of time, usually three years, during which the investors' capital gains are capped, usually at 30%. Commonly, PERCS may be redeemed by the issuer at any time or if the issuer's common stock is trading at a specified price level or better. The redemption price starts at the beginning of the PERCS duration period at a price that is above the cap by the amount of the extra dividends the PERCS holder is entitled to receive relative to the common stock over the duration of the PERCS and declines to the cap price shortly before maturity of the PERCS. In exchange for having the cap on capital gains and giving the issuer the option to redeem the PERCS at any time or at the specified common stock price level, the Fund may be compensated with a substantially higher dividend yield than that on the underlying common stock. o ELKS. Equity-Linked Securities ("ELKS") differ from ordinary debt securities, in that the principal amount received at maturity is not fixed but is based on the price of the issuer's common stock. ELKS are debt securities commonly issued in fully registered form for a term of three years under an indenture trust. At maturity, the holder of ELKS will be entitled to receive a principal amount equal to the lesser of a cap amount, commonly in the range of 30% to 55% greater than the current price of the issuer's common stock, or the average closing price per share of the issuer's common stock, subject to adjustment as a result of certain dilution events, for the 10 trading days immediately prior to maturity. Unlike PERCS, ELKS are commonly not subject to redemption prior to maturity. ELKS usually bear interest during the three-year term at a substantially higher rate than the dividend yield on the underlying common stock. In exchange for having the cap on the return that might have been received as capital gains on the underlying common stock, the Fund may be compensated with the higher yield, contingent on how well the underlying common stock does. o LYONS. Liquid Yield Option Notes ("LYONS") differ from ordinary debt securities, in that the amount received prior to maturity is not fixed but is based on the price of the issuer's common stock. LYONs are zero-coupon notes that sell at a large discount from face value. For an investment in LYONs, the Fund will not receive any interest payments until the notes mature, typically in 15 to 20 years, when the notes are redeemed at face, or par value. The yield on LYONs, typically, is lower-than-market rate for debt securities of the same maturity, due in part to the fact that the LYONs are convertible into common stock of S-5 the issuer at any time at the option of the holder of the LYONs. Commonly, the LYONs are redeemable by the issuer at any time after an initial period or if the issuer's common stock is trading at a specified price level or better, or, at the option of the holder, upon certain fixed dates. The redemption price typically is the purchase price of the LYONs plus accrued original issue discount to the date of redemption, which amounts to the lower-than-market yield. The Fund will receive only the lower-than-market yield unless the underlying common stock increases in value at a substantial rate. LYONs are attractive to investors, like the Fund, when it appears that they will increase in value due to the rise in value of the underlying common stock. EURODOLLAR AND YANKEE DOLLAR 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 dollar obligations are U.S. dollar denominated obligations issued in the United States by foreign banks. FOREIGN SECURITIES. Foreign securities 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, Europaper and Yankee Certificates of Deposit, and investments in Canadian Commercial Paper and foreign securities. These instruments have investment risks that differ in some respects from those related to investments in obligations of U.S. domestic issuers. These 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. These 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. In making investment decisions for the Funds, the Adviser evaluates the risks associated with investing Fund assets in a particular country, including risks stemming from a country's financial infrastructure and settlement practices; the likelihood of expropriation, nationalization or confiscation of invested assets; prevailing or developing custodial practices in the country; the country's laws and regulations regarding the safekeeping, maintenance and recovery of invested assets, the likelihood of government-imposed exchange control restrictions which could impair the liquidity of Fund assets maintained with custodians in that country, as well as risks from political acts of foreign governments ("country risks"). Of course, the Adviser cannot assure that the Fund will not suffer losses resulting from investing in foreign countries. Holding Fund assets in foreign countries through specific foreign custodians presents additional risks, including, but not limited to, the risks that a particular foreign custodian or depository will not exercise proper care with respect to Fund assets or will not have the financial strength or adequate practices and procedures to properly safeguard Fund assets. By investing in foreign securities, the 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 International Equity Index, when included in appropriate amounts in a portfolio otherwise consisting of domestic securities, may provide a source of increased diversification. The International Equity, International Equity Index seek increased diversification by combining securities from various countries and geographic areas that offer different investment opportunities and are affected by different economic trends. The international investments of the International Equity, International Equity Index 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. S-6 Emerging countries are all countries that are considered to be developing or emerging countries by the World Bank or the International Finance Corporation, as well as countries classified by the United Nations or otherwise regarded by the international financial community as developing. Currently, the countries excluded from this category are Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Italy, Ireland, Japan, the Netherlands, New Zealand, Norway, Spain, Sweden, Switzerland, the United Kingdom and the United States. FORWARD FOREIGN CURRENCY CONTRACTS. Forward foreign currency contracts involve obligations 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 the foreign currency. A Fund may realize a gain or loss from currency transactions. FUTURES AND OPTIONS ON FUTURES. 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 will reduce the risk that it will be unable to close out a futures contract by only entering into futures contracts that are traded on a national futures exchange regulated by the Commodities Futures Trading Commission ("CFTC"). Consistent with CFTC regulations, a Fund may use futures contracts and related options for either (i) "BONA FIDE hedging purposes," as such term is defined by the CFTC, or (ii) for other risk management purposes only to the extent that the aggregate initial margin and premiums on such positions (excluding the amount by which options on futures contracts are in the money) do not exceed 5% of the Fund's net assets. Instances in which a Fund may use futures contracts and related options for risk management purposes (other than BONA FIDE hedging) include: attempting to offset changes in the value of securities held or expected to be acquired or be disposed of; attempting to minimize fluctuations in foreign currencies; attempting to gain exposure to a particular market, index or instrument; or other risk management purposes. An index futures contract is a bilateral agreement pursuant to which two parties agree to take or make delivery of an amount of cash equal to a specified dollar amount times the difference between the index value at the close of trading of the contract and the price at which the futures contract is originally struck. No physical delivery of the securities comprising the index is made; generally contracts are closed out prior to the expiration date of the contract. When a Fund purchases or sells a futures contract, or sells an option thereon, the Fund is required to "cover" its position in order to limit leveraging and related risks. To cover its position, a Fund may maintain with its custodian bank (and marked-to-market on a daily basis), a segregated account consisting of cash or liquid securities that, when added to any amounts deposited with a futures commission merchant as margin, are equal to the market value of the futures contract or otherwise "cover" its position in a manner consistent with the 1940 Act or the rules and SEC interpretations thereunder. The segregated account functions as a practical limit on the amount of leverage which the Fund may undertake and on the potential increase in the speculative character of the Fund's outstanding portfolio securities. Additionally, such segregated accounts will generally assure the availability of adequate funds to meet the obligations of the fund arising from such investment activities. A Fund may also cover its long position in a futures contract by purchasing a put option on the same futures contract with a strike price (i.e., an exercise price) as high or higher than the price of the futures contract. In the alternative, if the strike price of the put is less than the price of the futures contract, the Fund will maintain in a segregated account cash or liquid securities equal in value to the difference between the strike price of the put and the price of the futures contract. A Fund may also cover its long position in a futures contract by taking a short position in the instruments underlying the futures contract, or by taking positions in instruments with prices which are expected to move relatively consistently with the futures contract. A Fund may cover its short position in a futures contract by taking a long position in the instruments underlying the futures contracts, or by taking positions in instruments with prices which are expected to move relatively consistently with the futures contract. A Fund may cover its sale of a call option on a futures contract by taking a long position in the underlying futures contract at a price less than or equal to the strike price of the call option. In the alternative, if the long position in the underlying futures contract is established at a price greater than the strike price of the written (sold) call, the S-7 Fund will maintain in a segregated account cash or liquid securities equal in value to the difference between the strike price of the call and the price of the futures contract. A Fund may also cover its sale of a call option by taking positions in instruments with prices which are expected to move relatively consistently with the call option. A Fund may cover its sale of a put option on a futures contract by taking a short position in the underlying futures contract at a price greater than or equal to the strike price of the put option, or, if the short position in the underlying futures contract is established at a price less than the strike price of the written put, the fund will maintain in a segregated account cash or liquid securities equal in value to the difference between the strike price of the put and the price of the futures contract. A Fund may also cover its sale of a put option by taking positions in instruments with prices which are expected to move relatively consistently with the put option. There are significant risks associated with a Fund's use of futures contracts and related options, including the following: (1) the success of a hedging strategy may depend on the Adviser's 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 options on futures. In addition, some strategies reduce a Fund's exposure to price fluctuations, while others tend to increase its market exposure. GUARANTEED INVESTMENT CONTRACTS (GICS). 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. HEDGING TECHNIQUES. Hedging is an investment strategy designed to offset investment risks. Hedging activities include, among other things, the use of options and futures. There are risks associated with hedging activities, including: (i) 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; (ii) there may be an imperfect or no correlation between the changes in market value of the securities held by a Fund and the prices of futures and option on futures; (iii) there may not be a liquid secondary market for a futures contract or option; and (iv) trading restrictions or limitations may be imposed by an exchange, and government regulations may restrict trading in futures contracts and options. HIGH YIELD SECURITIES. High yield securities, commonly referred to as junk bonds, are debt obligations rated below investment grade, I.E., below BBB by S&P or Baa by Moody's, or their unrated equivalents. The risks associated with investing in high yield securities include: (i) High yield, lower rated 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. (ii) 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 these securities at their fair market values either to meet redemption requests, or in response to changes in the economy or the financial markets. (iii) 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. (iv) The market for high risk, high yield securities may be adversely affected by legislative and regulatory developments. HIGH YIELD FOREIGN SOVEREIGN DEBT SECURITIES. Investing in fixed and floating rate high yield foreign sovereign debt securities will expose the Fund to the direct or indirect consequences of political, social or economic changes S-8 in countries that issue the securities. The ability of a foreign sovereign obligor to make timely payments on its external debt obligations will also be strongly influenced by the obligor's balance of payments, including export performance, its access to international credits and investments, fluctuations in interest rates and the extent of its foreign reserves. A country whose exports are concentrated in a few commodities or whose economy depends on certain strategic imports could be vulnerable to fluctuations in international prices of these commodities or imports. To the extent that a country receives payment for its exports in currencies other than dollars, its ability to make debt payments denominated in dollars could be adversely affected. If a foreign sovereign obligor cannot generate sufficient earnings from foreign trade to service its external debt, it may need to depend on continuing loans and aid from foreign governments, commercial banks and multilateral organizations, and inflows of foreign investment. The commitment on the part of these foreign governments, multilateral organizations and others to make such disbursements may be conditioned on the government's implementation of economic reforms and/or economic performance and the timely service of its obligations. Failure to implement such reforms, achieve such levels of economic performance or repay principal or interest when due may result in the cancellation of such third parties' commitments to lend funds, which may further impair the obligor's ability or willingness to timely service its debts. ILLIQUID SECURITIES. Illiquid securities are securities that cannot be sold or disposed of in the ordinary course of business (within seven days) at approximately the prices at which they are valued. Because of their illiquid nature, illiquid securities must be priced at fair value as determined in good faith pursuant to procedures approved by the Trust's Board of Trustees. Despite such good faith efforts to determine fair value prices, the Fund's illiquid securities are subject to the risk that the security's fair value price may differ from the actual price which the Fund may ultimately realize upon its sale or disposition. Difficulty in selling illiquid securities may result in a loss or may be costly to a fund. Under the supervision of the Trust's Board of Trustees, the Adviser determines the liquidity of the Fund's investments. In determining the liquidity of the Fund's investments, the Adviser may consider various factors, including (1) the frequency and volume of trades and quotations, (2) the number of dealers and prospective purchasers in the marketplace, (3) dealer undertakings to make a market, and (4) the nature of the security and the market in which it trades (including any demand, put or tender features, the mechanics and other requirements for transfer, any letters of credit or other credit enhancement features, any ratings, the number of holders, the method of soliciting offers, the time required to dispose of the security, and the ability to assign or offset the rights and obligations of the security). A Fund will not invest more than 15% of its net assets in illiquid securities. INVESTMENT COMPANY SHARES. The Funds may invest in shares of other investment companies, to the extent permitted by applicable law and subject to certain restrictions. These investment companies typically incur fees that are separate from those fees incurred directly by the Funds. The Funds' 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, in addition to paying the Funds' expenses. Under applicable regulations, the Funds are prohibited from acquiring the securities of another investment company if, as a result of such acquisition: (1) the Funds own more than 3% of the total voting stock of the other company; (2) securities issued by any one investment company represent more than 5% of the Funds' total assets; or (3) securities (other than treasury stock) issued by all investment companies represent more than 10% of the total assets of the Funds. INVESTMENT GRADE OBLIGATIONS. Investment Grade Obligations are fixed income obligations rated by one or more of the rating agencies in one of the four highest rating categories at the time of purchase (e.g., AAA, AA, A or BBB by Standard & Poor's Ratings Group ("S&P") or Fitch, Inc. ("Fitch"), or Aaa, Aa, A or Baa by Moody's Investors Service, Inc. ("Moody's") or determined to be of equivalent quality by the Sub-Advsiers. Securities rated BBB or Baa represent the lowest of four levels of Investment Grade Obligations and are regarded as borderline between sound obligations and those in which the speculative element begins to predominate. Ratings assigned to fixed income securities represent only the opinion of the rating agency assigning the rating and are not dispositive of the credit risk associated with the purchase of a particular Fixed Income Obligation. Moreover, market risk also will affect the prices of even the highest rated fixed income obligation so that their prices may rise or fall even if the issuer's capacity to repay its obligation remains unchanged. S-9 LEVERAGED BUYOUTS. The Fund may invest in leveraged buyout limited partnerships and funds that, in turn, invest in leveraged buyout transactions ("LBOs"). An LBO, generally, is an acquisition of an existing business by a newly formed corporation financed largely with debt assumed by such newly formed corporation to be later repaid with funds generated from the acquired company. Since most LBOs are by nature highly leveraged (typically with debt to equity ratios of approximately 9 to 1), equity investments in LBOs may appreciate substantially in value given only modest growth in the earnings or cash flow of the acquired business. Investments in LBO partnerships and funds, however, present a number of risks. Investments in LBO limited partnerships and funds will normally lack liquidity and may be subject to intense competition from other LBO limited partnerships and funds. Additionally, if the cash flow of the acquired company is insufficient to service the debt assumed in the LBO, the LBO limited partnership or fund could lose all or part of its investment in such acquired company. 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. In a loan participation, the borrower corporation is 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 the 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 the 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. MONEY MARKET SECURITIES. Money market securities include short-term U.S. Government Securities; custodial receipts evidencing separately traded interest and principal components of securities issued by the U.S. Treasury; commercial paper rated in the highest short-term rating category by a nationally recognized statistical ratings organization ("NRSRO"), such as Standard & Poor's or Moody's, or determined by the Adviser to be of comparable quality at the time of purchase; short-term bank obligations (certificates of deposit, time deposits and bankers' acceptances) of U.S. commercial banks with assets of at least $1 billion as of the end of their most recent fiscal year; and repurchase agreements involving such securities. Each of these money market securities are described below. For a description of ratings, see the Appendix to this SAI. 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 30-year fixed rate mortgages, graduated payment mortgages, adjustable rate mortgages, and floating mortgages. Government Pass-Through Securities 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"), Fannie Mae, and the Federal Home Loan Mortgage Corporation ("FHLMC"). Fannie Mae and FHLMC obligations are not backed by the full faith and credit of the U.S. government as GNMA certificates are, but Fannie Mae and FHLMC securities are supported by the instrumentalities' right to borrow from the U.S. Treasury. GNMA, Fannie Mae, and FHLMC each guarantees timely distributions of interest to certificate holders. GNMA and Fannie Mae also guarantee timely distributions of scheduled principal. In the past, FHLMC has only guaranteed 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. Obligations of GNMA are backed by the full faith and credit of the U.S. government. Obligations of Fannie Mae and FHLMC are not backed by the full faith and credit of the U.S. government, but are considered to be of high S-10 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. Private Pass-Through Securities are mortgage-backed securities issued by a non-governmental agency, such as a trust. While they are generally structured with one or more types of credit enhancement, private pass-through securities generally lack a guarantee by an entity having the credit status of a governmental agency or instrumentality. The two principal types of private mortgage-backed securities are collateralized mortgage obligations ("CMOs") and real estate mortgage investment conduits ("REMICs"). 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). CMOs are rated in one of the two highest categories by S&P or Moody's and are issued with a number of classes or series which have different expected maturities. Investors purchasing such CMOs are credited with their portion of the scheduled payments of interest and principal on the underlying mortgages plus all unscheduled prepayments of principal based on a predetermined priority schedule. Accordingly, the CMOs in the longer maturity series are less likely than other mortgage pass-throughs to be prepaid prior to their stated maturity. Although some of the mortgages underlying CMOs may be supported by various types of insurance, and some CMOs may be backed by GNMA certificates or other mortgage pass-throughs issued or guaranteed by U.S. government agencies or instrumentalities, the CMOs themselves are not generally guaranteed. REMICs 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 and are rated in one of the two highest categories by S&P or Moody's. 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 Fannie Mae or FHLMC represent beneficial ownership interests in a REMIC trust consisting principally of mortgage loans or Fannie Mae, FHLMC or GNMA-guaranteed mortgage pass-through certificates. For FHLMC REMIC Certificates, FHLMC guarantees the timely payment of interest. GNMA REMIC Certificates are backed by the full faith and credit of the U.S. government. Stripped Mortgage-Backed Securities 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. S-11 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. 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 Adviser believes that the estimated average life is the most appropriate measure of the maturity of a mortgage-backed security. Accordingly, in order to determine whether such security is a permissible investment for a Fund, it will be deemed to have a remaining maturity equal to its average life as estimated by the Adviser. An average life estimate is a function of an assumption regarding anticipated prepayment patterns. The assumption is based upon current interest rates, current conditions in the relevant housing markets and other factors. The assumption is necessarily subjective, and thus different market participants could produce somewhat different average life estimates with regard to the same security. There can be no assurance that the average life as estimated by the Adviser will be the 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 (see "When-Issued Securities and Municipal Forwards" for more information). 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. MUNICIPAL SECURITIES. Municipal bonds include general obligation bonds, revenue or special obligation bonds, private activity and industrial development bonds and participation interests in municipal bonds. 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 (for example, tolls from a bridge). 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 totally dependent 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 the payment. Municipal notes 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 investment by S&P, or (iv) which, if not rated by S&P or Moody's, are in the Adviser's judgment, 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 Adviser 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. Private activity bonds are issued by or on behalf of states, or political subdivisions thereof, to finance privately owned or operated facilities for business and manufacturing, housing, sports, and pollution control, and to finance S-12 activities of and facilities for charitable institutions. Private activity bonds are also used to finance public facilities such as airports, mass transit systems, ports parking and low-income housing. The payment of the principal and interest on private activity bonds is dependent solely on the ability of the facility's user to meet its financial obligations and may be secured by a pledge of real and personal property so financed. Investments in 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 Adviser's opinion, be equivalent to the long-term bond or commercial paper ratings stated above. The Adviser 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 Adviser 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. The Adviser has the authority to 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 in order to meet redemptions and remain as fully invested as possible in municipal securities. The right to put the securities depends on the writer's ability to pay for the securities at the time the put is exercised. The Funds will limit their put transactions to those with institutions which the Adviser believes present minimum credit risks, and the Adviser will use its best efforts to initially determine and thereafter monitor the financial strength of the put providers 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 where adequate current financial information is not available. In the event that any writer is unable to honor a put for financial reasons, the affected Fund would be a general creditor (I.E., on parity with all other unsecured creditors) of the writer. Furthermore, particular provisions of the contract between a Fund and the writer may excuse the writer from repurchasing the securities in certain circumstances (for example, a change in the published rating of the underlying municipal securities or any similar event that has an adverse effect on the issuer's credit); or a provision in the contract may provide that the put will not be exercised except in certain special cases, for example, to maintain portfolio liquidity. A Fund could, however, 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. Municipal 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. Sale of the securities to third parties or lapse of time with the put unexercised may terminate the right to put the securities. Prior to the expiration of any put option, a Fund could seek to negotiate terms for the extension of such an option. If such a renewal cannot be negotiated on terms satisfactory to a Fund, the 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 Funds may purchase subject to a put. For the purpose of determining the "maturity" of securities purchased subject to an option to put, and for the purpose of determining the dollar-weighted average maturity of the Funds including such securities, the Trust will consider "maturity" to be the first date on which it has the right to demand payment from the writer of the put although the final maturity of the security is later than such date. Other types of tax-exempt instruments which are permissible investments 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 Adviser's opinion, be equivalent to the long-term bond or commercial paper ratings stated above. The Adviser will monitor the earning power, cash flow and liquidity ratios of the issuers of S-13 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 a Fund's investment limitations restricting its 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 issuance. Neither the Funds nor the Adviser will review the proceedings relating to the issuance of municipal securities or the basis for such opinions. NON-PUBLICLY TRADED SECURITIES; RULE 144A SECURITIES. The Fund may purchase securities that are not registered under the Securities Act of 1933, as amended (the "1933 Act"), but that can be sold to "qualified institutional buyers" in accordance with Rule 144A under the 1933 Act ("Rule 144A Securities"). An investment in Rule 144A Securities will be considered illiquid and therefore subject to the Fund's limitation on the purchase of illiquid securities (usually 15% of a fund's net assets, 10% for the money market funds), unless the Fund's governing Board of Trustees determines on an ongoing basis that an adequate trading market exists for the security. In addition to an adequate trading market, the Board of Trustees will also consider factors such as trading activity, availability of reliable price information and other relevant information in determining whether a Rule 144A Security is liquid. This investment practice could have the effect of increasing the level of illiquidity in the Fund to the extent that qualified institutional buyers become uninterested for a time in purchasing Rule 144A Securities. The Board of Trustees will carefully monitor any investments by the Fund in Rule 144A Securities. The Board of Trustees may adopt guidelines and delegate to the Adviser the daily function of determining and monitoring the liquidity of Rule 144A Securities, although the Board of Trustees will retain ultimate responsibility for any determination regarding liquidity. Non-publicly traded securities (including Rule 144A Securities) may involve a high degree of business and financial risk and may result in substantial losses. These securities may be less liquid than publicly traded securities, and the Fund may take longer to liquidate these positions than would be the case for publicly traded securities. Although these securities may be resold in privately negotiated transactions, the prices realized on such sales could be less than those originally paid by the Fund. Further, companies whose securities are not publicly traded may not be subject to the disclosure and other investor protection requirements applicable to companies whose securities are publicly traded. The Fund's investments in illiquid securities are subject to the risk that should the Fund desire to sell any of these securities when a ready buyer is not available at a price that is deemed to be representative of their value, the value of the Fund's net assets could be adversely affected. OBLIGATIONS OF DOMESTIC BANKS, FOREIGN BANKS AND FOREIGN BRANCHES OF U.S. BANKS. A Fund may invest in obligations issued by banks and other savings institutions. Investments in bank obligations include obligations of domestic branches of foreign banks and foreign branches of domestic banks. Such investments in domestic branches of foreign banks and foreign branches of domestic banks may involve risks that are different from investments in securities of domestic branches of U.S. banks. These risks may include future unfavorable political and economic developments, possible withholding taxes on interest income, seizure or nationalization of foreign deposits, currency controls, interest limitations, or other governmental restrictions which might affect the payment of principal or interest on the securities held by a Fund. Additionally, these institutions may be subject to less stringent reserve requirements and to different accounting, auditing, reporting and recordkeeping requirements than those applicable to domestic branches of U.S. banks. The Funds may invest in U.S. dollar-denominated obligations of domestic branches of foreign banks and foreign branches of domestic banks only when the Adviser believes that the risks associated with such investment are minimal and that all applicable quality standards have been satisfied. Bank obligations include the following: S-14 o BANKERS' ACCEPTANCES. Bankers' acceptances are bills of exchange or time drafts drawn on and accepted by a commercial bank. Corporations use bankers' acceptances to finance the shipment and storage of goods and to furnish dollar exchange. Maturities are generally six months or less. o 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. o 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 with a withdrawal penalty or that mature in more than seven days are considered to be illiquid securities. OPTIONS. A Fund may purchase and write put and call options on securities or securities indices (traded on U.S. exchanges or over-the-counter markets) and enter into related closing transactions. A put option on a security gives the purchaser of the option the right to sell, and the writer of the option the obligation to buy, the underlying security at any time during the option period. A call option on a security gives the purchaser of the option the right to buy, and the writer of the option the obligation to sell, the underlying security at any time during the option period. The premium paid to the writer is the consideration for undertaking the obligations under the option contract. Put and call options on indices are similar to options on securities except that options on an index give the holder the right to receive, upon exercise of the option, an amount of cash if the closing level of the underlying index is greater than (or less than, in the case of puts) the exercise price of the option. This amount of cash is equal to the difference between the closing price of the index and the exercise price of the option, expressed in dollars multiplied by a specified number. Thus, unlike options on individual securities, all settlements are in cash, and gain or loss depends on price movements in the particular market represented by the index generally, rather than the price movements in individual securities. The initial purchase (sale) of an option contract is an "opening transaction." In order to close out an option position, a Fund may enter into a "closing transaction," which is simply the sale (purchase) of an option contract on the same security with the same exercise price and expiration date as the option contract originally opened. If a Fund is unable to effect a closing purchase transaction with respect to an option it has written, it will not be able to sell the underlying security until the option expires or the Fund delivers the security upon exercise. A Fund may purchase and write options on an exchange or over-the-counter. Over-the-counter options ("OTC options") differ from exchange-traded options in several respects. They are transacted directly with dealers and not with a clearing corporation, and therefore entail the risk of non-performance by the dealer. OTC options are available for a greater variety of securities and for a wider range of expiration dates and exercise prices than are available for exchange-traded options. Because OTC options are not traded on an exchange, pricing is done normally by reference to information from a market maker. It is the SEC's position that OTC options are generally illiquid. The market value of an option generally reflects the market price of an underlying security. Other principal factors affecting market value include supply and demand, interest rates, the pricing volatility of the underlying security and the time remaining until the expiration date. The Fund must cover all options it writes. For example, when a Fund writes an option on a security, index or foreign currency, it will segregate or earmark liquid assets with the Fund's custodian in an amount at least equal to the market value of the option and will maintain such coverage while the option is open. A Fund may otherwise cover the transaction by means of an offsetting transaction or other means permitted by the 1940 Act or the rules and SEC interpretations thereunder. Each Fund may trade put and call options on securities, securities indices or currencies, as the investment adviser or sub-adviser determines is appropriate in seeking the Fund's investment objective. For example, a Fund may S-15 purchase put and call options on securities or indices to protect against a decline in the market value of the securities in its portfolio or to anticipate an increase in the market value of securities that the Fund may seek to purchase in the future. A Fund purchasing put and call options pays a premium therefor. If price movements in the underlying securities are such that exercise of the options would not be profitable for the Fund, loss of the premium paid may be offset by an increase in the value of the Fund's securities or by a decrease in the cost of acquisition of securities by the Fund. In another instance, a Fund may write covered call options on securities as a means of increasing the yield on its assets and as a means of providing limited protection against decreases in its market value. When a Fund writes an option, if the underlying securities do not increase or decrease to a price level that would make the exercise of the option profitable to the holder thereof, the option generally will expire without being exercised and the Fund will realize as profit the premium received for such option. When a call option written by the Fund is exercised, the Fund will be required to sell the underlying securities to the option holder at the strike price, and will not participate in any increase in the price of such securities above the strike price. When a put option written by the Fund is exercised, the Fund will be required to purchase the underlying securities at a price in excess of the market value of such securities. There are significant risks associated with a Fund's use of options, including the following: (1) the success of a hedging strategy may depend on the Adviser's 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 movement in prices of options held by the Fund and the securities underlying them; (3) there may not be a liquid secondary market for options; and (4) while a Fund will receive a premium when it writes covered call options, it may not participate fully in a rise in the market value of the underlying security. OTHER INVESTMENTS. The Funds are not prohibited from investing in bank obligations issued by clients of SEI Investments Company ("SEI Investments"), the parent company of the Administrator and the Distributor. The purchase of Fund shares by these banks or their customers will not be a consideration in deciding which bank obligations the Funds will purchase. The Funds will not purchase obligations issued by the Adviser. PARALLEL PAY SECURITIES; PAC BONDS. Parallel pay CMOs and REMICs are structured to provide payments of principal on each payment date to more than one class. These simultaneous payments are taken into account in calculating the stated maturity date or final distribution date of each class, which must be retired by its stated maturity date or final distribution date, but may be retired earlier. Planned Amortization Class CMOs ("PAC Bonds") generally require payments of a specified amount of principal on each payment date. PAC Bonds are always parallel pay CMOs with the required principal payment on such securities having the highest priority after interest has been paid to all classes. PAY-IN-KIND SECURITIES. Pay-In-Kind securities are debt obligations or preferred stock, that pay interest or dividends in the form of additional debt obligations or preferred stock. REAL ESTATE INVESTMENT TRUSTS. A REIT is a corporation or business trust (that would otherwise be taxed as a corporation) which meets the definitional requirements of the Code. The Code permits a qualifying REIT to deduct from taxable income the dividends paid, thereby effectively eliminating corporate level federal income tax and making the REIT a pass-through vehicle for federal income tax purposes. To meet the definitional requirements of the Code, a REIT must, among other things: invest substantially all of its assets in interests in real estate (including mortgages and other REITs), cash and government securities; derive most of its income from rents from real property or interest on loans secured by mortgages on real property; and distribute annually 95% or more of its otherwise taxable income to shareholders. REITs are sometimes informally characterized as Equity REITs and Mortgage REITs. An Equity REIT invests primarily in the fee ownership or leasehold ownership of land and buildings; a Mortgage REIT invests primarily in mortgages on real property, which may secure construction, development or long-term loans. REITs in which the Portfolio invests may be affected by changes in underlying real estate values, which may have an exaggerated effect to the extent that REITs in which the Portfolio invests may concentrate investments in particular geographic regions or property types. Additionally, rising interest rates may cause investors in REITs to S-16 demand a higher annual yield from future distributions, which may in turn decrease market prices for equity securities issued by REITs. Rising interest rates also generally increase the costs of obtaining financing, which could cause the value of the Portfolio's investments to decline. During periods of declining interest rates, certain Mortgage REITs may hold mortgages that the mortgagors elect to prepay, which prepayment may diminish the yield on securities issued by such Mortgage REITs. In addition, Mortgage REITs may be affected by the ability of borrowers to repay when due the debt extended by the REIT and Equity REITs may be affected by the ability of tenants to pay rent. Certain REITs have relatively small market capitalization, which may tend to increase the volatility of the market price of securities issued by such REITs. Furthermore, REITs are dependent upon specialized management skills, have limited diversification and are, therefore, subject to risks inherent in operating and financing a limited number of projects. By investing in REITs indirectly through the Portfolio, a shareholder will bear not only his proportionate share of the expenses of the Portfolio, but also, indirectly, similar expenses of the REITs. REITs depend generally on their ability to generate cash flow to make distributions to shareholders. In addition to these risks, Equity REITs may be affected by changes in the value of the underlying property owned by the trusts, while Mortgage REITs may be affected by the quality of any credit extended. Further, Equity and Mortgage REITs are dependent upon management skills and generally may not be diversified. Equity and Mortgage REITs are also subject to heavy cash flow dependency defaults by borrowers and self-liquidation. In addition, Equity and Mortgage REITs could possibly fail to qualify for tax free pass-through of income under the Code or to maintain their exemptions from registration under the Investment Company Act of 1940, as amended (the "1940 Act"). The above factors may also adversely affect a borrower's or a lessee's ability to meet its obligations to the REIT. In the event of default by a borrower or lessee, the REIT may experience delays in enforcing its rights as a mortgagee or lessor and may incur substantial costs associated with protecting its investments. REAL ESTATE SECURITIES. The Portfolio may be subject to the risks associated with the direct ownership of real estate because of its policy of concentration in the securities of companies principally engaged in the real estate industry. For example, real estate values may fluctuate as a result of general and local economic conditions, overbuilding and increased competition, increases in property taxes and operating expenses, demographic trends and variations in rental income, changes in zoning laws, casualty or condemnation losses, regulatory limitations on rents, changes in neighborhood values, related party risks, changes in how appealing properties are to tenants, changes in interest rates and other real estate capital market influences. The value of securities of companies which service the real estate business sector may also be affected by such risks. Because the Portfolio may invest a substantial portion of its assets in REITs, the Portfolio may also be subject to certain risks associated with the direct investments of the REITs. REITs may be affected by changes in the value of their underlying properties and by defaults by borrowers or tenants. Mortgage REITs may be affected by the quality of the credit extended. Furthermore, REITs are dependent on specialized management skills. Some REITs may have limited diversification and may be subject to risks inherent in financing a limited number of properties. REITs depend generally on their ability to generate cash flow to make distributions to shareholders or unitholders, and may be subject to defaults by borrowers and to self-liquidations. In addition, the performance of a REIT may be affected by its failure to qualify for tax-free pass-through of income under the Code or its failure to maintain exemption from registration under the 1940 Act. Changes in prevailing interest rates may inversely affect the value of the debt securities in which the Portfolio will invest. Changes in the value of portfolio securities will not necessarily affect cash income derived from these securities but will affect the Portfolio's net asset value. Generally, increases in interest rates will increase the costs of obtaining financing which could directly and indirectly decrease the value of the Portfolio's investments. REPURCHASE AGREEMENTS. A Fund may enter into repurchase agreements with financial institutions. The Funds each follow certain procedures designed to minimize the risks inherent in such agreements. These procedures include effecting repurchase transactions only with creditworthy financial institutions whose condition will be continually monitored by the Adviser. The repurchase agreements entered into by a Fund will provide that the underlying collateral at all times shall have a value at least equal to 102% of the resale price stated in the agreement (the Adviser monitors compliance with this requirement). Under all repurchase agreements entered into by a Fund, the custodian or its agent must take possession of the underlying collateral. In the event of a default or bankruptcy by a selling financial institution, a Fund will seek to liquidate such collateral. However, the exercising of each S-17 Fund's right to liquidate such collateral could involve certain costs or delays and, to the extent that proceeds from any sale upon a default of the obligation to repurchase were less than the repurchase price, the Fund could suffer a loss. It is the current policy of each of the Funds, not to invest in repurchase agreements that do not mature within seven days if any such investment, together with any other illiquid assets held by that Fund, amounts to more than 15% of the Fund's total assets. The investments of each of the Funds in repurchase agreements, at times, may be substantial when, in the view of the Adviser, liquidity or other considerations so warrant. RESOURCE RECOVERY BONDS. The Virginia Tax-Free Money Market Fund and the municipal bond funds may purchase resource recovery bonds, which are a type of revenue bond issued to build facilities such as solid waste incinerators or waste-to-energy plants. Typically, a private corporation will be involved, at least during the construction phase, and the revenue stream will be secured by fees or rents paid by municipalities for use of the facilities. The viability of a resource recovery project, environmental protection regulations, and project operator tax incentives may affect the value and credit quality of resource recovery bonds. RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS. Investments by a money market fund are subject to limitations imposed under regulations adopted by the SEC. Under these regulations, money market funds may acquire only 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 NRSROs (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"). In the case of taxable money market funds, investments in second tier securities are subject to further constraints in that (i) no more than 5% of a money market 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 money market fund's total assets or $1 million. A taxable money market fund may not purchase securities of any issuer (except securities issued or guaranteed by the U.S. government, its agencies of instrumentalities) if, as a result, more than 5% of the total assets of the Fund would be invested the securities of one issuer. 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). SECURITIES LENDING. Each Fund may lend portfolio securities to brokers, dealers and other financial organizations that meet capital and other credit requirements or other criteria established by the Fund's Board of Trustees. These loans, if and when made, may not exceed 33 1/3% of the total asset value of the Fund (including the loan collateral). No Fund will lend portfolio securities to its investment adviser, sub-adviser or their affiliates unless it has applied for and received specific authority to do so from the SEC. Loans of portfolio securities will be fully collateralized by cash, letters of credit or U.S. Government Securities, and the collateral will be maintained in an amount equal to at least 100% of the current market value of the loaned securities by marking to market daily. Any gain or loss in the market price of the securities loaned that might occur during the term of the loan would be for the account of the Fund. The Fund may pay a part of the interest earned from the investment of collateral, or other fee, to an unaffiliated third party for acting as the Fund's securities lending agent. By lending its securities, a Fund may increase its income by receiving payments from the borrower that reflect the amount of any interest or any dividends payable on the loaned securities as well as by either investing cash collateral received from the borrower in short-term instruments or obtaining a fee from the borrower when U.S. Government Securities or letters of credit are used as collateral. Each Fund will adhere to the following conditions whenever its portfolio securities are loaned: (i) the Fund must receive at least 100% cash collateral or equivalent securities of the type discussed in the preceding paragraph from the borrower; (ii) the borrower must increase such collateral whenever the market value of the securities rises above the level of such collateral; (iii) the Fund must be able to terminate the loan on demand; (iv) the Fund must receive reasonable interest on the loan, as well as any dividends, interest or other distributions on the loaned securities and any increase in market value; (v) the Fund may pay only reasonable fees in connection with the loan (which fees may include fees payable to the lending agent, the borrower, the Fund's administrator and the custodian); and (vi) voting rights on the loaned securities may pass to the borrower, provided, however, that if a material event adversely affecting the investment occurs, the Fund must terminate the loan and regain the right to vote the securities. The Board has adopted procedures reasonably designed to ensure that the foregoing criteria will be met. Loan agreements involve certain risks in the event of S-18 default or insolvency of the borrower, including possible delays or restrictions upon a Fund's ability to recover the loaned securities or dispose of the collateral for the loan, which could give rise to loss because of adverse market action, expenses and/or delays in connection with the disposition of the underlying securities. SHORT SALES. As consistent with the Funds' investment objectives, the Funds may engage in short sales that are either "uncovered" or "against the box." A short sale is "against the box" if at all times during which the short position is open, the Funds own at least an equal amount of the securities or securities convertible into, or exchangeable without further consideration for, securities of the same issue as the securities that are sold short. A short sale "against-the-box" is a taxable transaction to the Fund with respect to the securities that are sold short. Uncovered short sales are transactions under which the Funds sell a security they do not own. To complete such a transaction, the Funds must borrow the security to make delivery to the buyer. The Funds then are obligated to replace the security borrowed by purchasing the security at the market price at the time of the replacement. The price at such time may be more or less than the price at which the security was sold by the Funds. Until the security is replaced, the Funds are required to pay the lender amounts equal to any dividends or interest that accrue during the period of the loan. To borrow the security, the Funds also may be required to pay a premium, which would increase the cost of the security sold. The proceeds of the short sale will be retained by the broker, to the extent necessary to meet margin requirements, until the short position is closed out. Until the Funds close their short position or replace the borrowed security, the Funds will: (a) maintain a segregated account containing cash or liquid securities at such a level that (i) the amount deposited in the account plus the amount deposited with the broker as collateral will equal the current value of the security sold short; and (ii) the amount deposited in the segregated account plus the amount deposited with the broker as collateral will not be less than the market value of the security at the time the security was sold short, or (b) otherwise cover the Funds' short positions. SHORT-TERM OBLIGATIONS. Short-term obligations are debt obligations maturing (becoming payable) in 397 days or less, including commercial paper and short-term corporate obligations. Short-term corporate obligations are short-term obligations issued by corporations. STANDBY COMMITMENTS AND PUTS. The 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 Adviser believes present minimal credit risks, and the Adviser 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 S-19 maturity of the underlying security will generally be different from that of the put. There will be no limit to the percentage of portfolio securities that the Fund may purchase subject to a standby commitment or put, but the amount paid directly or indirectly for all standby commitments or puts which are not integral parts of the security as originally issued held in the Fund will not exceed one-half of 1% of the value of the total assets of such Fund calculated immediately after any such put is acquired. STRIPS. Separately Traded Interest and Principal Securities ("STRIPS") are component parts of U.S. Treasury securities traded through the Federal Book-Entry System. An Adviser 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 Adviser 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 Adviser 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. STRUCTURED INVESTMENTS. Structured Investments are derivatives in the form of a unit or units representing an undivided interest(s) in assets held in a trust that is not an investment company as defined in the Investment Company Act of 1940. A trust unit pays a return based on the total return of securities and other investments held by the trust and the trust may enter into one or more swaps to achieve its objective. For example, a trust may purchase a basket of securities and agree to exchange the return generated by those securities for the return generated by another basket or index of securities. The Fund will purchase structured investments in trusts that engage in such swaps only where the counterparties are approved by the Adviser in accordance with credit-risk guidelines established by the Board of Trustees. STRUCTURED NOTES. Notes are derivatives where the amount of principal repayment and or interest payments is based upon the movement of one or more factors. These factors include, but are not limited to, currency exchange rates, interest rates (such as the prime lending rate and LIBOR) and stock indices such as the S&P 500 Index. In some cases, the impact of the movements of these factors may increase or decrease through the use of multipliers or deflators. The use of structured notes allows the Fund to tailor its investments to the specific risks and returns the Adviser wishes to accept while avoiding or reducing certain other risks. SUPRANATIONAL AGENCY OBLIGATIONS. Supranational agency obligations are obligations of supranational entities established through the joint participation of several governments, including the Asian Development Bank, Inter-American Development Bank, International Bank for Reconstruction and Development (also known as the "World Bank"), African Development Bank, European Union, European Investment Bank, and the Nordic Investment Bank. SWAP AGREEMENTS. The Funds may enter into equity index or interest rate swap agreements for purposes of attempting to gain exposure to the stocks making up an index of securities in a market without actually purchasing those stocks, or to hedge a position. Swap agreements are two-party contracts entered into primarily by institutional investors for periods ranging from a day to more than one-year. In a standard "swap" transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or instruments. The gross returns to be exchanged or "swapped" between the parties are calculated with respect to a "notional amount," I.E., the return on or increase in value of a particular dollar amount invested in a "basket" of securities representing a particular index. Forms of swap agreements include interest rate caps, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates exceed a specified rate, or "cap," interest rate floors, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates fall below a specified level, or "floor;" and interest rate dollars, under which a party sells a cap and purchases a floor or vice versa in an attempt to protect itself against interest rate movements exceeding given minimum or maximum levels. Most swap agreements entered into by the Funds calculate the obligations of the parties to the agreement on a "net basis." Consequently, a Fund's current obligations (or rights) under a swap agreement will generally be equal only to the net amount to be paid or received under the agreement based on the relative values of the positions held by each party to the agreement (the "net amount"). S-20 A Fund's current obligations under a swap agreement will be accrued daily (offset against any amounts owing to the Fund) and any accrued but unpaid net amounts owed to a swap counterparty will be covered by segregating assets determined to be liquid. Obligations under swap agreements so covered will not be construed to be "senior securities" for purposes of a Fund's investment restriction concerning senior securities. Because they are two party contracts and because they may have terms of greater than seven days, swap agreements may be considered to be illiquid for the Fund's illiquid investment limitations. A Fund will not enter into any swap agreement unless the Adviser believes that the other party to the transaction is creditworthy. A Fund bears the risk of loss of the amount expected to be received under a swap agreement in the event of the default or bankruptcy of a swap agreement counterparty. Each Fund may enter into swap agreements to invest in a market without owning or taking physical custody of securities in circumstances in which direct investment is restricted for legal reasons or is otherwise impracticable. The counterparty to any swap agreement will typically be a bank, investment banking firm or broker/dealer. The counter-party will generally agree to pay the Fund the amount, if any, by which the notional amount of the swap agreement would have increased in value had it been invested in the particular stocks, plus the dividends that would have been received on those stocks. The Fund will agree to pay to the counter-party a floating rate of interest on the notional amount of the swap agreement plus the amount, if any, by which the notional amount would have decreased in value had it been invested in such stocks. Therefore, the return to the Fund on any swap agreement should be the gain or loss on the notional amount plus dividends on the stocks less the interest paid by the Fund on the notional amount. Swap agreements typically are settled on a net basis, which means that the two payment streams are netted out, with the Fund receiving or paying, as the case may be, only the net amount of the two payments. Payments may be made at the conclusion of a swap agreement or periodically during its term. Swap agreements do not involve the delivery of securities or other underlying assets. Accordingly, the risk of loss with respect to swap agreements is limited to the net amount of payments that a Fund is contractually obligated to make. If the other party to a swap agreement defaults, a Fund's risk of loss consists of the net amount of payments that such Fund is contractually entitled to receive, if any. The net amount of the excess, if any, of a Fund's obligations over its entitlements with respect to each equity swap will be accrued on a daily basis and an amount of cash or liquid assets, having an aggregate net asset value at least equal to such accrued excess will be maintained in a segregated account by a Fund's custodian. In as much as these transactions are entered into for hedging purposes or are offset by segregated cash of liquid assets, as permitted by applicable law, the Funds and their Adviser believe that these transactions do not constitute senior securities under the 1940 Act and, accordingly, will not treat them as being subject to a Fund's borrowing restrictions. The swap market has grown substantially in recent years with a large number of banks and investment banking firms acting both as principals and as agents utilizing standardized swap documentation. As a result, the swap market has become relatively liquid in comparison with the markets for other similar instruments, which are traded in the over-the-counter market. The Adviser, under the supervision of the Board of Trustees, is responsible for determining and monitoring the liquidity of Fund transactions in swap agreements. The use of equity swaps is a highly specialized activity, which involves investment techniques and risks different from those associated with ordinary portfolio securities transactions. TRACKING ERROR . The following factors may affect the ability of the Funds to achieve correlation with the performance of their respective benchmarks: (1) Fund expenses, including brokerage (which may be increased by high portfolio turnover); (2) a Fund holding less than all of the securities in the benchmark and/or securities not included in the benchmark; (3) an imperfect correlation between the performance of instruments held by a Fund, such as futures contracts and options, and the performance of the underlying securities in the market; (4) bid-ask spreads (the effect of which may be increased by portfolio turnover); (5) a Fund holding instruments traded in a market that has become illiquid or disrupted; (6) Fund share prices being rounded to the nearest cent; (7) changes to the index hedged that are not disseminated in advance; (8) the need to conform a Fund's portfolio holdings to comply with investment restrictions or policies or regulatory or tax law requirements. In addition, the Adviser's use of hedging techniques will cause the Funds' performance to diverge from that of its respective index at times when hedges are employed. S-21 U.S. GOVERNMENT SECURITIES. Examples of types of U.S. Government obligations in which the Profile Series may invest include U.S. Treasury Obligations and the obligations of U.S. Government Agencies such as Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, the Federal Housing Administration, Farmers Home Administration, Export-Import Bank of the United States, Small Business Administration, Federal National Mortgage Association, Government National Mortgage Association, General Services Administration, Student Loan Marketing Association, Central Bank for Cooperatives, Freddie Mac (formerly Federal Home Loan Mortgage Corporation), Federal Intermediate Credit Banks, Maritime Administration, and other similar agencies. Whether backed by the full faith and credit of the U.S. Treasury or not, U.S. Government Securities are not guaranteed against price movements due to fluctuating interest rates. o 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 Treasury Receipts ("TRs"). o RECEIPTS. Interests in separately traded interest and principal component parts of U.S. Government obligations that are issued by banks or brokerage firms and are created by depositing U.S. Government 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. TRs and STRIPS are interests in accounts sponsored by the U.S. Treasury. Receipts are sold as zero coupon securities. o ZERO COUPON OBLIGATIONS. Zero coupon obligations are debt obligations that do not bear any interest, but instead are issued at a deep discount from face value or par. The value of a zero coupon obligation increases over time to reflect the interest accumulated. These obligations will not result in the payment of interest until maturity, and will have greater price volatility than similar securities that are issued at face value or par and pay interest periodically. Investors will receive written notification at least thirty days prior to any change in a Fund's investment objective. The phrase "primarily invests" as used in the prospectuses means that the Fund invests at least 65% of its assets in the securities as described in the sentence. Each tax-exempt fund invests at least 80% of its total assets in securities with income exempt from federal income and alternative minimum taxes. o U.S. GOVERNMENT ZERO COUPON SECURITIES. STRIPS and receipts are sold as zero coupon securities, that is, fixed income securities that have been stripped of their unmatured interest coupons. Zero coupon securities are sold at a (usually substantial) discount and redeemed at face value at their maturity date without interim cash payments of interest or principal. The amount of this discount is accreted over the life of the security, and the accretion constitutes the income earned on the security for both accounting and tax purposes. Because of these features, the market prices of zero coupon securities are generally more volatile than the market prices of securities that have similar maturity but that pay interest periodically. Zero coupon securities are likely to respond to a greater degree to interest rate changes than are non-zero coupon securities with similar maturity and credit qualities. o U.S. GOVERNMENT AGENCIES. Some obligations issued or guaranteed by agencies of the U.S. Government are supported by the full faith and credit of the U.S. Treasury, others are supported by the right of the issuer to borrow from the Treasury, while still others are supported only by the credit of the instrumentality. 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 a Fund's shares. VARIABLE AND FLOATING RATE INSTRUMENTS. Certain of the obligations purchased by the Funds may carry variable or floating rates of interest, may involve a conditional or unconditional demand feature and may include variable amount master demand notes. Such instruments bear interest at rates that 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 S-22 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 securities. VARIABLE RATE MASTER DEMAND NOTES. Variable rate master demand 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 Adviser, be equivalent to the ratings applicable to permitted investments for the particular Fund. The Adviser 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. Variable rate master demand notes may or may not be backed by bank letters of credit. VENTURE CAPITAL. The Fund may invest in venture capital limited partnerships and venture capital funds that, in turn, invest principally in securities of early stage, developing companies. Investments in venture capital limited partnerships and venture capital funds present a number of risks not found in investing in established enterprises including the facts that such a partnership's or fund's portfolio will be composed almost entirely of early-stage companies that may lack depth of management and sufficient resources, that may be marketing a new product for which there is no established market, and that may be subject to intense competition from larger companies. Any investment in a venture capital limited partnership or venture capital fund will lack liquidity, will be difficult to value, and the Fund will not be entitled to participate in the management of the partnership or fund. If for any reason the services of the general partners of a venture capital limited partnership were to become unavailable, such limited partnership could be adversely affected. In addition to investing in venture capital limited partnerships and venture capital funds, the Fund may directly invest in early-stage, developing companies. The risks associated with investing in these securities are substantially similar to the risks set forth above. The Fund will typically purchase equity securities in these early-stage, developing companies; however from time to time, the Fund may purchase non-investment grade debt securities in the form of convertible notes. Such investments involve costs at the venture capital level which are in addition to those of the Fund. 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. To the extent required by the 1940 Act, a Fund will maintain with the custodian a separate account with liquid high-grade debt securities or cash in an amount at least equal to these commitments. The interest rate realized on these securities is fixed as of the purchase date and no interest accrues to the Fund before settlement. These securities are subject to market fluctuation due to changes in market interest rates and it is possible that the market value at the time of settlement could be higher or lower than the purchase price if the general level of interest rates has changed. Although a Fund generally purchases securities on a when-issued or forward commitment basis with the intention of actually acquiring securities for its portfolio, the Fund may dispose of a when-issued security or forward commitment prior to settlement if deems it appropriate. WHEN-ISSUED SECURITIES AND MUNICIPAL FORWARDS. When-issued securities are securities that are delivered and paid for normally within 45 days after the date of commitment to purchase. Municipal forwards call for delivery of the underlying municipal security normally after 45 days but before 1 year after the commitment date. Although a Fund will only make commitments to purchase when-issued securities and municipal forwards with the intention of actually acquiring the securities, a Fund 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 S-23 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. INVESTMENT LIMITATIONS FUNDAMENTAL POLICIES The following investment limitations are fundamental policies of the Funds. Fundamental policies cannot be changed without the consent of the holders of a majority of each Fund's outstanding shares. The term "majority of the outstanding shares" means the vote of (i) 67% or more of the Fund's shares present at a meeting, if more than 50% of the outstanding shares of the Fund are present or represented by proxy, or (ii) more than 50% of the Fund's outstanding shares, whichever is less. No Fund may: 1. With respect to 75% of each Fund's total assets (50% in the case of Maryland Municipal Bond Fund, Virginia Intermediate Municipal Bond Fund and Virginia Municipal Bond Fund), invest more than 5% of the value of the total assets of a Fund in the securities of any one issuer (other than securities issued or guaranteed by the U.S. government or any of its agencies or instrumentalities, repurchase agreements involving such securities, and securities issued by investment companies), or purchase the securities of any one issuer if such purchase would cause more than 10% of the voting securities of such issuer to be held by a Fund. 2. Borrow money in an amount exceeding 33 1/3% of the value of its total assets, provided that, for the purposes of this limitation, investment strategies that either obligate a Fund to purchase securities or require a Fund to segregate assets are not considered to be borrowing. Asset coverage of at least 300% is required for all borrowing, except where the Fund has borrowed money for temporary purposes (less than 60 days), and in an amount not exceeding 5% of its total assets. 3. Underwrite securities issued by others, except to the extent that the Fund may be considered an underwriter within the meaning of the Securities Act of 1933 in the sale of portfolio securities. 4. Issue senior securities (as defined in the Investment Company Act of 1940 (the "1940 Act")), except as permitted by rule, regulation or order of the Securities and Exchange Commission ("SEC"). 5. Purchase the securities of any issuer (other than securities issued or guaranteed by the U.S. government or any of its agencies or instrumentalities and securities issued by investment companies) if, as a result, more than 25% of the Fund's total assets would be invested in the securities of companies who principal business activities are in the same industry. 5.1 With respect to the money market funds, this limitation does not apply to 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. 5.2 No Life Vision Fund may invest more than 25% of its assets in underlying STI Classic Funds that, as a matter of policy, concentrate their assets in any one industry. However, a Life Vision Fund may indirectly invest more than 25% of its total assets in one industry through its investments in the underlying STI Classic Funds. Each Life Vision Fund may invest up to 100% of its assets in securities issued by investment companies. S-24 6. Purchase or sell real estate, unless acquired as a result of ownership of securities or other instruments (but this shall not prevent a Fund from investing in securities or other instruments either issued by companies that invest in real estate, backed by real estate or securities of companies engaged in the real estate business). 7. Purchase or sell physical commodities, unless acquired as a result of ownership of securities or other instruments. 8. Make loans, except that a Fund may: (i) purchase or hold debt instruments in accordance with its investment objectives and policies; (ii) enter into repurchase agreements; and (iii) lend its portfolio securities. NON-FUNDAMENTAL POLICIES The following investment limitations are non-fundamental and may be changed with respect to any Fund by the Board of Trustees. 1. Any change to a Fund's investment policy to invest at least 80% of such Fund's net assets in securities of companies in a specific sector is subject to 60 days' prior notice to shareholders. 2. No Fund may purchase or hold illiquid securities (I.E., securities that cannot be disposed of for their approximate carrying value in seven days or less (which term includes repurchase agreements and time deposits maturing in more than seven days) if, in the aggregate, more than 15% of its net assets (10% for the Prime Quality Money Market, U.S. Government Securities Money Market, U.S. Treasury Money Market Fund, and Tax-Exempt Money Market Funds) would be invested in illiquid securities. 3. No Life Vision Fund currently intends to purchase securities on margin, except that a Life Vision Fund may obtain such short-term credits as are necessary for the clearance of transactions. 4. No Life Vision Fund currently intends to sell securities short. 5. No Life Vision Fund currently intends to purchase or sell futures contracts or put or call options. 6. No Life Vision Fund may invest in shares of unaffiliated money market funds, except as permitted by the SEC. With the exception of the limitations on liquidity standards, the foregoing percentages will apply at the time of the purchase of a security and shall not be considered violated unless an excess occurs or exists immediately after and as a result of a purchase of such security. INVESTMENT ADVISER GENERAL. Trusco Capital Management, Inc. ("Trusco" or the "Adviser") is a professional investment management firm registered with the SEC under the Investment Advisers Act of 1940 and serves as investment adviser to the Funds. The Adviser makes investment decisions for the Funds and continuously reviews, supervises and administers each Fund's respective investment program. The Board of Trustees supervises the Adviser and establishes policies that the Adviser must follow in its management activities. The principal business address of the Adviser is 50 Hurt Plaza, Suite 1400, Atlanta, Georgia 30303. As of June 30, 2002, Trusco had discretionary management authority with respect to approximately $45.5 billion of assets under management. ADVISORY AGREEMENTS WITH THE TRUST. Prior to January 1, 2000, STI Capital Management, N.A. ("STI"), a subsidiary of SunTrust Banks, Inc., served as investment adviser to the Balanced Fund, Capital Appreciation Fund, Florida Tax-Exempt Bond Fund, International Equity Fund, Investment Grade Bond Fund, Investment Grade Tax-Exempt Bond Fund, Limited-Term Federal Mortgage Securities Fund, Mid-Cap Equity Fund, Small Cap Value Equity Fund and Value Income Stock Fund. On January 1, 2000, SunTrust Bank (formerly SunTrust Bank, S-25 Atlanta), a subsidiary of SunTrust Banks, Inc. and the investment adviser of the Georgia Tax-Exempt Bond Fund, succeeded STI as the investment adviser to those Funds. On July 1, 2000, SunTrust Banks, Inc. reorganized its money management units, including those of SunTrust Bank, into Trusco. As a result, Trusco now serves as the investment adviser to each Fund pursuant to three separate agreements. The Advisory Agreements provide that the Adviser shall not be protected against any liability to the Trust or its Shareholders by reason of willful misfeasance, bad faith or gross negligence on its part in the performance of its duties or from reckless disregard of its obligations or duties thereunder. The Advisory Agreements provide that if, for any fiscal year, the ratio of expenses of any Fund (including amounts payable to the Adviser but excluding interest, taxes, brokerage, litigation, and other extraordinary expenses) exceeds limitations established by certain states, the Adviser and/or the Administrator will bear the amount of such excess. The Adviser will not be required to bear expenses of the Trust to an extent which would result in a Fund's inability to qualify as a regulated investment company under provisions of the Internal Revenue Code. The continuance of the Advisory Agreements, after the first 2 years, must be specifically approved at least annually (i) by the vote of the Trustees, and (ii) by the vote of a majority of the Trustees who are not parties to the Agreements or "interested persons" of any party thereto, as defined in the 1940 Act, cast in person at a meeting called for the purpose of voting on such approval. The Advisory Agreements will terminate automatically in the event of its assignment, and each is terminable at any time without penalty by the Trustees of the Trust or, with respect to the Funds, by a majority of the outstanding shares of the Funds, on not less than 30 days' nor more than 60 days' written notice to the Adviser, or by the Adviser on 90 days' written notice to the Trust. ADVISORY FEES PAID TO THE ADVISER. For its advisory services, Trusco Capital Management, Inc. is entitled to a fee, which is calculated daily and paid monthly, at the annual rate of: 1.15% of the average daily net assets of the Capital Appreciation Fund and Small Cap Value Equity Fund, 0.74% of the average daily net assets of the Investment Grade Bond Fund, 0.90% of the average daily net assets of the Growth and Income Fund, 0.65% of the average daily net assets of the Prime Quality Money Market Fund and Short-Term Bond Fund, 1.15% of the average daily net assets of the Small Cap Growth Stock Fund, 0.74% of the average daily net assets of the U.S. government Securities Fund, and 0.25% of the average daily net assets of the Life Vision Conservative Fund. The Adviser has agreed to waive its fees or reimburse expenses in order to limit the underlying Funds' and Fund expenses. THE ADMINISTRATOR GENERAL. SEI Investments Global Funds Services (the "Adminstrator"), a Delaware business trust, has its principal business offices at Oaks, Pennsylvania 19456. SEI Investments Management Corporation ("SIMC"), a wholly-owned subsidiary of SEI Investments Company ("SEI Investments"), is the owner of all beneficial interest in the Administrator. SEI Investments and its subsidiaries and affiliates, including the Administrator, are leading providers of funds evaluation services, trust accounting systems, and brokerage and information services to financial institutions, institutional investors, and money managers. The Administrator and its affiliates also serve as administrator or sub-administrator to the following other mutual funds including, but without limitation: The Advisors' Inner Circle Fund, Alpha Select Funds, Amerindo Funds Inc., The Arbor Fund, Armada Funds, The Armada Advantage Fund, Bishop Street Funds, Causeway Capital Management Trust, CNI Charter Funds, Excelsior Funds Inc., Excelsior Funds Trust, Excelsior Tax-Exempt Funds, Inc., Expedition Funds, First Focus Funds, Inc., HighMark Funds, JohnsonFamily Funds, Inc., The MDL Funds, The Nevis Fund, Inc., Oak Associates Funds, The PBHG Funds, Inc., PBHG Insurance Series Fund, Inc., Pitcairn Funds, Schroder Series Trust, Schroder Capital Funds, Schroder Fund Advisors Inc., SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI Institutional International Trust, SEI Institutional Investments Trust, SEI Institutional Managed Trust, SEI Insurance Products Trust, SEI Liquid Asset Trust, SEI Tax Exempt Trust, STI Classic Variable Trust, Turner Funds and UAM Funds Trust. ADMINISTRATION AGREEMENT WITH THE TRUST. The Trust and the Administrator have entered into an administration agreement (the "Administration Agreement") dated May 29, 1995, as amended. Under the Administration Agreement, the Administrtor provides the Trust with administrative services, including regulatory reporting and all necessary office space, equipment, personnel and facilities. The Administrator also serves as the shareholder S-26 servicing agent for each Fund under a shareholder servicing agreement with the Trust pursuant to which the Administrator provides certain shareholder services in addition to those set forth in the Administration Agreement. The Administration Agreement provides that the Administrator shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Trust in connection with the matters to which the Administration Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on the part of the Administrator in the performance of its duties or from reckless disregard by it of its duties and obligations thereunder. The Administration Agreement shall remain in effect for a period of one year after the effective date of the agreement and shall continue in effect for successive periods of two years unless terminated by either party on not less than 90 days' prior written notice to the other party. ADMINISTRATION FEES PAID TO THE ADMINISTRATOR. 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 Trust) of: 0.12% up to $1 billion, 0.09% on the next $4 billion, 0.07% on the next $3 billion, 0.065% on the next $2 billion and 0.06% for over $10 billion. THE DISTRIBUTOR The Trust and SEI Investments Distribution Co. (the "Distributor"), a wholly owned subsidiary of SEI Investments and an affiliate of the Administrator, are parties to a distribution agreement dated May 29, 1992 (the "Distribution Agreement") whereby the Distributor acts as principal underwriter for the Trust's shares. Under the Distribution Agreement, the Distributor must use all reasonable efforts, consistent with its other business, in connection with the continuous offering of shares of the Trust. The Distributor will receive no compensation for distribution of Trust Shares. In addition, the Investor Shares of the Funds have a distribution plan (the "Investor Plan"), and the Flex Shares of the Funds have a distribution and service plan (the "Flex Plan"). The continuance of the Distribution Agreement must be specifically approved at least annually (i) by the vote of the Trustees or by a vote of the shareholders of the Fund and (ii) by the vote of a majority of the Trustees who are not parties to the Distribution Agreement or "interested persons" of any party thereto, as defined in the 1940 Act, cast in person at a meeting called for the purpose of voting on such approval. The Distribution 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 any Fund, by a majority of the outstanding shares of that Fund, upon not more than 60 days' written notice by either party. The Distribution Agreement provides that the Distributor 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. With respect to the Trust, the Distributor may, from time to time and at its own expense, provide promotional incentives, in the form of cash or other compensation, to financial institutions whose representatives have sold or are expected to sell significant amounts of these Funds. THE TRANSFER AGENT Federated Services Company, Federated Investors Tower, Pittsburgh, PA 15222-3779 serves as the Trust's transfer agent. THE CUSTODIAN SunTrust Bank, 303 Peachtree Street, N.E., 14th Floor, Atlanta, GA 30308 serves as the custodian for all of the eligible underlying Funds. INDEPENDENT PUBLIC ACCOUNTANTS For the fiscal year ended May 31, 2002, PricewaterhouseCoopers LLP, 2001 Market Street, Philadelphia, PA 19103, served as independent public accountants for the Trust. S-27 LEGAL COUNSEL Morgan, Lewis & Bockius LLP serves as legal counsel to the Trust. TRUSTEES AND OFFICERS OF THE TRUST BOARD RESPONSIBILITIES. The management and affairs of the Trust and each of the Funds are supervised by the Trustees under the laws of the Commonwealth of Massachusetts. Each Trustee is responsible for overseeing each of the Funds and each of the Trust's nineteen funds, which includes funds not described in this SAI. The Trustees have approved contracts, as described above, under which certain companies provide essential management services to the Trust. MEMBERS OF THE BOARD. Set forth below are the names, dates of birth, position with the Trust, length of term of office, and the principal occupations for the last five years of each of the persons currently serving as Trustees of the Trust. Unless otherwise noted, the business address of each Trustee is SEI Investments Company, Oaks, Pennsylvania 19456. THOMAS GALLAGHER (11/25/47) - Trustee - President, Genuine Parts Company Wholesale Distribution, 1970 to the present; Director, National Service Industries; Director, Oxford Industries. F. WENDELL GOOCH (12/03/32) - Trustee - Retired. President, Orange County Publishing Co., Inc., 1981 to 1997; Publisher of the Paoli News and the Paoli Republican and Editor of the Paoli Republican, 1981 to 1997; President, H & W Distribution, Inc., 1984 to 1997; 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. JAMES O. ROBBINS (7/04/42) - Trustee - President and Chief Executive Officer, Cox Communications, Inc., 1983 to the present; Director, NCR; Director, Cox Communications. JONATHAN T. WALTON (3/28/30) - Trustee - Retired. Executive Vice President, NBD Bank, N.A. and NBD Bancorp, October 1956 to March 1995; Trustee, W.K. Kellogg Trust. RICHARD W. COURTS, II (1/18/36) - Trustee* - Chairman of the Board, Atlantic Investment Company, 1970 to the present. CLARENCE H. RIDLEY (6/03/42) - Trustee* - Chairman of the Board; Haverty Furniture Companies, 2001 to the present; Partner, King and Spaulding LLP (law firm), 1971 to 2000. * Messrs. Courts and Ridley may be deemed an "interested person" of the Trust as that term is defined in the 1940 Act. Mr. Courts may be deemed an interested Trustee because of his directorships with affiliates of the Adviser. Mr. Ridley may be deemed an interested Trustee because his former law firm has a material business relationship with the parent to the Adviser. BOARD STANDING COMMITTEES. The Board has established the following standing committees: o AUDIT COMMITTEE. The Board has a standing Audit Committee that is composed of each of the independent Trustees of the Trust. The Audit Committee operates under a written charter approved by the Board. The principal responsibilities of the Audit Committee include: recommending which firm to engage as the Trust's independent auditor and whether to terminate this relationship; reviewing the independent auditors' compensation, the proposed scope and terms of its engagement, and the firm's independence; serving as a channel of communication between the independent auditor and the Trustees; reviewing the results of each external audit, including any qualifications in the independent auditors' opinion, any related management letter, management's responses to recommendations made by the independent auditors in connection with the audit, reports submitted to the Committee by the internal auditing department of the Trust's Administrator that are material to the Trust as a whole, if any, and management's responses to any such reports; reviewing the Trust's audited financial statements and considering any significant disputes between the Trust's management and the S-28 independent auditor that arose in connection with the preparation of those financial statements; considering, in consultation with the independent auditors and the Trust's senior internal accounting executive, if any, the independent auditors' report on the adequacy of the Trust's internal financial controls; reviewing, in consultation with the Trust's independent auditors, major changes regarding auditing and accounting principles and practices to be followed when preparing the Trust's financial statements; and other audit related matters. Messrs. Gallagher, Gooch, Robbins and Walton currently serve as members of the Audit Committee. The Audit Committee meets periodically, as necessary, and met two times in the most recently completed fiscal year. o FAIR VALUE PRICING COMMITTEE. The Board has a standing Fair Value Pricing Committee that is composed of various representatives of the Trust's service providers, as appointed by the Board. The Fair Value Pricing Committee operates under procedures approved by the Board. The principal responsibilities of the Fair Value Pricing Committee are to determine the fair value of securities for which current market quotations are not readily available. The Fair Value Pricing Committee's determinations are reviewed by the Board. The Fair Value Pricing Committee meets periodically, as necessary, and met twenty-two times in the most recently completed fiscal year. o NOMINATING COMMITTEE. The Trust has a standing Nominating Committee that is composed of each of the independent Trustees of the Trust. The principal responsibility of the Nominating Committee are to consider, recommend and nominate candidates to fill vacancies on the Trust's Board, if any. The Nominating Committee does not have specific procedures in place to consider nominees recommended by shareholders, but would consider such nominees if submitted in accordance with Rule 14a-8 of the 1934 Act in conjunction with a shareholder meeting to consider the election of Trustees. Messrs. Gallagher, Gooch, Robbins and Walton currently serve as members of the Nominating Committee. The Nominating Committee meets periodically, as necessary, and met one time during the most recently completed fiscal year. BOARD CONSIDERATIONS IN APPROVING THE ADVISORY AGREEMENT. As discussed in the section of this SAI entitled "The Adviser," the Board continuance of the Advisory Agreements must be specifically approved at least annually (i) by the vote of the Trustees or by a vote of the shareholders of the Fund and (ii) by the vote of a majority of the Trustees who are not parties to the Advisory Agreements or "interested persons" of any party thereto, as defined in the 1940 Act, cast in person at a meeting called for the purpose of voting on such approval. Each year, the Board of Trustees calls and holds a meeting to decide whether to renew the Advisory Agreements for the upcoming year. In preparation for the meeting, the Board requests and reviews a wide variety of information from the Adviser. The Trustees use this information, as well as other information that the Adviser and other Fund service providers may submit to the Board, to help them decide whether to renew the Advisory Agreements for another year. Before this year's meeting , the Board requested and received written materials from the Adviser about: (a) the quality of the Adviser's investment management and other services; (b) the Adviser's investment management personnel; (c) the Adviser's operations and financial condition; (d) the Adviser's brokerage practices (including any soft dollar arrangements) and investment strategies; (e) the level of the advisory fees that the Adviser charges the Fund compared with the fees it charges to comparable mutual funds or accounts(if any); (f) the Fund's overall fees and operating expenses compared with similar mutual funds; (g) the level of the Adviser's profitability from its Fund-related operations; (h) the Adviser's compliance systems; (i) the Adviser's policies on and compliance procedures for personal securities transactions; (j) the Adviser' reputation, expertise and resources in domestic financial markets; and (k) the Fund's performance compared with similar mutual funds. At the meeting, representatives from the Adviser presented additional oral and written information to the Board to help the Board evaluate the Adviser's fee and other aspects of the Agreement. Other Fund service providers also provided the Board with additional information at the meeting. The Trustees then discussed the written materials that the Board received before the meeting and the Adviser's oral presentation and any other information that the Board received at the meeting, and deliberated on the renewal of the Advisory Agreements in light of this information. In its deliberations, the Board did not identify any single piece of information that was all-important, controlling or determinative of its decision. Based on the Board's deliberations and its evaluation of the information described above, the Board, including all of the independent Trustees, unanimously: (a) concluded that terms of the Agreements are fair and reasonable; (b) S-29 concluded that the Adviser's fees are reasonable in light of the services that the Adviser provides to the Fund; and (c) agreed to renew the Agreements for another year. FUND SHARES OWNED BY BOARD MEMBERS. The following table shows the dollar amount range of each Trustee's "beneficial ownership" of shares of each of the Funds as of the end of the most recently completed calendar year. Dollar amount ranges disclosed are established by the SEC. "Beneficial ownership" is determined in accordance with Rule 16a-1(a)(2) under the Securities Exchange Act of 1934 ("1934 Act"). The Trustees and officers of the Trust own less than 1% of the outstanding shares of the Trust. BOARD COMPENSATION. The Trust paid the following fees to the Trustees during its most recently completed fiscal year:
- ------------------------------------------------------------------------------------------------------------------------------- Name of Person and Position Aggregate Pension or Retirement Estimated Annual Total Compensation From the Compensation Benefits Accrued as Part Benefits Upon Trust and Fund Complex* of Fund Expenses Retirement - ------------------------------------------------------------------------------------------------------------------------------- Richard W. Courts, II, Trustee(1) $17,000 N/A N/A $18,000 for services on two boards - ------------------------------------------------------------------------------------------------------------------------------- Thomas Gallagher, $40,000 for services on two Trustee $38,000 N/A N/A boards - ------------------------------------------------------------------------------------------------------------------------------- F. Wendell Gooch, $38,000 for services on two Trustee $36,000 N/A N/A boards - ------------------------------------------------------------------------------------------------------------------------------- Wilton Looney, $2,000 for services on two Trustee(2) $1,500 N/A N/A boards - ------------------------------------------------------------------------------------------------------------------------------- Clarence H. Ridley, Trustee(1) $18,500 for services on two $17,500 N/A N/A boards - ------------------------------------------------------------------------------------------------------------------------------- James Robbins, $36,500 for services on two Trustee $34,500 N/A N/A boards - ------------------------------------------------------------------------------------------------------------------------------- Jonathan T. Walton, $36,500 for services on two Trustee $34,500 N/A N/A boards - -------------------------------------------------------------------------------------------------------------------------------
* The Trust is one of two investment companies in the "Fund Complex," in addition to the STI Classic Variable Trust. (1) Messrs. Courts and Ridley were appointed as Trustees on November 13, 2001. (2) Mr. Looney retired on August 21, 2001. TRUST OFFICERS. Set forth below are the names, dates of birth, position with the Trust, length of term of office, and the principal occupations for the last five years of each of the persons currently serving as Executive Officers of the Trust. Unless otherwise noted, the business address of each Officer is SEI Investments Company, Oaks, Pennsylvania 19456. None of the Officers receive compensation from the Trust for their services. Certain officers of the Trust also serve as officers of some or all of the following: The Advisors' Inner Circle Fund, Alpha Select Funds, Amerindo Funds Inc., The Arbor Fund, Armada Funds, The Armada Advantage Fund, Bishop Street Funds, Causeway Capital Management Trust, CNI Charter Funds, Excelsior Funds Inc., Excelsior Funds Trust, Excelsior Tax-Exempt Funds, Inc., Expedition Funds, First Focus Funds, Inc., HighMark Funds, JohnsonFamily Funds, Inc., The MDL Funds, The Nevis Fund, Inc., Oak Associates Funds, The PBHG Funds, Inc., PBHG Insurance Series Fund, Inc., Pitcairn Funds, Schroder Series Trust, Schroder Capital Funds, Schroder Fund Advisors Inc., SEI Asset Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI Institutional International Trust, SEI Institutional Investments Trust, SEI Institutional Managed Trust, SEI Insurance Products Trust, SEI Liquid Asset Trust, SEI Tax Exempt Trust, STI Classic Variable Trust, Turner Funds, UAM Funds Trust, UAM Funds, Inc. and UAM Funds, Inc. II., each of which is an open-end management investment company managed by SEI Investments Global Funds Services or its affiliates and, except for PBHG Advisor Funds, Inc., distributed by SEI Investments Distribution Co. S-30 JAMES R. FOGGO (06/30/64) - President - Vice President and Assistant Secretary of SEI Investments since 1998; Vice President and Assistant Secretary of the Administrator and the Distributor since May 1999; Associate, Paul Weiss, Rifkind, Wharton & Garrison (law firm), 1998; Associate, Baker & McKenzie (law firm), 1995 to 1998; Associate, Battle Fowler L.L.P. (law firm), 1993 to 1995; Operations Manager, The Shareholder Services Group, Inc., 1986 to 1990. JENNIFER E. SPRATLEY, CPA (02/13/69) - Treasurer and Chief Financial Officer - Director, SEI Funds Accounting since November 1999; Audit Manager, Ernst & Young LLP, 1991 to 1999. LYDIA GAVALIS (06/05/64) - Vice President and Assistant Secretary - Vice President and Assistant Secretary of SEI Investments, the Administrator and the Distributor since 1998; Assistant General Counsel and Director of Arbitration, Philadelphia Stock Exchange, 1989 to 1998. TIMOTHY D. BARTO (03/28/68) - Vice President and Secretary - Employed by SEI Investments since October 1999; Vice President and Assistant Secretary of the Administrator and Distributor since December 1999; Associate, Dechert Price & Rhoads, 1997 to 1999; Associate, Richter, Miller & Finn, 1994 to 1997. TODD B. CIPPERMAN (02/14/66) - Vice President and Assistant Secretary - Senior Vice President and General Counsel of SEI Investments; Senior Vice President, General Counsel and Secretary of the Administrator and the Distributor since 2000; Vice President and Assistant Secretary of SEI Investments, the Administrator and the Distributor, 1995 to 2000; Associate, Dewey Ballantine (law firm), 1994 to 1995; Associate, Winston & Strawn (law firm), 1991 to 1994. CHRISTINE M. MCCULLOUGH (12/02/60) - Vice President and Assistant Secretary - Employed by SEI Investments since November 1, 1999; Vice President and Assistant Secretary of the Administrator and the Distributor since December 1999; Associate, White & Williams LLP, 1991 to 1999; Associate, Montgomery, McCracken, Walker & Rhoads, 1990 to 1991. WILLIAM E. ZITELLI, JR. (06/14/68) - Vice President and Assistant Secretary - Vice President and Assistant Secretary of the Administrator and Distributor since August 2000; Vice President, Merrill Lynch & Co. Asset Management Group, 1998 to 2000; Associate, Pepper Hamilton LLP, 1997 to 1998; Associate, Reboul, MacMurray, Hewitt, Maynard & Kristol, 1995 to 1997. SHERRY KAJDAN VETTERLEIN (06/22/62) - Vice President & Assistant Secretary - Vice President and Assistant Secretary of the Administrator and Distributor since January 2001; Shareholder/Partner, Buchanan Ingersoll Professional Corporation, 1992 to 2000. JOHN C. MUNCH (05/07/71) - Vice President and Assistant Secretary - Vice President and Assistant Secretary of the Administrator and Distributor since November 2001. Associate at Howard Rice Nemorvoski Canady Falk & Rabkin, 1998 to 2001; Associate at Seward & Kissel, 1996 to 1998. JOSIE C. ROSSON (03/23/53) - Vice President and Assistant Secretary - Vice President and Compliance Officer of Trusco Capital Management, Inc. since March 2000; Vice President and Compliance Officer of Crestar Bank, 1998 to 2000; Vice President and Compliance Officer of Signet Banking Corporation, 1994 to 1998. PERFORMANCE INFORMATION From time to time a Fund may advertise its performance. Performance figures are based on historical earnings and are not intended to indicate future performance. Performance information for each of the Funds contained in reports to shareholders or prospective shareholders, advertisements, and other promotional literature may be compared to the record of various unmanaged indices. Such unmanaged indices may assume the reinvestment of dividends, but generally do not reflect deductions for operating costs and expenses. In addition, a Fund's total return may be compared to the performance of broad groups of comparable mutual funds with similar investment goals, as such performance is tracked and published by such independent organizations as Lipper Analytical Services, Inc. ("Lipper"), among others. When Lipper's S-31 tracking results are used, the Fund will be compared to Lipper's appropriate fund category, that is, by fund objective and portfolio holdings. In addition, rankings, ratings, and comparisons of investment performance and/or assessments of the quality of shareholder service appear in numerous financial publications such as MONEY, FORBES, KIPLINGER'S MAGAZINE, PERSONAL INVESTOR, MORNINGSTAR, INC., and similar sources. CALCULATION OF TOTAL RETURN TOTAL RETURN. The total return of a Fund refers to the average annual compounded rate of return of a hypothetical investment for designated time periods (including but not limited to, the period from which that Fund commenced operations through the specified date), assuming that the entire investment is redeemed at the end of each period. In particular, total return will be calculated according to the following formula: P (1 + T)n = ERV, where P = a hypothetical initial investment of $1,000; T = average annual total return; n = number of years; and ERV = ending redeemable value, as of the end of the designated time period, of a hypothetical $1,000 investment made at the beginning of the designated time period. PURCHASING AND REDEEMING SHARES Purchases and redemptions of shares of the Funds may be made [through the Transfer Agent] on any day the New York Stock Exchange ("NYSE") is open for business. Shares of each Fund are offered and redeemed on a continuous basis. Currently, the NYSE is closed on the days the following holidays are observed: New Year's Day, Presidents' Day, Martin Luther King, Jr. Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. While the Trust does not accept cash as payment of Fund shares, it is currently the Trust's policy to pay for all redemptions in cash. The Trust retains the right, however, to alter this policy to provide for redemptions in whole or in part by a distribution in-kind of readily marketable securities held by the Funds in lieu of cash. Shareholders may incur brokerage charges on the sale of any such securities so received in payment of redemptions. A Shareholder will at all times be entitled to aggregate cash redemptions from all Funds of the Trust up to the lesser of $250,000 or 1% of the Trust's net assets during any 90-day period. The Trust has obtained an exemptive order from the SEC that permits the Trust to make in-kind redemptions to those shareholders of the Trust that are affiliated with the Trust solely by their ownership of a certain percentage of the Trust's investment portfolios. 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 SEC by rule or regulation) as a result of disposal or valuation of a Fund's securities is not reasonably practicable, or for such other periods as the SEC has by order permitted. The Trust also reserves the right to suspend sales of shares of a Fund for any period during which the NYSE, the Adviser, the Administrator and/or the Custodian are not open for business. The Trust reserves the right to waive any minimum investment requirements or sales charges for immediate family members of the Trustees or officers of the Trust or employees of the Adviser. "Immediate family" means a spouse, mother, father, mother-in-law, father-in-law or children (including step-children) age 21 years or under. DETERMINATION OF NET ASSET VALUE GENERAL POLICY. Each of the Funds adheres to Section 2(a)(41), and Rule 2a-4 thereunder, of the 1940 Act with respect to the valuation of portfolio securities. In general, securities for which market quotations are readily available are valued at current market value, and all other securities are valued at fair value as determined in good faith by the Trusts' Board of Trustees. In complying with the 1940 Act, the Trust relies on guidance provided by the SEC and by the SEC staff in various interpretive letters and other guidance. EQUITY SECURITIES. Securities listed on a securities exchange, market or automated quotation system for which quotations are readily available, including securities traded over the counter, are valued at the last quoted sale price on the principal exchange or market (foreign or domestic) on which they are traded on valuation date (or at S-32 approximately 4:00 p.m., ET if a security's principal exchange is normally open at that time), or, if there is no such reported sale on the valuation date, at the most recent quoted bid price. If such prices are not available, the security will be valued at fair value as determined in good faith by the Trust's Board of Trustees. MONEY MARKET SECURITIES AND OTHER DEBT SECURITIES. If available, Money Market Securities and other debt securities are priced based upon valuations provided by recognized independent, third-party pricing agents. Such values generally reflect the last reported sales price if the security is actively traded. The third-party pricing agents may also value debt securities by employing methodologies that utilize actual market transactions, broker-supplied valuations, or other methodologies designed to identify the market value for such securities. Such methodologies generally consider such factors as security prices, yields, maturities, call features, ratings and developments relating to specific securities in arriving at valuations. Money Market Securities and other debt securities with remaining maturities of sixty days or less may be valued at their amortized cost, which approximates market value. If such prices are not available, the security will be valued at fair value as determined in good faith by the Trust's Board of Trustees. USE OF THIRD-PARTY INDEPENDENT PRICING AGENTS. Pursuant to contracts with the Trust's Administrator, prices for most securities held by the Funds are provided daily by third-party independent pricing agents that are approved by the Board of Trustees of the Trust. The valuations provided by third-party independent pricing agents are reviewed daily by the Administrator. TAXES The following is a summary of certain Federal income tax considerations generally affecting the Funds and their shareholders. No attempt is made to present a detailed explanation of the Federal tax treatment of a Fund or its shareholders, and the discussion here and in the Trust's prospectuses is not intended as a substitute for careful tax planning. Further, this discussion does not address the tax considerations affecting any Contract Owner. Federal income tax considerations affecting such Owners is discussed in the prospectuses and the statement of additional information for such Contract. FEDERAL INCOME TAX This discussion of Federal income tax considerations is based on the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations issued thereunder, in effect on the date of this Statement of Additional Information. New legislation, as well as administrative changes or court decisions may change the conclusions expressed herein, and may have a retroactive effect with respect to the transactions contemplated herein. In order to qualify for treatment as a regulated investment company ("RIC") under the Code, the Fund must distribute annually to its shareholders at least the sum of 90% of its net investment income excludable from gross income plus 90% of its investment company taxable income (generally, net investment income plus net short-term capital gain) (the "Distribution Requirement") and also must meet several additional requirements. Among these requirements are the following: (i) at least 90% of the Fund's gross income each taxable year must be derived from dividends, interest, payments with respect to securities loans, and gains from the sale or other disposition of stock or securities, or certain other income, (ii) at the close of each quarter of the Fund's taxable year, at least 50% of the value of its total assets must be represented by cash and cash items, U.S. government securities, securities of other RICs and other securities, with such other securities limited, in respect to any one issuer, to an amount that does not exceed 5% of the value of the Fund's assets and that does not represent more than 10% of the outstanding voting securities of such issuer; and (iii) at the close of each quarter of the Fund's taxable year, not more than 25% of the value of the Fund's assets may be invested in securities (other than U.S. government securities or the securities of other RICs) of any one issuer, or of two or more issuers engaged in same or similar businesses if the Fund owns at least 20% of the voting power of such issuers. Notwithstanding the Distribution Requirement described above, which only requires the 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), the 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 S-33 year (and any retained amount from that prior calendar year on which the Fund paid no federal income tax). The 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, but can make no assurances that distributions will be sufficient to avoid this tax. Any gain or loss recognized on a sale or redemption of shares of the Fund by an Investor who is not a dealer in securities will generally be treated as a long-term capital gain or loss if the shares have been held for more than twelve months and otherwise will be generally treated as a short-term capital gain or loss. If shares on which a net capital gain distribution has been received are subsequently sold or redeemed and such shares have been held for six months or less, any loss recognized will be treated as a long-term capital loss to the extent of the long-term capital gain distributions. If the Fund fails to maintain qualification as a RIC for a tax year, the Fund will be subject to federal income tax on its taxable income and gains at corporate rates, without any benefit for distributions paid to shareholders, and distributions to shareholders will be taxed as ordinary income to the extent of the Fund's current and accumulated earnings and profits. In such case, the dividends received deduction generally will be available for eligible corporate shareholders (subject to certain limitations). The board reserves the right not to maintain qualification of a Fund as a RIC if it determines such course of action to be beneficial to shareholders. The Fund may invest in complex securities. These investments may be subject to numerous special and complex tax rules. These rules could affect whether gains and losses recognized by the Fund are treated as ordinary income or capital gains, accelerate the recognition of income to the Fund, and/or defer the Fund's ability to recognize losses. In turn, these rules may affect the amount, timing or character of the income distributed to shareholders by the Fund. The Fund receives income generally in the form of dividends and interest on Fund investments. This income, less expenses incurred in the operation of the Fund, constitutes its net investment income from which dividends may be paid to you. Any distributions by the Fund may be taxable to shareholders regardless of whether they are received in cash or in additional shares. The Fund may derive capital gains and losses in connection with sales or other dispositions of the Fund's portfolio securities. Distributions from net short-term capital gains will be taxable to you as ordinary income. Distributions from net long-term capital gains will be taxable to you as long-term capital gains regardless of how long you have held your shares in the Fund. Shareholders who have not held Fund shares for a full year should be aware that the Fund may designate and distribute, as ordinary income or capital gain, a percentage of income that is not equal to the actual amount of such income earned during the period of investment in the Fund. If the Fund's distributions exceed its taxable income and capital gains realized during a taxable year, all or a portion of the distributions made in the same taxable year may be recharacterized as a return of capital to shareholders. A return of capital distribution will generally not be taxable, but will reduce each shareholder's cost basis in the Fund and result in higher reported capital gain or lower reported capital loss when those shares on which distribution was received are sold. If a shareholder that is a tax-exempt investor (E.G., a pension plan, individual retirement account, 401(k), similar tax-advantaged plan, charitable organization, etc.) incurs debt to finance the acquisition of its shares, a portion of the income received by that shareholder with respect to its shares would constitute unrelated business taxable income ("UBTI"). A tax-exempt investor is generally subject to federal income tax to the extent that its UBTI for a taxable year exceeds its annual $1,000 exclusion. Sale, Redemption or Exchange of Fund Shares - ------------------------------------------- Sales, redemptions and exchanges of Fund shares are generally taxable transactions for federal, state and local income tax purposes. Any gain or loss recognized on a sale or redemption of shares of the Fund by a shareholder who holds their shares as a capital asset will generally be treated as long-term capital gain or loss if the shares have been held for more S-34 than one year, and short-term if for a year or less. If shares held for six months or less are sold or redeemed for a loss, two special rules apply. First, 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 long-term capital loss to the extent of the long-term capital gain distributions. Second, any loss recognized by a shareholder upon the sale or redemption of shares of a tax-exempt fund held for six months or less will be disallowed to the extent of any exempt-interest dividends received by the shareholder with respect to such shares. All or a portion of any loss that you realize upon the redemption of your fund shares will be disallowed to the extent that you buy other shares in the Fund (through reinvestment of dividends or otherwise) within 30 days before or after your share redemption. Any loss disallowed under these rules will be added to your tax basis in the new shares you buy. STATE TAXES The Fund is not liable for any income or franchise tax in Massachusetts if it qualifies as a RIC for federal income tax purposes. Distributions by the Fund to Investors and the ownership of shares may be subject to state and local taxes. Shareholders are urged to consult their tax advisor regarding state and local taxes affecting an investment in shares of the Fund. Many states grant tax-free status to dividends paid to you from interest earned on direct obligations of the U.S. government, subject in some states to minimum investment requirements that must be met by the Fund. Investments in Government National Mortgage Association and Fannie Mae securities, bankers' acceptances, commercial paper and repurchase agreements collaterized by U.S. government securities do not generally qualify for tax-free treatment. The rules on exclusion of this income are different for corporations. 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 Adviser is responsible for placing the orders to execute transactions for a Fund. In placing orders, it is the policy of the Trust to seek to obtain the best net results taking into account such factors as price (including the applicable dealer spread), the size, type and difficulty of the transaction involved, the firm's general execution and operational facilities, and the firm's risk in positioning the securities involved. While the Adviser generally seeks reasonably competitive spreads or commissions, the Trust will not necessarily be paying the lowest spread or commission available. The money market securities in which the Funds invest are traded primarily in the over-the-counter market. Bonds and debentures are usually traded over-the-counter, but may be traded on an exchange. Where possible, the Adviser 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. BROKERAGE TRANSACTIONS. 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. S-35 The Trust may allocate out of all commission business generated by all of the funds and accounts under management by the Adviser, brokerage business to brokers or dealers who provide brokerage and research services. These research services include advice, either directly or through publications or writings, as to the value of securities, the advisability of investing in, purchasing or selling securities, and the availability of securities or purchasers or sellers of securities; furnishing of analyses and reports concerning issuers, securities or industries; providing information on economic factors and trends, assisting in determining portfolio strategy, providing computer software used in security analyses, and providing portfolio performance evaluation and technical market analyses. Such services are used by the Adviser 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. In addition, the Adviser may place a combined order for two or more accounts it manages, including a Fund, 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. Although it is recognized that, in some cases, the joint execution of orders could adversely affect the price or volume of the security that a particular account or the Fund may obtain, it is the opinion of the Adviser and the Trust's Board of Trustees that the advantages of combined orders outweigh the possible disadvantages of separate transactions. Nonetheless, the Adviser believes that the ability of a Fund to participate in higher volume transactions will generally be beneficial to the Fund. Consistent with the Conduct Rules of the National Association of Securities Dealers, Inc., and subject to seeking best price and execution, the Funds, at the request of the Distributor, give consideration to sales of shares of the Trust as a factor in the selection of brokers and dealers to execute Trust portfolio transactions. It is expected that the Trust may execute brokerage or other agency transactions through the Distributor or an affiliate of the Adviser, both of which are registered broker-dealers, for a commission in conformity with the 1940 Act, the 1934 Act and rules promulgated by the SEC. Under these provisions, the Distributor or an affiliate of the Adviser is permitted to receive and retain compensation for effecting portfolio transactions for the Trust on an exchange if a written contract is in effect between the Distributor and the Trust expressly permitting the Distributor or an affiliate of the Adviser to receive and retain such compensation. These rules further require that commissions paid to the Distributor by the Trust for exchange transactions not exceed "usual and customary" brokerage commissions. The rules define "usual and customary" commissions to include amounts which are "reasonable and fair compared to the commission, fee or other remuneration received or to be received by other brokers in connection with comparable transactions involving similar securities being purchased or sold on a securities exchange during a comparable period of time." In addition, the Trust may direct commission business to one or more designated broker-dealers in connection with such broker/dealer's provision of services to the Trust or payment of certain Trust expenses (E.G., custody, pricing and professional fees). The Trustees, including those who are not "interested persons" of the Trust, as defined in the 1940 Act, have adopted procedures for evaluating the reasonableness of commissions paid to the Distributor, and will review these procedures periodically. BROKERAGE SELECTION. The Trust does not expect to use one particular broker or dealer, and when one or more brokers is believed capable of providing the best combination of price and execution, the Funds' Adviser may select a broker based upon brokerage or research services provided to the Adviser. The Adviser may pay a higher commission than otherwise obtainable from other brokers in return for such services only if a good faith determination is made that the commission is reasonable in relation to the services provided. S-36 Section 28(e) of the 1934 Act permits the Adviser, under certain circumstances, to cause each Fund to pay a broker or dealer a commission for effecting a transaction in excess of the amount of commission another broker or dealer would have charged for effecting the transaction in recognition of the value of brokerage and research services provided by the broker or dealer. In addition to agency transactions, the Adviser may receive brokerage and research services in connection with certain riskless principal transactions, in accordance with applicable SEC guidance. Brokerage and research services include: (1) furnishing advice 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; (2) furnishing analyses and reports concerning issuers, industries, securities, economic factors and trends, portfolio strategy, and the performance of accounts; and (3) effecting securities transactions and performing functions incidental thereto (such as clearance, settlement, and custody). In the case of research services, the Adviser believes that access to independent investment research is beneficial to their investment decision-making processes and, therefore, to each Fund. To the extent research services may be a factor in selecting brokers, such services may be in written form or through direct contact with individuals and may include information as to particular companies and securities as well as market, economic, or institutional areas and information which assists in the valuation and pricing of investments. Examples of research-oriented services for which the Adviser might utilize Fund commissions include research reports and other information on the economy, industries, sectors, groups of securities, individual companies, statistical information, political developments, technical market action, pricing and appraisal services, credit analysis, risk measurement analysis, performance and other analysis. The Adviser may use research services furnished by brokers in servicing all client accounts and not all services may necessarily be used in connection with the account that paid commissions to the broker providing such services. Information so received by the Adviser will be in addition to and not in lieu of the services required to be performed by the Funds' Adviser under the Advisory Agreement. Any advisory or other fees paid to the Adviser are not reduced as a result of the receipt of research services. In some cases the Adviser may receive a service from a broker that has both a "research" and a "non-research" use. When this occurs, the Adviser makes a good faith allocation, under all the circumstances, between the research and non-research uses of the service. The percentage of the service that is used for research purposes may be paid for with client commissions, while the Adviser will use its own funds to pay for the percentage of the service that is used for non-research purposes. In making this good faith allocation, the Adviser faces a potential conflict of interest, but the Adviser believes that its allocation procedures are reasonably designed to ensure that it appropriately allocates the anticipated use of such services to their research and non-research uses. From time to time, the Fund may purchase new issues of securities for clients in a fixed price offering. In these situations, the seller may be a member of the selling group that will, in addition to selling securities, provide the Adviser with research services. The NASD has adopted rules expressly permitting these types of arrangements under certain circumstances. Generally, the seller will provide research "credits" in these situations at a rate that is higher than that which is available for typical secondary market transactions. These arrangements may not fall within the safe harbor of Section 28(e). For the Trust's most recently completed fiscal year, the Funds' paid the following commissions on brokerage transactions directed to brokers pursuant to an agreement or understanding whereby the broker provides research or other brokerage services to the Adviser:
- --------------------------------------------------- -------------------------------- --------------------------------- TOTAL DOLLAR AMOUNT OF TOTAL DOLLAR AMOUNT OF TRANSACTIONS INVOLVING FUND BROKERAGE COMMISSIONS FOR BROKERAGE COMMISSIONS FOR RESEARCH SERVICES ($) RESEARCH SERVICES ($) - --------------------------------------------------- -------------------------------- --------------------------------- STI Classic Funds 2,650,297.81 1,417,730,064.31 - --------------------------------------------------- -------------------------------- ---------------------------------
BROKERAGE WITH FUND AFFILIATES. A Fund may execute brokerage or other agency transactions through registered broker-dealer affiliates of either the Fund, the Adviser or the Distributor for a commission in conformity with the 1940 Act, the 1934 Act and rules promulgated by the SEC. Under the 1940 Act and the 1934 Act, affiliated broker-dealers are permitted to receive and retain compensation for effecting portfolio transactions for the Fund on an exchange if a written contract is in effect between the affiliate and the Fund expressly permitting the affiliate to receive and retain such compensation. These rules further require that commissions paid to the affiliate by the Fund for exchange transactions not exceed "usual and customary" brokerage commissions. The rules define "usual and customary" commissions to include amounts which are "reasonable and fair compared to the commission, fee or other remuneration received or to be received by other brokers in connection with comparable transactions involving similar securities being purchased or sold on a securities exchange during a comparable period of time." The Trustees, including those who are not "interested persons" of the Fund, as defined in the 1940 Act, have adopted procedures for evaluating the reasonableness of commissions paid to affiliates and review these procedures periodically. DESCRIPTION OF SHARES S-37 The Declaration of Trust authorizes the issuance of an unlimited number of shares of the Funds each of which represents an equal proportionate interest in that Fund with each other share. Shares are entitled upon liquidation to a pro rata share in the net assets of the Funds. Shareholders have no preemptive rights. The Declaration of Trust provides that the Trustees of the Trust may create additional series of shares. All consideration received by the Trust for shares of any additional series and all assets in which such consideration is invested would belong to that series and would be subject to the liabilities related thereto. Share certificates representing shares will not be issued. SHAREHOLDER LIABILITY The Trust is an entity of the type commonly known as a "Massachusetts business trust." Under Massachusetts law, shareholders of such a trust could, under certain circumstances, be held personally liable as partners for the obligations of the trust. Even if, however, the Trust were held to be a partnership, the possibility of the shareholders' incurring financial loss for that reason appears remote because the Trust's Declaration of Trust contains an express disclaimer of shareholder liability for obligations of the Trust and requires that notice of such disclaimer be given in each agreement, obligation or instrument entered into or executed by or on behalf of the Trust or the Trustees, and because the Declaration of Trust provides for indemnification out of the Trust property for any Investor 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 advisers, 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. CODES OF ETHICS The Board of Trustees of the Trust has adopted a Code of Ethics pursuant to Rule 17j-1 under the Investment Company Act of 1940. In addition, the Adviser and Distributor have adopted Codes of Ethics pursuant to Rule 17j-1. These Codes of Ethics (each a "Code" and together the "Codes") apply to the personal investing activities of trustees, officers and certain employees ("access persons"). Rule 17j-1 and the Codes are designed to prevent unlawful practices in connection with the purchase or sale of securities by access persons. Under each Code, access persons are permitted to engage in personal securities transactions, but are required to report their personal securities transactions for monitoring purposes. In addition, certain access persons of the Trust and the Adviser are prohibited from acquiring beneficial ownership of securities offered in connection with initial public offerings. Certain access persons of the Adviser are further prohibited from acquiring beneficial ownership of securities offered in connection with a limited offering. The Distributor's Code requires certain access persons to obtain approval before investing in initial public offerings and limited offerings. Copies of these Code of Ethics are on file with the Securities and Exchange Commission, and are available to the public. S-38 APPENDIX DESCRIPTION OF RATINGS The following descriptions are summaries of published ratings. DESCRIPTION OF COMMERCIAL PAPER RATINGS A-1 This is the highest category by Standard and Poor's (S&P) and indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation. A-2 Capacity for timely payment on issues with this designation is satisfactory and the obligation is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rating categories. PRIME-1 Issues rated Prime-1 (or supporting institutions) by Moody's have a superior ability for repayment of senior short-term debt obligations. Prime-1 repayment ability will often be evidenced by many of the following characteristics: - Leading market positions in well-established industries. - High rates of return on funds employed. - Conservative capitalization structure with moderate reliance on debt and ample asset protection. - Broad margins in earnings coverage of fixed financial charges and high internal cash generation. - Well-established access to a range of financial markets and assured sources of alternate liquidity. The rating F1 (Highest Credit Quality) is the highest commercial rating assigned by Fitch, Inc. ("Fitch"). Paper rated F1 is regarded as having the strongest capacity for timely payment of financial commitments. The rating F2 (Good Credit Quality) is the second highest commercial paper rating assigned by Fitch which reflects a satisfactory capacity for timely payment of financial commitments, but the margin of safety is not as great as in the case of the higher ratings. The rating TBW-1 by Thomson BankWatch ("Thomson") indicates a very high likelihood that principal and interest will be paid on a timely basis. DESCRIPTION OF MUNICIPAL NOTE RATINGS Moody's highest rating for state and municipal and other short-term notes is MIG-1 and VMIG-l. Short-term municipal securities rated MIG-1 or VMIG-1 are of the best quality. They have strong protection from established cash flows, superior liquidity support, or demonstrated broad-based access to the market for refinancing or both. Short-term municipal securities rated MIG-2 or VMIG-2 are of high quality. Margins of protection are ample although not so large as in the MIG-I/VMIG-2 group. An S&P note rating reflects the liquidity concerns and market access risks unique to notes. Notes due in three years or less will likely receive a note rating. Notes maturing beyond three 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, and - 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. A-1 S&P note rating symbols are as follows: SP-1 Strong capacity to pay principal and interest. Those issues determined to possess a very strong capacity to pay a debt service is given a plus (+) designation. SP-2 Satisfactory capacity to pay principal and interest with some vulnerability to adverse financial and economic changes over the term of the votes. DESCRIPTION OF CORPORATE BOND RATINGS S&P - --- 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. Debt rated BBB 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. Debt rated BB and B is regarded as having predominantly 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 exposures to adverse conditions. Debt rated BB has less near-term vulnerability to default than other speculative grade debt. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions that could lead to inadequate capacity to meet timely interest and principal payments. The BB rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BBB- rating. Debt rate B has greater vulnerability to default but presently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions would likely impair capacity or willingness to pay interest and repay principal. The B rating category also is used for debt subordinated to senior debt that is assigned an actual or implied BB or BB- rating. Moody's - ------- 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 the 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. Bonds which are rated Baa are considered as 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 Ba are judged to have speculative elements; their future cannot be considered as well-assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. Bonds which are rated B A-2 generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Moody's bond ratings, where specified, are applied to financial contracts, senior bank obligations and insurance company senior policyholder and claims obligations with an original maturity in excess of one-year. Obligations relying upon support mechanisms such as letters-of-credit and bonds of indemnity are excluded unless explicitly rated. Obligations of a branch of a bank are considered to be domiciled in the country in which the branch is located. Unless noted as an exception, Moody's rating on a bank's ability to repay senior obligations extends only to branches located in countries which carry a Moody's sovereign rating. Such branch obligations are rated at the lower of the bank's rating or Moody's sovereign rating for the bank deposits for the country in which the branch is located. When the currency in which an obligation is denominated is not the same as the currency of the country in which the obligation is domiciled, Moody's ratings do not incorporate an opinion as to whether payment of the obligation will be affected by the actions of the government controlling the currency of denomination. In addition, risk associated with bilateral conflicts between an investor's home country and either the issuer's home country or the country where an issuer branch is located are not incorporated into Moody's ratings. Moody's makes no representation that rated bank obligations or insurance company obligations are exempt from registration under the U.S. Securities Act of 1933 or issued in conformity with any other applicable law or regulation. Nor does Moody's represent that any specific bank or insurance company obligation is legally enforceable or is a valid senior obligation of a rated issuer. Moody's ratings are opinions, not recommendations to buy or sell, and their accuracy is not guaranteed. A rating should be weighed solely as one factor in an investment decision and you should make your own study and evaluation of any issuer whose securities or debt obligations you consider buying or selling. Fitch - ----- Bonds rated AAA by Fitch are judged by Fitch to be strictly high grade, broadly marketable, suitable for investment by trustees and fiduciary institutions liable to but slight market fluctuation other than through changes in the money rate. The prime feature of an AAA bond is a showing of earnings several times or many times interest requirements, with such stability of applicable earnings that safety is beyond reasonable question whatever changes occur in conditions. Bonds rated AA by Fitch are judged by Fitch to be of safety virtually beyond question and are readily salable, whose merits are not unlike those of the AAA class, but whose margin of safety is less strikingly broad. The issue may be the obligation of a small company, strongly secured but influenced as to rating by the lesser financial power of the enterprise and more local type market. Bonds rated A are considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings. Bonds rated BBB are considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds, and therefore impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings. Bonds rated BB are considered speculative. The obligor's ability to pay interest and repay principal may be affected over time by adverse economic changes. However, business and financial alternatives can be identified which could assist the obligor in satisfying its debt service requirements. Bonds rated B are considered highly speculative. While bonds in this class are currently meeting debt service requirements, the probability of continued timely payment of principal and interest reflects the obligor's limited margin of safety and the need for reasonable business and economic activity throughout the life of the issue. Thomson - ------- A-3 Bonds rated AAA by Thomson BankWatch indicate that the ability to repay principal and interest on a timely basis is extremely high. Bonds rated AA indicate a very strong ability to repay principal and interest on a timely basis, with limited incremental risk compared to issues rated in the highest category. Bonds rated A indicate the ability to repay principal and interest is strong. Issues rated A could be more vulnerable to adverse developments (both internal and external) than obligations with higher ratings. Bonds rated BBB (the lowest investment-grade category) indicate an acceptable capacity to repay principal and interest. Issues rated "BBB" are, however, more vulnerable to adverse developments (both internal and external) than obligations with higher ratings. While not investment grade, the BB rating suggests that the likelihood of default is considerably less than for lower-rated issues. However, there are significant uncertainties that could affect the ability to adequately service debt obligations. Issues rated B show a higher degree of uncertainty and therefore greater likelihood of default than higher-rated issues. Adverse developments could negatively affect the payment of interest and principal on a timely basis. A-4 STI CLASSIC FUNDS PART C: OTHER INFORMATION POST-EFFECTIVE AMENDMENT NO. 43 Item 23. Exhibits: (a) Declaration of Trust as originally filed with Registrant's Registration Statement on Form N-1A filed February 12, 1992 is incorporated herein by reference to Exhibit 1 of Post-Effective Amendment No. 15 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000912057-96-015938 on July 31, 1996. (b) Amended and Restated By-Laws, as approved by the Board of Trustees on August 15, 2000, are incorporated herein by reference to Exhibit (b) of Post-Effective Amendment No. 37 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000935069-00-000528 on September 21, 2000. (c) Not applicable. (d)(1) Revised Investment Advisory Agreement with Trusco Capital Management, Inc. as originally filed with Registrant's Post-Effective Amendment No. 5 filed August 2, 1993 is incorporated herein by reference to Exhibit 5(c) of Post-Effective Amendment No. 15 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000912057-96-015938 on July 31, 1996. (d)(2) Investment Advisory Agreement with American National Bank and Trust Company as originally filed with Registrant's Post-Effective Amendment No. 6 filed October 22, 1993 is incorporated herein by reference to Exhibit 5(d) of Post-Effective Amendment No. 15 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000912057-96-015938 on July 31, 1996. (d)(3) Investment Advisory Agreement with Sun Bank Capital Management, National Association (now Trusco Capital Management, Inc.) as originally filed with Registrant's Post-Effective Amendment No. 6 filed October 22, 1993 is incorporated herein by reference to Exhibit 5(e) of Post-Effective Amendment No. 15 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000912057-96-015938 on July 31, 1996. (d)(4) Investment Advisory Agreement with Trust Company Bank (now Trusco Capital Management, Inc.) as originally filed with Registrant's Post-Effective Amendment No. 6 filed October 22, 1993 is incorporated herein by reference to Exhibit D(4) of Post-Effective Amendment No. 24 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0001047469-98-028802 on July 30, 1998. (d)(5) Revised Schedule A to the Revised Investment Advisory Agreement with Trusco Capital Management, Inc. dated May 24, 1999 is incorporated herein by reference to the Registrant's Post-Effective Amendment No. 32 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0001047469-99-037088 on September 28, 1999. (d)(6) Revised Schedule A to the Revised Investment Advisory Agreement with Trusco Capital Management, Inc. dated October 1, 1999 is incorporated herein by reference to the Registrant's Post-Effective Amendment No. 33 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000912057-99-007899 on December 1, 1999. (d)(7) Revised Schedule A to the Revised Investment Advisory Agreement with Trusco Capital Management, Inc. dated March 27, 2000 is incorporated herein by reference to the Registrant's Post-Effective Amendment No. 35 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000916641-00-000365 on March 28, 2000. (d)(8) Revised Schedule A dated April 8, 2002 to the Revised Investment Advisory Agreement with Trusco Capital Management dated March 28, 2000 is filed herewith. (e) Distribution Agreement dated May 26, 1992 is incorporated herein by reference to Exhibit 6 of Post-Effective Amendment No. 16 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000912057-96-021336 on September 27, 1996. (f) Not applicable. (g)(1) Custodian Agreement with Trust Company Bank dated February 1, 1994 originally filed with Registrant's Post-Effective Amendment No. 13 filed September 28, 1995 is incorporated herein by reference to Exhibit 8(b) of Post-Effective Amendment No. 15 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000912057-96-015938 on July 31, 1996. (g)(2) Custodian Agreement with the Bank of California is incorporated herein by reference to Exhibit 8(a) of Post-Effective Amendment No. 15 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000912057-96-015938 on July 31, 1996. (g)(3) Fourth Amendment to Custodian Agreement by and between STI Trust & Investment Operations, Inc. and The Bank of New York dated May 6, 1997 is incorporated herein by reference to Exhibit 8(d) of Post-Effective Amendment No. 21 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000912057-97-032207 on September 30, 1997. C-2 (g)(4) Amendment dated November 30, 2001 to the Custody Agreement dated May 11, 1999 between the Trust with respect to the International Equity Fund, International Equity Index Fund and the Strategic Income Fund and the Bank of New York is filed herewith. (h)(1) Transfer Agent Agreement with Federated Services Company dated May 14, 1994 originally filed with Post-Effective Amendment No. 9 filed September 22, 1994 is incorporated herein by reference to Exhibit 8(c) of Post-Effective Amendment No. 15 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000912057-96-015938 on July 31, 1996. (h)(2) Administration Agreement with SEI Financial Management Corporation dated May 29, 1995 is incorporated herein by reference to the Registrant's Post-Effective Amendment No. 32 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0001047469-99-037088 on September 28, 1999. (h)(3) Consent to Assignment and Assumption of the Administration Agreement between STI Classic Funds and SEI Financial Management Corporation is incorporated herein by reference to Exhibit 9(b) of Post-Effective Amendment No. 21 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000912057-97-032207 on September 30, 1997. (i) Opinion and Consent of Counsel is filed herewith. (j) Consent of PricewaterhouseCoopers LLP, independent public accountants, is filed herewith. (k) Not applicable. (l) Not applicable. (m)(1) Distribution Plan - Investor Class is incorporated herein by reference to Exhibit 15 of Post-Effective Amendment No. 16 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000912057-96-021336 on September 27, 1996. (m)(2) Distribution and Service Agreement relating to Flex Shares dated May 29, 1995 as originally filed with Post-Effective Amendment No. 12 filed August 17, 1995 is incorporated herein by reference to Exhibit 15(a) of Post-Effective Amendment No. 15 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000912057-96-015938 on July 31, 1996. (n)(1) Rule 18f-3 Plan is incorporated herein by reference to Exhibit (o) of Post-Effective Amendment No. 23 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0001047469-98-027407 on July 15, 1998. (n)(2) Certificate of Class Designation is incorporated herein by reference to Exhibit of Post-Effective Amendment No. 27 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0001047469-99-009731 on April 15, 1999. (n)(3) Amended Rule 18f-3 Plan dated May 14, 2000 to the Rule 18f-3 Plan dated May 24, 1995 is filed herewith. (o)(1) Powers of Attorney are incorporated herein by reference to Exhibit (o) of Post-Effective Amendment No. 10 to the Registration Statement of STI Classic Variable Trust (SEC No. 033-91476) filed with the SEC via EDGAR Accession No. 0000935069-01-000085 on February 21, 2001. (o)(2) Powers of Attorney are incorporated herein by reference to Exhibit (o)(2) of Post Effective Amendment No. 12 to the Registration Statement of STI Classic Variable Trust (SEC No. 033-91476) filed with the SEC via EDGAR Accession No. 0000935069-02-000358 on April 29, 2002. (p)(1) Code of Ethics for STI Classic Funds are incorporated herein by reference to Exhibit (p)(1) of Post-Effective Amendment No. 35 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000916641-00-000365 on March 28, 2000. (p)(2) Code of SEI Investments Company as of December 2000 is incorporated herein by reference to Exhibit (p)(1) of Post-Effective Amendment No. 3 to the Registration Statement of SEI Insurance Products Trust (SEC No. 333-70013) filed with the SEC via EDGAR Accession No. 0000912057-01-511209 on April 27, 2001. (p)(3) Code of Ethics for Trusco Capital Management, Inc. are incorporated herein by reference to Exhibit (p)(3) of Post-Effective Amendment No. 35 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000916641-00-000365 on March 28, 2000. (p)(4) Code of Ethics for Trusco Capital Management, Inc., as approved by the Board of Trustees on August 15, 2000, are incorporated herein by reference to Exhibit (p)(4) of Post-Effective Amendment No. 37 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000935069-00-000528 on September 21, 2000. Item 24. Persons Controlled by or under Common Control with Registrant: See the Prospectus and Statement of Additional Information regarding the Trust's control relationships. The Administrator is a subsidiary of SEI Investments which also controls the distributor of the Registrant, SEI Investments Distribution Co., and other corporations engaged in providing various financial and record keeping services, primarily to bank trust departments, pension plan sponsors, and investment managers. C-3 Item 25. Indemnification: Article VIII of the Agreement of Declaration of Trust filed as Exhibit (a) to the Registration Statement is incorporated by reference. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to trustees, directors, officers and controlling persons of the Registrant by the Registrant pursuant to the Declaration of Trust or otherwise, the Registrant is aware that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and, therefore, is unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by trustees, directors, officers or controlling persons of the Registrant in connection with the successful defense of any act, suit or proceeding) is asserted by such trustees, directors, officers or controlling persons in connection with the shares being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issues. Item 26. Business and Other Connections of Investment Advisors: Other business, profession, vocation, or employment of a substantial nature in which each director or principal officer of each Advisor is or has been, at any time during the last two fiscal years, engaged for his own account or in the capacity of director, officer, employee, partner or trustee are as follows:
CONNECTION WITH OTHER NAME NAME OF OTHER COMPANY COMPANY - ---------------------------------------------------------------------------------------------------------------------------- TRUSCO CAPITAL MANAGEMENT, INC. James M. Wells SunTrust Banks, Inc. Vice-Chairman Director William H. Rogers SunTrust Banks, Inc. Executive Vice President Director Douglas S. Phillips -- -- President/CEO/Director Paul L. Robertson, III -- -- Executive Vice President/Secretary/Treasurer Andrew J. Muldoon, III -- -- Executive Vice President G. Bradley Ball SunTrust Bank Executive Vice President Executive Vice President Robert J. Rhodes -- -- Executive Vice President Rebekah R. Alley -- -- Vice President David C. Anderson SunTrust Bank Vice President Vice President Charles B. Arrington -- -- Vice President Frances J. Aylor -- -- Vice President C-4 CONNECTION WITH OTHER NAME NAME OF OTHER COMPANY COMPANY - ---------------------------------------------------------------------------------------------------------------------------- Brett L. Barner -- -- Vice President James N. Behre -- -- Vice President William Bellamy -- -- Vice President Richard M. Bemis SunTrust Bank Vice President Vice President Theresa N. Benson SunTrust Bank Vice President Vice President Edward E. Best -- -- Managing Director Gordon Boardway SunTrust Bank Vice President Vice President Noel Crissman Boggan -- -- Vice President Jeffrey C. Boucek -- -- Vice President Robert S. Bowman -- -- Managing Director Casey C. Brogdon -- -- Managing Director Daniel Bromstad -- -- Vice President C. William Buchholtz -- -- Vice President William B. Buie -- -- Vice President Carrie Ann Callahan SunTrust Bank Vice President Vice President George E. Calvert, Jr. -- -- Vice President Ann Caner SunTrust Bank Vice President Vice President Gay B. Cash SunTrust Bank, Atlanta First Vice President Vice President Denise E. Claridy -- -- Vice President C-5 CONNECTION WITH OTHER NAME NAME OF OTHER COMPANY COMPANY - ---------------------------------------------------------------------------------------------------------------------------- Shane Coldren -- -- Vice President Robert W. Corner -- -- Vice President J. Chadwick Deakins -- -- Vice President L. Earl Denney -- -- Managing Director James R. Dillon, Jr. -- -- Managing Director Louis Joseph Douglass, IV -- -- Vice President Martin J. Duffy -- -- Vice President Mary Durkin -- -- Vice President Bob M. Farmer SunTrust Bank Vice President Managing Director Douglas J. Farmer -- -- Vice President James P. Foster -- -- Vice President Holly Freeman SunTrust Bank Vice President Vice President Mark D. Garfinkel -- -- Vice President Alan M. Gayle -- -- Managing Director Eunice Gillespie SunTrust Bank Vice President Vice President Frank P. Giove -- -- Vice President Steven Elliott Gordon SunTrust Bank Vice President Vice President Brian Gupton SunTrust Bank Vice President Vice President Neil L. Halpert -- -- Vice President C-6 CONNECTION WITH OTHER NAME NAME OF OTHER COMPANY COMPANY - ---------------------------------------------------------------------------------------------------------------------------- Melvin E. Hamilton SunTrust Bank Vice President Managing Director John M. Hamlin -- -- Vice President Peter P. Hardy -- -- Vice President David Hatter SunTrust Bank Vice President Vice President Edward Hugh Head -- -- Vice President Ken Hessel -- -- Vice President Kristin R. Hildebrand -- -- Vice President Michael Todd Hill -- -- Vice President Michael J. Honsharuk -- -- Vice President Michael A. Jenacova -- -- Vice President Christopher A. Jones -- -- Managing Director Christine Y. Keefe SunTrust Bank Vice President Vice President Alan S. Kelley -- -- Vice President Christian G. Koch -- -- Vice President James E. Kofron -- -- Vice President Thomas Krahe SunTrust Bank Senior Vice President Managing Director Wayne G. Larochelle SunTrust Bank Vice President Managing Director Charles B. Leonard -- -- Managing Director C-7 CONNECTION WITH OTHER NAME NAME OF OTHER COMPANY COMPANY - ---------------------------------------------------------------------------------------------------------------------------- Daniel J. Lewis -- -- Vice President William Longan -- -- Vice President Jennifer J. Love SunTrust Bank Vice President Vice President Kimberly C. Maichle -- -- Vice President James B. Mallory SunTrust Bank Vice President Vice President Jeffrey E. Markunas -- -- Managing Director Robert Preston Martin SunTrust Bank Vice President Vice President James G. McKinley, III SunTrust Bank Vice President Vice President John N. Michie -- -- Vice President R. Douglas Mitchell -- -- Vice President Kurt T. Momand -- -- Managing Director Peter T. Montgomery -- -- Vice President Elizabeth T. Morrison -- -- Vice President Jonathan C. Mote -- -- Vice President Timothy James Nash SunTrust Bank Vice President Vice President Robert Neinken SunTrust Bank Senior Vice President Managing Director Harold F. Nelson -- -- Managing Director Steven A. Noone -- -- Managing Director Stuart L. Oglesby SunTrust Bank Vice President Vice President C-8 CONNECTION WITH OTHER NAME NAME OF OTHER COMPANY COMPANY - ---------------------------------------------------------------------------------------------------------------------------- Agnes G. Pampush -- -- Managing Director Christopher Paolella SunTrust Bank Senior Vice President Managing Director Patrick Paparelli -- -- Managing Director Sheri L. Paquette -- -- Vice President Ty Parrish SunTrust Bank Vice President Vice President Ronnie G. Pennell -- -- Vice President Elliott A. Perny -- -- Managing Director James Phebus Jr. -- -- Vice President Gary Plourde SunTrust Bank Senior Vice President Managing Director Elizabeth G. Pola -- -- Managing Director Neil J. Powers -- -- Managing Director Joe E. Ransom -- -- Managing Director Lori A. Ravo -- -- Vice President Boyce G. Reid -- -- Vice President Mills A. Riddick -- -- Managing Director D. Kevin Roddey -- -- Vice President Josie C. Rosson -- -- Vice President James L. Savage -- -- Vice President Marc H. Schneidau -- -- Vice President C-9 CONNECTION WITH OTHER NAME NAME OF OTHER COMPANY COMPANY - ---------------------------------------------------------------------------------------------------------------------------- Ronald H. Schwartz -- -- Managing Director Michael G. Sebesta -- -- Managing Director Dusty L. Self -- -- Vice President J. Michael Shamburger SunTrust Bank Vice President Vice President Garrett P. Smith -- -- Managing Director George D. Smith, Jr. -- -- Vice President Stephen Smith -- -- Vice President E. Dean Speer -- -- Vice President Ellen Spong SunTrust Bank Vice President Managing Director Celia S. Stanley -- -- Vice President John H. Stebbins -- -- Managing Director Chad K. Stephens -- -- Vice President E. Sonny Surkin -- -- Vice President Hubert Swecker SunTrust Bank Vice President Vice President William F. Tarry -- -- Vice President Howard Udis SunTrust Bank Vice President Vice President Mark Valle SunTrust Bank Vice President Vice President Stuart F. Van Arsdale -- -- Managing Director Ary C. Velasco SunTrust Bank Vice President Vice President C-10 CONNECTION WITH OTHER NAME NAME OF OTHER COMPANY COMPANY - ---------------------------------------------------------------------------------------------------------------------------- Jeff Vogelbacker -- -- Managing Director David M. Walrod -- -- Vice President Joseph Walsh SunTrust Bank Vice President Vice President Darren C. Weems -- -- Vice President David E. West -- -- Managing Director Elizabeth Wilson -- -- Managing Director William L. Wilson, Jr. -- -- Vice President Donald Wordell -- -- Vice President Natalie Wright -- -- Vice President Stephen M. Yarbrough -- -- Managing Director David S. Yealy -- -- Managing Director
Item 27. Principal Underwriters: (a) Furnish the name of each investment company (other than the Registrant) for which each principal underwriter currently distributing the securities of the Registrant also acts as a principal underwriter, distributor or investment adviser. Registrant's distributor, SEI Investments Distribution Co. (the "Distributor"), acts as distributor for: SEI Daily Income Trust July 15, 1982 SEI Liquid Asset Trust November 29, 1982 SEI Tax Exempt Trust December 3, 1982 SEI Index Funds July 10, 1985 SEI Institutional Managed Trust January 22, 1987 SEI Institutional International Trust August 30, 1988 The Advisors' Inner Circle Fund November 14, 1991 The Arbor Fund January 28, 1993 Bishop Street Funds January 27, 1995 STI Classic Variable Trust August 18, 1995 SEI Asset Allocation Trust April 1, 1996 SEI Institutional Investments Trust June 14, 1996 HighMark Funds February 15, 1997 Armada Funds March 8, 1997 C-11 Expedition Funds June 9, 1997 Oak Associates Funds February 27, 1998 The Nevis Fund, Inc. June 29, 1998 CNI Charter Funds April 1, 1999 The Armada Advantage Fund May 1, 1999 Amerindo Funds Inc. July 13, 1999 iShares Inc. January 28, 2000 SEI Insurance Products Trust March 29, 2000 iShares Trust April 25, 2000 Pitcairn Funds August 1, 2000 First Focus Funds, Inc. October 1, 2000 JohnsonFamily Funds, Inc. November 1, 2000 The MDL Funds January 24, 2001 Causeway Capital Management Trust September 20, 2001 The Distributor provides numerous financial services to investment managers, pension plan sponsors, and bank trust departments. These services include portfolio evaluation, performance measurement and consulting services ("Funds Evaluation") and automated execution, clearing and settlement of securities transactions ("MarketLink"). (b) Furnish the Information required by the following table with respect to each director, officer or partner of each principal underwriter named in the answer to Item 20 of Part B. Unless otherwise noted, the business address of each director or officer is Oaks, PA 19456.
Position and Office Positions and Offices NAME WITH UNDERWRITER WITH REGISTRANT - ---- ---------------- --------------- Alfred P. West, Jr. Director, Chairman of the Board of Directors -- Richard B. Lieb Director, Executive Vice President -- Carmen V. Romeo Director -- Mark J. Held President & Chief Operating Officer -- Dennis J. McGonigle Executive Vice President -- Robert M. Silvestri Chief Financial Officer & Treasurer -- Todd Cipperman Senior Vice President & General Counsel -- Carl A. Guarino Senior Vice President -- Jack May Senior Vice President -- Kevin P. Robins Senior Vice President -- Patrick K. Walsh Senior Vice President -- Wayne M. Withrow Senior Vice President -- Robert Aller Vice President -- John D. Anderson Vice President & Managing Director -- Timothy D. Barto Vice President & Assistant Secretary -- Robert Crudup Vice President & Managing Director -- Richard A. Deak Vice President & Assistant Secretary -- Scott W. Dellorfano Vice President & Managing Director -- Barbara Doyne Vice President -- Jeff Drennen Vice President -- Scott C. Fanatico Vice President & Managing Director -- Vic Galef Vice President & Managing Director -- Steven A. Gardner Vice President & Managing Director -- Lydia A. Gavalis Vice President & Assistant Secretary -- Greg Gettinger Vice President & Assistant Secretary -- Kathy Heilig Vice President -- Jeff Jacobs Vice President -- Bridget Jensen Vice President -- Samuel King Vice President -- John Kirk Vice President & Managing Director -- Kim Kirk Vice President & Managing Director -- John Krzeminski Vice President & Managing Director -- Karen LaTourette Secretary -- Alan H. Lauder Vice President -- C-12 Paul Lonergan Vice President & Managing Director -- Ellen Marquis Vice President -- Christine M. McCullough Vice President & Assistant Secretary -- Carolyn McLaurin Vice President & Managing Director -- Mark Nagle Vice President -- Joanne Nelson Vice President -- Rob Redican Vice President -- Maria Rinehart Vice President -- Steve Smith Vice President -- Daniel Spaventa Vice President -- Kathryn L. Stanton Vice President -- Sherry K. Vetterlein Vice President & Assistant Secretary -- Lori L. White Vice President & Assistant Secretary -- William E. Zitelli, Jr. Vice President & Assistant Secretary --
Item 28. Location of Accounts and Records: Books or other documents required to be maintained by Section 31(a) of the Investment Company Act of 1940, and the rules promulgated thereunder, are maintained as follows: (a) With respect to Rules 31a-1(a); 31a-1(b)(1); (2)(a) and (b); (3); (6); (8); (12); and 31a-1(d), the required books and records are maintained at the offices of Registrant's Custodians: Trust Company Bank Park Place P.O. Box 105504 Atlanta, Georgia 30348 Bank of New York One Wall Street New York, New York (International Equity Index Fund, International Equity Fund, Strategic Income Fund) (b)/(c) With respect to Rules 31a-1(a); 31a-1(b)(1),(4); (2)(C) and (D); (4); (5); (6); (8); (9); (10); (11); and 31a-1(f), the required books and records are maintained at the offices of Registrant's Administrator: SEI Investments Global Funds Services One Freedom Valley Road Oaks, Pennsylvania 19456 (c) With respect to Rules 31a-1(b)(5), (6), (9) and (10) and 31a-1(f), the required books and records are maintained at the principal offices of the Registrant's Advisors: Trusco Capital Management P.O. Box 3808 Orlando, Florida 32802 Trusco Capital Management 50 Hurt Plaza, Suite 1400 Atlanta, Georgia 30303 Trusco Capital Management 25 Park Place Atlanta, Georgia 30303 Item 29. Management Services: None. Item 30. Undertakings: None. C-13 NOTICE A copy of the Agreement and Declaration of Trust for STI Classic Funds is on file with the Secretary of State of The Commonwealth of Massachusetts and notice is hereby given that this Registration Statement has been executed on behalf of the Trust by an officer of the Trust as an officer and by its Trustees as trustees and not individually and the obligations of or arising out of this Registration Statement are not binding upon any of the Trustees, officers, or Shareholders individually but are binding only upon the assets and property of the Trust. C-14 SIGNATURES Pursuant to the requirements of the Securities Act of 1933 (the "Securities Act") and the Investment Company Act of 1940, as amended, the Registrant certifies that it meets all of the requirements for effectiveness of this Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this Post-Effective Amendment No. 43 to Registration Statement No. 33-45671 to be signed on its behalf by the undersigned, duly authorized, in the City of Oaks, Commonwealth of Pennsylvania on the 30th day of September, 2002. By: * ----------------------------- James R. Foggo, President Pursuant to the requirements of the Securities Act, this Registration Statement has been signed below by the following persons in the capacity on the dates indicated. * Trustee September 30, 2002 - -------------------------------------- F. Wendell Gooch * Trustee September 30, 2002 - -------------------------------------- Jonathan T. Walton * Trustee September 30, 2002 - -------------------------------------- James O. Robbins * Trustee September 30, 2002 - -------------------------------------- Thomas Gallagher * Trustee September 30, 2002 - -------------------------------------- Richard W. Courts, II * Trustee September 30, 2002 - -------------------------------------- Clarence H. Ridley * President September 30, 2002 - -------------------------------------- James R. Foggo * Treasurer & Chief September 30, 2002 - -------------------------------------- Financial Officer Jennifer Spratley * By /S/ TODD B. CIPPERMAN - ------------------------------------- Todd B. Cipperman, With Power of Attorney C-15 EXHIBIT INDEX NUMBER EXHIBIT - ------ ------- EX-99.A Declaration of Trust as originally filed with Registrant's Registration Statement on Form N-1A filed February 12, 1992 is incorporated herein by reference to Exhibit 1 of Post-Effective Amendment No. 15 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000912057-96-015938 on July 31, 1996. EX-99.B Amended and Restated By-Laws, as approved by the Board of Trustees on August 15, 2000, are incorporated herein by reference to Exhibit (b) of Post-Effective Amendment No. 37 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000935069-00-000528 on September 21, 2000. EX-99.C Not applicable. EX-99.D1 Revised Investment Advisory Agreement with Trusco Capital Management, Inc. as originally filed with Registrant's Post-Effective Amendment No. 5 filed August 2, 1993 is incorporated herein by reference to Exhibit 5(c) of Post-Effective Amendment No. 15 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000912057-96-015938 on July 31, 1996. EX-99.D2 Investment Advisory Agreement with American National Bank and Trust Company as originally filed with Registrant's Post-Effective Amendment No. 6 filed October 22, 1993 is incorporated herein by reference to Exhibit 5(d) of Post-Effective Amendment No. 15 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000912057-96-015938 on July 31, 1996. EX-99.D3 Investment Advisory Agreement with Sun Bank Capital Management, National Association (now Trusco Capital Management, Inc.) as originally filed with Registrant's Post-Effective Amendment No. 6 filed October 22, 1993 is incorporated herein by reference to Exhibit 5(e) of Post-Effective Amendment No. 15 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000912057-96-015938 on July 31, 1996. EX-99.D4 Investment Advisory Agreement with Trust Company Bank (now Trusco Capital Management, Inc.) as originally filed with Registrant's Post-Effective Amendment No. 6 filed October 22, 1993 is incorporated herein by reference to Exhibit D(4) of Post-Effective Amendment No. 24 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0001047469-98-028802 on July 30, 1998. EX-99.D5 Revised Schedule A to the Revised Investment Advisory Agreement with Trusco Capital Management, Inc. dated May 24, 1999 is incorporated herein by reference to the Registrant's Post-Effective Amendment No. 32 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0001047469-99-037088 on September 28, 1999. EX-99.D6 Revised Schedule A to the Revised Investment Advisory Agreement with Trusco Capital Management, Inc. dated October 1, 1999 is incorporated herein by reference to the Registrant's Post-Effective Amendment No. 33 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000912057-99-007899 on December 1, 1999. EX-99.D7 Revised Schedule A to the Revised Investment Advisory Agreement with Trusco Capital Management, Inc. dated March 27, 2000 is incorporated herein by reference to the Registrant's Post-Effective Amendment No. 35 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000916641-00-000365 on March 28, 2000. EX-99.D8 Revised Schedule A dated April 8, 2002 to the Revised Investment Advisory Agreement with Trusco Capital Management dated March 28, 2000 is filed herewith. EX-99.E Distribution Agreement dated May 26, 1992 is incorporated herein by reference to Exhibit 6 of Post-Effective Amendment No. 16 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000912057-96-021336 on September 27, 1996. EX-99.F Not applicable. EX-99.G1 Custodian Agreement with Trust Company Bank dated February 1, 1994 originally filed with Registrant's Post-Effective Amendment No. 13 filed September 28, 1995 is incorporated herein by reference to Exhibit 8(b) of Post-Effective Amendment No. 15 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000912057-96-015938 on July 31, 1996. EX-99.G2 Custodian Agreement with the Bank of California is incorporated herein by reference to Exhibit 8(a) of Post-Effective Amendment No. 15 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000912057-96-015938 on July 31, 1996. EX-99.G3 Fourth Amendment to Custodian Agreement by and between STI Trust & Investment Operations, Inc. and The Bank of New York dated May 6, 1997 is incorporated herein by reference to Exhibit 8(d) of Post-Effective Amendment No. 21 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000912057-97-032207 on September 30, 1997. C-16 EX-99.G4 Amendment dated November 30, 2001 to the Custody Agreement dated May 11, 1999 between the Trust with respect to the International Equity Fund, International Equity Index Fund and the Strategic Income Fund and the Bank of New York is filed herewith. EX-99.H1 Transfer Agent Agreement with Federated Services Company dated May 14, 1994 originally filed with Post-Effective Amendment No. 9 filed September 22, 1994 is incorporated herein by reference to Exhibit 8(c) of Post-Effective Amendment No. 15 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000912057-96-015938 on July 31, 1996. EX-99.H2 Administration Agreement with SEI Financial Management Corporation dated May 29, 1995 is incorporated herein by reference to the Registrant's Post-Effective Amendment No. 32 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0001047469-99-037088 on September 28, 1999. EX-99.H3 Consent to Assignment and Assumption of the Administration Agreement between STI Classic Funds and SEI Financial Management Corporation is incorporated herein by reference to Exhibit 9(b) of Post-Effective Amendment No. 21 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000912057-97-032207 on September 30, 1997. EX-99.I Opinion and Consent of Counsel is filed herewith. EX-99.J Consent of PricewaterhouseCoopers LLP, independent public accountants, is filed herewith. EX-99.K Not applicable. EX-99.L Not applicable. EX-99.M1 Distribution Plan - Investor Class is incorporated herein by reference to Exhibit 15 of Post-Effective Amendment No. 16 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000912057-96-021336 on September 27, 1996. EX-99.M2 Distribution and Service Agreement relating to Flex Shares dated May 29, 1995 as originally filed with Post-Effective Amendment No. 12 filed August 17, 1995 is incorporated herein by reference to Exhibit 15(a) of Post-Effective Amendment No. 15 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000912057-96-015938 on July 31, 1996. EX-99.N1 Rule 18f-3 Plan is incorporated herein by reference to Exhibit (o) of Post-Effective Amendment No. 23 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0001047469-98-027407 on July 15, 1998. EX-99.N2 Certificate of Class Designation is incorporated herein by reference to Exhibit (o)(1) of Post-Effective Amendment No. 27 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0001047469-99-009731 on April 15, 1999. EX-99.N3 Amended Rule 18f-3 Plan dated May 14, 2000 to the Rule 18f-3 Plan dated May 24, 1995 is filed herewith. EX-99.O1 Powers of Attorney are incorporated herein by reference to Exhibit (o) of Post-Effective Amendment No. 10 to the Registration Statement of STI Classic Variable Trust (SEC No. 033-91476) filed with the SEC via EDGAR Accession No. 0000935069-01-000085 on February 21, 2001. EX-99.O2 Powers of Attorney are incorporated herein by reference to Exhibit (o)(2) of Post Effective Amendment No. 12 to the Registration Statement of STI Classic Variable Trust (SEC No. 033-91476) filed with the SEC via EDGAR Accession No. 0000935069-02-000358 on April 29, 2002. EX-99.P1 Code of Ethics for STI Classic Funds are incorporated herein by reference to Exhibit (p)(1) of Post-Effective Amendment No. 35 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000916641-00-000365 on March 28, 2000. EX-99.P2 Code of SEI Investments Company as of December 2000 is incorporated herein by reference to Exhibit (p)(1) of Post-Effective Amendment No. 3 to the Registration Statement of SEI Insurance Products Trust (SEC No. 333-70013) filed with the SEC via EDGAR Accession No. 0000912057-01-511209 on April 27, 2001. EX-99.P3 Code of Ethics for Trusco Capital Management, Inc. are incorporated herein by reference to Exhibit (p)(3) of Post-Effective Amendment No. 35 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000916641-00-000365 on March 28, 2000. EX-99.P4 Code of Ethics for Trusco Capital Management, Inc., as approved by the Board of Trustees on August 15, 2000, are incorporated herein by reference to Exhibit (p)(4) of Post-Effective Amendment No. 37 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000935069-00-000528 on September 21, 2000. C-17 EX-99.D 3 exhibitd8.txt INVESTMENT ADVISORY AGREEMENT REVISED SCHEDULE A DATED APRIL 8, 2002 TO THE INVESTMENT ADVISORY AGREEMENT BETWEEN STI CLASSIC FUNDS AND TRUSCO CAPITAL MANAGEMENT Pursuant to Article 3, the Trust shall pay the Adviser compensation at an annual rate as follows: PORTFOLIO FEE --------- ---- Prime Quality Money Market Fund .65% U.S. Government Securities Money Market Fund 65% Tax-Exempt Money Market Fund .55% Short-Term Bond Fund .65% Short-Term U.S. Treasury Securities Fund .65% U.S. Government Securities Fund .74% International Equity Index Fund .90% Classic Institutional Cash Management Money Market Fund .20% Classic Institutional U.S. Treasury Securities Money Market Fund .20% Small Cap Growth Stock Fund 1.15% Tax Sensitive Growth Stock Fund 1.15% Maryland Municipal Bond Fund .65% Virginia Intermediate Municipal Bond Fund .65% Virginia Municipal Bond Fund .65% Virginia Tax-Free Money Market Fund .40% (formerly Tax-Free Money Market Fund) U.S. Treasury Money Market Fund .65% Growth and Income Fund .90% Life Vision Aggressive Growth Fund (formerly Life Vision Maximum Growth Portfolio) .25% Life Vision Growth and Income Fund (formerly Life Vision Growth and Income Portfolio) .25% Life Vision Moderate Growth Fund (formerly Life Vision Balanced Portfolio) .25% Classic Institutional U.S. Government Securities Money Market Fund .20% Information and Technology Fund (formerly E-Commerce Opportunity Fund) 1.10% High Income Fund .80% Mid Cap Value Equity Fund 1.25% Strategic Income Fund 0.85% Vantage Fund 1.60% Classic Institutional Short-Term Bond Fund 0.60% Classic Institutional Super Short Income Plus Fund 0.50% Classic Institutional U.S. Government Securities Super Short Income Plus Fund 0.40% EX-99.G 4 exhibit_g4.txt CUSTODY AGREEMENT AMENDMENT AMENDMENT AMENDMENT made as of November 30, 2001 to that certain Custody Agreement dated as of May 11, 1999 between The STI Classic Funds with respect to the International Equity Fund and the International Equity Index Fund and the Strategic Income Fund (each a "Fund") and The Bank of New York ("Custodian") (such Custody Agreement hereinafter referred to as the "Custody Agreement"). WITNESSETH: WHEREAS, Rule 17f-7 under the Investment Company Act of 1940, as amended (the "Rule"), was adopted on June 12, 2000 by the Securities and Exchange Commission; WHEREAS, each Fund and Custodian desire to amend the Custody Agreement to conform to the Rule; NOW, THEREFORE, each Fund and Custodian hereby agrees as follows: A. The following new Article is hereby added to the Custody Agreement: FOREIGN DEPOSITORIES 1. As used in this Article, the term "Foreign Depository" shall mean each Eligible Securities Depository as defined in Rule 17f-7 under the Investment Company Act of 1940, as amended (the "Rule"), identified by Custodian to the Fund from time to time, and their respective successors and nominees. 2. Notwithstanding any other provision in this Agreement, the Fund hereby represents and warrants, which representations and warranties shall be continuing and shall be deemed to be reaffirmed upon any delivery of a Certificate or any giving of Oral Instructions, Instructions, or Written Instructions, as the case may be for a Fund, that such Fund or its investment adviser has determined that the custody arrangements of each Foreign Depository provide reasonable safeguards against the custody risks associated with maintaining assets with such Foreign Depository within the meaning of the Rule. 3. With respect to each Foreign Depository to be utilized by a Fund, Custodian shall exercise reasonable care, prudence, and diligence such as a person having responsibilities for the safekeeping of the Fund's assets would exercise (i) to provide such Fund or its investment adviser with an analysis of the custody risks associated with maintaining assets with the Foreign Depository, and (ii) to monitor such custody risks on a continuing basis and promptly notify the Fund of any material change in such risks. Consistent with such reasonable care, prudence and diligence, each such Fund acknowledges and agrees, first, that such analysis and monitoring shall be made on the basis of, and limited by, information gathered from Subcustodians, from trade associations of which Custodian is a member from time to time, or through publicly available information otherwise obtained by Custodian, and shall not include any evaluation of Country Risks, and, second, that information supplied by Custodian with respect to the status of an institution as a Foreign Depository or utilized by Custodian to conclude that an institution is a Foreign Depository shall be limited to information supplied by such institution without any independent verification. As used herein the term "Country Risks" shall mean with respect to any Foreign Depository: (a) the financial infrastructure of the country in which it is organized, but not of any Foreign Depository to the extent covered by an analysis described in clause (i) of this Section, (b) such country's prevailing custody and settlement practices, (c) nationalization, expropriation or other governmental actions, (d) such country's regulation of the banking of securities industry, (e) currency controls, restrictions, devaluations or fluctuations, and (f) market conditions which affect the orderly execution of securities transactions or affect the value of securities. B. Each party represents to the other that this Amendment has been duly executed. C. This Amendment may be executed in any number of counterparts, each of which shall be deemed to be an original, but such counterparts, shall, together, constitute only one amendment. IN WITNESS WHEREOF, the Fund and Custodian have caused this Amendment to be executed by their respective officers, thereunto duly authorized, as of the day and year first above written. THE STI CLASSIC FUNDS WITH RESPECT TO THE INTERNATIONAL EQUITY FUND AND THE INTERNATIONAL EQUITY INDEX FUND AND THE STRATEGIC INCOME FUND By: /s/ Timothy D. Barto --------------------------------------- Title: Vice President Tax Identification No.: THE BANK OF NEW YORK By: /s/ Jorge Ramos --------------------------------------- Title: Jorge Ramos Vice President EX-99.I 5 exhibiti.txt OPINION OF COUNSEL AMENDMENT NO. 43 Morgan, Lewis & Bockius LLP 1111 Pennsylvania Avenue, NW Washington, DC 20004 September 30, 2002 STI Classic Funds 101 Federal Street Boston, MA 02110 Re: OPINION OF COUNSEL REGARDING POST-EFFECTIVE AMENDMENT NO. 43 TO THE ----------------------------------------------------------------------- REGISTRATION STATEMENT FILED ON FORM N-1A UNDER THE SECURITIES ACT OF ----------------------------------------------------------------------- 1933 (FILE NO. 33-45671) ------------------------ Ladies and Gentlemen: We have acted as counsel to STI Classic Funds, a Massachusetts business trust (the "Trust"), in connection with the above-referenced Registration Statement on Form N-1A (as amended, the "Registration Statement") which relates to the Trust's shares of beneficial interest, without par value (collectively, the "Shares"). This opinion is being delivered to you in connection with the Trust's filing of Post-Effective Amendment No. 43 to the Registration Statement (the "Amendment") to be filed with the Securities and Exchange Commission pursuant to Rule 485(b) of the U.S. Securities Act of 1933 (the "1933 Act"). With your permission, all assumptions and statements of reliance herein have been made without any independent investigation or verification on our part except to the extent otherwise expressly stated, and we express no opinion with respect to the subject matter or accuracy of such assumptions or items relied upon. In connection with this opinion, we have reviewed, among other things, executed copies of the following documents: (a) a certificate of the Commonwealth of Massachusetts as to the existence of the Trust, which is duly authorized and validly existing under the laws of the Commonwealth of Massachusetts; (b) copies of the Trust's Agreement and Declaration of Trust and of all amendments and all supplements thereto (the "Declaration of Trust"); (c) a certificate executed by Timothy D. Barto, the Secretary of the Trust, certifying to and attaching copies of the Trust's Declaration of Trust and Amended and Restated By-Laws (the "By-Laws"), and certain resolutions adopted by the Board of Trustees of the Trust authorizing the issuance of the Shares; and (d) a printer's proof of the Amendment. In our capacity as counsel to the Trust, we have examined the originals, or certified, conformed or reproduced copies, of all records, agreements, instruments and documents as we have deemed relevant or necessary as the basis for the opinion hereinafter expressed. In all such examinations, we have assumed the legal capacity of all natural persons executing documents, the genuineness of all signatures, the authenticity of all original or certified copies, and the conformity to original or certified copies of all copies submitted to us as conformed or reproduced copies. As to various questions of fact relevant to such opinion, we have relied upon, and assume the accuracy of, certificates and oral or written statements of public officials and officers or representatives of the Trust. We have assumed that the Registration Statement, as filed with the U.S. Securities and Exchange Commission, will be in substantially the form of the printer's proof referred to in paragraph (d) above. Based upon, and subject to, the limitations set forth herein, we are of the opinion that the Shares, when issued and sold in accordance with the Trust's Declaration of Trust and By-Laws, and for the consideration described in the Registration Statement, will be legally issued, fully paid and non-assessable under the laws of the Commonwealth of Massachusetts. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement. In giving this consent, we do not concede that we are in the category of persons whose consent is required under Section 7 of the 1933 Act. Very truly yours, /S/ MORGAN, LEWIS & BOCKIUS LLP - ------------------------------------ Morgan, Lewis & Bockius LLP EX-99.J 6 exhibitj.txt STI CLASSIC CONSENT OF INDEP ACCOUNTANTS 485B CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in this Registration Statement on Form N-1A of our reports dated July 15, 2002, relating to the financial statements and financial highlights which appear in the May 31, 2002 Annual Reports to the Shareholders and Board of Trustees of the STI Classic Funds, which are also incorporated by reference into the Registration Statement, except for the Statement of Operations of the STI Classic Institutional Short-Term Bond Fund, STI Classic Institutional Super Short Income Plus Fund and STI Classic Institutional U.S. Government Securities Super Short Income Plus Fund, the Financial Highlights of the STI Classic Institutional Short-Term Bond Fund, STI Classic Institutional Super Short Income Plus Fund and STI Classic Institutional U.S. Government Securities Super Short Income Plus Fund, and the Financial Highlights of the STI Classic International Equity Fund, STI Classic Mid Cap Equity Fund and STI Classic Vantage Fund, which statements are included in the Statements of Additional Information and reflect the correction of clerical errors that were contained in such financial statements which were included in such Annual Reports. We also consent to the references to us under the headings "Financial Highlights" and "Independent Public Accountants" in such Registration Statement. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Philadelphia, Pennsylvania September 27, 2002 EX-99.N 7 exhibitn3.txt MULTIPLE CLASS PLAN RULE 18F3 STI CLASSIC FUNDS RULE 18F-3 MULTIPLE CLASS PLAN ADOPTED MAY 24, 1995 AMENDED MAY 14, 2002 STI Classic Funds (the "Trust"), a registered investment company that currently consists of a number of separately managed funds, has elected to rely on Rule 18f-3 under the Investment Company Act of 1940, as amended (the "1940 Act"), in offering multiple classes of shares in the funds listed on Schedule A hereto (each a "Fund" and together the "Funds"). A. Attributes of Share Classes 1. The rights of each class of shares of the Funds shall be as set forth in the respective Certificate of Class Designation for each class (each a "Certificate") as each such Certificate is approved by the Trust's Board of Trustees and as attached hereto as Exhibits. 2. With respect to each class of shares created hereunder, each share of a Fund will represent an equal pro rata interest in the Fund and will have identical terms and conditions, except that: (i) each new class will have a different class name (or other designation) that identifies the class as separate from any other class; (ii) each class will be offered and sold only to investors meeting the qualifications set forth in the Certificate and disclosed in the Trust's Prospectuses; (iii) each class will separately bear any distribution fees that are payable in connection with a distribution plan adopted pursuant to Rule 12b-1 under the 1940 Act (a "Distribution Plan"), and separately bear any other service fees ("service fees") that are payable under any service agreement entered into with respect to that class which are not contemplated by or within the scope of the Distribution Plan; (iv) each class may bear, consistent with rulings and other published statements of position by the Internal Revenue Service, the expenses of the Fund's operations which are directly attributable to such class ("Class Expenses"); and (v) shareholders of each class will have exclusive voting rights regarding any matter submitted to shareholders that relates solely to such class (such as a Distribution Plan or service agreement relating to such class), and will have separate voting rights on any matter submitted to shareholders in which the interests of that class differ from the interests of any other class. B. Expense Allocations With respect to each Fund, the expenses of each class shall be allocated as follows: (i) any Rule 12b-1 fees relating to a particular class of shares associated with a Distribution Plan or service fees relating to a particular class of shares are (or will be) borne exclusively by that class; and (ii) Class Expenses relating to a particular class are (or will be) borne exclusively by that class. Income and non-class specific expenses shall be allocated in accordance with Rule 18f-3(c). C. Amendment of Plan; Periodic Review This Plan must be amended to properly describe (through additional exhibits hereto) each new class of shares upon its approval by the Board. The Board of Trustees of the Trust, including a majority of the Trustees who are not "interested persons" of the Trust as defined in the 1940 Act, must approve any material amendment of the Plan as it relates to any class of any Fund covered by the Plan. In approving any material amendment to the Plan, the Trustees, including a majority of the Trustees who are not interested persons of the Trust, must find that the amendment is in the best interests of each class individually and the Trust as a whole. 2 SCHEDULE A STI CLASSIC FUNDS TRUST CLASS SHARES ------------------ Balanced Fund Capital Appreciation Florida Tax-Exempt Bond Georgia Tax-Exempt Bond Growth and Income High Income Information and Technology International Equity Fund International Equity Index Fund Investment Grade Bond Investment Grade Tax-Exempt Bond Life Vision Aggressive Growth Life Vision Conservative Life Vision Growth and Income Life Vision Moderate Growth Limited-Term Federal Mortgage Securities Maryland Municipal Bond Mid-Cap Equity Mid Cap Value Equity Prime Quality Money Market Short-Term Bond Short-Term U.S. Treasury Securities Small Cap Growth Stock Small Cap Value Equity Strategic Income Tax-Exempt Money Market Tax Sensitive Growth Stock U.S. Government Securities U.S. Government Securities Money Market U.S. Treasury Money Market Value Income Stock Vantage Virginia Intermediate Municipal Bond Virginia Municipal Bond Virginia Tax-Free Money Market 3 FLEX CLASS SHARES ----------------- Balanced Fund Capital Appreciation Florida Tax-Exempt Bond Georgia Tax-Exempt Bond Growth and Income High Income Information and Technology International Equity International Equity Index Investment Grade Bond Investment Grade Tax-Exempt Bond Limited-Term Federal Mortgage Securities Maryland Municipal Bond Mid-Cap Equity Mid Cap Value Equity Prime Quality Money Market Short-Term Bond Short-Term U.S. Treasury Securities Small Cap Growth Stock Small Cap Value Equity Strategic Income Tax Sensitive Growth Stock U.S. Government Securities Value Income Stock Vantage Virginia Municipal Bond 4 INVESTOR SHARES --------------- Balanced Fund Capital Appreciation Florida Tax-Exempt Bond Georgia Tax-Exempt Bond Growth and Income International Equity International Equity Index Investment Grade Bond Investment Grade Tax-Exempt Bond Limited-Term Federal Mortgage Securities Mid-Cap Equity Prime Quality Money Market Short-Term Bond Short-Term U.S. Treasury Securities Small Cap Growth Stock Tax-Exempt Money Market U.S. Government Securities U.S. Government Securities Money Market Value Income Stock Virginia Intermediate Municipal Bond Virginia Tax-Free Money Market INSTITUTIONAL SHARES -------------------- Institutional Cash Management Money Market Institutional Short-Term Bond Institutional Super Short Income Plus Institutional U.S. Government Securities Money Market Institutional U.S. Government Securities Super Short Income Plus Institutional U.S. Treasury Securities Money Market CORPORATE TRUST SHARES ---------------------- Institutional U.S. Treasury Money Market 5 EXHIBIT A STI CLASSIC FUNDS CERTIFICATE OF CLASS DESIGNATION TRUST CLASS SHARES 1. CLASS-SPECIFIC DISTRIBUTION ARRANGEMENTS; OTHER EXPENSES. -------------------------------------------------------- Trust Class Shares of each of the Funds are not sold subject to a sales charge or to a Rule 12b-1 fee. 2. ELIGIBILITY OF PURCHASERS ------------------------- Trust Class Shares are offered only to financial institutions or intermediaries, including subsidiaries of SunTrust Banks, Inc., for their own or their customers' accounts for which they act as fiduciary, agent, investment adviser, or custodian. 3. EXCHANGE PRIVILEGES ------------------- Trust Class Shares of each Fund may be exchanged for Trust Class Shares of each other Fund of the Trust in accordance with the procedures disclosed in the Fund's Prospectuses and subject to any applicable limitations resulting from the closing of Funds to new investors. 4. VOTING RIGHTS ------------- Each Trust Class shareholder will have one vote for each full Trust Class Share held and a fractional vote for each fractional Trust Class Share held. Trust Class shareholders will have exclusive voting rights regarding any matter submitted to shareholders that relates solely to Trust Class (such as a distribution plan or service agreement relating to Trust Class), and will have separate voting rights on any other matter submitted to shareholders in which the interests of the Trust Class Shareholders differ from the interests of holders of any other class. 5. CONVERSION RIGHTS ----------------- Trust Class Shares do not have a conversion feature. 6 EXHIBIT B STI CLASSIC FUNDS CERTIFICATE OF CLASS DESIGNATION FLEX CLASS SHARES 1. CLASS-SPECIFIC DISTRIBUTION ARRANGEMENTS; OTHER EXPENSES. -------------------------------------------------------- Flex Class Shares of each of the Funds are sold subject to a contingent deferred sales charge. If you sell your shares within the first year after your purchase, you will pay a contingent deferred sales charge equal to 2.00% for either (1) the NAV of the shares at the time of purchase, or (2) NAV of the shares next calculated after the Fund receives your sale request, whichever is less. Flex Class Shares of the Funds are also subject to a Rule 12b-1 fee under the Flex Class 12b-1 Plan and a shareholder servicing fee as described in the Funds' Prospectuses and Statement of Additional Information. 2. ELIGIBILITY OF PURCHASERS ------------------------- Flex Class Shares are offered to individual investors through brokerage accounts offered by SunTrust Banks, Inc. (SunTrust) or investment representatives of certain correspondent banks of SunTrust and other financial institutions that are authorized to place transactions in Fund shares for their customers. 3. EXCHANGE PRIVILEGES ------------------- Flex Class Shares of each Fund may be exchanged for Flex Class Shares of each other Fund of the Trust in accordance with the procedures disclosed in the Fund's Prospectus and subject to any applicable limitations resulting from the closing of Funds to new investors. 4. VOTING RIGHTS ------------- Each Flex Class shareholder will have one vote for each full Flex Class Share held and a fractional vote for each fractional Flex Class Share held. Flex Class shareholders will have exclusive voting rights regarding any matter submitted to shareholders that relates solely to Flex Class (such as a distribution plan or service agreement relating to Flex Class), and will have separate voting rights on any other matter submitted to shareholders in which the interests of the Flex Class Shareholders differ from the interests of holders of any other class. 5. CONVERSION RIGHTS ----------------- Flex Class Shares do not have a conversion feature. 7 EXHIBIT C STI CLASSIC FUNDS CERTIFICATE OF CLASS DESIGNATION INVESTOR CLASS SHARES 1. CLASS-SPECIFIC DISTRIBUTION ARRANGEMENTS; OTHER EXPENSES. -------------------------------------------------------- Investor Class Shares of each of the Funds (except the Money Market Funds) are sold subject to a front-end sales charge. Investor Class Shares sold without a front-end sales charge and redeemed within one year of purchase are subject to a deferred sales charge. Investor Class Shares of the Funds are also subject to a Rule 12b-1 fee under the Investor Class 12b-1 Plan and a shareholder servicing fee as described in the Funds' Prospectus and Statement of Additional Information. 2. ELIGIBILITY OF PURCHASERS ------------------------- Investor Class Shares are offered to individual investors through brokerage accounts offered by SunTrust Banks, Inc. (SunTrust) or investment representatives of certain correspondent banks of SunTrust and other financial institutions that are authorized to place transactions in Fund shares for their customers. 3. EXCHANGE PRIVILEGES ------------------- Investor Class Shares of each Fund may be exchanged for Investor Class Shares of each other Fund of the Trust in accordance with the procedures disclosed in the Fund's Prospectus and subject to any applicable limitations resulting from the closing of Funds to new investors. 4. VOTING RIGHTS ------------- Each Investor Class shareholder will have one vote for each full Investor Class Share held and a fractional vote for each fractional Investor Class Share held. Investor Class shareholders will have exclusive voting rights regarding any matter submitted to shareholders that relates solely to Investor Class (such as a distribution plan or service agreement relating to Investor Class), and will have separate voting rights on any other matter submitted to shareholders in which the interests of the Investor Class Shareholders differ from the interests of holders of any other class. 5. CONVERSION RIGHTS ----------------- Investor Class Shares do not have a conversion feature. 8 EXHIBIT D STI CLASSIC FUNDS CERTIFICATE OF CLASS DESIGNATION BOND FUNDS - INSTITUTIONAL CLASS SHARES 1. CLASS-SPECIFIC DISTRIBUTION ARRANGEMENTS; OTHER EXPENSES. -------------------------------------------------------- Institutional Class Shares of each of the Funds are not sold subject to a sales charge or to a Rule 12b-1 fee, but may be subject to a shareholder servicing fee as described in the Funds' Prospectuses and Statement of Additional Information. 2. ELIGIBILITY OF PURCHASERS ------------------------- Institutional Class Shares are offered primarily to institutional investors, including subsidiaries of SunTrust Banks, Inc., for their own or their customers' accounts for which they act as fiduciary, agent, investment adviser, or custodian. 3. EXCHANGE PRIVILEGES ------------------- Institutional Class Shares of each Fund may be exchanged for Institutional Class Shares of each other Fund of the Trust in accordance with the procedures disclosed in the Fund's Prospectus and subject to any applicable limitations resulting from the closing of Funds to new investors. 4. VOTING RIGHTS ------------- Institutional shares will be held of record by (in the name of) the customer's institution. Depending upon the terms of the customer's account, however, the customer may have, or be given, the right to vote his or her Institutional Shares. 5. CONVERSION RIGHTS ----------------- Institutional Class Shares do not have a conversion feature. 9 EXHIBIT E STI CLASSIC FUNDS CERTIFICATE OF CLASS DESIGNATION MONEY MARKET FUNDS - INSTITUTIONAL CLASS SHARES 1. CLASS-SPECIFIC DISTRIBUTION ARRANGEMENTS; OTHER EXPENSES. -------------------------------------------------------- Institutional Class Shares of each of the Funds are not sold subject to a sales charge or to a Rule 12b-1 fee, although institutions may charge their customers for services provided in connection with the purchase of shares. 2. ELIGIBILITY OF PURCHASERS ------------------------- Institutional Class Shares are offered primarily to institutional investors, including subsidiaries of SunTrust Banks, Inc., for their own or their customers' accounts for which they act as fiduciary, agent, investment adviser, or custodian. 3. EXCHANGE PRIVILEGES ------------------- Institutional Class Shares of each Fund may be exchanged for Institutional Class Shares of each other Fund of the Trust in accordance with the procedures disclosed in the Fund's Prospectus and subject to any applicable limitations resulting from the closing of Funds to new investors. 4. VOTING RIGHTS ------------- Institutional shares will be held of record by (in the name of) the customer's institution. Depending upon the terms of the customer's account, however, the customer may have, or be given, the right to vote his or her Institutional Shares. 5. CONVERSION RIGHTS ----------------- Institutional Class Shares do not have a conversion feature. 10 EXHIBIT F STI CLASSIC FUNDS CERTIFICATE OF CLASS DESIGNATION CORPORATE TRUST SHARES 1. CLASS-SPECIFIC DISTRIBUTION ARRANGEMENTS; OTHER EXPENSES. -------------------------------------------------------- Corporate Trust Shares are sold without a sales charge and are not subject to a Rule 12b-1 fee. However, Corporate Trust Shares are subject to shareholder servicing fees as described in the Funds' Prospectuses and Statement of Additional Information. 2. ELIGIBILITY OF PURCHASERS ------------------------- Corporate Trust Shares are offered only to accounts administered by the corporate trust divisions of subsidiaries of SunTrust Banks, Inc. and its affiliates. 3. EXCHANGE PRIVILEGES ------------------- Corporate Trust Shares of each Fund may be exchanged for Corporate Trust Shares of each other Fund of the Trust in accordance with the procedures disclosed in the Fund's Prospectus and subject to any applicable limitations resulting from the closing of Funds to new investors. 4. VOTING RIGHTS ------------- Each Corporate Trust Share shareholder will have one vote for each full Corporate Trust Share held and a fractional vote for each fractional Corporate Trust Share held. Corporate Trust shareholders will have exclusive voting rights regarding any matter submitted to shareholders that relates solely to Corporate Trust Shares (such as a distribution plan or service agreement relating to Corporate Trust Shares), and will have separate voting rights on any other matter submitted to shareholders in which the interests of the Corporate Trust Shares Shareholders differ from the interests of holders of any other class. 5. CONVERSION RIGHTS ----------------- Corporate Trust Shares do not have a conversion feature. 11 -----END PRIVACY-ENHANCED MESSAGE-----