485APOS 1 sticl485acombpea48dec03.txt STI CLASSIC 485APOS COMB FILING 12_03 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 10, 2003 File No. 033-45671 File No. 811-6557 U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ] POST-EFFECTIVE AMENDMENT NO. 48 [X] AND REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ] AMENDMENT NO. 50 [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 Volk c/o SEI Corporation Oaks, Pennsylvania 19456 ------------------------------------------------------- (Name and Address of Agent for Service) Copies to: Richard W. Grant, Esquire W. John McGuire, Esquire 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) [ ] On [date] pursuant to paragraph (b) [ ] 60 days after filing pursuant to paragraph (a)(1) [ ] On [date] pursuant to paragraph (a)(1) [x] 75 days after filing pursuant to paragraph (a)(2) [ ] On [date] pursuant to paragraph (a) of Rule 485 STI CLASSIC FUNDS EQUITY FUNDS T SHARES PROSPECTUS FEBRUARY 23, 2004 AGGRESSIVE GROWTH STOCK FUND EMERGING GROWTH STOCK FUND INVESTMENT ADVISER TO THE FUNDS: TRUSCO CAPITAL MANAGEMENT, INC. (THE "ADVISER") INVESTMENT SUBADVISER TO THE FUNDS: ZEVENBERGEN CAPITAL INVESTMENTS LLC (THE "SUBADVISER") 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. THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. Page 1 of 16 -------------------------------------------------------------------------------- ABOUT THIS PROSPECTUS -------------------------------------------------------------------------------- The STI Classic Funds is a mutual fund family that offers shares in separate investment portfolios that have individual investment goals and strategies. This prospectus gives you important information about the T Shares of the Aggressive Growth Stock Fund and Emerging Growth Stock Fund (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 THE FUNDS. FOR MORE DETAILED INFORMATION ABOUT EACH FUND, PLEASE SEE: 4 AGGRESSIVE GROWTH STOCK FUND 9 PORTFOLIO MANAGERS 6 EMERGING GROWTH STOCK FUND 9 PURCHASING AND SELLING FUND SHARES 8 MORE INFORMATION ABOUT RISK 13 DIVIDENDS AND DISTRIBUTIONS 8 MORE INFORMATION ABOUT FUND INVESTMENTS 13 TAXES 8 INVESTMENT ADVISER BACK HOW TO OBTAIN MORE INFORMATION COVER ABOUT THE STI CLASSIC FUNDS 9 INVESTMENT SUBADVISER -------------------------------------------------------------------------------- [SUITCASE ART OMITTED] FUND SUMMARY [TELESCOPE ART OMITTED] INVESTMENT STRATEGY [LIFESAVER ART OMITTED] WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? [BULLSEYE ART OMITTED] PERFORMANCE INFORMATION [COINS ART OMITTED] FUND FEES AND EXPENSES [MOUNTAIN ART OMITTED] MORE INFORMATION ABOUT FUND INVESTMENTS [MAGNIFIER ART OMITTED] INVESTMENT ADVISER [HANDSHAKE ART OMITTED] PURCHASING AND SELLING FUND SHARES Page 2 of 16
------------------------------------------------------------------------------------------------------- FUND NAME CLASS INCEPTION TICKER CUSIP ------------------------------------------------------------------------------------------------------- Aggressive Growth Stock Fund T Shares 2/23/04 XXXX 784767188 Emerging Growth Stock Fund T Shares 2/23/04 XXXX 784767238 -------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- 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 Subadviser is responsible for investing 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 Subadviser'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 Subadviser 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. Page 3 of 16 -------------------------------------------------------------------------------- AGGRESSIVE GROWTH STOCK FUND -------------------------------------------------------------------------------- [SUITCASE ART OMITTED] FUND SUMMARY
INVESTMENT GOAL Long-term capital appreciation ------------------------------------------------------------------------------------------------------------------------------ INVESTMENT FOCUS Common stocks of U.S. multi-cap growth companies ------------------------------------------------------------------------------------------------------------------------------ SHARE PRICE VOLATILITY High ------------------------------------------------------------------------------------------------------------------------------ PRINCIPAL INVESTMENT STRATEGY Attempts to identify securities of companies with favorable prospects for future revenue, earnings, and/or cash flow growth ------------------------------------------------------------------------------------------------------------------------------ INVESTOR PROFILE Investors who want to increase the value of their investment, but do not need income, and who are willing to accept more volatility for the possibility of higher returns ------------------------------------------------------------------------------------------------------------------------------
[TELECOPE ART OMITTED] INVESTMENT STRATEGY The Aggressive Growth Stock Fund invests primarily in common stocks of U.S. companies of all sizes that exhibit strong growth characteristics. Using a "bottom-up" approach, the Subadviser identifies companies with favorable prospects for future revenue, earnings, and/or cash flow growth. Growth "drivers" are identified for each company and become critical to the ongoing evaluation process. Industry growth dynamics, company competitive positioning, pricing flexibility, and diversified product offerings are evaluated, providing the foundation for further fundamental research to determine the weighting of the Fund's investments in various equity market sectors. [LIFESAVER ART OMITTED] WHAT ARE THE PRINCIPAL 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- and mid- capitalization growth stocks may underperform other segments of the equity market or the equity market as a whole. The small- and mid- capitalization companies the Fund invests in may be more vulnerable to adverse business or economic events than larger, more established companies. In particular, these 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. Page 4 of 16 [BULLSEYE ART OMITTED] PERFORMANCE INFORMATION The Aggressive Growth Stock Fund commenced operations on February 23, 2004 and, therefore, does not have any performance history. [COINS ART 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) -------------------------------------------------------------------------------- T SHARES Investment Advisory Fees 1.25% Other Expenses* 0.12% ------ Total Annual Operating Expenses** 1.37% * OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT FISCAL YEAR. ** THE FUND'S NET TOTAL ANNUAL 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. THE ADVISER MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ESTIMATED NET TOTAL OPERATING EXPENSES WOULD BE AS FOLLOWS: Aggressive Growth Stock Fund -- T 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 $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." Page 5 of 16 -------------------------------------------------------------------------------- EMERGING GROWTH STOCK FUND -------------------------------------------------------------------------------- [SUITCASE ART OMITTED] FUND SUMMARY
INVESTMENT GOAL Long-term capital appreciation ------------------------------------------------------------------------------------------------------------------------------ INVESTMENT FOCUS Common stocks of U.S. small- and mid-cap growth companies ------------------------------------------------------------------------------------------------------------------------------ SHARE PRICE VOLATILITY High ------------------------------------------------------------------------------------------------------------------------------ PRINCIPAL INVESTMENT STRATEGY Attempts to identify securities of small- and mid-capitalization companies with favorable prospects for future revenue, earnings, and/or cash flow growth ------------------------------------------------------------------------------------------------------------------------------ INVESTOR PROFILE Investors who want to increase the value of their investment, but do not need income, and who are willing to accept more volatility for the possibility of higher returns ------------------------------------------------------------------------------------------------------------------------------
[TELESCOPE ART OMITTED] INVESTMENT STRATEGY The Emerging Growth Stock Fund invests primarily in stocks of U.S. companies with market capitalizations below $10 billion that exhibit strong growth characteristics. In selecting investments for the Fund, the Subadviser emphasizes companies that have a market capitalization of $5 billion or less. Using a "bottom-up" approach, the Subadviser identifies companies with favorable prospects for future revenue, earnings, and/or cash flow growth. Growth "drivers" are identified for each company and become critical to the ongoing evaluation process. Industry growth dynamics, company competitive positioning, pricing flexibility, and diversified product offerings are evaluated, providing the foundation for further fundamental research to determine the weighting of the Fund's investments in various equity market sectors. [LIFESAVER ART OMITTED] WHAT ARE THE PRINCIPAL 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- and mid- capitalization growth stocks may underperform other segments of the equity market or the equity market as a whole. The small- and mid- capitalization companies the Fund invests in may be more vulnerable to adverse business or economic events than larger, more established companies. In particular, these 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. Page 6 of 16 [BULLSEYE ART OMITTED] PERFORMANCE INFORMATION The Emerging Growth Stock Fund commenced operations on February 23, 2004 and, therefore, does not have any performance history. [COINS ART 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) -------------------------------------------------------------------------------- T SHARES Investment Advisory Fees 1.25% Other Expenses* 0.12% ------ Total Annual Operating Expenses** 1.37% * OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT FISCAL YEAR. ** THE FUND'S NET TOTAL ANNUAL 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. THE ADVISER MAY DISCONTINUE ALL OR PART OF THIS FEE WAIVER AT ANY TIME. WITH THIS FEE WAIVER, THE FUND'S ESTIMATED NET TOTAL OPERATING EXPENSES WOULD BE AS FOLLOWS: Emerging Growth Stock Fund -- T 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 $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." Page 7 of 16 -------------------------------------------------------------------------------- MORE INFORMATION ABOUT RISK -------------------------------------------------------------------------------- [LIFESAVER ART 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. [MOUNTAIN ART 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. 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. 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 ART OMITTED] INVESTMENT ADVISER Trusco Capital Management, Inc., 50 Hurt Plaza, Suite 1400, Atlanta, Georgia 30303, serves as the investment adviser to the Funds. As of September 30, 2003, the Adviser had approximately $49 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: AGGRESSIVE GROWTH STOCK FUND 1.25% EMERGING GROWTH STOCK FUND 1.25% The Adviser continuously reviews, supervises and administers each Fund's respective investment program. The Adviser oversees the Subadviser to ensure compliance with the Funds' investment policies and guidelines and monitors the Subadviser's adherence to its investment style. The Adviser pays the Subadviser out of the fees it receives from the Funds. The Board of Trustees supervises the Adviser and Subadviser and establishes policies that the Adviser and Subadviser must follow in their management activities. The Adviser may use its affiliates as brokers for Fund transactions. Page 8 of 16 The Securities and Exchange Commission (SEC) recently adopted new rules and rule amendments under the Investment Advisers Act of 1940 that address an investment adviser's fiduciary obligation to its clients when the adviser has authority to vote their proxies. Under the current contractual agreement, the Adviser is authorized to vote proxies on behalf of each Fund. Information regarding the Adviser's, and thus each Fund's, Proxy Voting Policies and Procedures are provided in the Statement of Additional Information. A copy of the Proxy Voting Policies and Procedures may be obtained by contacting the STI Classic Funds at 1-800-874-4770, Option 5, or by visiting www.sticlassicfunds.com. INVESTMENT SUBADVISER Zevenbergen Capital Investments LLC, 601 Union Street, Seattle, Washington 98101, serves as the subadviser to the Funds and manages the portfolios of the Funds on a day-to-day basis. The Subadviser was founded in 1987 and manages domestic growth equity assets. The firm's client base is comprised of a blend of institutional tax-exempt and taxable separately managed accounts. As a domestic growth equity manager, the Subadviser manages assets for a variety of entities, including public funds, foundations, endowments, corporations, pooled accounts, and private individuals. As of September 30, 2003, the Subadviser had approximately $855 million in assets under management. The Subadviser selects, buys, and sells securities for the Funds under the supervision of the Adviser and the Board of Trustees. The Subadviser is entitled to receive from the Adviser 0.63% of each Fund's daily net assets. PORTFOLIO MANAGERS Brooke de Boutray has served as Managing Director of the Subadviser since October 2003, after serving as Principal, Portfolio Manager and Analyst since 1992. She has co-managed the Funds since they began operating in February 2004. Ms. de Boutray has more than 21 years of investment experience. Leslie Tubbs has served as Managing Director of the Subadviser since October 2003, after serving as Principal, Portfolio Manager and Analyst since 1995. She has co-managed the Funds since they began operating in February 2004. Ms. Tubbs has more than 9 years of investment experience. Nancy Zevenbergen has served as President and Chief Investment Officer of the Subadviser since January 1987. She has co-managed the Funds since they began operating in February 2004. Ms. Zevenbergen has more than 22 years of investment experience. [HANDSHAKE ART OMITTED] PURCHASING AND SELLING FUND SHARES This section tells you how to purchase and sell (sometimes called "redeem") T Shares of the Funds. HOW TO PURCHASE FUND SHARES The Funds offer T 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 Page 9 of 16 institution may purchase T Shares through accounts made with financial institutions. T 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 T 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 (NYSE) 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 NYSE (normally, 4:00 p.m., Eastern Time). So, for you to receive the current Business Day's NAV, 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. 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. NET ASSET VALUE NAV for one Fund share is the value of that share's portion of the net assets of the Fund. CUSTOMER IDENTIFICATION FOREIGN INVESTORS The Funds do not generally accept investments by non-U.S. persons. Non-U.S. persons may be permitted to invest in the Funds subject to the satisfaction of enhanced due diligence. CUSTOMER IDENTIFICATION AND VERIFICATION To help the government fight the funding of terrorism and money laundering activities, federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account. Page 10 of 16 When you open an account, you will be asked to provide your name, address, date of birth, and other information that will allow us to identify you. This information will be verified to ensure the identity of all persons opening a mutual fund account. In certain instances, the Funds are required to collect documents to fulfill its legal obligation. Documents provided in connection with your application will be used solely to establish and verify a customer's identity. The Funds are required by law to reject your new account application if the required identifying information is not provided. Attempts to collect the missing information required on the application will be performed by either contacting you or, if applicable, your broker. If this information is unable to be obtained within a timeframe established in the sole discretion of the Funds (E.G., 72 hours), which may change from time to time, your application will be rejected. Upon receipt of your application in proper form (or upon receipt of all identifying information required on the application), your investment will be accepted and your order will be processed at the net asset value per share next-determined. However, the Funds reserve the right to close your account at the then-current day's price if the Funds are unable to verify your identity. Attempts to verify your identity will be performed within a timeframe established in the sole discretion of the Funds (E.G., 96 hours), which may change from time to time. If the Funds are unable to verify your identity, the Funds reserve the right to liquidate your account at the then-current day's price and remit proceeds to you via check. The Funds reserve the further right to hold your proceeds until your original check clears the bank. In such an instance, you may be subject to a gain or loss on Fund shares and will be subject to corresponding tax implications. ANTI-MONEY LAUNDERING PROGRAM Customer identification and verification is part of the Funds' overall obligation to deter money laundering under federal law. The Funds have adopted an anti-money laundering compliance program designed to prevent the Funds from being used for money laundering or the financing of terrorist activities. In this regard, the Funds reserve the right to (i) refuse, cancel or rescind any purchase or exchange order, (ii) freeze any account and/or suspend account services, or (iii) involuntarily redeem your account in cases of threatening conduct or suspected fraudulent or illegal activity. These actions will be taken when, in the sole discretion of Fund management, they are deemed to be in the best interest of the Funds or in cases when the Funds are requested or compelled to do so by governmental or law enforcement authority. 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 T 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. Page 11 of 16 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 NYSE restricts trading, the SEC declares an emergency or for other reasons approved by the SEC. More information about this is in the Statement of Additional Information. 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. MARKET TIMERS It is the policy of the Funds to discourage investments by Market Timers. Short-term or excessive trading into and out of a Fund may harm long-term shareholders by disrupting the Adviser's investment strategy and by increasing Fund expenses. These increased expenses may reduce total return for long-term shareholders, who are not responsible for generating such 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 two substantial full-cycle transactions (either a purchase and redemption or an exchange in and out) of any Fund within 14 days; or o Request three substantial full-cycle transactions (either a purchase and redemption or an exchange in and out) 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 Page 12 of 16 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 through an omnibus arrangement because information may not be available regarding beneficial owners. Dealers who purchase T 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. In addition to the previously mentioned initiatives to discourage market timing, the Funds intend to continually evaluate and, if practical, implement other measures to deter market timing. DISTRIBUTION OF FUND SHARES From its own assets, the Adviser, the Distributor or their affiliates may make payments based on gross sales and current assets to selected brokerage firms or institutions. The amount of these payments may be substantial. The minimum aggregate sales required for eligibility for such payments, and the factors in selecting the brokerage firms and institutions to which they will be made, are determined from time to time by the Adviser or the Distributor. In addition, the Adviser, the Distributor or their affiliates may pay fees, from their own assets, to brokers, banks, financial advisers, retirement plan service providers and other financial intermediaries for providing distribution-related or shareholder services, in addition to fees that may be paid by the Funds for these purposes. DIVIDENDS AND DISTRIBUTIONS Each 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 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 receives 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 either as ordinary income or as qualified dividend income. Dividends that are qualified dividend income are eligible for the reduced maximum rate to individuals of 15% (5% for Page 13 of 16 individuals in lower tax brackets) to the extent that the Fund receives qualified dividend income. Capital gains distributions are generally taxable at the rates applicable to long-term capital gains. Long-term capital gains are currently taxed at a maximum rate of 15%. Absent further legislation, the maximum 15% tax rate on qualified dividend income and long-term capital gains will cease to apply to taxable years beginning after December 31, 2008. 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. The Fund will inform you of the amount of your ordinary income dividends, qualified dividend income, and capital gains distributions shortly after the close of each calendar year. 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. MORE INFORMATION ABOUT TAXES IS IN THE STATEMENT OF ADDITIONAL INFORMATION. Page 14 of 16 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, 2003, as supplemented February 23, 2004, 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 Page 15 of 16 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 publicinfo@sec.gov. The STI Classic Funds' Investment Company Act registration number is 811-06557. Page 16 of 16 STI CLASSIC FUNDS EQUITY FUNDS A SHARES L SHARES PROSPECTUS FEBRUARY 23, 2004 AGGRESSIVE GROWTH STOCK FUND EMERGING GROWTH STOCK FUND INVESTMENT ADVISER TO THE FUNDS: TRUSCO CAPITAL MANAGEMENT, INC. (THE "ADVISER") INVESTMENT SUBADVISER TO THE FUNDS: ZEVENBERGEN CAPITAL INVESTMENTS LLC (THE "SUBADVISER") 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. THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. Page 1 of 23 -------------------------------------------------------------------------------- ABOUT THIS PROSPECTUS -------------------------------------------------------------------------------- The STI Classic Funds is a mutual fund family that offers shares in separate investment portfolios that have individual investment goals and strategies. This prospectus gives you important information about the A Shares and L Shares of the Aggressive Growth Stock Fund and Emerging Growth Stock Fund (Funds) that you should know before investing. Please read this prospectus and keep it for future reference. A Shares and L 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. A SHARES o Front-end sales charge o 12b-1 fees o $2,000 minimum initial investment L 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 THE FUNDS. FOR MORE DETAILED INFORMATION ABOUT EACH FUND, PLEASE SEE:
4 AGGRESSIVE GROWTH STOCK FUND 11 PORTFOLIO MANAGERS 7 EMERGING GROWTH STOCK FUND 11 PURCHASING, SELLING AND EXCHANGING FUND SHARES 10 MORE INFORMATION ABOUT RISK 21 DIVIDENDS AND DISTRIBUTIONS 10 MORE INFORMATION ABOUT FUND INVESTMENTS 21 TAXES 10 INVESTMENT ADVISER BACK HOW TO OBTAIN MORE INFORMATION ABOUT THE COVER STI CLASSIC FUNDS 11 INVESTMENT SUBADVISER
-------------------------------------------------------------------------------- [SUITCASE ART OMITTED] FUND SUMMARY [TELESCOPE ART OMITTED] INVESTMENT STRATEGY [LIFESAVER ART OMITTED] WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? [BULLSEYE ART OMITTED] PERFORMANCE INFORMATION [COINS ART OMITTED] FUND FEES AND EXPENSES [MOUNTAIN ART OMITTED] MORE INFORMATION ABOUT FUND INVESTMENTS [MAGNIFIER ART OMITTED] INVESTMENT ADVISER [HANDSHAKE ART OMITTED] PURCHASING AND SELLING FUND SHARES Page 2 of 23
------------------------------------------------------------------------------------------------------------- FUND NAME CLASS INCEPTION TICKER CUSIP ------------------------------------------------------------------------------------------------------------- Aggressive Growth Stock Fund A Shares 2/23/04 XXXX 784767212 Aggressive Growth Stock Fund L Shares 2/23/04 XXXX 784767196 Emerging Growth Stock Fund A Shares 2/23/04 XXXX 784767253 Emerging Growth Stock Fund L Shares 2/23/04 XXXX 784767246 -------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- 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 Subadviser is responsible for investing 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 Subadviser'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 Subadviser 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. Page 3 of 23 -------------------------------------------------------------------------------- AGGRESSIVE GROWTH STOCK FUND -------------------------------------------------------------------------------- [SUITCASE ART OMITTED] FUND SUMMARY
INVESTMENT GOAL Long-term capital appreciation ------------------------------------------------------------------------------------------------------------------------------ INVESTMENT FOCUS Common stocks of U.S. multi-cap growth companies ------------------------------------------------------------------------------------------------------------------------------ SHARE PRICE VOLATILITY High ------------------------------------------------------------------------------------------------------------------------------ PRINCIPAL INVESTMENT STRATEGY Attempts to identify securities of companies with favorable prospects for future revenue, earnings, and/or cash flow growth ------------------------------------------------------------------------------------------------------------------------------ INVESTOR PROFILE Investors who want to increase the value of their investment, but do not need income, and who are willing to accept more volatility for the possibility of higher returns ------------------------------------------------------------------------------------------------------------------------------
[TELESCOPE ART OMITTED] INVESTMENT STRATEGY The Aggressive Growth Stock Fund invests primarily in common stocks of U.S. companies of all sizes that exhibit strong growth characteristics. Using a "bottom-up" approach, the Subadviser identifies companies with favorable prospects for future revenue, earnings, and/or cash flow growth. Growth "drivers" are identified for each company and become critical to the ongoing evaluation process. Industry growth dynamics, company competitive positioning, pricing flexibility, and diversified product offerings are evaluated, providing the foundation for further fundamental research to determine the weighting of the Fund's investments in various equity market sectors. [LIFESAVER ART OMITTED] WHAT ARE THE PRINCIPAL 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- and mid-capitalization growth stocks may underperform other segments of the equity market or the equity market as a whole. The small- and mid- capitalization companies the Fund invests in may be more vulnerable to adverse business or economic events than larger, more established companies. In particular, these 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. Page 4 of 23 [BULLSEYE ART OMITTED] PERFORMANCE INFORMATION The Aggressive Growth Stock Fund commenced operations on February 23, 2004 and, therefore, does not have any performance history. [COINS ART 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) ------------------------------------------------------------------------------------------------------------------------ A SHARES L 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 A 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 L SHARES WITHIN ONE YEAR OF YOUR PURCHASE. SEE "SALES CHARGES." ------------------------------------------------------------------------------------------------------------------------ ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) ------------------------------------------------------------------------------------------------------------------------ A SHARES L SHARES Investment Advisory Fees 1.25% 1.25% Distribution and Service (12b-1) Fees 0.35% 1.00% Other Expenses* 0.30% 0.30% ----- ----- Total Annual Operating Expenses** 1.90% 2.55% * OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT FISCAL YEAR. ** THE FUND'S NET TOTAL ANNUAL 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. THE ADVISER AND THE DISTRIBUTOR MAY DISCONTINUE ALL OR PART OF THESE FEE WAIVER AT ANY TIME. WITH THESE FEE WAIVERS, THE FUND'S ESTIMATED NET TOTAL OPERATING EXPENSES WOULD BE AS FOLLOWS: Aggressive Growth Stock Fund - A Shares 1.65% Aggressive Growth Stock Fund - L Shares 2.10%
Page 5 of 23 -------------------------------------------------------------------------------- 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 A Shares $561 $950 L Shares $458 $793 IF YOU DO NOT SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS A Shares $561 $950 L Shares $258 $793 -------------------------------------------------------------------------------- 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." Page 6 of 23 -------------------------------------------------------------------------------- EMERGING GROWTH STOCK FUND -------------------------------------------------------------------------------- [SUITCASE ART OMITTED] FUND SUMMARY
INVESTMENT GOAL Long-term capital appreciation ------------------------------------------------------------------------------------------------------------------------------ INVESTMENT FOCUS Common stocks of U.S. small- and mid-cap growth companies ------------------------------------------------------------------------------------------------------------------------------ SHARE PRICE VOLATILITY High ------------------------------------------------------------------------------------------------------------------------------ PRINCIPAL INVESTMENT STRATEGY Attempts to identify securities of small- and mid-capitalization companies with favorable prospects for future revenue, earnings, and/or cash flow growth ------------------------------------------------------------------------------------------------------------------------------ INVESTOR PROFILE Investors who want to increase the value of their investment, but do not need income, and who are willing to accept more volatility for the possibility of higher returns ------------------------------------------------------------------------------------------------------------------------------
[TELESCOPE ART OMITTED] INVESTMENT STRATEGY The Emerging Growth Stock Fund invests primarily in stocks of U.S. companies with market capitalizations below $10 billion that exhibit strong growth characteristics. In selecting investments for the Fund, the Subadviser emphasizes companies that have a market capitalization of $5 billion or less. Using a "bottom-up" approach, the Subadviser identifies companies with favorable prospects for future revenue, earnings, and/or cash flow growth. Growth "drivers" are identified for each company and become critical to the ongoing evaluation process. Industry growth dynamics, company competitive positioning, pricing flexibility, and diversified product offerings are evaluated, providing the foundation for further fundamental research to determine the weighting of the Fund's investments in various equity market sectors. [LIFESAVER ART OMITTED] WHAT ARE THE PRINCIPAL 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- and mid-capitalization growth stocks may underperform other segments of the equity market or the equity market as a whole. The small- and mid- capitalization companies the Fund invests in may be more vulnerable to adverse business or economic events than larger, more established companies. In particular, these 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. Page 7 of 23 [BULLSEYE ART OMITTED] PERFORMANCE INFORMATION The Emerging Growth Stock Fund commenced operations on February 23, 2004 and, therefore, does not have any performance history. [COINS ART 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) ------------------------------------------------------------------------------------------------------------------------ A SHARES L 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 A 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 L SHARES WITHIN ONE YEAR OF YOUR PURCHASE. SEE "SALES CHARGES." ------------------------------------------------------------------------------------------------------------------------ ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) ------------------------------------------------------------------------------------------------------------------------ A SHARES L SHARES Investment Advisory Fees 1.25% 1.25% Distribution and Service (12b-1) Fees 0.35% 1.00% Other Expenses* 0.30% 0.30% ----- ----- Total Annual Operating Expenses** 1.90% 2.55% * OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT FISCAL YEAR. ** THE FUND'S NET TOTAL ANNUAL 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. 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 NET TOTAL OPERATING EXPENSES WOULD BE AS FOLLOWS: Emerging Growth Stock Fund - A Shares 1.65% Emerging Growth Stock Fund - L Shares 2.10%
-------------------------------------------------------------------------------- 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. Page 8 of 23 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 A Shares $561 $950 L Shares $458 $793 IF YOU DO NOT SELL YOUR SHARES AT THE END OF THE PERIOD: 1 YEAR 3 YEARS A Shares $561 $950 L Shares $258 $793 -------------------------------------------------------------------------------- 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." Page 9 of 23 -------------------------------------------------------------------------------- MORE INFORMATION ABOUT RISK -------------------------------------------------------------------------------- [LIFESAVER ART 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. [MOUNTAIN ART 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. 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. 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 ART OMITTED] INVESTMENT ADVISER Trusco Capital Management, Inc., 50 Hurt Plaza, Suite 1400, Atlanta, Georgia 30303, serves as the investment adviser to the Funds. As of September 30, 2003, the Adviser had approximately $49 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: AGGRESSIVE GROWTH STOCK FUND 1.25% EMERGING GROWTH STOCK FUND 1.25% The Adviser continuously reviews, supervises and administers each Fund's respective investment program. The Adviser oversees the Subadviser to ensure compliance with the Funds' investment policies and guidelines and monitors the Subadviser's adherence to its investment style. The Adviser pays the Subadviser out of the fees it receives from the Funds. The Board of Trustees supervises the Adviser and Subadviser and establishes policies that the Adviser and Subadviser must follow in their management activities. The Adviser may use its affiliates as brokers for Fund transactions. Page 10 of 23 The Securities and Exchange Commission (SEC) recently adopted new rules and rule amendments under the Investment Advisers Act of 1940 that address an investment adviser's fiduciary obligation to its clients when the adviser has authority to vote their proxies. Under the current contractual agreement, the Adviser is authorized to vote proxies on behalf of each Fund. Information regarding the Adviser's, and thus each Fund's, Proxy Voting Policies and Procedures are provided in the Statement of Additional Information. A copy of the Proxy Voting Policies and Procedures may be obtained by contacting the STI Classic Funds at 1-800-874-4770, Option 5, or by visiting www.sticlassicfunds.com. INVESTMENT SUBADVISER Zevenbergen Capital Investments LLC, 601 Union Street, Seattle, Washington 98101, serves as the subadviser to the Funds and manages the portfolios of the Funds on a day-to-day basis. The Subadviser was founded in 1987 and manages domestic growth equity assets. The firm's client base is comprised of a blend of institutional tax-exempt and taxable separately managed accounts. As a domestic growth equity manager, the Subadviser manages assets for a variety of entities, including public funds, foundations, endowments, corporations, pooled accounts, and private individuals. As of September 30, 2003, the Subadviser had approximately $855 million in assets under management. The Subadviser selects, buys, and sells securities for the Funds under the supervision of the Adviser and the Board of Trustees. The Subadviser is entitled to receive from the Adviser 0.63% of each Fund's daily net assets. PORTFOLIO MANAGERS Brooke de Boutray has served as Managing Director of the Subadviser since October 2003, after serving as Principal, Portfolio Manager and Analyst since 1992. She has co-managed the Funds since they began operating in February 2004. Ms. de Boutray has more than 21 years of investment experience. Leslie Tubbs has served as Managing Director of the Subadviser since October 2003, after serving as Principal, Portfolio Manager and Analyst since 1995. She has co-managed the Funds since they began operating in February 2004. Ms. Tubbs has more than 9 years of investment experience. Nancy Zevenbergen has served as President and Chief Investment Officer of the Subadviser since January 1987. She has co-managed the Funds since they began operating in February 2004. Ms. Zevenbergen has more than 22 years of investment experience. [HANDSHAKE ART OMITTED] PURCHASING, SELLING AND EXCHANGING FUND SHARES This section tells you how to purchase, sell (sometimes called "redeem") and exchange A Shares and L Shares of the Funds. HOW TO PURCHASE FUND SHARES Your investment professional can assist you in opening a brokerage account that 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: Page 11 of 23 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 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 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 (NYSE) 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 NYSE (normally, 4:00 p.m., Eastern Time). So, for you to receive the current Business Day's NAV, 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. 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. 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 either Fund at least: Page 12 of 23 CLASS DOLLAR AMOUNT A Shares $2,000 L Shares $5,000 ($2,000 for IRA accounts) Your subsequent investments of shares of either 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 L 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. CUSTOMER IDENTIFICATION FOREIGN INVESTORS The Funds do not generally accept investments by non-U.S. persons. Non-U.S. persons may be permitted to invest in the Funds subject to the satisfaction of enhanced due diligence. CUSTOMER IDENTIFICATION AND VERIFICATION To help the government fight the funding of terrorism and money laundering activities, federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account. When you open an account, you will be asked to provide your name, address, date of birth, and other information that will allow us to identify you. This information will be verified to ensure the identity of all persons opening a mutual fund account. In certain instances, the Funds are required to collect documents to fulfill its legal obligation. Documents provided in connection with your application will be used solely to establish and verify a customer's identity. The Funds are required by law to reject your new account application if the required identifying information is not provided. Attempts to collect the missing information required on the application will be performed by either contacting you or, if applicable, your broker. If this Page 13 of 23 information is unable to be obtained within a timeframe established in the sole discretion of the Funds (E.G., 72 hours), which may change from time to time, your application will be rejected. Upon receipt of your application in proper form (or upon receipt of all identifying information required on the application), your investment will be accepted and your order will be processed at the net asset value per share next-determined. However, the Funds reserve the right to close your account at the then-current day's price if the Funds are unable to verify your identity. Attempts to verify your identity will be performed within a timeframe established in the sole discretion of the Funds (E.G., 96 hours), which may change from time to time. If the Funds are unable to verify your identity, the Funds reserve the right to liquidate your account at the then-current day's price and remit proceeds to you via check. The Funds reserve the further right to hold your proceeds until your original check clears the bank. In such an instance, you may be subject to a gain or loss on Fund shares and will be subject to corresponding tax implications. ANTI-MONEY LAUNDERING PROGRAM Customer identification and verification is part of the Funds' overall obligation to deter money laundering under federal law. The Funds have adopted an anti-money laundering compliance program designed to prevent the Funds from being used for money laundering or the financing of terrorist activities. In this regard, the Funds reserve the right to (i) refuse, cancel or rescind any purchase or exchange order, (ii) freeze any account and/or suspend account services, or (iii) involuntarily redeem your account in cases of threatening conduct or suspected fraudulent or illegal activity. These actions will be taken when, in the sole discretion of Fund management, they are deemed to be in the best interest of the Funds or in cases when the Funds are requested or compelled to do so by governmental or law enforcement authority. SALES CHARGES FRONT-END SALES CHARGES -- A SHARES The offering price of A 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 AS A YOUR SALES CHARGE AS A PERCENTAGE IF YOUR INVESTMENT IS: PERCENTAGE OF OFFERING PRICE* OF 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. WHILE INVESTMENTS OVER $1,000,000 ARE NOT SUBJECT TO A FRONT- END SALES CHARGE, THE DISTRIBUTOR MAY PAY DEALER COMMISSIONS RANGING FROM 0.25% TO 1.00%. Page 14 of 23 INVESTMENTS OF $1,000,000 OR MORE. You do not pay an initial sales charge when you buy $1,000,000 or more of A Shares 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 A 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 reinvestment of dividends or capital gains distributions. WAIVER OF FRONT-END SALES CHARGE -- A SHARES The front-end sales charge will be waived on A 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 A 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 A SHARES You may repurchase any amount of A Shares of any Fund at NAV (without the normal front-end sales charge), up to the limit of the value of any amount of A 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 Statement of Additional Information 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 -- A SHARES RIGHTS OF ACCUMULATION. In calculating the appropriate sales charge rate, this right allows you to add the value of the A 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 A 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 Page 15 of 23 accumulation. The Funds will only consider the value of A 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 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 A 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 A 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 A Shares sold subject to a sales charge. As a result, shares of the A 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 A 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 A Shares you purchase with a Letter of Intent. CONTINGENT DEFERRED SALES CHARGES (CDSC) -- L SHARES You do not pay a sales charge when you purchase L Shares. The offering price of L 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 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 L Shares of one Fund for L Shares of another Fund. IF YOU SELL YOUR L SHARES The CDSC will be waived if you sell your L Shares for the following reasons: o to make certain withdrawals from a retirement plan (not including IRAs); o because of death or disability; or Page 16 of 23 o for certain payments under the Systematic Withdrawal Plan - up to 12% annually of the value of your shares of each Fund held at the time of the withdrawal (the Systematic Withdrawal Plan is discussed later in more detail). OFFERING PRICE OF FUND SHARES The offering price of A Shares is the NAV next calculated after the transfer agent receives your request, plus the front-end sales load. The offering price of L 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 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 L 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 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 Page 17 of 23 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 A Shares $2,000 L Shares $5,000 ($2,000 for IRA 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 NYSE restricts trading, the SEC declares an emergency or for other reasons approved by the SEC. More information about this is in the Statement of Additional Information. 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 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(s) receives your exchange requests. A SHARES You may exchange A Shares of any Fund for A 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 Page 18 of 23 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. L SHARES You may exchange L Shares of any Fund for L Shares of any other Fund. For purposes of computing the CDSC applicable to L 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 L Shares of any STI Classic Fund for L Shares of the STI Classic Institutional U.S. Government Securities Super Short Income Plus Fund, you must first pay any applicable CDSC for the shares you are selling. Similarly, if you exchange L Shares of the STI Classic Institutional U.S. Government Securities Super Short Income Plus Fund for L Shares of any other STI Classic Fund, any CDSC for the Fund you are exchanging into will be computed from the date of the exchange. 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. MARKET TIMERS It is the policy of the Funds to discourage investments by Market Timers. Short-term or excessive trading into and out of a Fund may harm long-term shareholders by disrupting the Adviser's investment strategy and by increasing Fund expenses. These increased expenses may reduce total return for long-term shareholders, who are not responsible for generating such 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 two substantial full-cycle transactions (either a purchase and redemption, or an exchange in and out) of any Fund within 14 days; or o Request three substantial full-cycle transactions (either a purchase and redemption, or an exchange in and out) 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. Page 19 of 23 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 through an omnibus arrangement because information may not be available regarding beneficial owners. Dealers who purchase A Shares or L 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. In addition to the previously mentioned initiatives to discourage market timing, the Funds intend to continually evaluate and, if practical, implement other measures to deter market timing. 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. While L Shares are sold without any initial sales charge, the Distributor may pay at the time of sale up to 2% of the amount reinvested to broker-dealers and other financial intermediaries who sell L Shares. Through the distribution plan, the Distributor is reimbursed for these payments, as well as other distribution related services provided by the Distributor. Maximum distribution fees, as a percentage of average daily net assets, are as follows: FOR A SHARES: AGGRESSIVE GROWTH STOCK FUND 0.35% EMERGING GROWTH STOCK FUND 0.35% For L Shares the maximum distribution fee is 1.00% of the average daily net assets of each Fund. 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 the Funds. 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. From its own assets, the Adviser, the Distributor or their affiliates may make payments based on gross sales and current assets to selected brokerage firms or institutions. The amount of these payments may be substantial. The minimum aggregate sales required for eligibility for such payments, and the factors in selecting the brokerage firms and institutions to which they will be made, are determined from time to time by the Adviser or the Distributor. In addition, the Adviser, the Distributor or their affiliates may pay fees, from their own assets, to brokers, banks, financial advisers, retirement plan service providers and other financial intermediaries for providing distribution-related or shareholder services, in addition to fees that may be paid by the Funds for these purposes. Page 20 of 23 DIVIDENDS AND DISTRIBUTIONS Each 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 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 receives 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 either as ordinary income or as qualified dividend income. Dividends that are qualified dividend income are eligible for the reduced maximum rate to individuals of 15% (5% for individuals in lower tax brackets) to the extent that the Fund receives qualified dividend income. Capital gains distributions are generally taxable at the rates applicable to long-term capital gains. Long-term capital gains are currently taxed at a maximum rate of 15%. Absent further legislation, the maximum 15% tax rate on qualified dividend income and long-term capital gains will cease to apply to taxable years beginning after December 31, 2008. 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. The Fund will inform you of the amount of your ordinary income dividends, qualified dividend income, and capital gains distributions shortly after the close of each calendar year. 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. MORE INFORMATION ABOUT TAXES IS IN THE STATEMENT OF ADDITIONAL INFORMATION. Page 21 of 23 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, 2003, as supplemented February 23, 2004, 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 Page 22 of 23 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 publicinfo@sec.gov. The STI Classic Funds' Investment Company Act registration number is 811-06557. Page 23 of 23 STATEMENT OF ADDITIONAL INFORMATION STI CLASSIC FUNDS OCTOBER 1, 2003 AS SUPPLEMENTED FEBRUARY 23, 2004 INVESTMENT ADVISER: TRUSCO CAPITAL MANAGEMENT, INC. (THE "ADVISER") 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, 2003, November 1, 2003, and February 23, 2004. This SAI relates to each class of the following series of the Trust (each a "Fund" and collectively, the "Funds"):
--------------------------------------------------- -------------- --------------- ------------- -------------- A SHARES B SHARES L SHARES T SHARES --------------------------------------------------- -------------- --------------- ------------- -------------- EQUITY FUNDS --------------------------------------------------- -------------- --------------- ------------- -------------- Aggressive Growth Stock Fund |X| |X| |X| --------------------------------------------------- -------------- --------------- ------------- -------------- Capital Appreciation Fund |X| |X| |X| --------------------------------------------------- -------------- --------------- ------------- -------------- Emerging Growth Stock 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| |X| --------------------------------------------------- -------------- --------------- ------------- -------------- Small Cap Growth Stock Fund |X| |X| |X| --------------------------------------------------- -------------- --------------- ------------- -------------- Small Cap Value Equity Fund |X| |X| |X| --------------------------------------------------- -------------- --------------- ------------- -------------- Strategic Quantitative Equity Fund |X| |X| |X| --------------------------------------------------- -------------- --------------- ------------- -------------- Tax Sensitive Growth Stock Fund |X| |X| |X| --------------------------------------------------- -------------- --------------- ------------- -------------- Value Income Stock Fund |X| |X| |X| --------------------------------------------------- -------------- --------------- ------------- -------------- BALANCED FUND --------------------------------------------------- -------------- --------------- ------------- -------------- Balanced Fund |X| |X| |X| --------------------------------------------------- -------------- --------------- ------------- -------------- BOND FUNDS --------------------------------------------------- -------------- --------------- ------------- -------------- High Income Fund |X| |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| --------------------------------------------------- -------------- --------------- ------------- --------------
--------------------------------------------------- -------------- --------------- ------------- -------------- A SHARES B SHARES L SHARES T SHARES --------------------------------------------------- -------------- --------------- ------------- -------------- Strategic Income Fund |X| |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| |X| --------------------------------------------------- -------------- --------------- ------------- -------------- Virginia Intermediate Municipal Bond Fund |X| |X| |X| --------------------------------------------------- -------------- --------------- ------------- -------------- Virginia Municipal Bond Fund |X| |X| |X| --------------------------------------------------- -------------- --------------- ------------- -------------- 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| |X| --------------------------------------------------- -------------- --------------- ------------- -------------- Virginia Tax-Free Money Market Fund |X| |X| --------------------------------------------------- -------------- --------------- ------------- -------------- LIFE VISION FUNDS --------------------------------------------------- -------------- --------------- ------------- -------------- Life Vision Aggressive Growth Fund |X| |X| |X| --------------------------------------------------- -------------- --------------- ------------- -------------- Life Vision Conservative Fund |X| |X| |X| --------------------------------------------------- -------------- --------------- ------------- -------------- Life Vision Growth and Income Fund |X| |X| |X| --------------------------------------------------- -------------- --------------- ------------- -------------- Life Vision Moderate Growth Fund |X| |X| |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. 2 TABLE OF CONTENTS THE TRUST.....................................................................4 DESCRIPTION OF PERMITTED INVESTMENTS..........................................4 INVESTMENT LIMITATIONS.......................................................30 THE ADVISER..................................................................32 THE SUBADVISER...............................................................35 THE ADMINISTRATOR............................................................36 THE DISTRIBUTOR..............................................................38 THE TRANSFER AGENT...........................................................47 THE CUSTODIAN................................................................47 INDEPENDENT AUDITORS.........................................................47 LEGAL COUNSEL................................................................47 TRUSTEES AND OFFICERS OF THE TRUST...........................................47 PERFORMANCE INFORMATION......................................................52 COMPUTATION OF YIELD.........................................................52 CALCULATION OF TOTAL RETURN..................................................56 PURCHASING AND REDEEMING SHARES..............................................63 DETERMINATION OF NET ASSET VALUE.............................................63 TAXES ....................................................................65 FUND TRANSACTIONS............................................................70 PORTFOLIO TURNOVER RATE......................................................77 DESCRIPTION OF SHARES........................................................78 VOTING RIGHTS................................................................78 SHAREHOLDER LIABILITY........................................................78 LIMITATION OF TRUSTEES' LIABILITY............................................79 CODES OF ETHICS..............................................................79 5% AND 25% SHAREHOLDERS......................................................79 FINANCIAL STATEMENTS........................................................106 APPENDIX A - DESCRIPTION OF RATINGS.........................................A-1 APPENDIX B - PROXY VOTING SUMMARIES.........................................B-1 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 Strategy" 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. 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. 4 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. As required by the Investment Company Act of 1940, as amended (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. BRADY BONDS. A Brady Bond is a U.S. dollar denominated bond issued by an emerging market, particularly those in Latin America, and collateralized by U.S. Treasury zero-coupon 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 (E.G., bonds, notes, debentures) 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. 5 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 assets in a segregated account in an amount sufficient to cover its repurchase obligation. 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 Funds purchase equity securities traded in the U.S. or foreign countries on securities 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. 6 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 SMALL AND MEDIUM CAPITALIZATION ISSUERS. Generally, capitalization or market capitalization is a measure of a company' size. 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 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. 7 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 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 8 and Yankee Certificates of Deposit, and investments in Canadian Commercial Paper. 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 and International Equity Index Funds, when included in appropriate amounts in a portfolio otherwise consisting of domestic securities, may provide a source of increased diversification. The International Equity Fund and the International Equity Index Fund 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 and 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. 9 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, the Funds have claimed exclusion from the definition of the term "commodity pool operator" under the Commodity Exchange Act and, therefore, are not subject to registration or regulation as a commodity pool operator thereunder. A Fund may use futures contracts and related options for hedging purposes or for risk management purposes. Instances in which a Fund may use futures contracts and related options for risk management purposes (other than 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. 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. 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 Securities and Exchange Commission (the "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. 10 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 Standard & Poor's Ratings Group ("S&P") or Baa by Moody's Investors Service, Inc. ("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 11 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. 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, unless an exception is available, 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 S&P or Fitch, Inc. ("Fitch"), or Aaa, Aa, A or Baa by Moody's or determined to be of equivalent quality by the Adviser). 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. 12 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 S & P 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 herein. 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 13 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. 14 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. 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 15 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 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 16 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 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 17 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 Tax-Exempt Bond 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, although experiencing weakness with the national economic recession, has performed reasonably well. Employment rose by 1.2% in 2003 driven by increases in construction, leisure and hospitality, and government sectors; however, manufacturing, information technology, and transportation remain weak. Florida's unemployment rate of 5.3% in July 2003 is down from 5.5% in July 2002. The national average for July 2003 is 6.2%. Florida's per capita income of $29,596 in 2002 is approximately 95% of the national average of $30,941. Lower income levels are consistent with a large retirement population. A budget of $52.3 billion for fiscal 2004 was approved by the legislature during a special session in May. Florida maintains a budget stabilization fund of $941 million. The state has no personal income tax, but its other revenue sources, primarily sales taxes, have grown consistently. State debt medians are above the national average, but are still moderate at 3.2% of personal income. Longer term, the State will continue to be an attractive tourist destination and will continue to attract businesses. Florida's high population growth is slowing from its previous pace of about 24% during the 1990's to projections of about 18% for the next decade. The housing market boom also continues throughout the State. As of September 4, 2003, Florida's general obligation debt carried ratings of AA+ by S&P, 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. Continued economic recovery in Georgia will depend on ongoing improvement in the U.S. economy to stimulate an employment recovery in manufacturing. 18 The State's unemployment level declined to 5.0% in July 2003 from 5.2% in July 2002, well below the national average of 6.2% in July 2003. Per capita income in 2002 was $28,821, which is approximately 93% of the national average of $30,941. Georgia enacted a $14.7 billion general fund budget for 2004. This budget is based on a projected 7.8% increase in revenues and 6.3% increase in appropriations. It also includes $175 million in tobacco settlement funding. As of September 4, 2003, Georgia's general obligation debt carried AAA ratings from S&P, 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. The services, wholesale and retail trade, and government sectors account for most of the State's employment. The Maryland economy is well balanced with major contributions to its stability coming from strong employment in higher education, defense, financial services, and manufacturing. The current 2004 budget is tightly balanced, with a large structural gap forecast in 2005 continuing through 2007. Cuts made to balance the current budget are mostly one time cuts resulting in ongoing structural deficits. The State's unemployment rate was 4.6% in July 2003, up modestly from 4.3% in July 2002, and well below the national average of 6.2% in July 2003. Per capita income, which was $36,298 in 2002, continues to exceed the national average of $30,941. 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, S&P, and Fitch as of September 4, 2003. 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 emerging from recession in 2003. Unemployment has stabilized at 4% with education, health services, leisure, and hospitality contributing to renewed employment growth. As the nation's sixth largest high-tech employer, recent employment losses in business services, mostly high-tech jobs, are responsible for continuing job losses in the manufacturing and telecommunications industries. Virginia reported a revenue shortfall in 2002 of $1.7 billion that has been offset with rainy day funds and several alternative funding strategies. Additional shortfalls estimated to total $2.3 billion are anticipated in 2003 and 2004. Virginia has the financial flexibility to address these shortfalls. Virginia's unemployment rate was 4.0% in July 2003, well below the national average of 6.2% in July 2003, and unchanged from the State's rate in July 2002. Per capita income was $32,922 in 2002, which is 106% of the national average of $30,941. Longer term, the State's strong demographic trends, low business costs, and generous tax incentives will contribute to Virginia's continued growth in the future. As of September 4, 2003, Moody's, S&P, and Fitch each gave Virginia's general obligation debt a AAA rating. However, due to the projected budget gap in 2004, Moody's placed its rating on negative watch on 19 September 4, 2003. 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 Funds 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: 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 20 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. A 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, 21 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 Funds' administrator and 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 Internal Revenue Code of 1986, as amended (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. 22 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 a Fund invests may be affected by changes in underlying real estate values, which may have an exaggerated effect to the extent that REITs in which a Fund 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 Fund'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 Fund, a shareholder will bear not only his proportionate share of the expenses of the Fund, 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 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. A Fund 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 a Fund may invest a substantial portion of its assets in REITs, a Fund 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 23 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 a Fund will invest. Changes in the value of portfolio securities will not necessarily affect cash income derived from these securities but will affect a Fund'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 a Fund'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 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 Tax-Exempt Bond and Money Market 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 24 Board. 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. A 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 Funds follow 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 each Fund's investment objective, a Fund 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 Fund owns 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 a Fund sells a security it does not own. To complete such a transaction, the Fund must borrow the security to make delivery to the buyer. The Fund then is 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 Fund. Until the security is replaced, the Fund is required to pay the lender amounts equal to any dividends or interest that accrue during the period of the loan. To borrow the security, a Fund 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 a Fund closes its short position or replaces the borrowed security, the Fund 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 25 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 Fund's 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 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 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 26 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 1940 Act. 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"). 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 27 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. U.S. GOVERNMENT 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 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. 28 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 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. 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 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 29 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. 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 30 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 1933 Act in the sale of portfolio securities. 4. Issue senior securities (as defined in the 1940 Act), except as permitted by rule, regulation or order of the 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 whose 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 policies are non-fundamental policies of the Funds and may be changed by the Funds' 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. 31 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. THE 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 (except the Aggressive Growth Stock Fund and Emerging Growth Stock Fund) 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 September 30, 2003, Trusco had discretionary management authority with respect to approximately $49 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"). 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 32 expenses) exceeds limitations established by certain states, the Adviser and/or the Fund's 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 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:
----------------------------------------------------------- ------------------------------------- FUND FEES ----------------------------------------------------------- ------------------------------------- Aggressive Growth Stock Fund 1.25% ----------------------------------------------------------- ------------------------------------- Balanced Fund 0.95% ----------------------------------------------------------- ------------------------------------- Capital Appreciation Fund 1.15% ----------------------------------------------------------- ------------------------------------- Emerging Growth Stock Fund 1.25% ----------------------------------------------------------- ------------------------------------- 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 Conservative 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% ----------------------------------------------------------- ------------------------------------- Strategic Quantitative Equity Fund 1.15% ----------------------------------------------------------- ------------------------------------- Tax-Exempt Money Market Fund 0.55% ----------------------------------------------------------- ------------------------------------- Tax Sensitive Growth Stock Fund 1.15% ----------------------------------------------------------- ------------------------------------- U.S. Government Securities Fund 0.74% ----------------------------------------------------------- -------------------------------------
33
----------------------------------------------------------- ------------------------------------- FUND FEES ----------------------------------------------------------- ------------------------------------- U.S. Government Securities Money Market Fund 0.65% ----------------------------------------------------------- ------------------------------------- U.S. Treasury Money Market Fund 0.65% ----------------------------------------------------------- ------------------------------------- Value Income Stock Fund 0.80% ----------------------------------------------------------- ------------------------------------- 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, 2003, 2002 and 2001, the Trust paid the following advisory fees:
-------------------------------------- --------------------------------------- --------------------------------------- FUND FEES PAID ($) FEES WAIVED ($) -------------------------------------- --------------------------------------- --------------------------------------- 2003 2002 2001 2003 2002 2001 -------------------------------------- ------------ ------------- ------------ ------------ ------------- ------------ Aggressive Growth Stock Fund * * * * * * -------------------------------------- ------------ ------------- ------------ ------------ ------------- ------------ Balanced Fund 2,638,000 2,772,000 2,637,000 81,000 85,000 113,000 -------------------------------------- ------------ ------------- ------------ ------------ ------------- ------------ Capital Appreciation Fund 14,174,000 16,284,000 16,198,000 251,000 288,000 458,000 -------------------------------------- ------------ ------------- ------------ ------------ ------------- ------------ Emerging Growth Stock Fund * * * * * * -------------------------------------- ------------ ------------- ------------ ------------ ------------- ------------ Florida Tax-Exempt Bond Fund 1,021,000 823,000 665,000 76,000 61,000 67,000 -------------------------------------- ------------ ------------- ------------ ------------ ------------- ------------ Georgia Tax-Exempt Bond Fund 685,000 666,000 558,000 51,000 50,000 58,000 -------------------------------------- ------------ ------------- ------------ ------------ ------------- ------------ Growth and Income Fund 6,313,000 8,312,000 8,959,000 0 0 0 -------------------------------------- ------------ ------------- ------------ ------------ ------------- ------------ High Income Fund 600,000 241,000 56,000 139,000 56,000 13,000 -------------------------------------- ------------ ------------- ------------ ------------ ------------- ------------ Information and Technology Fund 243,000 772,000 1,536,000 0 0 5,000 -------------------------------------- ------------ ------------- ------------ ------------ ------------- ------------ International Equity Fund 2,639,000 2,389,000 3,245,000 0 0 6,000 -------------------------------------- ------------ ------------- ------------ ------------ ------------- ------------ International Equity Index Fund 2,013,000 1,970,000 2,465,000 212,000 208,000 261,000 -------------------------------------- ------------ ------------- ------------ ------------ ------------- ------------ Investment Grade Bond Fund 6,625,000 6,721,000 6,616,000 193,000 196,000 284,000 -------------------------------------- ------------ ------------- ------------ ------------ ------------- ------------ Investment Grade Tax-Exempt Bond Fund 1,522,000 1,286,000 1,094,000 69,000 59,000 64,000 -------------------------------------- ------------ ------------- ------------ ------------ ------------- ------------ Life Vision Aggressive Growth Fund 26,000 23,000 14,000 42,000 45,000 36,000 -------------------------------------- ------------ ------------- ------------ ------------ ------------- ------------ Life Vision Conservative Fund 0** * * 0 * * -------------------------------------- ------------ ------------- ------------ ------------ ------------- ------------ Life Vision Growth and Income Fund 84,000 59,000 43,000 75,000 69,000 52,000 -------------------------------------- ------------ ------------- ------------ ------------ ------------- ------------ Life Vision Moderate Growth Fund 122,000 111,000 100,000 94,000 94,000 85,000 -------------------------------------- ------------ ------------- ------------ ------------ ------------- ------------ Limited-Term Federal Mortgage 1,875,000 801,000 676,000 156,000 67,000 81,000 -------------------------------------- ------------ ------------- ------------ ------------ ------------- ------------ Maryland Municipal Bond Fund 359,000 280,000 190,000 50,000 39,000 33,000 -------------------------------------- ------------ ------------- ------------ ------------ ------------- ------------ Mid-Cap Equity Fund 1,661,000 2,196,000 2,315,000 37,000 49,000 77,000 -------------------------------------- ------------ ------------- ------------ ------------ ------------- ------------ Mid-Cap Value Equity Fund 1,263,000 627,000 * 110,000 55,000 * -------------------------------------- ------------ ------------- ------------ ------------ ------------- ------------ Prime Quality Money Market Fund 32,586,000 31,332,000 27,738,000 6,637,000 6,382,000 6,020,000 -------------------------------------- ------------ ------------- ------------ ------------ ------------- ------------ Short-Term Bond Fund 2,051,000 1,755,000 1,214,000 162,000 138,000 120,000 -------------------------------------- ------------ ------------- ------------ ------------ ------------- ------------
34
-------------------------------------- --------------------------------------- --------------------------------------- FUND FEES PAID ($) FEES WAIVED ($) -------------------------------------- --------------------------------------- --------------------------------------- 2003 2002 2001 2003 2002 2001 -------------------------------------- ------------ ------------- ------------ ------------ ------------- ------------ Short-Term U.S. Treasury Securities Fund 1,392,000 864,000 552,000 142,000 88,000 73,000 -------------------------------------- ------------ ------------- ------------ ------------ ------------- ------------ Small Cap Growth Stock Fund 5,975,000 6,800,000 6,063,000 0 0 50,000 -------------------------------------- ------------ ------------- ------------ ------------ ------------- ------------ Small Cap Value Equity Fund 6,017,000 5,714,000 3,005,000 0 0 21,000 -------------------------------------- ------------ ------------- ------------ ------------ ------------- ------------ Strategic Income Fund 873,000 171,000 * 116,000 23,000 * -------------------------------------- ------------ ------------- ------------ ------------ ------------- ------------ Strategic Quantitative Equity Fund * * * * * * -------------------------------------- ------------ ------------- ------------ ------------ ------------- ------------ Tax-Exempt Money Market Fund 5,525,000 5,338,000 4,695,000 1,213,000 1,172,000 1,084,000 -------------------------------------- ------------ ------------- ------------ ------------ ------------- ------------ Tax Sensitive Growth Stock Fund 3,593,000 6,100,000 10,376,000 0 0 93,000 -------------------------------------- ------------ ------------- ------------ ------------ ------------- ------------ U.S. Government Securities Fund 1,846,000 1,422,000 981,000 85,000 65,000 59,000 -------------------------------------- ------------ ------------- ------------ ------------ ------------- ------------ U.S. Government Securities Money 6,683,000 5,955,000 4,023,000 1,074,000 957,000 683,000 -------------------------------------- ------------ ------------- ------------ ------------ ------------- ------------ U.S. Treasury Money Market Fund 5,472,000 4,771,000 4,320,000 879,000 766,000 741,000 -------------------------------------- ------------ ------------- ------------ ------------ ------------- ------------ Value Income Stock Fund 5,640,000 6,380,000 7,155,000 0 0 0 -------------------------------------- ------------ ------------- ------------ ------------ ------------- ------------ Virginia Intermediate Municipal Bond 1,368,000 1,296,000 1,289,000 0 0 62,000 -------------------------------------- ------------ ------------- ------------ ------------ ------------- ------------ Virginia Municipal Bond Fund 445,000 448,000 378,000 0 0 6,000 -------------------------------------- ------------ ------------- ------------ ------------ ------------- ------------ Virginia Tax-Free Money Market Fund 1,328,000 1,399,000 1,102,000 0 0 0 -------------------------------------- ------------ ------------- ------------ ------------ ------------- ------------
* Not in operation during the period. ** Rounded to $0. THE SUBADVISER GENERAL. Zevenbergen Capital Investments LLC (the "Subadviser") serves as the subadviser to the Aggressive Growth Stock Fund and the Emerging Growth Stock Fund and manages the portfolios of the Funds on a day-to-day basis. The Subadviser was founded in 1987 and manages domestic growth equity assets. The firm's client base is comprised of a blend of institutional tax-exempt and taxable separately managed accounts. As a domestic growth equity manager, the Subadviser manages assets for a variety of entities, including public funds, foundations, endowments, corporations, pooled accounts, and private individuals. The Subadviser selects, buys, and sells securities for the Aggressive Growth Stock Fund and the Emerging Growth Stock Fund under the supervision of the Adviser and the Board of Trustees. The principal business address of the Subadviser is 601 Union Street, Seattle, Washington 98101. As of September 30, 2003, the Subadviser had approximately $855 million of assets under management. INVESTMENT SUBADVISORY AGREEMENT. The Adviser and the Subadviser have entered into an investment subadvisory agreement (the "Subadvisory Agreement") under which the Subadviser makes the investment decisions for and continuously reviews, supervises, and administers the investment program of the Aggressive Growth Stock Fund and the Emerging Growth Stock Fund, subject to the supervision of, and policies established by, the Adviser and the Trustees of the Trust. After the initial two year term, the continuance of the Subadvisory Agreement with respect to either Fund must be specifically approved at least annually by (i) the vote of the Trustees or a vote of the shareholders of the Fund and (ii) the vote of a majority of the Trustees who are not parties to the Subadvisory Agreement or "interested persons" of 35 any party thereto, cast in person at a meeting called for the purpose of voting on such approval. The Subadvisory Agreement will terminate automatically in the event of its assignment and is terminable at any time without penalty by (i) the Trustees of the Trust or, with respect to either Fund, by a majority of the outstanding shares of that Fund, (ii) the Adviser at any time on not less than 30 days nor more than 60 days written notice to the Subadviser, or (iii) the Subadviser on 90 days written notice to the Adviser. The Subadvisory Agreement provides that the Subadviser shall not be protected against any liability by reason of willful misfeasance, bad faith, or negligence on its part in the performance of its duties or from reckless disregard of its obligations or duties thereunder. SUBADVISORY FEES PAID TO THE SUBADVISER. For its services under the Subadvisory Agreement, the Subadviser is entitled to a fee, which is calculated daily and paid monthly by the Adviser, at an annual rate of 0.63% based on the average daily net assets of the Aggressive Growth Stock Fund and the Emerging Growth Stock Fund. THE ADMINISTRATOR GENERAL. SEI Investments Global Funds Services (the "Administrator"), a Delaware statutory trust, has its principal business offices at One Freedom Valley Drive, 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 other mutual funds. 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 $10 billion. For the period from commencement of operations to the fiscal periods ended May 31, 2003, 2002 and 2001, the Funds paid the following administrative fees: 36
------------------------------------------------ ---------------------------------- ---------------------------------- FUND FEES PAID ($) FEES WAIVED ($) ------------------------------------------------ ---------------------------------- ---------------------------------- 2003 2002 2001 2003 2002 2001 ------------------------------------------------ ---------- ----------- ----------- ----------- ---------- ----------- Aggressive Growth Stock Fund * * * * * * ------------------------------------------------ ---------- ----------- ----------- ----------- ---------- ----------- Balanced Fund 197,000 207,000 203,000 0 0 0 ------------------------------------------------ ---------- ----------- ----------- ----------- ---------- ----------- Capital Appreciation Fund 864,000 993,000 1,013,000 0 0 0 ------------------------------------------------ ---------- ----------- ----------- ----------- ---------- ----------- Emerging Growth Stock Fund * * * * * * ------------------------------------------------ ---------- ----------- ----------- ----------- ---------- ----------- Florida Tax-Exempt Bond Fund 117,000 94,000 79,000 0 0 0 ------------------------------------------------ ---------- ----------- ----------- ----------- ---------- ----------- Georgia Tax-Exempt Bond Fund 78,000 76,000 66,000 0 0 0 ------------------------------------------------ ---------- ----------- ----------- ----------- ---------- ----------- Growth and Income Fund 483,000 636,000 697,000 0 0 0 ------------------------------------------------ ---------- ----------- ----------- ----------- ---------- ----------- High Income Fund 64,000 25,000 6,000 0 0 0 ------------------------------------------------ ---------- ----------- ----------- ----------- ---------- ----------- Information and Technology Fund 15,000 48,000 98,000 0 0 0 ------------------------------------------------ ---------- ----------- ----------- ----------- ---------- ----------- International Equity Fund 146,000 132,000 182,000 0 0 0 ------------------------------------------------ ---------- ----------- ----------- ----------- ---------- ----------- International Equity Index Fund 170,000 167,000 212,000 0 0 0 ------------------------------------------------ ---------- ----------- ----------- ----------- ---------- ----------- Investment Grade Bond Fund 635,000 644,000 652,000 0 0 0 ------------------------------------------------ ---------- ----------- ----------- ----------- ---------- ----------- Investment Grade Tax-Exempt Bond Fund 148,000 125,000 110,000 0 0 0 ------------------------------------------------ ---------- ----------- ----------- ----------- ---------- ----------- Life Vision Aggressive Growth Fund 19,000 19,000 14,000 0 0 0 ------------------------------------------------ ---------- ----------- ----------- ----------- ---------- ----------- Life Vision Conservative Fund 0** * * 0 * * ------------------------------------------------ ---------- ----------- ----------- ----------- ---------- ----------- Life Vision Growth and Income Fund 44,000 35,000 27,000 0 0 0 ------------------------------------------------ ---------- ----------- ----------- ----------- ---------- ----------- Life Vision Moderate Growth Fund 60,000 57,000 52,000 0 0 0 ------------------------------------------------ ---------- ----------- ----------- ----------- ---------- ----------- Limited-Term Federal Mortgage Securities Fund 215,000 92,000 82,000 0 0 0 ------------------------------------------------ ---------- ----------- ----------- ----------- ---------- ----------- Maryland Municipal Bond Fund 43,000 34,000 24,000 0 0 0 ------------------------------------------------ ---------- ----------- ----------- ----------- ---------- ----------- Mid-Cap Equity Fund 102,000 134,000 146,000 0 0 0 ------------------------------------------------ ---------- ----------- ----------- ----------- ---------- ----------- Mid-Cap Value Equity Fund 76,000 37,000 * 0 0 * ------------------------------------------------ ---------- ----------- ----------- ----------- ---------- ----------- Prime Quality Money Market Fund 4,158,000 3,999,000 3,633,000 0 0 0 ------------------------------------------------ ---------- ----------- ----------- ----------- ---------- ----------- Short-Term Bond Fund 235,000 201,000 144,000 0 0 0 ------------------------------------------------ ---------- ----------- ----------- ----------- ---------- ----------- Short-Term U.S. Treasury Securities Fund 163,000 101,000 67,000 0 0 0 ------------------------------------------------ ---------- ----------- ----------- ----------- ---------- ----------- Small Cap Growth Stock Fund 358,000 407,000 372,000 0 0 0 ------------------------------------------------ ---------- ----------- ----------- ----------- ---------- ----------- Small Cap Value Equity Fund 361,000 342,000 184,000 0 0 0 ------------------------------------------------ ---------- ----------- ----------- ----------- ---------- ----------- Strategic Income Fund 80,000 16,000 * 0 0 * ------------------------------------------------ ---------- ----------- ----------- ----------- ---------- ----------- Strategic Quantitative Equity Fund * * * * * * ------------------------------------------------ ---------- ----------- ----------- ----------- ---------- ----------- Tax-Exempt Money Market Fund 844,000 816,000 735,000 0 0 0 ------------------------------------------------ ---------- ----------- ----------- ----------- ---------- ----------- Tax Sensitive Growth Stock Fund 215,000 366,000 637,000 0 0 0 ------------------------------------------------ ---------- ----------- ----------- ----------- ---------- ----------- U.S. Government Securities Fund 180,000 138,000 98,000 0 0 0 ------------------------------------------------ ---------- ----------- ----------- ----------- ---------- -----------
37
------------------------------------------------ ---------------------------------- ---------------------------------- FUND FEES PAID ($) FEES WAIVED ($) ------------------------------------------------ ---------------------------------- ---------------------------------- 2003 2002 2001 2003 2002 2001 ------------------------------------------------ ---------- ----------- ----------- ----------- ---------- ----------- U.S. Government Securities Money Market Fund 822,000 733,000 506,000 0 0 0 ------------------------------------------------ ---------- ----------- ----------- ----------- ---------- ----------- U.S. Treasury Money Market Fund 673,000 587,000 545,000 0 0 0 ------------------------------------------------ ---------- ----------- ----------- ----------- ---------- ----------- Value Income Stock Fund 486,000 549,000 626,000 0 0 0 ------------------------------------------------ ---------- ----------- ----------- ----------- ---------- ----------- Virginia Intermediate Municipal Bond Fund 145,000 138,000 145,000 0 0 0 ------------------------------------------------ ---------- ----------- ----------- ----------- ---------- ----------- Virginia Municipal Bond Fund 47,000 47,000 41,000 0 0 0 ------------------------------------------------ ---------- ----------- ----------- ----------- ---------- ----------- Virginia Tax Free Money Market Fund 229,000 241,000 193,000 0 0 0 ------------------------------------------------ ---------- ----------- ----------- ----------- ---------- -----------
* Not in operation during the period. ** Rounded to $0. 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 November 21, 1995 (the "Distribution Agreement") whereby the Distributor acts as principal underwriter for the Trust's shares. The principal business address of the Distributor is One Freedom Valley Drive, Oaks, Pennsylvania 19456. 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 T Shares. In addition, the A Shares of the Funds have a distribution plan (the "A Plan"), the B Shares of the Funds have a distribution and service plan (the "B Plan"), and the L Shares of the Funds have a distribution and service plan (the "L 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 the fiscal years ended May 31, 2003, 2002, and 2001, the aggregate sales charge payable to the Distributor with respect to the A Shares of the Funds were as follows:
-------------------------------------------- -------------------------------------- ----------------------------------- FUND AGGREGATE SALES CHARGES PAYABLE TO AMOUNT RETAINED BY DISTRIBUTOR(S) DISTRIBUTOR(S) -------------------------------------------- -------------------------------------- ----------------------------------- 2003 2002 2001 2003 2002 2001 -------------------------------------------- ----------- ------------- ------------ ----------- ----------- ----------- Aggressive Growth Stock Fund * * * * * * -------------------------------------------- ----------- ------------- ------------ ----------- ----------- ----------- Balanced Fund 22,000 23,000 25,000 0 0 0 -------------------------------------------- ----------- ------------- ------------ ----------- ----------- ----------- Capital Appreciation Fund 935,000 1,220,000 1,539,000 0 0 0 -------------------------------------------- ----------- ------------- ------------ ----------- ----------- ----------- Emerging Growth Stock Fund * * * * * * -------------------------------------------- ----------- ------------- ------------ ----------- ----------- -----------
38
-------------------------------------------- -------------------------------------- ----------------------------------- FUND AGGREGATE SALES CHARGES PAYABLE TO AMOUNT RETAINED BY DISTRIBUTOR(S) DISTRIBUTOR(S) -------------------------------------------- -------------------------------------- ----------------------------------- 2003 2002 2001 2003 2002 2001 -------------------------------------------- ----------- ------------- ------------ ----------- ----------- ----------- Florida Tax-Exempt Bond Fund 11,000 5,000 5,000 0 0 0 -------------------------------------------- ----------- ------------- ------------ ----------- ----------- ----------- Georgia Tax-Exempt Bond Fund 5,000 5,000 5,000 0 0 0 -------------------------------------------- ----------- ------------- ------------ ----------- ----------- ----------- Growth and Income Fund 80,000 95,000 104,000 0 0 0 -------------------------------------------- ----------- ------------- ------------ ----------- ----------- ----------- High Income Fund * * * * * * -------------------------------------------- ----------- ------------- ------------ ----------- ----------- ----------- Information and Technology Fund * * * * * * -------------------------------------------- ----------- ------------- ------------ ----------- ----------- ----------- International Equity Fund 17,000 61,000 23,000 0 0 0 -------------------------------------------- ----------- ------------- ------------ ----------- ----------- ----------- International Equity Index Fund 19,000 41,000 11,000 0 0 0 -------------------------------------------- ----------- ------------- ------------ ----------- ----------- ----------- Investment Grade Bond Fund 116,000 94,000 91,000 0 0 0 -------------------------------------------- ----------- ------------- ------------ ----------- ----------- ----------- Investment Grade Tax-Exempt Bond Fund 88,000 84,000 83,000 0 0 0 -------------------------------------------- ----------- ------------- ------------ ----------- ----------- ----------- Life Vision Aggressive Growth Fund * * * * * * -------------------------------------------- ----------- ------------- ------------ ----------- ----------- ----------- Life Vision Conservative Fund * * * * * * -------------------------------------------- ----------- ------------- ------------ ----------- ----------- ----------- Life Vision Growth and Income Fund * * * * * * -------------------------------------------- ----------- ------------- ------------ ----------- ----------- ----------- Life Vision Moderate Growth Fund * * * * * * -------------------------------------------- ----------- ------------- ------------ ----------- ----------- ----------- Limited-Term Federal Mortgage Securities Fund 16,000 3,000 2,000 0 0 0 -------------------------------------------- ----------- ------------- ------------ ----------- ----------- ----------- Maryland Municipal Bond Fund * * * * * * -------------------------------------------- ----------- ------------- ------------ ----------- ----------- ----------- Mid-Cap Equity Fund 43,000 47,000 57,000 0 0 0 -------------------------------------------- ----------- ------------- ------------ ----------- ----------- ----------- Mid-Cap Value Equity Fund * * * * * * -------------------------------------------- ----------- ------------- ------------ ----------- ----------- ----------- Prime Quality Money Market Fund 3,839,000 3,842,000 3,431,000 0 0 0 -------------------------------------------- ----------- ------------- ------------ ----------- ----------- ----------- Short-Term Bond Fund 11,000 11,000 4,000 0 0 0 -------------------------------------------- ----------- ------------- ------------ ----------- ----------- ----------- Short-Term U.S. Treasury Securities Fund 19,000 5,000 4,000 0 0 0 -------------------------------------------- ----------- ------------- ------------ ----------- ----------- ----------- Small Cap Growth Stock Fund 94,000 128,000 163,000 0 0 0 -------------------------------------------- ----------- ------------- ------------ ----------- ----------- ----------- Small Cap Value Equity Fund * * * * * * -------------------------------------------- ----------- ------------- ------------ ----------- ----------- ----------- Strategic Income Fund * * * * * * -------------------------------------------- ----------- ------------- ------------ ----------- ----------- ----------- Strategic Quantitative Equity Fund * * * * * * -------------------------------------------- ----------- ------------- ------------ ----------- ----------- ----------- Tax-Exempt Money Market Fund 357,000 336,000 269,000 0 0 0 -------------------------------------------- ----------- ------------- ------------ ----------- ----------- ----------- Tax Sensitive Growth Stock Fund * * * * * * -------------------------------------------- ----------- ------------- ------------ ----------- ----------- ----------- U.S. Government Securities Fund 27,000 28,000 8,000 0 0 0 -------------------------------------------- ----------- ------------- ------------ ----------- ----------- ----------- U.S. Government Securities Money Market Fund 407,000 364,000 177,000 0 0 0 -------------------------------------------- ----------- ------------- ------------ ----------- ----------- ----------- U.S. Treasury Money Market Fund * * * * * * -------------------------------------------- ----------- ------------- ------------ ----------- ----------- ----------- Value Income Stock Fund 206,000 256,000 293,000 0 0 0 -------------------------------------------- ----------- ------------- ------------ ----------- ----------- ----------- Virginia Intermediate Municipal Bond Fund 12,000 9,000 10,000 0 0 0 -------------------------------------------- ----------- ------------- ------------ ----------- ----------- ----------- Virginia Municipal Bond Fund * * * * * * -------------------------------------------- ----------- ------------- ------------ ----------- ----------- ----------- Virginia Tax-Free Money Market Fund 393,000 399,000 266,000 0 0 0 -------------------------------------------- ----------- ------------- ------------ ----------- ----------- -----------
* Not in operation during the period. 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 A Shares: 39
-------------------------------------------------------------- -------------------------------------------------------- DEALERS' REALLOWANCE AS A PERCENTAGE OF OFFERING PRICE -------------------------------------------------------- Less than $100,000 $250,000 $1,000,000 $100,000 but less than but less than and over FUND (S) $250,000 $1,000,000 -------------------------------------------------------------- ----------- --------------- ------------- -------------- Aggressive Growth Stock, Balanced, Capital Appreciation, Emerging Growth Stock, Florida Tax-Exempt Bond, Georgia Tax-Exempt Bond, Growth and Income Fund, High Income, Information and Technology, International Equity, International Equity Index, Investment Grade Bond, Investment Grade Tax-Exempt Bond, Life Vision Aggressive Growth, Life Vision Conservative, Life Vision Growth and Income, Life Vision Moderate Growth, Maryland Municipal Bond, Mid-Cap Equity, Mid-Cap Value Equity, Small Cap Growth Stock, Small Cap Value Equity, Strategic Income, Strategic Quantitative Equity, Tax Sensitive Growth Stock, U.S. Government Securities, Value Income Stock, Virginia Intermediate Municipal Bond and Virginia Municipal Bond Funds 3.75% 3.25% 2.50% 0.25%-1.00% -------------------------------------------------------------- ----------- --------------- ------------- -------------- Limited-Term Federal Mortgage Securities Fund 2.50% 1.75% 1.25% 0.25%-1.00% -------------------------------------------------------------- ----------- --------------- ------------- -------------- Short-Term Bond Fund 2.00% 1.50% 1.00% 0.25%-1.00% -------------------------------------------------------------- ----------- --------------- ------------- -------------- Short-Term U.S. Treasury Securities Fund 1.00% 0.79% 0.50% 0.25%-1.00% -------------------------------------------------------------- ----------- --------------- ------------- --------------
For the fiscal years ended May 31, 2003, 2002, and 2001, the aggregate sales charge payable to the Distributor with respect to the L Shares of the Funds were as follows:
--------------------------------------- -------------------------------------- --------------------------------------- AGGREGATE SALES CHARGE PAYABLE TO DISTRIBUTOR(S) AMOUNT RETAINED BY DISTRIBUTOR(S) --------------------------------------- ------------ ------------ ------------ ------------ ------------- ------------ 2003 2002 2001 2003 2002 2001 --------------------------------------- ------------ ------------ ------------ ------------ ------------- ------------ Aggressive Growth Stock Fund * * * * * * --------------------------------------- ------------ ------------ ------------ ------------ ------------- ------------ Balanced Fund 653,000 707,000 626,000 0 0 0 --------------------------------------- ------------ ------------ ------------ ------------ ------------- ------------ Capital Appreciation Fund 902,000 1,067,000 1,138,000 0 0 0 --------------------------------------- ------------ ------------ ------------ ------------ ------------- ------------ Emerging Growth Stock Fund * * * * * * --------------------------------------- ------------ ------------ ------------ ------------ ------------- ------------ Florida Tax-Exempt Bond Fund 329,000 177,000 104,000 0 0 0 --------------------------------------- ------------ ------------ ------------ ------------ ------------- ------------ Georgia Tax-Exempt Bond Fund 148,000 157,000 102,000 0 0 0 --------------------------------------- ------------ ------------ ------------ ------------ ------------- ------------ Growth and Income Fund 734,000 837,000 658,000 0 0 0 --------------------------------------- ------------ ------------ ------------ ------------ ------------- ------------ High Income Fund 446,000 315,000 86,000 0 0 0 --------------------------------------- ------------ ------------ ------------ ------------ ------------- ------------ Information and Technology Fund 65,000 154,000 254,000 0 0 0 --------------------------------------- ------------ ------------ ------------ ------------ ------------- ------------ International Equity Fund 54,000 10,000 73,000 0 0 0 --------------------------------------- ------------ ------------ ------------ ------------ ------------- ------------ International Equity Index Fund 28,000 0 40,000 0 0 0 --------------------------------------- ------------ ------------ ------------ ------------ ------------- ------------ Investment Grade Bond Fund 365,000 328,000 200,000 0 0 0 --------------------------------------- ------------ ------------ ------------ ------------ ------------- ------------ Investment Grade Tax-Exempt Bond Fund 283,000 227,000 155,000 0 0 0 --------------------------------------- ------------ ------------ ------------ ------------ ------------- ------------ Limited-Term Federal Mortgage 868,000 69,000 16,000 0 0 0 --------------------------------------- ------------ ------------ ------------ ------------ ------------- ------------ Maryland Municipal Bond Fund 268,000 190,000 72,000 0 0 0 --------------------------------------- ------------ ------------ ------------ ------------ ------------- ------------ Mid-Cap Equity Fund 115,000 132,000 134,000 0 0 0 --------------------------------------- ------------ ------------ ------------ ------------ ------------- ------------ Mid-Cap Value Equity Fund 49,000 13,000 * 0 0 * --------------------------------------- ------------ ------------ ------------ ------------ ------------- ------------ Prime Quality Money Market Fund 120,000 63,000 24,000 0 0 0 --------------------------------------- ------------ ------------ ------------ ------------ ------------- ------------ Short-Term Bond Fund 305,000 169,000 33,000 0 0 0 --------------------------------------- ------------ ------------ ------------ ------------ ------------- ------------ Short-Term U.S. Treasury Securities Fund 1,075,000 441,000 93,000 0 0 0 --------------------------------------- ------------ ------------ ------------ ------------ ------------- ------------
40
--------------------------------------- -------------------------------------- --------------------------------------- AGGREGATE SALES CHARGE PAYABLE TO DISTRIBUTOR(S) AMOUNT RETAINED BY DISTRIBUTOR(S) --------------------------------------- ------------ ------------ ------------ ------------ ------------- ------------ 2003 2002 2001 2003 2002 2001 --------------------------------------- ------------ ------------ ------------ ------------ ------------- ------------ Small Cap Growth Stock Fund 233,000 256,000 253,000 0 0 0 --------------------------------------- ------------ ------------ ------------ ------------ ------------- ------------ Small Cap Value Equity Fund 305,000 172,000 86,000 0 0 0 --------------------------------------- ------------ ------------ ------------ ------------ ------------- ------------ Strategic Income Fund 638,000 106,000 * 0 0 * --------------------------------------- ------------ ------------ ------------ ------------ ------------- ------------ Strategic Quantitative Equity Fund * * * * * * --------------------------------------- ------------ ------------ ------------ ------------ ------------- ------------ Tax Sensitive Growth Stock Fund 1,204,000 1,945,000 2,828,000 0 0 0 --------------------------------------- ------------ ------------ ------------ ------------ ------------- ------------ U.S. Government Securities Fund 370,000 314,000 99,000 0 0 0 --------------------------------------- ------------ ------------ ------------ ------------ ------------- ------------ Value Income Stock Fund 469,000 602,000 672,000 0 0 0 --------------------------------------- ------------ ------------ ------------ ------------ ------------- ------------ Virginia Intermediate Municipal Bond Fund * * * * * * --------------------------------------- ------------ ------------ ------------ ------------ ------------- ------------ Virginia Municipal Bond Fund 150,000 114,000 58,000 0 0 0 --------------------------------------- ------------ ------------ ------------ ------------ ------------- ------------
* Not in operation during the period. A SHARES, B SHARES AND L SHARES DISTRIBUTION PLANS The Distribution Agreement and the A Plan adopted by the Trust provide that A Shares of the Funds will pay the Distributor fees of up to the following respective levels: -------------------------------------------------- -------------------------- FUND: DISTRIBUTION FEE: -------------------------------------------------- -------------------------- Aggressive Growth Stock Fund 0.35% -------------------------------------------------- -------------------------- Balanced Fund 0.28% -------------------------------------------------- -------------------------- Capital Appreciation Fund 0.68% -------------------------------------------------- -------------------------- Emerging Growth Stock Fund 0.35% -------------------------------------------------- -------------------------- Florida Tax-Exempt Bond Fund 0.18% -------------------------------------------------- -------------------------- Georgia Tax-Exempt Bond Fund 0.18% -------------------------------------------------- -------------------------- Growth and Income Fund 0.25% -------------------------------------------------- -------------------------- High Income Fund 0.30% -------------------------------------------------- -------------------------- Information and Technology Fund 0.55% -------------------------------------------------- -------------------------- International Equity Fund 0.33% -------------------------------------------------- -------------------------- International Equity Index Fund 0.38% -------------------------------------------------- -------------------------- Investment Grade Bond Fund 0.43% -------------------------------------------------- -------------------------- Investment Grade Tax-Exempt Bond Fund 0.43% -------------------------------------------------- -------------------------- Life Vision Aggressive Growth Fund 0.50% -------------------------------------------------- -------------------------- Life Vision Conservative Fund 0.40% -------------------------------------------------- -------------------------- Life Vision Growth and Income Fund 0.50% -------------------------------------------------- -------------------------- Life Vision Moderate Growth Fund 0.50% -------------------------------------------------- -------------------------- Limited-Term Federal Mortgage Securities Fund 0.23% -------------------------------------------------- -------------------------- Maryland Municipal Bond Fund 0.15% -------------------------------------------------- -------------------------- 41 -------------------------------------------------- -------------------------- FUND: DISTRIBUTION FEE: -------------------------------------------------- -------------------------- Mid-Cap Equity Fund 0.43% -------------------------------------------------- -------------------------- Mid-Cap Value Equity Fund 0.40% -------------------------------------------------- -------------------------- 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% -------------------------------------------------- -------------------------- Small Cap Value Equity Fund 0.33% -------------------------------------------------- -------------------------- Strategic Income Fund 0.35% -------------------------------------------------- -------------------------- Strategic Quantitative Equity Fund 0.25% -------------------------------------------------- -------------------------- Tax-Exempt Money Market Fund 0.15% -------------------------------------------------- -------------------------- Tax Sensitive Growth Stock Fund 0.40% -------------------------------------------------- -------------------------- U.S. Government Securities Fund 0.38% -------------------------------------------------- -------------------------- U.S. Government Securities Money Market Fund 0.17% -------------------------------------------------- -------------------------- U.S. Treasury Money Market Fund 0.15% -------------------------------------------------- -------------------------- Value Income Stock Fund 0.33% -------------------------------------------------- -------------------------- Virginia Intermediate Municipal Bond Fund 0.15% -------------------------------------------------- -------------------------- Virginia Municipal Bond Fund 0.15% -------------------------------------------------- -------------------------- Virginia Tax-Free Money Market Fund 0.40% -------------------------------------------------- -------------------------- In addition, the Distribution Agreement, the B Plan and the L Plan adopted by the Trust provide that B Shares and L 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 A Shares, B Shares or L Shares shareholders or their customers who beneficially own A Shares, B Shares or L Shares. In addition, B Shares and L Shares are subject to a service fee of up to 0.25% of the average daily net assets of the B Shares and L 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 42 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 A Plan, the B Plan and the L 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 A Plan, the B Plan and the L Plan must be approved annually by a majority of the Trustees of the Trust and by a majority of the disinterested Trustees. The A Plan, the B Plan and the L Plan require that quarterly written reports of amounts spent under the A Plan, the B Plan and the L Plan, respectively, and the purposes of such expenditures be furnished to and reviewed by the Trustees. The A Plan, the B Plan and the L Plan may not be amended to increase materially the amount that 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 B Shares or L Shares, but B Shares and L Shares are subject to a contingent deferred sales charge if they are redeemed within five and one years, respectively, of purchase. Pursuant to the Distribution Agreement, the B Plan and the L Plan, B Shares and L Shares are subject to an ongoing distribution and service fee calculated on each Fund's aggregate average daily net assets attributable to its B Shares or L Shares. For the fiscal years ended May 31, 2003, 2002 and 2001, the Funds paid the following amounts pursuant to the A Plan:
------------------------------------------------------------ -------------------------------------------------------- FUND DISTRIBUTION FEES - AMOUNT PAID OR REIMBURSED ($) ------------------------------------------------------------ -------------------------------------------------------- 2003 2002 2001 ------------------------------------------------------------ ------------------ ------------------- ----------------- Aggressive Growth Stock Fund * * * ------------------------------------------------------------ ------------------ ------------------- ----------------- Balanced Fund 6,000 7,000 9,000 ------------------------------------------------------------ ------------------ ------------------- ----------------- Capital Appreciation Fund 794,000 1,061,000 1,343,000 ------------------------------------------------------------ ------------------ ------------------- ----------------- Emerging Growth Stock Fund * * * ------------------------------------------------------------ ------------------ ------------------- ----------------- Florida Tax-Exempt Bond Fund 1,000 (7,000)** 0 ------------------------------------------------------------ ------------------ ------------------- ----------------- Georgia Tax-Exempt Bond Fund (7,000)** (7,000)** 0 ------------------------------------------------------------ ------------------ ------------------- ----------------- Growth and Income Fund 15,000 26,000 33,000 ------------------------------------------------------------ ------------------ ------------------- ----------------- High Income Fund * * * ------------------------------------------------------------ ------------------ ------------------- ----------------- Information and Technology Fund * * * ------------------------------------------------------------ ------------------ ------------------- ----------------- International Equity Fund (3,000)** 6,000 7,000 ------------------------------------------------------------ ------------------ ------------------- ----------------- International Equity Index Fund 5,000 2,000 0 ------------------------------------------------------------ ------------------ ------------------- ----------------- Investment Grade Bond Fund 78,000 59,000 54,000 ------------------------------------------------------------ ------------------ ------------------- ----------------- Investment Grade Tax-Exempt Bond Fund 68,000 62,000 60,000 ------------------------------------------------------------ ------------------ ------------------- ----------------- Life Vision Aggressive Growth Fund * * * ------------------------------------------------------------ ------------------ ------------------- ----------------- Life Vision Conservative Fund * * * ------------------------------------------------------------ ------------------ ------------------- ----------------- Life Vision Growth and Income Fund * * * ------------------------------------------------------------ ------------------ ------------------- ----------------- Life Vision Moderate Growth Fund * * * ------------------------------------------------------------ ------------------ ------------------- ----------------- Limited-Term Federal Mortgage Securities Fund 3,000 (10,000)** 0 ------------------------------------------------------------ ------------------ ------------------- -----------------
43
------------------------------------------------------------ -------------------------------------------------------- DISTRIBUTION FEES - AMOUNT PAID OR REIMBURSED ($) ------------------------------------------------------------ -------------------------------------------------------- 2003 2002 2001 ------------------------------------------------------------ ------------------ ------------------- ----------------- Maryland Municipal Bond Fund * * * ------------------------------------------------------------ ------------------ ------------------- ----------------- Mid-Cap Equity Fund 22,000 27,000 36,000 ------------------------------------------------------------ ------------------ ------------------- ----------------- Mid-Cap Value Equity Fund * * * ------------------------------------------------------------ ------------------ ------------------- ----------------- Prime Quality Money Market Fund 3,473,000 3,407,000 2,911,000 ------------------------------------------------------------ ------------------ ------------------- ----------------- Short-Term Bond Fund (4,000)** (4,000)** 0 ------------------------------------------------------------ ------------------ ------------------- ----------------- Short-Term U.S. Treasury Securities Fund 3,000 (8,000)** 0 ------------------------------------------------------------ ------------------ ------------------- ----------------- Small Cap Growth Stock Fund 33,000 58,000 80,000 ------------------------------------------------------------ ------------------ ------------------- ----------------- Small Cap Value Equity Fund * * * ------------------------------------------------------------ ------------------ ------------------- ----------------- Strategic Income Fund * * * ------------------------------------------------------------ ------------------ ------------------- ----------------- Strategic Quantitative Equity Fund * * * ------------------------------------------------------------ ------------------ ------------------- ----------------- Tax-Exempt Money Market Fund 298,000 264,000 204,000 ------------------------------------------------------------ ------------------ ------------------- ----------------- Tax Sensitive Growth Stock Fund * * * ------------------------------------------------------------ ------------------ ------------------- ----------------- U.S. Government Securities Fund 13,000 17,000 0 ------------------------------------------------------------ ------------------ ------------------- ----------------- U.S. Government Securities Money Market Fund 345,000 292,000 132,000 ------------------------------------------------------------ ------------------ ------------------- ----------------- U.S. Treasury Money Market Fund * * * ------------------------------------------------------------ ------------------ ------------------- ----------------- Value Income Stock Fund 180,000 233,000 268,000 ------------------------------------------------------------ ------------------ ------------------- ----------------- Virginia Intermediate Municipal Bond Fund (10,000)** (12,000)** 0 ------------------------------------------------------------ ------------------ ------------------- ----------------- Virginia Municipal Bond Fund * * * ------------------------------------------------------------ ------------------ ------------------- ----------------- Virginia Tax-Free Money Market Fund 167,000 167,000 100,000 ------------------------------------------------------------ ------------------ ------------------- -----------------
* Not in operation during the period. ** The Distributor reimbursed the Funds for other expenses. For the fiscal year ended May 31, 2003, the Funds paid the following amounts pursuant to the B Plan:
-------------------------------------------------------------- ---------------------------------------------- FUND DISTRIBUTION FEES - AMOUNT PAID ($) -------------------------------------------------------------- ---------------------------------------------- 2003 -------------------------------------------------------------- ---------------------------------------------- Life Vision Aggressive Growth Fund 1,000 -------------------------------------------------------------- ---------------------------------------------- Life Vision Conservative Fund 0 -------------------------------------------------------------- ---------------------------------------------- Life Vision Growth and Income Fund 1,000 -------------------------------------------------------------- ---------------------------------------------- Life Vision Moderate Growth Fund 2,000 -------------------------------------------------------------- ----------------------------------------------
For the fiscal years ended May 31, 2003, 2002 and 2001, the Funds paid the following amounts pursuant to the L Plan:
-------------------------------------------------------------- -------------------------------------------------------- FUND DISTRIBUTION FEES - AMOUNT PAID ($) -------------------------------------------------------------- -------------------------------------------------------- 2003 2002 2001 -------------------------------------------------------------- ------------------ ----------------- ------------------- Aggressive Growth Stock Fund * * * -------------------------------------------------------------- ------------------ ----------------- ------------------- Balanced Fund 612,000 677,000 596,000 -------------------------------------------------------------- ------------------ ----------------- ------------------- Capital Appreciation Fund 829,000 1,047,000 1,102,000 -------------------------------------------------------------- ------------------ ----------------- ------------------- Emerging Growth Stock Fund * * * -------------------------------------------------------------- ------------------ ----------------- ------------------- Florida Tax-Exempt Bond Fund 220,000 111,000 60,000 -------------------------------------------------------------- ------------------ ----------------- ------------------- Georgia Tax-Exempt Bond Fund 92,000 99,000 59,000 -------------------------------------------------------------- ------------------ ----------------- ------------------- Growth and Income Fund 534,000 648,000 515,000 -------------------------------------------------------------- ------------------ ----------------- ------------------- High Income Fund 246,000 167,000 36,000 -------------------------------------------------------------- ------------------ ----------------- -------------------
44
-------------------------------------------------------------- -------------------------------------------------------- FUND DISTRIBUTION FEES - AMOUNT PAID ($) -------------------------------------------------------------- -------------------------------------------------------- 2003 2002 2001 -------------------------------------------------------------- ------------------ ----------------- ------------------- Information and Technology Fund 17,000 104,000 204,000 -------------------------------------------------------------- ------------------ ----------------- ------------------- International Equity Fund 27,000 42,000 65,000 -------------------------------------------------------------- ------------------ ----------------- ------------------- International Equity Index Fund 11,000 25,000 38,000 -------------------------------------------------------------- ------------------ ----------------- ------------------- Investment Grade Bond Fund 278,000 254,000 147,000 -------------------------------------------------------------- ------------------ ----------------- ------------------- Investment Grade Tax-Exempt Bond Fund 232,000 184,000 120,000 -------------------------------------------------------------- ------------------ ----------------- ------------------- Limited-Term Federal Mortgage Securities Fund 487,000 26,000 0 -------------------------------------------------------------- ------------------ ----------------- ------------------- Maryland Municipal Bond Fund 243,000 169,000 55,000 -------------------------------------------------------------- ------------------ ----------------- ------------------- Mid-Cap Equity Fund 81,000 106,000 112,000 -------------------------------------------------------------- ------------------ ----------------- ------------------- Mid-Cap Value Equity Fund 7,000 4,000 * -------------------------------------------------------------- ------------------ ----------------- ------------------- Prime Quality Money Market Fund 79,000 59,000 15,000 -------------------------------------------------------------- ------------------ ----------------- ------------------- Short-Term Bond Fund 141,000 74,000 5,000 -------------------------------------------------------------- ------------------ ----------------- ------------------- Short-Term U.S. Treasury Securities Fund 405,000 159,000 21,000 -------------------------------------------------------------- ------------------ ----------------- ------------------- Small Cap Growth Stock Fund 199,000 231,000 230,000 -------------------------------------------------------------- ------------------ ----------------- ------------------- Small Cap Value Equity Fund 248,000 136,000 56,000 -------------------------------------------------------------- ------------------ ----------------- ------------------- Strategic Income Fund 313,000 59,000 * -------------------------------------------------------------- ------------------ ----------------- ------------------- Strategic Quantitative Equity Fund * * * -------------------------------------------------------------- ------------------ ----------------- ------------------- Tax Sensitive Growth Stock Fund 1,095,000 1,844,000 2,732,000 -------------------------------------------------------------- ------------------ ----------------- ------------------- U.S. Government Securities Fund 306,000 260,000 71,000 -------------------------------------------------------------- ------------------ ----------------- ------------------- Value Income Stock Fund 433,000 581,000 645,000 -------------------------------------------------------------- ------------------ ----------------- ------------------- Virginia Intermediate Municipal Bond Fund * * * -------------------------------------------------------------- ------------------ ----------------- ------------------- Virginia Municipal Bond Fund 128,000 94,000 41,000 -------------------------------------------------------------- ------------------ ----------------- -------------------
* 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 A Shares and L Shares, unless otherwise agreed upon by the Distributor and such broker-dealer.
--------------------------------------------------------------------------------------------------------------------- FUND ANNUAL PAYOUT INITIAL PAYMENT - ANNUAL FIRST YEAR ANNUAL PAYOUT 12(B)-1 12(B)-1 EFFECTIVE AT TIME OF SALE PAYOUT 12(B)-1 EFFECTIVE 13TH MONTH IMMEDIATELY (A)* (L) (L) (L) --------------------------------------------------------------------------------------------------------------------- EQUITY FUNDS --------------------------------------------------------------------------------------------------------------------- Aggressive Growth Stock Fund 0.30% 0.25% 0.50% 0.65% --------------------------------------------------------------------------------------------------------------------- Balanced Fund 0.20% 0.25% 0.50% 0.65% --------------------------------------------------------------------------------------------------------------------- Capital Appreciation Fund 0.35% 0.25% 0.50% 0.65% --------------------------------------------------------------------------------------------------------------------- Emerging Growth Stock Fund 0.30% 0.25% 0.50% 0.65% --------------------------------------------------------------------------------------------------------------------- Growth and Income Fund 0.20% 0.25% 0.45% 0.60% --------------------------------------------------------------------------------------------------------------------- Information and Technology Fund 0.25% 0.25% 0.50% 0.65% --------------------------------------------------------------------------------------------------------------------- International Equity Fund 0.25% 0.25% 0.45% 0.60% --------------------------------------------------------------------------------------------------------------------- International Equity Index Fund 0.30% 0.25% 0.40% 0.50% --------------------------------------------------------------------------------------------------------------------- Life Vision Aggressive Growth Fund 0.20% N/A N/A N/A --------------------------------------------------------------------------------------------------------------------- Life Vision Conservative Fund 0.15% N/A N/A N/A --------------------------------------------------------------------------------------------------------------------- Life Vision Growth and Income Fund 0.20% N/A N/A N/A ---------------------------------------------------------------------------------------------------------------------
45
--------------------------------------------------------------------------------------------------------------------- FUND ANNUAL PAYOUT INITIAL PAYMENT - ANNUAL FIRST YEAR ANNUAL PAYOUT 12(B)-1 12(B)-1 EFFECTIVE AT TIME OF SALE PAYOUT 12(B)-1 EFFECTIVE 13TH MONTH IMMEDIATELY (A)* (L) (L) (L) --------------------------------------------------------------------------------------------------------------------- Life Vision Moderate Growth Fund 0.20% N/A N/A N/A --------------------------------------------------------------------------------------------------------------------- Mid-Cap Equity Fund 0.30% 0.25% 0.45% 0.60% --------------------------------------------------------------------------------------------------------------------- Mid-Cap Value Equity Fund 0.25% 0.25% 0.45% 0.60% --------------------------------------------------------------------------------------------------------------------- Small Cap Growth Stock Fund 0.35% 0.25% 0.50% 0.65% --------------------------------------------------------------------------------------------------------------------- Small Cap Value Equity Fund 0.25% 0.25% 0.45% 0.60% --------------------------------------------------------------------------------------------------------------------- Strategic Quantitative Equity Fund 0.25% 0.25% 0.40% 0.60% --------------------------------------------------------------------------------------------------------------------- Tax Sensitive Growth Stock Fund 0.20% 0.25% 0.45% 0.60% --------------------------------------------------------------------------------------------------------------------- Value Income Stock Fund 0.20% 0.25% 0.50% 0.65% --------------------------------------------------------------------------------------------------------------------- FIXED INCOME FUNDS --------------------------------------------------------------------------------------------------------------------- Florida Tax-Exempt Bond Fund 0.10% 0.15% 0.20% 0.30% --------------------------------------------------------------------------------------------------------------------- Georgia Tax-Exempt Bond Fund 0.10% 0.15% 0.20% 0.30% --------------------------------------------------------------------------------------------------------------------- High Income Fund 0.20% 0.25% 0.20% 0.30% --------------------------------------------------------------------------------------------------------------------- Investment Grade Bond Fund 0.20% 0.20% 0.20% 0.30% --------------------------------------------------------------------------------------------------------------------- Investment Grade Tax-Exempt Bond Fund 0.20% 0.20% 0.20% 0.30% --------------------------------------------------------------------------------------------------------------------- Limited Term Federal Mortgage Securities Fund 0.15% 0.15% 0.20% 0.25% --------------------------------------------------------------------------------------------------------------------- Maryland Municipal Bond Fund 0.10% 0.15% 0.20% 0.30% --------------------------------------------------------------------------------------------------------------------- Short Term Bond Fund 0.15% 0.10% 0.20% 0.25% --------------------------------------------------------------------------------------------------------------------- Short-Term U.S. Treasury Securities Fund 0.10% 0.10% 0.20% 0.25% --------------------------------------------------------------------------------------------------------------------- Strategic Income Fund 0.20% 0.25% 0.20% 0.30% --------------------------------------------------------------------------------------------------------------------- U.S. Government Securities Fund 0.15% 0.20% 0.20% 0.30% --------------------------------------------------------------------------------------------------------------------- Virginia Intermediate Municipal Bond Fund 0.10% 0.15% 0.20% 0.30% --------------------------------------------------------------------------------------------------------------------- Virginia Municipal Bond Fund 0.10% 0.15% 0.20% 0.30% ---------------------------------------------------------------------------------------------------------------------
* Initial Front End Sales Charge for A Shares ranges from 3.75% maximum to 0.50% depending on Fund and breakpoints (outlined in prospectus). 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 B Shares, unless otherwise agreed upon by the Distributor and such broker-dealer.
---------------------------------------------------------------------------------------------------------------- INITIAL PAYMENT - ANNUAL FIRST YEAR PAYOUT ANNUAL PAYOUT 12(B)-1 FUND AT TIME OF SALE 12(B)-1 EFFECTIVE IMMEDIATELY EFFECTIVE 13TH MONTH ---------------------------------------------------------------------------------------------------------------- LIFE VISION FUNDS ---------------------------------------------------------------------------------------------------------------- Life Vision Aggressive Growth Fund 4.00% N/A N/A ---------------------------------------------------------------------------------------------------------------- Life Vision Conservative Fund 4.00% N/A N/A ---------------------------------------------------------------------------------------------------------------- Life Vision Growth and Income Fund 4.00% N/A N/A ---------------------------------------------------------------------------------------------------------------- Life Vision Moderate Growth Fund 4.00% N/A N/A ----------------------------------------------------------------------------------------------------------------
46 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. Brown Brothers Harriman & Co., 40 Water Street, Boston, MA 02109 serves as custodian for the International Equity, International Equity Index and Strategic Income Funds. INDEPENDENT AUDITORS For the fiscal year ended May 31, 2003, PricewaterhouseCoopers LLP, served as independent auditors 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 Trust's forty-four series, which includes series not described in this SAI. Each Trustee also serves a Trustee for each of the seven series of the STI Classic Variable Trust. 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 (DOB 11/25/47) - Trustee - President of Genuine Parts Company since 1970. Director, Oxford Industries. F. WENDELL GOOCH (DOB 12/03/32) - Trustee - Retired. President of Orange County Publishing Co., Inc. from 1981 to 1997. Publisher of the Paoli News and the Paoli Republican and Editor of the Paoli Republican from 1981 to 1997. President at H & W Distribution, Inc. from 1984 to 1997. Current Trustee on the Board of Trustees for the SEI Family of Funds and The Capitol Mutual Funds. Executive Vice President of 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 (DOB 7/04/42) - Trustee - President and Chief Executive Officer at Cox Communications, Inc., since 1985. Director at NCR. Director at Cox Communications. JONATHAN T. WALTON (DOB 3/28/30) - Trustee - Retired. Executive Vice President at NBD Bank, N.A. and NBD Bancorp from October 1956 to March 1995. Trustee of W.K. Kellogg Foundation. 47 RICHARD W. COURTS, II (DOB 1/18/36) - Trustee* - Chairman of the Board of Atlantic Investment Company since 1970. CLARENCE H. RIDLEY (DOB 6/03/42) - Trustee* - Chairman of the Board of Haverty Furniture Companies since 2001. Partner at King and Spalding LLP (law firm) from 1977 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 of a material business relationship with the parent of the Adviser. BOARD COMMITTEES. The Board has established the following committees: o AUDIT COMMITTEE. The Board's Audit Committee 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; pre-approving audit and non-audit services provided by the Trust's independent auditor to the Trust and certain other affiliated entities; 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 Trust fiscal year. o NOMINATING COMMITTEE. The Board's Nominating Committee is composed of each of the independent Trustees of the Trust. The principal responsibility of the Nominating Committee is 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 Securities Exchange Act of 1934 (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 Trust fiscal year. o FAIR VALUE PRICING COMMITTEE. The Board has established the Trust's Fair Value Pricing Committee, which is composed of a Trustee, as a non-voting member, and 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 responsibility of the Fair Value Pricing 48 Committee is 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 sixteen times in the most recently completed Trust 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) 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 1934 Act. The Trustees and officers of the Trust own less than 1% of the outstanding shares of the Trust. 49
----------------------------------------------------------------------------------------------------------------- NAME DOLLAR RANGE OF FUND SHARES (FUND)* A+GGREGATE DOLLAR RANGE OF SHARES (ALL FUNDS)* ----------------------------------------------------------------------------------------------------------------- Courts None None ----------------------------------------------------------------------------------------------------------------- $1-$10,000 (Capital Appreciation Fund) $1-$10,000 (Growth and Income Fund) $1-$10,000 (Information and Technology Fund) Gallagher $1-$10,000 (Prime Quality Money Market Fund) $10,001-$50,000 $1-$10,000 (Small Cap Growth Stock Fund) $1-$10,000 (Small Cap Value Equity Fund) $1-$10,000 (Tax Sensitive Growth Stock Fund) $1-$10,000 (Value Income Stock Fund) ----------------------------------------------------------------------------------------------------------------- Gooch $10,001-$50,000 (Information and Technology Fund) $10,001-$50,000 (Tax Sensitive Growth Stock Fund) $50,001-$100,000 ----------------------------------------------------------------------------------------------------------------- Ridley None None ----------------------------------------------------------------------------------------------------------------- Robbins None None ----------------------------------------------------------------------------------------------------------------- $1-$10,000 (Information and Technology Fund) $1-$10,000 (Small Cap Growth Stock Fund) Walton $1-$10,000 (Small Cap Value Equity Fund) $10,001-$50,000 $1-$10,000 (Tax Sensitive Growth Stock Fund) $1-$10,000 (Value Income Stock Fund) $10,001-$50,000 (Capital Appreciation Fund) -----------------------------------------------------------------------------------------------------------------
*Valuation date is December 31, 2002. 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 BENEFITS UPON THE TRUST AND FUND PART OF FUND EXPENSES RETIREMENT COMPLEX* ------------------------------- ---------------- ----------------------- ------------------ -------------------------- Richard W. Courts, II, Trustee $31,300 N/A N/A $33,000 for services on two boards ------------------------------- ---------------- ----------------------- ------------------ -------------------------- Thomas Gallagher, Trustee $37,600 N/A N/A $40,000 for services on two boards ------------------------------- ---------------- ----------------------- ------------------ -------------------------- F. Wendell Gooch, Trustee $34,800 N/A N/A $37,000 for services on two boards ------------------------------- ---------------- ----------------------- ------------------ -------------------------- Clarence H. Ridley, Trustee $34,800 N/A N/A $37,000 for services on two boards ------------------------------- ---------------- ----------------------- ------------------ -------------------------- James Robbins, Trustee $33,300 N/A N/A $35,500 for services on two boards ------------------------------- ---------------- ----------------------- ------------------ -------------------------- Jonathan T. Walton, Trustee $34,800 N/A N/A $37,000 for services on two boards ------------------------------- ---------------- ----------------------- ------------------ --------------------------
* The Fund complex consists of the Trust and the STI Classic Variable Trust. TRUST OFFICERS. The Executive Officers of the Trust, their respective dates of birth, and their principal occupations for the last five years are set forth below. Unless otherwise noted, the business address of each Executive Officer is SEI Investments Company, Oaks, Pennsylvania 19456. The officers of the Trust also serve as officers to one or more mutual funds for which SEI Investments or its affiliates act as 50 investment manager, administrator or distributor. None of the Officers receive compensation from the Trust for their services. JAMES VOLK (08/28/62) - President - Senior Operations Officer of SEI Investments Fund Accounting and Administration since February 1996. JENNIFER E. SPRATLEY, CPA (DOB 02/13/69) - Treasurer and Chief Financial Officer - Director, SEI Funds Accounting since November 1999. Audit Manager at Ernst & Young LLP from 1991 to 1999. LYDIA GAVALIS (DOB 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 at the Philadelphia Stock Exchange from 1989 to 1998. TIMOTHY D. BARTO (DOB 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 at Dechert Price & Rhoads (law firm) from 1997 to 1999. CHRISTINE M. MCCULLOUGH (DOB 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 at White & Williams LLP (law firm) from 1991 to 1999. WILLIAM E. ZITELLI, JR. (DOB 06/14/68) - Vice President and Assistant Secretary - Vice President and Assistant Secretary of the Administrator and Distributor since August 2000. Vice President at Merrill Lynch & Co. Asset Management Group from 1998 to 2000. Associate at Pepper Hamilton LLP (law firm) from 1997 to 1998. SHERRY KAJDAN VETTERLEIN (DOB 06/22/62) - Vice President & Assistant Secretary - Vice President and Assistant Secretary of the Administrator and Distributor since January 2001. Shareholder/Partner at Buchanan Ingersoll Professional Corporation from 1992 to 2000. JOHN C. MUNCH (DOB 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 (law firm) from 1998 to 2001; Associate at Seward & Kissel (law firm) from 1996 to 1998. CORI DAGGETT (DOB 10/03/61) - Vice President and Assistant Secretary - Employed by SEI Investments since July 2003. Associate at Drinker Biddle & Reath, LLP from 1998 to 2003. DOUGLAS PHILLIPS, CFA (DOB 06/25/47) - Vice President and Assistant Secretary - President, Chief Executive Officer and Chief Investment Officer of Trusco Capital Management, Inc. since its inception in November 1984. DEBORAH A. LAMB (DOB 10/02/52) - Vice President and Assistant Secretary - Chief Compliance Officer and Vice President of Trusco Capital Management, Inc. since March 2003 and President of Investment Industry Consultants, LLC since June 2000. Director of Compliance at INVESCO, Inc. from March 1995 to June 2000. KATHLEEN LENTZ (DOB 04/09/60) - Vice President and Assistant Secretary - Vice President and Manager of Special Entities in Financial Intelligence Unit of SunTrust Bank since 2002. Vice President of the Third Party Mutual Funds Unit of SunTrust Bank from 1996 to 2002. 51 JOHN MUNERA (DOB 01/14/63) - Vice President and Assistant Secretary - Middle Office Compliance Officer at SEI Investments since 2000. Supervising Examiner at Federal Reserve Bank of Philadelphia 1998-2000. 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 A Shares, B Shares, and L Shares will normally be lower than for T Shares because A Shares, B Shares, and L Shares are subject to distribution, service, and certain transfer agent fees not charged to T Shares. Because of their differing distribution expense arrangements, the performance of L Shares in comparison to A 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 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 52 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, 2003, the Money Market Funds' current effective and tax equivalent yields were as follows:
---------------------------- ------------- -------------- ------------------- ----------------- ----------------- FUND CLASS OF SEVEN-DAY SEVEN-DAY SEVEN-DAY TAX SEVEN-DAY TAX SHARES YIELD (%) EFFECTIVE YIELD EQUIVALENT EQUIVALENT (%) YIELD (%) EFFECTIVE YIELD (%) ---------------------------- ------------- -------------- ------------------- ----------------- ----------------- Prime Quality Money Market Fund A 0.55 0.56 N/A N/A ------------- -------------- ------------------- ----------------- ----------------- L 0.37 0.37 N/A N/A ------------- -------------- ------------------- ----------------- ----------------- T 0.73 0.74 N/A N/A ---------------------------- ------------- -------------- ------------------- ----------------- ----------------- Tax-Exempt Money Market A 0.57 0.57 0.88% 0.88% Fund ------------- -------------- ------------------- ----------------- ----------------- T 0.70 0.70 1.08% 1.08% ---------------------------- ------------- -------------- ------------------- ----------------- ----------------- U.S. Government Securities A 0.48 0.49 N/A N/A Money Market Fund ------------- -------------- ------------------- ----------------- ----------------- T 0.63 0.63 N/A N/A ---------------------------- ------------- -------------- ------------------- ----------------- ----------------- U.S. Treasury Money Market A * * * * Fund ------------- -------------- ------------------- ----------------- ----------------- T 0.61 0.61 N/A N/A ---------------------------- ------------- -------------- ------------------- ----------------- ----------------- Virginia Tax-Free Money A 0.57 0.57 0.96% 0.96% Market Fund ------------- -------------- ------------------- ----------------- ----------------- T 0.75 0.75 1.27% 1.27% ---------------------------- ------------- -------------- ------------------- ----------------- -----------------
* Not in operation during the period. 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. 53 THIRTY-DAY YIELD The Equity Funds, Balanced Fund, Bond Funds, Tax-Exempt Bond Funds and Life Vision Funds may advertise a thirty-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 thirty-day period ended May 31, 2003, yields on the Funds other than the money market funds were as follows:
-------------------------------------------------------- ------------------------------ ------------------------------ FUND CLASS OF SHARES YIELD (%) -------------------------------------------------------- ------------------------------ ------------------------------ Aggressive Growth Stock Fund A Shares * ------------------------------ ------------------------------ L Shares * ------------------------------ ------------------------------ T Shares * -------------------------------------------------------- ------------------------------ ------------------------------ Balanced Fund A Shares 0.97 ------------------------------ ------------------------------ L Shares 0.27 ------------------------------ ------------------------------ T Shares 1.30 -------------------------------------------------------- ------------------------------ ------------------------------ Capital Appreciation Fund A Shares 0 ------------------------------ ------------------------------ L Shares 0 ------------------------------ ------------------------------ T Shares 0 -------------------------------------------------------- ------------------------------ ------------------------------ Emerging Growth Stock Fund A Shares * ------------------------------ ------------------------------ L Shares * ------------------------------ ------------------------------ T Shares * -------------------------------------------------------- ------------------------------ ------------------------------ Florida Tax-Exempt Bond Fund A Shares 2.07 ------------------------------ ------------------------------ L Shares 1.66 ------------------------------ ------------------------------ T Shares 2.37 -------------------------------------------------------- ------------------------------ ------------------------------ Georgia Tax-Exempt Bond Fund A Shares 1.79 ------------------------------ ------------------------------ L Shares 1.37 ------------------------------ ------------------------------ T Shares 2.07 -------------------------------------------------------- ------------------------------ ------------------------------ Growth and Income Fund A Shares 0.80 ------------------------------ ------------------------------ L Shares 0.12 ------------------------------ ------------------------------ T Shares 1.01 -------------------------------------------------------- ------------------------------ ------------------------------ High Income Fund A Shares * ------------------------------ ------------------------------ L Shares 7.27 ------------------------------ ------------------------------ T Shares 7.95 -------------------------------------------------------- ------------------------------ ------------------------------ Information and Technology Fund A Shares * ------------------------------ ------------------------------ L Shares 0 ------------------------------ ------------------------------ T Shares 0 -------------------------------------------------------- ------------------------------ ------------------------------ International Equity Fund A Shares 0 ------------------------------ ------------------------------ L Shares 0 ------------------------------ ------------------------------ T Shares 0 -------------------------------------------------------- ------------------------------ ------------------------------ International Equity Index Fund A Shares 0 ------------------------------ ------------------------------ L Shares 0 ------------------------------ ------------------------------ T Shares 0 -------------------------------------------------------- ------------------------------ ------------------------------ Investment Grade Bond Fund A Shares 2.42 ------------------------------ ------------------------------ L Shares 2.02 ------------------------------ ------------------------------ T Shares 2.91 -------------------------------------------------------- ------------------------------ ------------------------------ Investment Grade Tax-Exempt Bond Fund A Shares 1.41 ------------------------------ ------------------------------ L Shares 1.00 ------------------------------ ------------------------------ T Shares 1.88 -------------------------------------------------------- ------------------------------ ------------------------------
54
-------------------------------------------------------- ------------------------------ ------------------------------ FUND CLASS OF SHARES YIELD (%) -------------------------------------------------------- ------------------------------ ------------------------------ Life Vision Aggressive Growth Fund A Shares * ------------------------------ ------------------------------ B Shares 0 ------------------------------ ------------------------------ T Shares 0 -------------------------------------------------------- ------------------------------ ------------------------------ Life Vision Conservative Fund A Shares * ------------------------------ ------------------------------ B Shares 0 ------------------------------ ------------------------------ T Shares * -------------------------------------------------------- ------------------------------ ------------------------------ Life Vision Growth and Income Fund A Shares * ------------------------------ ------------------------------ B Shares 0 ------------------------------ ------------------------------ T Shares 0.20 -------------------------------------------------------- ------------------------------ ------------------------------ Life Vision Moderate Growth Fund A Shares * ------------------------------ ------------------------------ B Shares 0 ------------------------------ ------------------------------ T Shares 0.52 -------------------------------------------------------- ------------------------------ ------------------------------ Limited-Term Federal Mortgage Securities Fund A Shares 2.56 ------------------------------ ------------------------------ L Shares 2.26 ------------------------------ ------------------------------ T Shares 2.87 -------------------------------------------------------- ------------------------------ ------------------------------ Maryland Municipal Bond Fund A Shares * ------------------------------ ------------------------------ L Shares 1.69 ------------------------------ ------------------------------ T Shares 2.61 -------------------------------------------------------- ------------------------------ ------------------------------ Mid-Cap Equity Fund A Shares 0.71 ------------------------------ ------------------------------ L Shares 0.17 ------------------------------ ------------------------------ T Shares 1.16 -------------------------------------------------------- ------------------------------ ------------------------------ Mid-Cap Value Equity Fund A Shares * ------------------------------ ------------------------------ L Shares 0.36 ------------------------------ ------------------------------ T Shares 0.75 -------------------------------------------------------- ------------------------------ ------------------------------ Short-Term Bond Fund A Shares 1.15 ------------------------------ ------------------------------ L Shares 0.83 ------------------------------ ------------------------------ T Shares 1.39 -------------------------------------------------------- ------------------------------ ------------------------------ Short-Term U.S. Treasury Securities Fund A Shares 0.45 ------------------------------ ------------------------------ L Shares 0.20 ------------------------------ ------------------------------ T Shares 0.61 -------------------------------------------------------- ------------------------------ ------------------------------ Small Cap Growth Stock Fund A Shares 0 ------------------------------ ------------------------------ L Shares 0 ------------------------------ ------------------------------ T Shares 0 -------------------------------------------------------- ------------------------------ ------------------------------ Small Cap Value Equity Fund A Shares * ------------------------------ ------------------------------ L Shares 0 ------------------------------ ------------------------------ T Shares 0.70 -------------------------------------------------------- ------------------------------ ------------------------------ Strategic Income Fund A Shares * ------------------------------ ------------------------------ L Shares 4.79 ------------------------------ ------------------------------ T Shares 5.31 -------------------------------------------------------- ------------------------------ ------------------------------ Strategic Quantitative Equity Fund A Shares * ------------------------------ ------------------------------ L Shares * ------------------------------ ------------------------------ T Shares * -------------------------------------------------------- ------------------------------ ------------------------------ Tax Sensitive Growth Stock Fund A Shares * ------------------------------ ------------------------------ L Shares 0 ------------------------------ ------------------------------ T Shares 0 -------------------------------------------------------- ------------------------------ ------------------------------ U.S. Government Securities Fund A Shares 2.32 ------------------------------ ------------------------------ L Shares 1.90 ------------------------------ ------------------------------ T Shares 2.82 -------------------------------------------------------- ------------------------------ ------------------------------ Value Income Stock Fund A Shares 1.02 ------------------------------ ------------------------------ L Shares 0.37 ------------------------------ ------------------------------ T Shares 1.43 -------------------------------------------------------- ------------------------------ ------------------------------
55
-------------------------------------------------------- ------------------------------ ------------------------------ FUND CLASS OF SHARES YIELD (%) -------------------------------------------------------- ------------------------------ ------------------------------ Virginia Intermediate Municipal Bond Fund A Shares 2.18 ------------------------------ ------------------------------ L Shares * ------------------------------ ------------------------------ T Shares 2.31 -------------------------------------------------------- ------------------------------ ------------------------------ Virginia Municipal Bond Fund A Shares * ------------------------------ ------------------------------ L Shares 1.63 ------------------------------ ------------------------------ T Shares 2.57 -------------------------------------------------------- ------------------------------ ------------------------------
* Not in operation during the period. 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 35.00%, 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 4.75%, 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, 2003, the tax-equivalent yields for the A Shares of the Tax-Exempt Funds were as follows: for the Florida Tax-Exempt Bond Fund 3.18%, Georgia Tax-Exempt Bond Fund 3.03%, Investment Grade Tax-Exempt Bond Fund 2.17%, and Virginia Intermediate Municipal Bond Fund 3.68%. For the 30-day period ended May 31, 2003, the tax-equivalent yields for the L Shares of the Tax-Exempt Funds were as follows: for the, Florida Tax-Exempt Bond Fund 2.55%, Georgia Tax-Exempt Bond Fund 2.32%, Investment Grade Tax-Exempt Bond Fund 1.54%, Maryland Municipal Bond Fund 2.80%, and Virginia Municipal Bond Fund 2.75%. For the 30-day period ended May 31, 2003, the tax-equivalent yields for the T Shares were as follows: for the Florida Tax-Exempt Bond Fund 3.65%, Georgia Tax-Exempt Bond Fund 3.51%, Investment Grade Tax-Exempt Bond Fund 2.89%, Maryland Municipal Bond Fund 4.33%, Virginia Intermediate Municipal Bond Fund 3.90%, and Virginia Municipal Bond Fund 4.34%. 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 56 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. 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 57 Tax Sensitive Growth Stock Fund, was as follows for the one-year, five-year, ten-year and since inception periods ended May 31, 2003.
---------------------------------------------------------------------- ---------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN (%) ---------------------------------------------------- ONE YEAR FIVE YEARS TEN YEARS SINCE FUND (INCEPTION DATE) INCEPTION ---------------------------------------------------------------------- ---------------------------------------------------- Aggressive Growth Stock Fund A Shares - With Sales Load (02/23/04) * * * * --------------------------------------- ----------- ------------ ------------- ------------- A Shares - Without Sales Load (02/23/04) * * * * --------------------------------------- ----------- ------------ ------------- ------------- L Shares - With Sales Load (02/23/04) * * * * --------------------------------------- ----------- ------------ ------------- ------------- L Shares - Without Sales Load (02/23/04) * * * * --------------------------------------- ----------- ------------ ------------- ------------- T Shares (02/23/04) * * * * ---------------------------------------------------------------------- ---------------------------------------------------- Balanced Fund A Shares - With Sales Load (01/03/94) (4.29) 1.94 * 7.24 --------------------------------------- ----------- ------------ ------------- ------------- A Shares -Without Sales Load (01/03/94) (0.54) 2.72 * 7.68 --------------------------------------- ----------- ------------ ------------- ------------- L Shares - With Sales Load (06/14/95) (3.11) 1.96 * 7.42 --------------------------------------- ----------- ------------ ------------- ------------- L Shares - Without Sales Load (06/14/95) (1.15) 1.96 * 7.42 --------------------------------------- ----------- ------------ ------------- ------------- T Shares (01/03/94) (0.14) 3.05 * 8.06 ---------------------------------------------------------------------- ---------------------------------------------------- Capital Appreciation Fund A Shares - With Sales Load (06/09/92) (13.93) (1.60) 7.50 8.59 --------------------------------------- ----------- ------------ ------------- ------------- A Shares - Without Sales Load (06/09/92) (10.60) (0.85) 7.90 8.97 --------------------------------------- ----------- ------------ ------------- ------------- L Shares - With Sales Load (06/01/95) (12.75) (1.31) * 8.24 --------------------------------------- ----------- ------------ ------------- ------------- L Shares - Without Sales Load (06/01/95) (10.96) (1.31) * 8.24 --------------------------------------- ----------- ------------ ------------- ------------- T Shares (07/01/92) (9.97) (0.21) 8.60 9.36 ---------------------------------------------------------------------- ---------------------------------------------------- Emerging Growth Stock Fund A Shares - With Sales Load (02/23/04) * * * * --------------------------------------- ----------- ------------ ------------- ------------- A Shares - Without Sales Load (02/23/04) * * * * --------------------------------------- ----------- ------------ ------------- ------------- L Shares - With Sales Load (02/23/04) * * * * --------------------------------------- ----------- ------------ ------------- ------------- L Shares - Without Sales Load (02/23/04) * * * * --------------------------------------- ----------- ------------ ------------- ------------- T Shares (02/23/04) * * * * ---------------------------------------------------------------------- ---------------------------------------------------- Florida Tax-Exempt Bond Fund A Shares - With Sales Load (01/18/94) 6.70 5.29 * 5.68 --------------------------------------- ----------- ------------ ------------- ------------- A Shares - Without Sales Load (01/18/94) 10.89 6.10 * 6.12 --------------------------------------- ----------- ------------ ------------- ------------- L Shares - With Sales Load (06/01/95) 8.32 5.58 * 5.71 --------------------------------------- ----------- ------------ ------------- ------------- L Shares - Without Sales Load (06/01/95) 10.32 5.58 * 5.71 --------------------------------------- ----------- ------------ ------------- ------------- T Shares (01/25/94) 11.13 6.32 * 6.34 ---------------------------------------------------------------------- ---------------------------------------------------- Georgia Tax-Exempt Bond Fund A Shares - With Sales Load (01/19/94) 5.21 4.58 * 4.62 --------------------------------------- ----------- ------------ ------------- ------------- A Shares - Without Sales Load (01/19/94) 9.29 5.38 * 5.05 --------------------------------------- ----------- ------------ ------------- ------------- L Shares - With Sales Load (06/06/95) 6.86 4.89 * 5.06 --------------------------------------- ----------- ------------ ------------- ------------- L Shares - Without Sales Load (06/06/95) 8.86 4.89 * 5.06 --------------------------------------- ----------- ------------ ------------- ------------- T Shares (01/18/94) 9.64 5.62 * 5.25 ---------------------------------------------------------------------- ----------------------------------------------------
58
---------------------------------------------------------------------- ---------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN (%) ---------------------------------------------------- ONE YEAR FIVE YEARS TEN YEARS SINCE FUND (INCEPTION DATE) INCEPTION ---------------------------------------------------------------------- ---------------------------------------------------- Growth and Income Fund A Shares - With Sales Load (05/07/93) (14.08) (1.03) 7.82 8.07 --------------------------------------- ----------- ------------ ------------- ------------- A Shares - Without Sales Load (05/07/93) (10.74) (0.27) 8.23 8.48 --------------------------------------- ----------- ------------ ------------- ------------- L Shares - With Sales Load (04/05/95) (13.18) (1.02) * 7.97 --------------------------------------- ----------- ------------ ------------- ------------- L Shares - Without Sales Load (04/05/95) (11.41) (1.02) * 7.97 --------------------------------------- ----------- ------------ ------------- ------------- T Shares (09/26/92) (10.58) (0.14) 8.30 9.16 ---------------------------------------------------------------------- ---------------------------------------------------- High Income Fund A Shares - With Sales Load (09/30/03) * * * * --------------------------------------- ----------- ------------ ------------- ------------- A Shares - Without Sales Load (09/30/03) * * * * --------------------------------------- ----------- ------------ ------------- ------------- L Shares - With Sales Load (05/04/94) 5.55 1.33 * 3.53 --------------------------------------- ----------- ------------ ------------- ------------- L Shares - Without Sales Load (05/04/94) 7.52 1.33 * 3.53 --------------------------------------- ----------- ------------ ------------- ------------- T Shares (10/03/01) 8.19 * * 7.18 ---------------------------------------------------------------------- ---------------------------------------------------- Information and Technology A Shares - With Sales Load (09/30/03) * * * * Fund --------------------------------------- ----------- ------------ ------------- ------------- A Shares - Without Sales Load (09/30/03) * * * * --------------------------------------- ----------- ------------ ------------- ------------- L Shares - With Sales Load (01/24/00) (26.94) * * (13.55) --------------------------------------- ----------- ------------ ------------- ------------- L Shares - Without Sales Load (01/24/00) (25.45) * * (13.55) --------------------------------------- ----------- ------------ ------------- ------------- T Shares (09/30/99) (24.69) * * (12.73) ---------------------------------------------------------------------- ---------------------------------------------------- International Equity Fund A Shares - With Sales Load (01/02/96) (16.94) (7.34) * 5.35 --------------------------------------- ----------- ------------ ------------- ------------- A Shares - Without Sales Load (01/02/96) (13.70) (6.63) * 5.83 --------------------------------------- ----------- ------------ ------------- ------------- L Shares - With Sales Load (01/02/96) (16.00) (7.29) * 5.19 --------------------------------------- ----------- ------------ ------------- ------------- L Shares - Without Sales Load (01/02/96) (14.29) (7.29) * 5.19 --------------------------------------- ----------- ------------ ------------- ------------- T Shares (12/01/95) (13.40) (6.29) * 6.18 ---------------------------------------------------------------------- ---------------------------------------------------- International Equity Index A Shares - With Sales Load (06/06/94) (17.29) (5.74) * 1.17 Fund --------------------------------------- ----------- ------------ ------------- ------------- A Shares - Without Sales Load (06/06/94) (14.03) (5.02) * 1.61 --------------------------------------- ----------- ------------ ------------- ------------- L Shares - With Sales Load (06/08/95) (16.27) (15.64) * 0.87 --------------------------------------- ----------- ------------ ------------- ------------- L Shares - Without Sales Load (06/08/95) (14.56) (15.64) * 0.87 --------------------------------------- ----------- ------------ ------------- ------------- T Shares (06/06/94) (13.63) (4.61) * 2.04 ---------------------------------------------------------------------- ---------------------------------------------------- Investment Grade Bond Fund A Shares - With Sales Load (06/11/92) 6.98 5.21 5.72 6.03 --------------------------------------- ----------- ------------ ------------- ------------- A Shares - Without Sales Load (06/11/92) 11.16 6.01 6.13 6.40 --------------------------------------- ----------- ------------ ------------- ------------- L Shares - With Sales Load (06/07/95) 8.61 5.49 * 5.75 --------------------------------------- ----------- ------------ ------------- ------------- L Shares - Without Sales Load (06/07/95) 10.61 5.49 * 5.75 --------------------------------------- ----------- ------------ ------------- ------------- T Shares (07/16/92) 11.61 6.42 6.53 6.76 ---------------------------------------------------------------------- ---------------------------------------------------- Investment Grade Tax-Exempt A Shares - With Sales Load (06/09/92) 6.29 5.71 6.38 6.86 Bond Fund --------------------------------------- ----------- ------------ ------------- ------------- A Shares - Without Sales Load (06/09/92) 10.42 6.51 6.79 7.23 --------------------------------------- ----------- ------------ ------------- ------------- L Shares - With Sales Load (06/01/95) 7.82 6.00 * 6.07 --------------------------------------- ----------- ------------ ------------- ------------- L Shares - Without Sales Load (06/01/95) 9.82 6.00 * 6.07 --------------------------------------- ----------- ------------ ------------- ------------- T Shares (10/21/93) 10.80 6.93 * 6.76 ---------------------------------------------------------------------- ----------------------------------------------------
59
---------------------------------------------------------------------- ---------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN (%) ---------------------------------------------------- ONE YEAR FIVE YEARS TEN YEARS SINCE FUND (INCEPTION DATE) INCEPTION ---------------------------------------------------------------------- ---------------------------------------------------- Life Vision Aggressive A Shares - With Sales Load (09/30/03) * * * * Growth Fund --------------------------------------- ----------- ------------ ------------- ------------- A Shares - Without Sales Load (09/30/03) * * * * --------------------------------------- ----------- ------------ ------------- ------------- B Shares - With Sales Load (03/11/03) (15.04) (0.58) 6.85 7.26 --------------------------------------- ----------- ------------ ------------- ------------- B Shares - Without Sales Load (03/11/03) (10.58) (0.28) 6.85 7.26 --------------------------------------- ----------- ------------ ------------- ------------- T Shares (06/30/97) (10.36) (0.23) 6.87 7.28 ---------------------------------------------------------------------- ---------------------------------------------------- Life Vision Conservative Fund A Shares - With Sales Load (09/30/03) * * * * --------------------------------------- ----------- ------------ ------------- ------------- A Shares - Without Sales Load (09/30/03) * * * * --------------------------------------- ----------- ------------ ------------- ------------- B Shares - With Sales Load (03/11/03) * * * (0.70) --------------------------------------- ----------- ------------ ------------- ------------- B Shares - Without Sales Load (03/11/03) * * * 4.30 --------------------------------------- ----------- ------------ ------------- ------------- T Shares * * * * ---------------------------------------------------------------------- ---------------------------------------------------- Life Vision Growth and A Shares - With Sales Load (09/30/03) * * * * Income Fund --------------------------------------- ----------- ------------ ------------- ------------- A Shares - Without Sales Load (09/30/03) * * * * --------------------------------------- ----------- ------------ ------------- ------------- B Shares - With Sales Load (03/11/03) (9.85) 1.69 6.84 7.11 --------------------------------------- ----------- ------------ ------------- ------------- B Shares - Without Sales Load (03/11/03) (5.17) 1.99 6.84 7.11 --------------------------------------- ----------- ------------ ------------- ------------- T Shares (06/30/97) (5.16) 2.00 6.85 7.11 ---------------------------------------------------------------------- ---------------------------------------------------- Life Vision Moderate A Shares - With Sales Load (09/30/03) * * * * Growth Fund --------------------------------------- ----------- ------------ ------------- ------------- A Shares - Without Sales Load (09/30/03) * * * * --------------------------------------- ----------- ------------ ------------- ------------- B Shares - With Sales Load (03/11/03) (7.26) 2.08 6.49 6.76 --------------------------------------- ----------- ------------ ------------- ------------- B Shares - Without Sales Load (03/11/03) (2.47) 2.38 6.49 6.76 --------------------------------------- ----------- ------------ ------------- ------------- T Shares (06/30/97) (2.21) 2.43 6.52 6.79 ---------------------------------------------------------------------- ---------------------------------------------------- Limited-Term Federal A Shares - With Sales Load (07/18/94) 4.09 5.45 * 5.91 Mortgage Securities Fund --------------------------------------- ----------- ------------ ------------- ------------- A Shares - Without Sales Load (07/18/94) 6.72 5.99 * 6.22 --------------------------------------- ----------- ------------ ------------- ------------- L Shares - With Sales Load (06/07/95) 4.33 5.67 * 5.60 --------------------------------------- ----------- ------------ ------------- ------------- L Shares - Without Sales Load (06/07/95) 6.33 5.67 * 5.60 --------------------------------------- ----------- ------------ ------------- ------------- T Shares (06/06/94) 6.99 6.29 * 6.38 ---------------------------------------------------------------------- ---------------------------------------------------- Maryland Municipal Bond Fund A Shares - With Sales Load (09/30/03) * * * * --------------------------------------- ----------- ------------ ------------- ------------- A Shares - Without Sales Load (09/30/03) * * * * --------------------------------------- ----------- ------------ ------------- ------------- L Shares - With Sales Load (04/25/96) 6.81 4.86 * 5.28 --------------------------------------- ----------- ------------ ------------- ------------- L Shares - Without Sales Load (04/25/96) 8.81 4.86 * 5.28 --------------------------------------- ----------- ------------ ------------- ------------- T Shares (03/01/96) 9.85 5.82 * 5.46 ---------------------------------------------------------------------- ---------------------------------------------------- Mid-Cap Equity Fund A Shares - With Sales Load (01/31/94) (14.43) (3.27) * 5.15 --------------------------------------- ----------- ------------ ------------- ------------- A Shares - Without Sales Load (01/31/94) (11.09) (2.54) * 5.58 --------------------------------------- ----------- ------------ ------------- ------------- L Shares - With Sales Load (06/05/95) (13.47) (3.13) * 4.47 --------------------------------------- ----------- ------------ ------------- ------------- L Shares - Without Sales Load (06/05/95) (11.71) (3.13) * 4.47 --------------------------------------- ----------- ------------ ------------- ------------- T Shares (02/02/94) (10.73) (2.11) * 6.08 ---------------------------------------------------------------------- ----------------------------------------------------
60
---------------------------------------------------------------------- ---------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN (%) ---------------------------------------------------- ONE YEAR FIVE YEARS TEN YEARS SINCE FUND (INCEPTION DATE) INCEPTION ---------------------------------------------------------------------- ---------------------------------------------------- Mid-Cap Value Equity Fund A Shares - With Sales Load (09/30/03) * * * * --------------------------------------- ----------- ------------ ------------- ------------- A Shares - Without Sales Load (09/30/03) * * * * --------------------------------------- ----------- ------------ ------------- ------------- L Shares - With Sales Load (11/30/01) (21.16) * * (8.27) --------------------------------------- ----------- ------------ ------------- ------------- L Shares - Without Sales Load (11/30/01) (19.58) * * (8.27) --------------------------------------- ----------- ------------ ------------- ------------- T Shares (11/30/01) (19.05) * * (7.65) ---------------------------------------------------------------------- ---------------------------------------------------- Prime Quality Money Market A Shares (06/08/92) 0.98 3.65 4.05 3.93 Fund --------------------------------------- ----------- ------------ ------------- ------------- L Shares (10/04/99) 0.54 * * 2.61 --------------------------------------- ----------- ------------ ------------- ------------- T Shares (06/08/02) 1.17 3.83 4.23 4.11 ---------------------------------------------------------------------- ---------------------------------------------------- Short-Term Bond Fund A Shares - With Sales Load (03/22/93) 1.45 4.36 4.84 4.77 --------------------------------------- ----------- ------------ ------------- ------------- A Shares - Without Sales Load (03/22/93) 3.47 4.79 5.05 4.98 --------------------------------------- ----------- ------------ ------------- ------------- L Shares - With Sales Load (06/20/95) 1.11 4.42 * 4.79 --------------------------------------- ----------- ------------ ------------- ------------- L Shares - Without Sales Load (06/20/95) 3.11 4.42 * 4.79 --------------------------------------- ----------- ------------ ------------- ------------- T Shares (03/15/93) 3.70 4.98 5.25 5.23 ---------------------------------------------------------------------- ---------------------------------------------------- Short-Term U.S. Treasury A Shares - With Sales Load (03/18/93) 3.12 4.69 4.76 4.70 Securities Fund --------------------------------------- ----------- ------------ ------------- ------------- A Shares - Without Sales Load (03/18/93) 4.13 4.90 4.86 4.80 --------------------------------------- ----------- ------------ ------------- ------------- L Shares - With Sales Load (06/22/95) 1.88 4.69 * 4.79 --------------------------------------- ----------- ------------ ------------- ------------- L Shares - Without Sales Load (06/22/95) 3.88 4.69 * 4.79 --------------------------------------- ----------- ------------ ------------- ------------- T Shares (03/15/93) 4.31 5.06 5.03 4.97 ---------------------------------------------------------------------- ---------------------------------------------------- Small Cap Growth Stock Fund A Shares - With Sales Load (12/12/99) (14.13) * * 10.86 --------------------------------------- ----------- ------------ ------------- ------------- A Shares - Without Sales Load (12/12/99) (10.77) * * 11.78 --------------------------------------- ----------- ------------ ------------- ------------- L Shares - With Sales Load (10/08/98) (13.14) * * 10.93 --------------------------------------- ----------- ------------ ------------- ------------- L Shares - Without Sales Load (10/08/98) (11.40) * * 10.93 --------------------------------------- ----------- ------------ ------------- ------------- T Shares (10/08/98) (10.50) * * 12.07 ---------------------------------------------------------------------- ---------------------------------------------------- Small Cap Value Equity Fund A Shares - With Sales Load (09/30/03) * * * * --------------------------------------- ----------- ------------ ------------- ------------- A Shares - Without Sales Load (09/30/03) * * * * --------------------------------------- ----------- ------------ ------------- ------------- L Shares - With Sales Load (06/06/97) (7.98) 2.63 * 12.51 --------------------------------------- ----------- ------------ ------------- ------------- L Shares - Without Sales Load (06/06/97) (6.10) 2.63 * 12.51 --------------------------------------- ----------- ------------ ------------- ------------- T Shares (01/31/97) (5.09) 3.70 * 13.31 ---------------------------------------------------------------------- ---------------------------------------------------- Strategic Income Fund A Shares - With Sales Load (09/30/03) * * * * --------------------------------------- ----------- ------------ ------------- ------------- A Shares - Without Sales Load (09/30/03) * * * * --------------------------------------- ----------- ------------ ------------- ------------- L Shares - With Sales Load (11/30/01) 6.16 * * 5.76 --------------------------------------- ----------- ------------ ------------- ------------- L Shares - Without Sales Load (11/30/01) 8.16 * * 5.76 --------------------------------------- ----------- ------------ ------------- ------------- T Shares (11/30/01) 8.73 * * 6.26 ---------------------------------------------------------------------- ---------------------------------------------------- Strategic Quantitative Equity A Shares - With Sales Load (09/30/03) * * * * Fund --------------------------------------- ----------- ------------ ------------- ------------- A Shares - Without Sales Load (09/30/03) * * * * --------------------------------------- ----------- ------------ ------------- ------------- L Shares - With Sales Load (09/30/03) * * * * --------------------------------------- ----------- ------------ ------------- ------------- L Shares - Without Sales Load (09/30/03) * * * * --------------------------------------- ----------- ------------ ------------- ------------- T Shares (08/07/03) * * * * ---------------------------------------------------------------------- ----------------------------------------------------
61
---------------------------------------------------------------------- ---------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN (%) ---------------------------------------------------- ONE YEAR FIVE YEARS TEN YEARS SINCE FUND (INCEPTION DATE) INCEPTION ---------------------------------------------------------------------- ---------------------------------------------------- Tax-Exempt Money Market Fund A Shares (06/08/92) 0.68 2.21 2.52 2.47 --------------------------------------- ----------- ------------ ------------- ------------- T Shares (06/08/92) 0.81 2.33 2.64 2.59 ---------------------------------------------------------------------- ---------------------------------------------------- Tax Sensitive Growth Stock A Shares - With Sales Load (09/30/03) * * * * Fund --------------------------------------- ----------- ------------ ------------- ------------- A Shares - Without Sales Load (09/30/03) * * * * --------------------------------------- ----------- ------------ ------------- ------------- L Shares - With Sales Load (12/15/98) (13.35) (3.04) * 5.46 --------------------------------------- ----------- ------------ ------------- ------------- L Shares - Without Sales Load (12/15/98) (11.58) (3.04) * 5.46 --------------------------------------- ----------- ------------ ------------- ------------- T Shares (12/11/98) (10.62) (2.14) * 6.12 --------------------------------------- ----------- ------------ ------------- ------------- AFTER-TAX ON DISTRIBUTIONS (T SHARES) (10.62) N/A (4.56) --------------------------------------- ----------- ------------ ------------- ------------- AFTER-TAX ON DISTRIBUTIONS AND REDEMPTION (T SHARES) (6.52) N/A * (3.59) ---------------------------------------------------------------------- ---------------------------------------------------- U.S. Government Securities A Shares (06/08/92) 0.86 3.49 3.91 3.80 Money Market Fund --------------------------------------- ----------- ------------ ------------- ------------- T Shares (06/08/92) 1.01 3.64 4.06 3.95 ---------------------------------------------------------------------- ---------------------------------------------------- U.S. Government Securities A Shares - With Sales Load (06/06/94) 4.69 5.52 * 6.23 Fund --------------------------------------- ----------- ------------ ------------- ------------- A Shares - Without Sales Load (06/06/94) 8.79 6.33 * 6.68 --------------------------------------- ----------- ------------ ------------- ------------- L Shares - With Sales Load (06/07/95) 6.14 5.81 * 5.84 --------------------------------------- ----------- ------------ ------------- ------------- L Shares - Without Sales Load (06/07/95) 8.14 5.81 * 5.84 --------------------------------------- ----------- ------------ ------------- ------------- T Shares (08/01/94) 9.25 6.76 * 7.18 ---------------------------------------------------------------------- ---------------------------------------------------- U.S. Treasury Money Market A Shares (09/30/03) * * * * Fund --------------------------------------- ----------- ------------ ------------- ------------- T Shares (02/18/87) 0.88 3.49 3.94 4.82 ---------------------------------------------------------------------- ---------------------------------------------------- Value Income Stock Fund A Shares - With Sales Load (02/17/93) (14.20) (1.60) 8.58 10.37 --------------------------------------- ----------- ------------ ------------- ------------- A Shares - Without Sales Load (02/17/93) (10.85) (0.84) 8.99 10.68 --------------------------------------- ----------- ------------ ------------- ------------- L Shares - With Sales Load (06/01/95) (13.32) (1.57) 8.46 10.29 --------------------------------------- ----------- ------------ ------------- ------------- L Shares - Without Sales Load (06/01/95) (11.56) (1.57) 8.46 10.29 --------------------------------------- ----------- ------------ ------------- ------------- T Shares (02/12/93) (10.54) (0.45) 9.43 11.01 ---------------------------------------------------------------------- ---------------------------------------------------- Virginia Intermediate A Shares - With Sales Load (05/05/93) 4.33 4.40 4.65 4.59 Municipal Bond Fund --------------------------------------- ----------- ------------ ------------- ------------- A Shares - Without Sales Load (05/05/93) 8.38 5.19 5.06 4.99 --------------------------------------- ----------- ------------ ------------- ------------- L Shares - With Sales Load (09/30/03) * * * * --------------------------------------- ----------- ------------ ------------- ------------- L Shares - Without Sales Load (09/30/03) * * * * --------------------------------------- ----------- ------------ ------------- ------------- T Shares (01/11/93) 8.43 5.22 5.07 5.22 ---------------------------------------------------------------------- ---------------------------------------------------- Virginia Municipal Bond Fund A Shares - With Sales Load (09/30/03) * * * * --------------------------------------- ----------- ------------ ------------- ------------- A Shares - Without Sales Load (09/30/03) * * * * --------------------------------------- ----------- ------------ ------------- ------------- L Shares - With Sales Load (04/14/95) 6.89 4.50 * 4.96 --------------------------------------- ----------- ------------ ------------- ------------- L Shares - Without Sales Load (04/14/95) 8.89 4.50 * 4.96 --------------------------------------- ----------- ------------ ------------- ------------- T Shares (04/04/95) 9.86 5.44 * 5.94 ---------------------------------------------------------------------- ---------------------------------------------------- Virginia Tax-Free Money A Shares (05/05/93) 0.67 2.21 2.47 2.47 Market Fund --------------------------------------- ----------- ------------ ------------- ------------- T Shares (06/15/89) 0.85 2.35 2.57 3.08 ---------------------------------------------------------------------- ----------------------------------------------------
* Not in operation during the period. 62 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, Martin Luther King, Jr. Day, Presidents' 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. 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. The Trust will permit an exchange of L Shares of a Fund for A Shares of the same Fund, and will waive any sales charges that would otherwise apply, for those investors who hold L Shares of the Fund as a result of (i) reinvesting distributions from qualified employee benefit retirement plans and rollovers from IRAs previously with the trust department of a bank affiliated with SunTrust or (ii) 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. 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 Timers 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. 63 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 official closing price or 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., Eastern Time if a security's principal exchange is normally open at that time). If there is no official closing price and there is no such reported sale on the valuation date, the security is valued 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. 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 64 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 investors. No attempt is made to present a detailed explanation of the federal tax treatment of a Fund or its investors, and the discussion here and in the Trust's prospectuses is not intended as a substitute for careful tax planning. 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 SAI. New legislation, as well as administrative changes or court decisions may change the conclusions expressed herein, and may have a retroactive effect with respect to the transactions contemplated herein. In order to qualify for treatment as a regulated investment company ("RIC") under the Code, the Funds must distribute annually to its shareholders at least the sum of 90% of its net investment income excludable from gross income plus 90% of its investment company taxable income (generally, net investment income plus net short-term capital gain) (the "Distribution Requirement") and also must meet several additional requirements. Among these requirements are the following: (i) at least 90% of a Fund's gross income each taxable year must be derived from dividends, interest, payments with respect to securities loans, and gains from the sale or other disposition of stock or securities, or certain other income, (ii) at the close of each quarter of a Fund's taxable year, at least 50% of the value of its total assets must be represented by cash and cash items, U.S. government securities, securities of other RICs and other securities, with such other securities limited, in respect to any one issuer, to an amount that does not exceed 5% of the value of a Fund's assets and that does not represent more than 10% of the outstanding voting securities of such issuer; and (iii) at the close of each quarter of a Fund's taxable year, not more than 25% of the value of 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 65 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) and the lower tax rates applicable to qualified dividend income would be available to individual shareholders. 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. 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. All or a portion of the net investment income distributions may be treated as qualified dividend income (eligible for the reduced maximum rate to individuals of 15% (5% for individuals in lower tax brackets)) to the extent that a Fund receives qualified dividend income. Qualified dividend income is, in general, dividend income from taxable domestic corporations and certain foreign corporations (E.G., foreign corporations incorporated in a possession of the United States or in certain countries with a comprehensive tax treaty with the United States, or the stock of which is readily tradable on an established securities market in the United States. In order for some portion of the dividends received by a Fund shareholder to be qualified dividend income, a Fund must meet holding period and other requirements with respect to the dividend paying stocks in its portfolio, and the shareholder must meet holding period and other requirements with respect to a Fund's shares. 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. Currently, the maximum tax rate on long-term capital gains is 15%. Absent further legislation, the maximum 15% tax rate on qualified dividend income and long-term capital gains will cease to apply to taxable years beginning after December 31, 2008. 66 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. Each Fund will inform you of the amount of your ordinary income dividends, qualified dividend income, and capital gain distributions shortly after the close of each calendar year. 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 67 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. 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 68 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. 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 and International Equity Index 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 and International Equity Index 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, 69 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 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. 70 As provided in 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. For the fiscal years ended May 31, 2003, 2002 and 2001, the Funds paid the following aggregate brokerage commissions on portfolio transactions: 71
-------------------------------------------------- ----------------------------------------------------------- FUND AGGREGATE DOLLAR AMOUNT OF BROKERAGE COMMISSIONS PAID ($) -------------------------------------------------- ----------------- ---------------------- ------------------ 2003 2002 2001 -------------------------------------------------- ----------------- ---------------------- ------------------ Aggressive Growth Stock Fund * * * -------------------------------------------------- ----------------- ---------------------- ------------------ Balanced Fund 406,753 347,574 318,692 -------------------------------------------------- ----------------- ---------------------- ------------------ Capital Appreciation Fund 3,468,073 2,962,862 2,834,653 -------------------------------------------------- ----------------- ---------------------- ------------------ Emerging Growth Stock Fund * * * -------------------------------------------------- ----------------- ---------------------- ------------------ Florida Tax-Exempt Bond Fund 188 7,494 N/A -------------------------------------------------- ----------------- ---------------------- ------------------ Georgia Tax-Exempt Bond Fund 44 5,061 N/A -------------------------------------------------- ----------------- ---------------------- ------------------ Growth and Income Fund 1,693,527 2,103,432 2,006,043 -------------------------------------------------- ----------------- ---------------------- ------------------ High Income Fund 535 2,000 0 -------------------------------------------------- ----------------- ---------------------- ------------------ Information and Technology Fund 1,928,490 2,142,579 1,213,863 -------------------------------------------------- ----------------- ---------------------- ------------------ International Equity Fund 1,127,511 1,404,641 1,074,564 -------------------------------------------------- ----------------- ---------------------- ------------------ International Equity Index Fund 174,045 358,549 267,113 -------------------------------------------------- ----------------- ---------------------- ------------------ Investment Grade Bond Fund 19,387 44,758 N/A -------------------------------------------------- ----------------- ---------------------- ------------------ Investment Grade Tax-Exempt Bond Fund 4,267 80,565 N/A -------------------------------------------------- ----------------- ---------------------- ------------------ Life Vision Aggressive Growth Fund 0 0 0 -------------------------------------------------- ----------------- ---------------------- ------------------ Life Vision Conservative Fund 0 0 0 -------------------------------------------------- ----------------- ---------------------- ------------------ Life Vision Growth and Income Fund 0 0 0 -------------------------------------------------- ----------------- ---------------------- ------------------ Life Vision Moderate Growth Fund 0 0 0 -------------------------------------------------- ----------------- ---------------------- ------------------ Limited-Term Federal Mortgage Securities Fund 14,392 8,134 N/A -------------------------------------------------- ----------------- ---------------------- ------------------ Maryland Municipal Bond Fund 0 1,218 N/A -------------------------------------------------- ----------------- ---------------------- ------------------ Mid-Cap Equity Fund 750,689 458,284 405,454 -------------------------------------------------- ----------------- ---------------------- ------------------ Mid-Cap Value Equity Fund 519,820 516,020 * -------------------------------------------------- ----------------- ---------------------- ------------------ Prime Quality Money Market Fund 49,465 220,347 N/A -------------------------------------------------- ----------------- ---------------------- ------------------ Short-Term Bond Fund 0 7,234 N/A -------------------------------------------------- ----------------- ---------------------- ------------------ Short-Term U.S. Treasury Securities Fund 0 3,639 N/A -------------------------------------------------- ----------------- ---------------------- ------------------ Small Cap Value Equity Fund 926,708 1,165,793 1,179,524 -------------------------------------------------- ----------------- ---------------------- ------------------ Small Cap Growth Stock Fund 3,038,457 1,475,533 1,216,168 -------------------------------------------------- ----------------- ---------------------- ------------------ Strategic Income Fund 0 802 * -------------------------------------------------- ----------------- ---------------------- ------------------ Strategic Quantitative Equity Fund * * * -------------------------------------------------- ----------------- ---------------------- ------------------ Tax-Exempt Money Market Fund 0 29,400 N/A -------------------------------------------------- ----------------- ---------------------- ------------------ Tax Sensitive Growth Stock Fund 845,910 922,329 1,454,576 -------------------------------------------------- ----------------- ---------------------- ------------------ U.S. Government Securities Fund 1,634 5,112 N/A -------------------------------------------------- ----------------- ---------------------- ------------------ U.S. Government Securities Money Market Fund 194,725 157,937 N/A -------------------------------------------------- ----------------- ---------------------- ------------------ U.S. Treasury Money Market Fund 365,760 320,083 N/A -------------------------------------------------- ----------------- ---------------------- ------------------ Value Income Stock Fund 1,497,214 1,554,061 2,409,152 -------------------------------------------------- ----------------- ---------------------- ------------------ Virginia Intermediate Municipal Bond Fund 0 5,758 N/A -------------------------------------------------- ----------------- ---------------------- ------------------ Virginia Municipal Bond Fund 0 1,711 N/A -------------------------------------------------- ----------------- ---------------------- ------------------ Virginia Tax-Free Money Market Fund 0 8,685 N/A -------------------------------------------------- ----------------- ---------------------- ------------------
* 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. 72 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: 73
--------------------------------------------------- -------------------------------- --------------------------------- TOTAL DOLLAR AMOUNT OF TOTAL DOLLAR AMOUNT OF TRANSACTIONS INVOLVING BROKERAGE COMMISSIONS BROKERAGE COMMISSIONS FUND FOR RESEARCH SERVICES($) FOR RESEARCH SERVICES ($) --------------------------------------------------- -------------------------------- --------------------------------- Capital Appreciation Fund $966,484 549,938,418 --------------------------------------------------- -------------------------------- --------------------------------- Growth and Income Fund 648,503 317,231,392 --------------------------------------------------- -------------------------------- --------------------------------- Information and Technology Fund 9,840 1,438,355 --------------------------------------------------- -------------------------------- --------------------------------- Mid-Cap Equity Fund 99 192,712 --------------------------------------------------- -------------------------------- --------------------------------- Mid-Cap Value Equity Fund 136,427 52,018,182 --------------------------------------------------- -------------------------------- --------------------------------- Small Cap Growth Stock Fund 33,091 13,310,000 --------------------------------------------------- -------------------------------- --------------------------------- Small Cap Value Equity Fund 37,773 12,889,566 --------------------------------------------------- -------------------------------- --------------------------------- Tax Sensitive Growth Stock Fund 138,892 81,733,784 --------------------------------------------------- -------------------------------- --------------------------------- Value Income Stock Fund 37,773 12,899,566 --------------------------------------------------- -------------------------------- ---------------------------------
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. For the fiscal years ended May 31, 2003, 2002 and 2001, 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.
-------------------------------------------------------------------------------------------------------------------------------- PERCENTAGE OF TOTAL PERCENTAGE OF TOTAL AGGREGATE DOLLAR AMOUNT OF BROKERAGE COMMISSIONS BROKERAGE TRANSACTIONS BROKERAGE COMMISSIONS PAID PAID TO AFFILIATED EFFECTED THROUGH AFFILIATES TO AFFILIATED BROKERS($)* BROKERS(%)** BROKERS(%) -------------------------------------------------------------------------------------------------------------------------------- FUND 2003 2002 2001 2003 2002 2001 2003 2002 2001 -------------------------------------------------------------------------------------------------------------------------------- Aggressive Growth Stock Fund *** *** *** *** *** *** *** *** *** -------------------------------------------------------------------------------------------------------------------------------- Balanced Fund 9,515 22,701 10,146 2.34 6.53 3.09 21.73 49.80 20.05 -------------------------------------------------------------------------------------------------------------------------------- Capital Appreciation Fund 13,299 50,843 18,644 0.38 1.72 0.07 25.96 36.59 29.16 -------------------------------------------------------------------------------------------------------------------------------- Emerging Growth Stock Fund *** *** *** *** *** *** *** *** *** -------------------------------------------------------------------------------------------------------------------------------- Florida-Tax Exempt Bond Fund 188 7,494 1,445 100 100 100 100 100 100 -------------------------------------------------------------------------------------------------------------------------------- Georgia Tax-Exempt Bond Fund 44 5,061 303 100 100 100 100 100 100 -------------------------------------------------------------------------------------------------------------------------------- Growth and Income Fund 0 22,938 0 0 1.09 0 0 25.95 0 -------------------------------------------------------------------------------------------------------------------------------- High Income Fund 535 2,000 507 100 100 100 100 100 100 -------------------------------------------------------------------------------------------------------------------------------- Information and Technology Fund 650 3,226 4,226 0.03 0.15 0 9.69 13.37 9.17 -------------------------------------------------------------------------------------------------------------------------------- International Equity Fund 0 4,747 0 0 0.34 0 0 2.10 0 -------------------------------------------------------------------------------------------------------------------------------- International Equity Index Fund 0 6,013 0 0 1.68 0 0 0.62 0 -------------------------------------------------------------------------------------------------------------------------------- Investment Grade Bond Fund 19,387 44,758 24,802 100 100 100 100 100 100 --------------------------------------------------------------------------------------------------------------------------------
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-------------------------------------------------------------------------------------------------------------------------------- PERCENTAGE OF TOTAL PERCENTAGE OF TOTAL AGGREGATE DOLLAR AMOUNT OF BROKERAGE COMMISSIONS BROKERAGE TRANSACTIONS BROKERAGE COMMISSIONS PAID PAID TO AFFILIATED EFFECTED THROUGH AFFILIATES TO AFFILIATED BROKERS($)* BROKERS(%)** BROKERS(%) -------------------------------------------------------------------------------------------------------------------------------- FUND 2003 2002 2001 2003 2002 2001 2003 2002 2001 -------------------------------------------------------------------------------------------------------------------------------- Investment Grade Tax-Exempt Bond Fund 4,267 80,565 5,436 100 100 100 100 100 100 -------------------------------------------------------------------------------------------------------------------------------- Life Vision Aggressive Growth Fund 0 *** *** 0 *** *** 0 *** *** -------------------------------------------------------------------------------------------------------------------------------- Life Vision Conservative Fund 0 *** *** 0 *** *** 0 *** *** -------------------------------------------------------------------------------------------------------------------------------- Life Vision Growth and Income Fund 0 *** *** 0 *** *** 0 *** *** -------------------------------------------------------------------------------------------------------------------------------- Life Vision Moderate Growth Fund 0 *** *** 0 *** *** 0 *** *** -------------------------------------------------------------------------------------------------------------------------------- Limited-Term Federal Mortgage Securities Fund 14,392 8,134 4,935 100 100 100 100 100 100 -------------------------------------------------------------------------------------------------------------------------------- Maryland Municipal Bond Fund 0 1,218 N/A 0 100 N/A 0 100 N/A -------------------------------------------------------------------------------------------------------------------------------- Mid-Cap Equity Fund 2,888 12,971 8,000 0.38 2.83 1.94 19.10 30.65 27.78 -------------------------------------------------------------------------------------------------------------------------------- Mid-Cap Value Equity Fund 1,898 4,850 N/A 0.37 0.94 N/A 25.07 14.70 N/A -------------------------------------------------------------------------------------------------------------------------------- Prime Quality Money Market Fund 49,465 220,347 104,046 100 100 100 100 100 100 -------------------------------------------------------------------------------------------------------------------------------- Short-Term Bond Fund 0 7,234 N/A 0 100 N/A 0 100 N/A -------------------------------------------------------------------------------------------------------------------------------- Short-Term U.S. Treasury Securities Fund 0 3,639 N/A 0 100 N/A 0 100 N/A -------------------------------------------------------------------------------------------------------------------------------- Small Cap Growth Stock Fund 3,100 17,884 5,890 0.10 1.21 0.05 5.45 10.37 10.50 -------------------------------------------------------------------------------------------------------------------------------- Small Cap Value Equity Fund 5,267 68,387 10,269 0.57 5.87 0.09 28.36 28.01 14.29 -------------------------------------------------------------------------------------------------------------------------------- Strategic Income Fund 0 802 N/A 0 100 N/A 0 14.45 N/A -------------------------------------------------------------------------------------------------------------------------------- Strategic Quantitative Equity Fund *** *** *** *** *** *** *** *** *** -------------------------------------------------------------------------------------------------------------------------------- Tax-Exempt Money Market Fund 0 29,400 N/A 0 100 N/A 0 100 N/A -------------------------------------------------------------------------------------------------------------------------------- Tax Sensitive Growth Stock Fund 3,724 3,097 6,268 0.44 0.34 0.43 41.97 35.10 30.68 -------------------------------------------------------------------------------------------------------------------------------- U.S. Government Securities Fund 1,634 5,112 0 100 100 N/A 100 100 N/A -------------------------------------------------------------------------------------------------------------------------------- U.S. Government Securities Money Market Fund 194,725 157,937 239,522 100 100 100 100 100 100 -------------------------------------------------------------------------------------------------------------------------------- U.S. Treasury Money Market Fund 365,760 320,083 329,522 100 100 100 100 100 100 -------------------------------------------------------------------------------------------------------------------------------- Value Income Stock Fund 28,323 50,767 31,848 1.89 3.22 1.30 20.51 47.71 34.39 -------------------------------------------------------------------------------------------------------------------------------- Virginia Intermediate Municipal Bond Fund 0 4,953 N/A 0 86.02 N/A 0 57.54 N/A -------------------------------------------------------------------------------------------------------------------------------- Virginia Municipal Bond Fund 0 1,711 N/A 0 100 N/A 0 100 N/A -------------------------------------------------------------------------------------------------------------------------------- Virginia Tax-Free Money Market Fund 0 8,685 N/A 0 100 N/A 0 100 N/A --------------------------------------------------------------------------------------------------------------------------------
* These amounts refer to brokerage commissions paid to, or brokered transactions effected through, SEI Investments Distribution Co., the Trust's principal underwriter. ** For most Bond 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 Bond Fund's portfolio transactions are made through affiliated broker-dealers. Nonetheless, transactions in repurchase agreements make up only a small part of a Bond Fund's portfolio transactions. *** Not in operation during the period. 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, 2003, the STI Classic Balanced Fund held 75 $24,602,000 of repurchase agreements with UBS Warburg Painewebber, $2,065,000 of Merrill Lynch notes, $1,720,000 of JP Morgan Chase Bank notes, $1,564,000 of Salomon Smith Barney notes, $1,494,000 of Morgan Stanley Dean Witter notes, $1,467,000 of Lehman Brothers notes, $1,443,000 of Goldman Sachs & Company notes, and $1,440,000 of Bear Stearns & Company notes. The STI Classic Capital Appreciation Fund held $28,999,000 of repurchase agreements with UBS Warburg Painewebber. The STI Classic Florida Tax-Exempt Bond Fund held $139,000 of repurchase agreements with Morgan Stanley Dean Witter. The STI Classic Growth and Income Fund held $12,306,000 of Salomon Smith Barney common stock and $8,492,000 of Goldman Sachs common stock. The STI Classic High Income Fund held $315,000 of repurchase agreements with Morgan Stanley Dean Witter. The STI Classic Information and Technology Fund held $207,000 of repurchase agreements with Morgan Stanley Dean Witter. The STI Classic International Equity Fund held $2,521,000 of ABN AMRO Holding common stock, $2,519,000 of UBS common stock, $1,120,000 of Credit Suisse Group common stock, and $6,827,000 of time deposits with Citibank. The STI Classic International Equity Index Fund held $783,000 of ABN AMRO Holdings common stock, $750,000 of UBS common stock, $370,000 of Credit Suisse Group common stock, $2,288,000 of time deposits with Salomon Smith Barney, and $333,000 of time deposits with JP Morgan Chase Bank. The STI Classic Investment Grade Bond Fund held $57,203,000 of repurchase agreements with UBS Warburg Painewebber, $14,108,000 of Salomon Smith Barney notes, $13,462,000 of Merrill Lynch notes, $11,289,000 of JP Morgan Chase Bank notes, $9,495,000 of Morgan Stanley Dean Witter notes, $9,446,000 of Goldman Sachs & Company notes, $9,429,000 of Lehman Brothers notes, and $9,363,000 of Bear Stearns & Company notes. The STI Classic Investment Grade Tax-Exempt Bond Fund held $1,538,000 of repurchase agreements with UBS Warburg Painewebber. The STI Classic Limited-Term Federal Mortgage Securities Fund held $89,264,000 of repurchase agreements with Morgan Stanley Dean Witter. The STI Classic Mid-Cap Equity Fund held $4,182,000 of repurchase agreements with UBS Warburg Painewebber, and $2,102,000 of Bear Stearns Companies common stock. The STI Classic Mid-Cap Value Fund held $9,021,000 of repurchase agreements with UBS Warburg Painewebber. The STI Classic Prime Quality Money Market Fund held $180,749,000 of Credit Suisse First Boston notes, $150,567,000 of UBS Warburg Painewebber repurchase agreements and notes, $141,890,000 of Merrill Lynch repurchase agreements and notes, $130,159,000 of Morgan Stanley Dean Witter notes, $90,172,000 of Goldman Sachs notes, $57,761,000 of Bear Stearns & Company repurchase agreements and notes, $11,010,000 of repurchase agreements with Lehman Brothers, and $3,099,000 of ABN AMRO Financial Services notes. The STI Classic Short-Term Bond Fund held $4,727,000 of Merrill Lynch notes, $4,506,000 of UBS Warburg Painewebber notes, $4,390,000 of Lehman Brothers notes, $4,333,000 of Morgan Stanley Dean Witter notes, $4,119,000 of Salomon Smith Barney notes, $3,959,000 of Goldman Sachs & Company notes, $3,755,000 of Bear Stearns & Company notes, and $3,590,000 of Credit Suisse First Boston notes. The STI Classic Small Cap Growth Stock Fund held $18,060,000 of repurchase agreements with Morgan Stanley Dean Witter. The STI Classic Small Cap Value Equity Fund held $15,641,000 of repurchase agreements with Morgan Stanley Dean Witter. The STI Classic Tax-Sensitive Growth Stock Fund held $3,320,000 of Salomon Smith Barney common stock, and $489,000 of repurchase agreements with Morgan Stanley Dean Witter. The STI Classic U.S. Government Securities Fund held $12,441,000 of repurchase agreements with ABN AMRO Financial Services. The STI Classic U.S. Government Securities Money Market Fund held $260,153,000 of repurchase agreements with UBS Warburg Painewebber, $60,716,000 of repurchase agreements with Lehman Brothers, $60,635,000 of repurchase agreements with Merrill Lynch, $59,995,000 of repurchase agreements with ABN AMRO Financial Services, $58,843,000 of repurchase agreements with Morgan Stanley Dean Witter, and $49,515,000 of repurchase agreements with Bear Stearns & Company. The STI Classic U.S. Treasury Money Market Fund held $210,556,000 of repurchase agreements with ABN AMRO Financial Services, $185,724,000 of repurchase agreements with UBS Warburg Painewebber, $50,572,000 of repurchase agreements with Salomon Smith Barney, $48,709,000 of repurchase agreements with JP Morgan Chase Bank, $45,028,000 of repurchase agreements with Morgan Stanley Dean Witter, $36,997,000 of repurchase agreements with Lehman Brothers, $25,168,000 of repurchase agreements with Bear Stearns & Company, and 76 $20,012,000 of repurchase agreements with Merrill Lynch. The STI Classic Value Income Stock Fund held $20,755,000 of repurchase agreements with UBS Warburg Painewebber, $16,150,000 of Salomon Smith Barney common stock, $11,648,000 of Merrill Lynch common stock, and $4,936,000 of Morgan Stanley Dean Witter 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 investments in other short-term instruments such as money market instruments and repurchase agreements, which are excluded for purposes of computing portfolio turnover. For the Funds' two most recently completed fiscal periods ended May 31, 2003 and 2002, the portfolio turnover rate for each of the non-money market Funds was as follows:
-------------------------------------------------------------- ------------------------------------------- FUND TURNOVER RATE (%) -------------------------------------------------------------- --------------------- --------------------- 2003 2002 -------------------------------------------------------------- --------------------- --------------------- Aggressive Growth Stock Fund * * -------------------------------------------------------------- --------------------- --------------------- Balanced Fund 102 95 -------------------------------------------------------------- --------------------- --------------------- Capital Appreciation Fund 69 75 -------------------------------------------------------------- --------------------- --------------------- Emerging Growth Stock Fund * * -------------------------------------------------------------- --------------------- --------------------- Florida Tax-Exempt Bond Fund 62 91 -------------------------------------------------------------- --------------------- --------------------- Georgia Tax-Exempt Bond Fund 17 23 -------------------------------------------------------------- --------------------- --------------------- Growth and Income Fund 52 68 -------------------------------------------------------------- --------------------- --------------------- High Income Fund 20 59 -------------------------------------------------------------- --------------------- --------------------- Information and Technology Fund 1,259 1,102 -------------------------------------------------------------- --------------------- --------------------- International Equity Fund 89 102 -------------------------------------------------------------- --------------------- --------------------- International Equity Index Fund 25 35 -------------------------------------------------------------- --------------------- --------------------- Investment Grade Bond Fund 137 123 -------------------------------------------------------------- --------------------- --------------------- Investment Grade Tax-Exempt Bond Fund 329 311 -------------------------------------------------------------- --------------------- --------------------- Life Vision Aggressive Growth Fund 50 101 -------------------------------------------------------------- --------------------- --------------------- Life Vision Conservative Fund 160 * -------------------------------------------------------------- --------------------- --------------------- Life Vision Growth and Income Fund 139 166 -------------------------------------------------------------- --------------------- --------------------- Life Vision Moderate Growth Fund 101 202 -------------------------------------------------------------- --------------------- --------------------- Limited-Term Federal Mortgage Securities Fund 117 410 -------------------------------------------------------------- --------------------- --------------------- Maryland Municipal Bond Fund 31 45 -------------------------------------------------------------- --------------------- --------------------- Mid-Cap Equity Fund 144 87 -------------------------------------------------------------- --------------------- --------------------- Mid-Cap Value Equity Fund 71 30 -------------------------------------------------------------- --------------------- --------------------- Short-Term Bond Fund 89 142 -------------------------------------------------------------- --------------------- --------------------- Short-Term U.S. Treasury Securities Fund 140 117 -------------------------------------------------------------- --------------------- --------------------- Small Cap Growth Stock Fund 96 100 -------------------------------------------------------------- --------------------- --------------------- Small Cap Value Equity Fund 29 29 -------------------------------------------------------------- --------------------- --------------------- Strategic Income Fund 52 43 -------------------------------------------------------------- --------------------- ---------------------
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-------------------------------------------------------------- ------------------------------------------- FUND TURNOVER RATE (%) -------------------------------------------------------------- --------------------- --------------------- 2003 2002 -------------------------------------------------------------- --------------------- --------------------- Strategic Quantitative Equity Fund * * -------------------------------------------------------------- --------------------- --------------------- Tax Sensitive Growth Stock Fund 58 69 -------------------------------------------------------------- --------------------- --------------------- U.S. Government Securities Fund 150 262 -------------------------------------------------------------- --------------------- --------------------- Value Income Stock Fund 46 60 -------------------------------------------------------------- --------------------- --------------------- Virginia Intermediate Municipal Bond Fund 30 33 -------------------------------------------------------------- --------------------- --------------------- Virginia Municipal Bond Fund 18 38 -------------------------------------------------------------- --------------------- ---------------------
* 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. 78 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 1940 Act. In addition, the Adviser, Subadviser, and Distributor have adopted Codes of Ethics pursuant to Rule 17j-1. These Codes of Ethics apply to the personal investing activities of trustees, officers and certain employees ("access persons"). Rule 17j-1 and the Codes of Ethics are designed to prevent unlawful practices in connection with the purchase or sale of securities by access persons. Under each Code of Ethics, 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, the Adviser and the Subadviser are prohibited from acquiring beneficial ownership of securities offered in connection with initial public offerings. Certain access persons of the Adviser and Subadviser are further prohibited from acquiring beneficial ownership of securities offered in connection with a limited offering. The Distributor's Code of Ethics 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 SEC and are available to the public. 5% AND 25% SHAREHOLDERS As of December 1, 2003, 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 % OF SHARES CLASS CLASS ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Balanced Fund Mutual Fund Reconciliation Unit 1,748,244.9400 A Shares 10.43% Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ SunTrust Bank TTEE FBO Various Benefit Plans Balanced Fund Fascorp Recordkeeper 14,884,695.8590 T Shares 19.39% 8515 E. Orchard Rd. #2T2 Greenwood Village, CO 80111-5002 ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #G1F-031682 NFS/FMTC Roll IRA Balanced Fund FBO Charles K. Newman 79,003.9850 T Shares 71.53% 1301 Costley Mill Road NE Conyers, GA 30013-1127 ------------------------------------------------------------------------------------------------------------------ Nationwide Insurance Company Trust Capital Appreciation c/o IPO Portfolio Accounting 946,752.540 A Shares 7.40% Fund PO Box 182029 Columbus, OH 43218-2029 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Capital Appreciation Mutual Fund Reconciliation Unit Fund Mail Center 3144 11,361,332.3820 T Shares 11.14% PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Capital Appreciation Mutual Fund Reconciliation Unit 16,762,992.5800 T Shares 16.44% Fund Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------
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------------------------------------------------------------------------------------------------------------------ FUND NAME AND ADDRESS NUMBER OF % OF SHARES CLASS CLASS ------------------------------------------------------------------------------------------------------------------ SunTrust Bank TTEE FBO Various Benefit Plans Capital Appreciation Fascorp Recordkeeper 21,054,679.9600 T Shares 20.65% Fund 8515 E. Orchard Rd. #2T2 Greenwood Village, CO 80111-5002 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Capital Appreciation Mutual Fund Reconciliation Unit Fund Mail Center 3144 22,798,987.3480 T Shares 22.36% PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Capital Appreciation Mutual Fund Reconciliation Unit Fund Mail Center 3144 27,887,589.7370 T Shares 27.36% PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #FER-100668 B L Meskill Revoc. Trust Florida Tax-Exempt E T Meskill TTEE 35,480.9730 A Shares 6.42% Bond Fund 2751 Regency Oaks Blvd. Apt R506 Clearwater, FL 33759-1523 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Florida Tax-Exempt Mutual Fund Reconciliation Unit Bond Fund Mail Center 3144 1,575,551.7190 A Shares 6.85% PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #FER-100641 E T Meskill Revoc. Trust Florida Tax-Exempt E T Meskill TTEE 33,285.2510 A Shares 7.50% Bond Fund 2751 Regency Oaks Blvd. Apt R506 Clearwater, FL 33579-1523 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Florida Tax-Exempt Mutual Fund Reconciliation Unit 7,015,306.5790 T Shares 11.66% Bond Fund Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------
80
------------------------------------------------------------------------------------------------------------------ FUND NAME AND ADDRESS NUMBER OF % OF SHARES CLASS CLASS ------------------------------------------------------------------------------------------------------------------ Mildred Meinhart Rast Florida Tax-Exempt 821 Lake Port Blvd. 38,871.2820 T Shares 41.55% Bond Fund Apt. #A404 Leesburg, FL 34748-7698 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Florida Tax-Exempt Mutual Fund Reconciliation Unit Bond Fund Mail Center 3144 6,229,710.1120 T Shares 46.79% PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #T9F-000922 Georgia Tax-Exempt Thomas O. Duff, Jr. Bond Fund PO Box 143 28,957.5290 A Shares 5.60% Lookout Mountain, TN 37350-0143 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Georgia Tax-Exempt Mutual Fund Reconciliation Unit Bond Fund Mail Center 3144 14,336,507.7380 A Shares 7.64% PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #G1R-162566 Georgia Tax-Exempt M C Tatro Bond Fund 5360 Deer Run Drive 54,651.6860 A Shares 11.16% Conyers, GA 30094-4706 ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #G1F-063258 David L. Kuniansky Georgia Tax-Exempt Leon Kuniansky Revoc. Trust Bond Fund U/A 6/23/03 19,838.7270 A Shares 21.05% PO Box 19859 Atlanta, GA 30325-0859 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Georgia Tax-Exempt Mutual Fund Reconciliation Unit Bond Fund Mail Center 3144 13,325,599.7030 L Shares 5.86% PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #G5R-027405 Georgia Tax-Exempt Hazel M. Miller 92,441.9540 L Shares 10.31% Fund #52 One Savannah Square Drive Savannah, GA 31406 ------------------------------------------------------------------------------------------------------------------
81
------------------------------------------------------------------------------------------------------------------ FUND NAME AND ADDRESS NUMBER OF % OF SHARES CLASS CLASS ------------------------------------------------------------------------------------------------------------------ Georgia Tax-Exempt John L. Conyers Bond Fund 124 Etowah Drive 14,524.8920 T Shares 7.96% Cartersville, GA 30120-3730 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Georgia Tax-Exempt Mutual Fund Reconciliation Unit Bond Fund Mail Center 3144 7,256,387.4720 T Shares 16.42% PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Georgia Tax-Exempt Mutual Fund Reconciliation Unit 763,857.4720 T Shares 75.62% Bond Fund Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ Nationwide Insurance Company Trust Growth and Income c/o IPO Portfolio Accounting 282,643.3750 A Shares 9.29% Fund PO Box 182029 Columbus, OH 43218-2029 ------------------------------------------------------------------------------------------------------------------ SunTrust Bank TTEE FBO Various Benefit Plans Growth and Income Fascorp Recordkeeper 2,805,275.2280 T Shares 12.50% Fund 8515 E. Orchard Road #2T2 Greenwood Village, CO 80111-5002 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Mutual Fund Reconciliation Unit Growth and Income Mail Center 3144 14,781,118.9510 T Shares 19.04% Fund PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Growth and Income Mutual Fund Reconciliation Unit 18,499,097.4940 T Shares 28.04% Fund Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------
82
------------------------------------------------------------------------------------------------------------------ FUND NAME AND ADDRESS NUMBER OF % OF SHARES CLASS CLASS ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Growth and Income Mutual Fund Reconciliation Unit 6,589,564.6040 T Shares 35.09% Fund Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ SEI Corporation Attn: Rob Silvestri High Income Fund One Freedom Valley Drive 14.6630 A Shares 7.74% Oaks, PA 19456 ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #F6R-064866 Florida Baptist Convention Inc. High Income Fund Steve Baumgardner 106,382.9790 A Shares 19.86% 1230 Hendricks Drive Jacksonville, FL 32207-8619 ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #F6R-064696 NFS/FMTC IRA Information and FBO Erica Schoff 184.5310 A Shares 6.66% Technology Fund 1168 Ponte Verda Blvd. Ponte Verda, FL 32082-4202 ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #FER-104540 Information and David L. Mallory 514.2400 A Shares 83.86% Technology Fund 9121 Birch Drive Largo, FL 33777-1168 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Information and Mutual Fund Reconciliation Unit Technology Fund Mail Center 3144 190,537.6910 T Shares 12.05% PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Information and Mutual Fund Reconciliation Unit 266,053.1470 T Shares 16.82% Technology Fund Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------
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------------------------------------------------------------------------------------------------------------------ FUND NAME AND ADDRESS NUMBER OF % OF SHARES CLASS CLASS ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Information and Mutual Fund Reconciliation Unit 494,286.3420 T Shares 31.26% Technology Fund Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ SunTrust Bank TTEE FBO Various Benefit Plans Information and Fascorp Recordkeeper 609,332.3320 T Shares 38.53% Technology Fund 8515 E. Orchard Rd. #2T2 Greenwood Village, CO 80111-5002 ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #01W-184462 Homer Martha Gudelsky Family International Equity FNDTN Inc. 283,062.6270 A Shares 19.43% Fund 11900 Tech Road Silver Spring, MD 20904-1910 ------------------------------------------------------------------------------------------------------------------ Nationwide Insurance Company Trust International Equity c/o IPO Portfolio Accounting 141,933.5290 T Shares 6.19% Fund PO Box 182029 Columbus, OH 43218-2029 ------------------------------------------------------------------------------------------------------------------ SunTrust Bank TTEE FBO Various Benefit Plans International Equity Fascorp Recordkeeper 1,484,187.8630 T Shares 20.61% Fund 8515 E. Orchard Rd. #2T2 Greenwood Village, Co 80111-5002 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks International Equity Mutual Fund Reconciliation Unit 4,938,008.4880 T Shares 36.28% Fund Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks International Equity Mutual Fund Reconciliation Unit 8,694,453.2430 T Shares 36.92% Fund Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------
84
------------------------------------------------------------------------------------------------------------------ FUND NAME AND ADDRESS NUMBER OF % OF SHARES CLASS CLASS ------------------------------------------------------------------------------------------------------------------ State Street Bank and Trust Co. International Equity FBO: Emory University Endowment 7,628,131.5300 T Shares 6.84% Index Fund 1 Enterprise Drive Quincy, MA 02171-2126 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks International Equity Mutual Fund Reconciliation Unit Index Fund Mail Center 3144 2,014,785.8320 T Shares 14.11% PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks International Equity Mutual Fund Reconciliation Unit Index Fund Mail Center 3144 4,905,233.3500 T Shares 25.91% PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks International Equity Mutual Fund Reconciliation Unit Index Fund Mail Center 3144 4,153,674.6320 T Shares 48.70% PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ Nationwide Insurance Company Trust Investment Grade Attn: Mutual Funds Department 561,533.6680 A Shares 17.50% Bond Fund One World Financial Center Columbus, OH 43218-2029 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Investment Grade Mutual Fund Reconciliation Unit Bond Fund Mail Center 3144 4,695,339.3800 T Shares 7.26% PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ SunTrust Bank TTEE FBO Various Benefit Plans Investment Grade Fascorp Recordkeeper 10,906,906.7510 T Shares 16.86% Bond Fund 8515 Orchard Road #2T2 Greenwood Village, CO 80111-5002 ------------------------------------------------------------------------------------------------------------------
85
------------------------------------------------------------------------------------------------------------------ FUND NAME AND ADDRESS NUMBER OF % OF SHARES CLASS CLASS ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Investment Grade Mutual Fund Reconciliation Unit 13,202,856.0590 T Shares 20.41% Bond Fund Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Investment Grade Mutual Fund Reconciliation Unit Bond Fund Mail Center 3144 17,421,978.8580 T Shares 26.93% PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Investment Grade Mutual Fund Reconciliation Unit Bond Fund Mail Center 3144 17,990,438.5430 T Shares 27.81% PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ Investment Grade Marion G. Nelson Tax-Exempt Bond PO Box 2531 100,000.000 A Shares 5.68% Fund Panama City, FL 32402-2531 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Investment Grade Mutual Fund Reconciliation Unit Tax-Exempt Bond Mail Center 3144 2,587,006.7380 T Shares 15.35% Fund PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Investment Grade Mutual Fund Reconciliation Unit Tax-Exempt Bond Mail Center 3144 3,681,162.0440 T Shares 21.84% Fund PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Investment Grade Mutual Fund Reconciliation Unit 10,209,714.5740 T Shares 60.58% Tax-Exempt Bond Mail Center 3144 Fund PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------
86
------------------------------------------------------------------------------------------------------------------ FUND NAME AND ADDRESS NUMBER OF % OF SHARES CLASS CLASS ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #W26-118664 Life Vision NFS/FMTC Roth IRA Aggressive FBO David A. Brougher 738.7710 A Shares 24.32% Growth Fund 1132 Stockleybridge Drive Chesapeake, VA 23322-9173 ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #F1R-185353 Life Vision NFS/FMTC Roll IRA Aggressive FBO Joan T. Toomey 780.6990 A Shares 34.94% Growth Fund 1717 Billingshurst Court Orlando, FL 32825-8438 ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #F1F-072796 Life Vision NFS/FMTC Roll IRA Aggressive FBO John A. Mahoney 274.8870 A Shares 36.92% Growth Fund 5068 Alamanda Drive Melbourne, FL 32940-1434 ------------------------------------------------------------------------------------------------------------------ Life Vision NFSC FEBO #FGF-005690 Aggressive Michelle C. Shugar 16,891.8920 B Shares 5.05% Growth Fund 195 SW 129th Terrace Newberry, FL 32669-2787 ------------------------------------------------------------------------------------------------------------------ Life Vision NFSC FEBO #A1F-794732 Aggressive Nancy E. Gray 38,076.5320 B Shares 11.38% Growth Fund 1501 Sandbridge Road Virginia Beach, VA 23456-4019 ------------------------------------------------------------------------------------------------------------------ SunTrust Bank TTEE Life Vision FBO Various Benefit Plans Aggressive Fascorp Recordkeeper 3,425,634.5580 T Shares 6.01% Growth Fund 8515 E. Orchard Road #2T2 Greenwood Village, CO 80111-5002 ------------------------------------------------------------------------------------------------------------------ SunTrust Bank Life Vision Attn: Susan Grider Aggressive Mail Center 3144 1,298,507,443.4300 T Shares 93.62% Growth Fund PO Box 105504 Atlanta, GA 30348-5504 ------------------------------------------------------------------------------------------------------------------ SunTrust Bank TTEE FBO Various Benefit Plans Life Vision Fascorp Recordkeeper 931.4670 A Shares 41.75% Conservative Fund 8515 E. Orchard Rd. #2T2 Greenwood Village, CO 80111-5002 ------------------------------------------------------------------------------------------------------------------
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------------------------------------------------------------------------------------------------------------------ FUND NAME AND ADDRESS NUMBER OF % OF SHARES CLASS CLASS ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #F1F-072800 NFS/FMTC Roll IRA Life Vision FBO Celia Mahoney 213.8810 A Shares 53.66% Conservative Fund 5068 Alamanda Drive Melbourne, FL 32940-1434 ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #F9R-159034 Life Vision Mark Steven Schweizer Conservative Fund 427 NE 13th Avenue 19,030.5680 B Shares 5.01% Ft. Lauderdale, FL 33301-1241 ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #F9F-027138 Lawrence C. Cimo TTEE Life Vision Marital TR U/W Anthony L. Cim 19,144.4660 B Shares 5.04% Conservative Fund 21236 Turquoise Way Boca Raton, FL 33428-1160 ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #FFR-042510 Life Vision Nancy Gregory Conservative Fund 1215 Smokey Mountain Trail 27,609.4470 B Shares 7.28% Chesapeake, VA 23320-8151 ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #F1F-016675 Barbara W. Abramson Life Vision IRA A Abramson 7,075.4720 T Shares 98.02% Conservative Fund 995 Bucksaw Place Longwood, FL 32750-3076 ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #F8R-071170 NFS/FMTC Sep. IRA Life Vision Growth FBO David A. Vukelja 1,393.3670 A Shares 21.01% and Income Fund 1167 N. Halifax Avenue Daytona Beach, FL 32118-3654 ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #F1R-185345 NFS/FMTC Roll IRA Life Vision Growth FBO John P. Toomey 4,288.8770 A Shares 34.17% and Income Fund 1717 Billingshurt Court Orlando, FL 32825-8438 ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #F1R-229601 Magdy S. Nashed TTEE Life Vision Growth Magdy S. Nashed Pension Plan 6,974.8690 A Shares 34.66% and Income Fund 3953 s. Nova Road Port Orange, FL 32127-4910 ------------------------------------------------------------------------------------------------------------------
88
------------------------------------------------------------------------------------------------------------------ FUND NAME AND ADDRESS NUMBER OF % OF SHARES CLASS CLASS ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Life Vision Growth Mutual Fund Reconciliation Unit 220,08.7340 T Shares 95.57% and Income Fund Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #FER-029947 Life Vision Moderate Kathi L. McKean Growth Fund 3704 Crestwood Drive 1,037.3440 A Shares 11.03% Valrico, FL 33594-6031 ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #F5R-078832 NFS/FMTC IRA Life Vision Moderate FBO Merlene A. Samuda 3,254.6140 A Shares 15.59% Growth Fund 8642 NW 10th Place #139B Plantation, FL 33322-4508 ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #F8R-072621 NFS/FMTC IRA Life Vision Moderate FBO Georganne D. McGreevy 73.6680 A Shares 20.94% Growth Fund 15 Remington Road Ormond Beach, FL 32174-2528 ------------------------------------------------------------------------------------------------------------------ SEI Corporation Life Vision Moderate Attn: Rob Silvestri Growth Fund One Freedom Valley Drive 9.3550 A Shares 48.92% Oaks, PA 19456 ------------------------------------------------------------------------------------------------------------------ SunTrust Bank TTEE FBO Various Benefit Plans Life Vision Moderate Fascorp Recordkeeper 9,679,540.7670 T Shares 13.53% Growth Fund 8515 E. Orchard Road #2T2 Greenwood Village, CO 80111-5002 ------------------------------------------------------------------------------------------------------------------ SunTrust Bank TTEE FBO Various Benefit Plans Life Vision Moderate Fascorp Recordkeeper 6,798,981.3050 T Shares 85.94% Growth Fund 8515 E. Orchard Road #2T2 Greenwood Village, CO 80111-5002 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Limited-Term Mutual Fund Reconciliation Unit Federal Mortgage Mail Center 3144 8,846,432.9430 A Shares 5.42% Securities Fund PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------
89
------------------------------------------------------------------------------------------------------------------ FUND NAME AND ADDRESS NUMBER OF % OF SHARES CLASS CLASS ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #FFR-060925 Limited-Term Meshulam Zonis Revoc. Trust Federal Mortgage Meshulam Zonis 99,912.9720 A Shares 6.86% Securities Fund U/A 8/22/2002 3801 NE 207th Street Apt. 2802 ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #FFR-061212 Limited-Term Sheldon Stein Federal Mortgage Miriam Stein 58,710.3940 A Shares 9.22% Securities Fund 9601 Collins Avenue #PH-304 Bal Harbour, FL 33154-2209 ------------------------------------------------------------------------------------------------------------------ Nationwide Insurance Company Limited-Term Trust Federal Mortgage c/o IPO Portfolio Accounting 74,350.3450 T Shares 27.83% Securities Fund PO Box 182029 Columbus, OH 43218-2029 ------------------------------------------------------------------------------------------------------------------ Trustman Limited-Term SunTrust Banks Federal Mortgage Mutual Fund Reconciliation Unit Securities Fund Mail Center 3144 18,524,838.0040 T Shares 29.64% PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Limited-Term Mutual Fund Reconciliation Unit Mortgage Federal Mail Center 3144 12,652,995.4260 T Shares 40.74% Securities Fund PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ Federated Investors Maryland Municipal Attn: Media Admin. Fl. 17 Bond Fund 1001 Liberty Avenue 4.6950 A Shares 20.02% Pittsburgh, PA 15222-3714 ------------------------------------------------------------------------------------------------------------------ Federated Investors Maryland Municipal Attn: Media Admin. Fl. 17 Bond Fund 1001 Liberty Avenue 4.7040 A Shares 20.02% Pittsburgh, PA 15222-3714 ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #F4R-070190 NFS/FMTC Roll IRA Maryland Municipal FBO Sandra H. Faulconer 630.0030 A Shares 20.06% Bond Fund 34938 Double Eagle Court Zephyrhills, FL 33541-2683 ------------------------------------------------------------------------------------------------------------------
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------------------------------------------------------------------------------------------------------------------ FUND NAME AND ADDRESS NUMBER OF % OF SHARES CLASS CLASS ------------------------------------------------------------------------------------------------------------------ Federated Investors 4.6950 A Shares 39.90% Maryland Municipal Attn: Media Admin. Fl. 17 Bond Fund 1001 Liberty Avenue Pittsburgh, PA 15222-3714 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Maryland Municipal Mutual Fund Reconciliation Unit Bond Fund Mail Center 3144 2,455,053.7710 T Shares 13.52% PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Maryland Municipal Bond Mutual Fund Reconciliation Unit Fund Mail Center 3144 1,546,737.6000 T Shares 28.63% PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Maryland Municipal Mutual Fund Reconciliation Unit Bond Fund Mail Center 3144 361,382.6600 T Shares 57.85% PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Mid-Cap Equity Mutual Fund Reconciliation Unit 4,034,240.4590 A Shares 9.28% Fund Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ Nationwide Insurance Company Trust Mid-Cap Equity c/o IPO Portfolio Accounting 137,990.4630 T Shares 5.76% Fund PO Box 182029 Columbus, OH 43218-2029 ------------------------------------------------------------------------------------------------------------------ SunTrust Bank TTEE Mid-Cap Equity FBO Various Benefit Plans Fund Fascorp Recordkeeper 998,869.2510 T Shares 8.25% 8515 E. Orchard Rd. #2T2 Greenwood Village, CO 80111-5002 ------------------------------------------------------------------------------------------------------------------
91
------------------------------------------------------------------------------------------------------------------ FUND NAME AND ADDRESS NUMBER OF % OF SHARES CLASS CLASS ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Mid-Cap Equity Mutual Fund Reconciliation Unit 1,431,412.2740 T Shares 26.47% Fund Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Mid-Cap Equity Mutual Fund Reconciliation Unit Fund Mail Center 3144 5,431,749.5650 T Shares 28.20% PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Mid-Cap Equity Mutual Fund Reconciliation Unit Fund Mail Center 3144 4,591,119.2340 T Shares 31.31% PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ SEI Trust Company c/o Citrus & Chemical Bank Mid-Cap Value Attn: Mutual Funds Administrator 1,184.9540 A Shares 6.83% Equity Fund One Freedom Valley Drive Oaks, PA 19456 ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #F7F-000604 Mid-Cap Value Carl Goelz Equity Fund 18585 Gillman Street 908.1480 A Shares 7.03% Livonia, MI 48152-3723 ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #F1F-096539 NFS/FMTC IRA BDA Mid-Cap Value NSPS Janet E. Erel 527.6260 A Shares 8.16% Equity Fund 208 Milford Haven CV Longwood, FL 32779-5639 ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #F7R-068373 Virginia M. Brown Mid-Cap Value Whitney A. Brown Revoc Trust 9 1,420.2990 A Shares 11.76% Equity Fund 114 Tennessee Avenue Lakeland, FL 33801-4630 ------------------------------------------------------------------------------------------------------------------
92
------------------------------------------------------------------------------------------------------------------ FUND NAME AND ADDRESS NUMBER OF % OF SHARES CLASS CLASS ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #F2F-002852 542.5770 A Shares 15.35% Aurthur H. Plage Mid-Cap Value TOD Carmella Campbell Equity Fund 1771 Upland Ridge Dr. NW Conyers, GA 30012-3656 ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #F7R-068390 Alice C. Thompson TTEE Mid-Cap Value Alice Thompson Revoc. Trust Equity Fund U/A8/16/88 2,074.6300 A Shares 18.39% 114 Tennessee Avenue Lakeland, FL 33801-4630 ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #613-884324 FMT Co. Cust. IRA Mid-Cap Value FBO Mark B. Epstein 12,138.8750 A Shares 26.87% Equity Fund 2310 Woodland Lake Walk Snellville, GA 30078-7300 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Mid-Cap Value Mutual Fund Reconciliation Unit Equity Fund Mail Center 3144 2,877,216.9430 T Shares 22.03% PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Mid-Cap Value Mutual Fund Reconciliation Unit Equity Fund Mail Center 3144 4,123,029.1020 T Shares 31.57% PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Mid-Cap Value Mutual Fund Reconciliation Unit Equity Fund Mail Center 3144 5,808,644.2620 T Shares 44.48% PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ National Financial Services Corp. For Exclusive Benefit of our Cust. Prime Quality Attn: Mutual Funds Department 1,863,558,553.3600 A Shares 97.68% Money Market Fund One World Financial Center 200 Liberty Street FL 5 New York, NY 10281-5503 ------------------------------------------------------------------------------------------------------------------
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------------------------------------------------------------------------------------------------------------------ FUND NAME AND ADDRESS NUMBER OF % OF SHARES CLASS CLASS ------------------------------------------------------------------------------------------------------------------ SunTrust Bank TTEE FBO Various Benefit Plans Prime Quality Fascorp Recordkeeper 242,612,632.7000 T Shares 6.28% Money Market Fund 8515 Orchard Road #2T2 Greenwood Village, CO 80111-5002 ------------------------------------------------------------------------------------------------------------------ SunTrust Bank Attn: Susan Grider Prime Quality Mail Center 3133 3,518,951,878.5200 T Shares 91.13% Money Market Fund PO Box 105504 Atlanta, GA 30348-5504 ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #FER-103780 Francesca K. Field TTEE Francesca K. Field Rev. Trust Short-Term Bond U/A 2/8/91 69,651.5790 A Shares 6.36% Fund 11623 Innfields Drve Odessa, FL 33556-5407 ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #FER-103802 Francesca K. Field TTEE Francesca K. Field Rev. Trust Short-Term Bond U/A 2/8/91 99,409.3090 A Shares 9.02% Fund 11623 Innfields Drve Odessa, FL 33556-5407 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Mutual Fund Reconciliation Unit Short-Term Bond Mail Center 3144 4,891,747.7900 A Shares 12.88% Fund PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #G1R-255289 NFS/FMTC Roll IRA Short-Term Bond FBO W H Massey 49,058.6500 A Shares 14.00% Fund 2740 Woods Ridge Drive Alpharetta, GA 30022-4828 ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #G1R-167924 Short-Term Bond James A. Dixon Fund 7005 Carlisle Lane 162,631.6130 L Shares 9.31% Alpharetta, GA 30022-5145 ------------------------------------------------------------------------------------------------------------------ Nationwide Insurance Company Trust Short-Term Bond c/o IPO Portfolio Accounting 108,062.0160 T Shares 5.14% Fund PO Box 182029 Columbus, OH 43218-2029 ------------------------------------------------------------------------------------------------------------------
94
------------------------------------------------------------------------------------------------------------------ FUND NAME AND ADDRESS NUMBER OF % OF SHARES CLASS CLASS ------------------------------------------------------------------------------------------------------------------ SunTrust Bank TTEE FBO Various Benefit Plans Short-Term Bond Fascorp Recordkeeper 1,555,358.1140 T Shares 8.47% Fund 8515 E. Orchard Rd. #2T2 Greenwood Village, CO 80111-5002 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Short-Term Bond Mutual Fund Reconciliation Unit Fund Mail Center 3144 15,625,557.3020 T Shares 16.05% PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Short-Term Bond Mutual Fund Reconciliation Unit Fund Mail Center 3144 2,564,542.4040 T Shares 16.71% PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Short-Term Bond Mutual Fund Reconciliation Unit Fund Mail Center 3144 5,056,254.2080 T Shares 51.63% PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Short-Term U.S. Mutual Fund Reconciliation Unit Treasury Securities Mail Center 3144 4,857,572.4170 A Shares 5.90% Fund PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #F3R-098183 Short-Term U.S. Delno V. Mullins Treasury Securities 7860 Palm Aire Lane 96,993.2100 A Shares 11.05% Fund Sarasota, FL 34243-3748 ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #F1F-077038 Short-Term U.S. Eugene C. McCarthy Treasury Securities SunTrust RH, Capital Markets 181,528.6950 A Shares 13.28% Fund "Variable Prepaid Forward" 248 Hamilton Road Rockville Center, NY 11570-2634 ------------------------------------------------------------------------------------------------------------------
95
------------------------------------------------------------------------------------------------------------------ FUND NAME AND ADDRESS NUMBER OF % OF SHARES CLASS CLASS ------------------------------------------------------------------------------------------------------------------ Nationwide Insurance Company Short-Term U.S. Trust Treasury Securities c/o IPO Portfolio Accounting 218,180.2350 T Shares 7.49% Fund PO Box 182029 Columbus, OH 43218-2029 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Short-Term U.S. Mutual Fund Reconciliation Unit Treasury Securities Mail Center 3144 779,390.2040 T Shares 7.73% Fund PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ CENCO Short-Term U.S. AMG 7th Floor Treasury Securities PO Box 10566 1,622,804.0510 T Shares 16.09% Fund Birmingham, AL 35296-0566 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Short-Term U.S. Mutual Fund Reconciliation Unit Treasury Securities Mail Center 3144 2,002,737.6570 T Shares 19.86% Fund PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Short-Term U.S. Mutual Fund Reconciliation Unit Treasury Securities Mail Center 3144 4,923,592.8760 T Shares 48.83% Fund PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ Nationwide Insurance Company Trust Small Cap Growth c/o IPO Portfolio Accounting 177,662.9020 A Shares 11.20% Stock Fund PO Box 182029 Columbus, OH 43218-2029 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Small Cap Growth Mutual Fund Reconciliation Unit 1,070,242.1930 T Shares 6.64% Stock Fund Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------
96
------------------------------------------------------------------------------------------------------------------ FUND NAME AND ADDRESS NUMBER OF % OF SHARES CLASS CLASS ------------------------------------------------------------------------------------------------------------------ SunTrust Bank TTEE FBO Various Benefit Plans Small Cap Growth Fascorp Recordkeeper 2,670,572.3520 T Shares 12.02% Stock Fund 8515 E. Orchard Rd. #2T2 Greenwood Village, CO 80111-5002 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Small Cap Growth Mutual Fund Reconciliation Unit Stock Fund Mail Center 3144 4,836,883.4560 T Shares 13.64% PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Small Cap Growth Mutual Fund Reconciliation Unit Stock Fund Mail Center 3144 5,448,770.8370 T Shares 24.62% PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Small Cap Growth Mutual Fund Reconciliation Unit Stock Fund Mail Center 3144 9,904,010.3130 T Shares 40.99% PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #613-884375 Small Cap Value Judi A. Epstein Equity Fund 2310 Woodland Lake Walk 3,576.9350 A Shares 7.26% Snellville, GA 30078-7300 ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #G1F-063258 David L. Kuniansky Small Cap Value Leon Kuniansky Revoc Trust Equity Fund U/A 6/23/03 18,610.2720 A Shares 9.19% PO Box 19859 Atlanta, GA 30325-0859 ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #613-884359 Small Cap Value Mark B. Epstein Cust. Equity Fund Amy L. Epstein UTMA GA 2,826.6990 A Shares 14.53% 2310 Woodland Lake Walk Snellville, GA 30078-7300 ------------------------------------------------------------------------------------------------------------------
97
------------------------------------------------------------------------------------------------------------------ FUND NAME AND ADDRESS NUMBER OF % OF SHARES CLASS CLASS ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #613-884340 Mark B. Epstein Cust. Small Cap Value Samuel A. Epstein UTMA GA 5,653.3990 A Shares 31.19% Equity Fund 2310 Woodland Lake Walk Snellville, GA 30078-7300 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Small Cap Value Mutual Fund Reconciliation Unit Equity Fund Mail Center 3144 16,489,269.3360 T Shares 11.52% PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ SunTrust Bank TTEE FBO Various Benefit Plans Small Cap Value Fascorp Recordkeeper 4,402,178.0660 T Shares 14.59% Equity Fund 8515 E. Orchard Rd. #2T2 Greenwood Village, CO 80111-5002 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Small Cap Value Mutual Fund Reconciliation Unit Equity Fund Mail Center 3144 13,614,586.2450 T Shares 34.88% PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Small Cap Value Mutual Fund Reconciliation Unit Equity Fund Mail Center 3144 5,573,514.2760 T Shares 35.64% PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #F6R-064866 Florida Baptist Convention Inc. Strategic Income Steve Baumgardner 219,780.2200 A Shares 7.61% Fund 1230 Hendricks Avenue Jacksonville, FL 32207-8619 ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #G5R-029149 Strategic Income NFS/FMTC IRA Fund FBO Karl M. Counts 5,188.1800 A Shares 89.89% 22 Clarendon Road Savannah, GA 31410-4105 ------------------------------------------------------------------------------------------------------------------
98
------------------------------------------------------------------------------------------------------------------ FUND NAME AND ADDRESS NUMBER OF % OF SHARES CLASS CLASS ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Strategic Income Mutual Fund Reconciliation Unit 1,167,195.4140 T Shares 18.12% Fund Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Strategic Income Mutual Fund Reconciliation Unit Fund Mail Center 3144 1,678,311.4300 T Shares 26.06% PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Strategic Income Mutual Fund Reconciliation Unit Fund Mail Center 3144 3,387,113.5980 T Shares 52.60% PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #F9R-161462 Strategic Quantitative Adrian Lehn Equity Fund 6 Poydras Drive 740.4030 A Shares 14.03% Little Rock, AR 72211-2127 ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #G1R-215546 Strategic Quantitative Patrick A. Paparelli Equity Fund 568 Rock Springs Place, NE 495.880 A Shares 32.19% Atlanta, GA 30306-2383 ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #F1R-059943 Joseph Ryan Ballant Sr. Strategic Quantitative Priscilla B. Ballant 1,137.3210 A Shares 50.65% Equity Fund 221 West Tilden Street Winters Garden, FL 34787-2725 ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #G9R-031810 Richard L. Nutt Strategic Quantitative FMT TTEE P/S Plan P/S Equity Fund 104 George T. Morris Cir. 4,986.8770 L Shares 5.11% St. Simons Island, GA 31522-2215 ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #F5R-022349 NFS/FMTC IRA Strategic Quantitative FBO Robert C. Stacy 1,789.6010 L Shares 5.23% Equity Fund 13262 Whitehaven Lane #606 Ft. Meyers, FL 33912-1577 ------------------------------------------------------------------------------------------------------------------
99
------------------------------------------------------------------------------------------------------------------ FUND NAME AND ADDRESS NUMBER OF % OF SHARES CLASS CLASS ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #A1F-650285 Strategic Quantitative Janice H. Dodrill 2,738.5580 L Shares 9.53% Equity Fund 4979 Jacobs Run Lane Earlysville, VA 22936-1845 ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #F3R-096075 NFS/FMTC IRA Strategic Quantitative FBO Otto P. Agostinelli 2,673.7970 L Shares 9.91% Equity Fund 1814 Los Alamos Drive Punta Gorda, FL 33950-8542 ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #G1F-059862 Strategic Quantitative Frank E. Flowers Equity Fund 680 Austin Road 27,175.930 T Shares 12.83% Ellenwood, GA 30294-3201 ------------------------------------------------------------------------------------------------------------------ State Street Bank and Trust Co. TTEE FBO Coca-Cola Enterprises Strategic Quantitative Master Trust for DEF Benefit Plans Equity Fund Attn: Tom Donovan 507,614.2130 T Shares 31.62% One Enterprise Drive #SWB5C North Quincy, MA 02171-2126 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Strategic Quantitative Mutual Fund Reconciliation Unit Equity Fund Mail Center 3144 1,250,714.4050 T Shares 51.45% PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ National Financial Services Corp. For Exclusive Benefit of our Cust. Tax Exempt Money Attn: Mutual Funds Department Market Fund One World Financial Center 262,812,180.6000 A Shares 97.96% 200 Liberty Street FL 5 New York, NY 10281-5503 ------------------------------------------------------------------------------------------------------------------ SunTrust Bank Attn: Susan Grider Tax Exempt Money Mail Center 3133 1,159,122,540.2400 T Shares 100% Market Fund PO Box 105504 Atlanta, GA 30348-5504 ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #G1F-065633 Halla Clafffey TTEE Tax Sensitive Paula H. Holmes Trust 8,118.9060 A Shares 6.99% Growth Stock Fund U/W 8/20/01 1085 Eagles Nest Drive Milford, MI 48381-4502 ------------------------------------------------------------------------------------------------------------------
100
------------------------------------------------------------------------------------------------------------------ FUND NAME AND ADDRESS NUMBER OF % OF SHARES CLASS CLASS ------------------------------------------------------------------------------------------------------------------ National Financial Services Corp. For Exclusive Benefit of our Cust. Tax Sensitive Attn: Mutual Funds Department 400,148.4700 A Shares 16.21% Growth Stock Fund One World Financial Center 200 Liberty Street FL 5 New York, NY 10281-5503 ------------------------------------------------------------------------------------------------------------------ NFSC FEBO #T9R-071242 Dovie T. Parke Tax Sensitive c/o Karen Papke Gatanis 1,715.8820 A Shares 76.69% Growth Stock Fund 5089 Glendora Drive Powder Springs, GA 30127-5348 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Tax Sensitive Mutual Fund Reconciliation Unit Growth Stock Fund Mail Center 3144 3,37,638.0830 T Shares 14.53% PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Tax Sensitive Mutual Fund Reconciliation Unit Growth Stock Fund Mail Center 3144 2,034,819.9610 T Shares 37.25% PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Tax Sensitive Mutual Fund Reconciliation Unit Growth Stock Fund Mail Center 3144 2,743,800.2450 T Shares 45.88% PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks U.S. Government Mutual Fund Reconciliation Unit Securities Fund Mail Center 3144 13,478,802.5730 T Shares 12.01% PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks U.S. Government Mutual Fund Reconciliation Unit 11,010,967.1240 T Shares 18.73% Securities Fund Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------
101
------------------------------------------------------------------------------------------------------------------ FUND NAME AND ADDRESS NUMBER OF % OF SHARES CLASS CLASS ------------------------------------------------------------------------------------------------------------------ SunTrust Bank TTEE FBO Various Benefit Plans U.S. Government Fascorp Recordkeeper 3,145,607.7400 T Shares 24.74% Securities Fund 8515 E. Orchard Rd. #2T2 Greenwood Village, CO 80111-5002 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks U.S. Government Mutual Fund Reconciliation Unit Securities Fund Mail Center 3144 6,479,840.9090 T Shares 40.23% PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ National Financial Services Corp. For Exclusive Benefit of our Cust. U.S. Government Attn: Mutual Funds Department Securities Money One World Financial Center 221,940,289.9200 A Shares 93.71% Market Fund 200 Liberty Street FL 5 New York, NY 10281-5503 ------------------------------------------------------------------------------------------------------------------ SunTrust Bank TTEE U.S. Government FBO Various Benefit Plans Securities Money Fascorp Recordkeeper 92,630,215.0160 T Shares 13.80% Market Fund 8515 Orchard Road #2T2 Greenwood Village, CO 80111-5002 ------------------------------------------------------------------------------------------------------------------ SunTrust Bank U.S. Government Attn: Susan Grider Securities Money Mail Center 3133 578,716,907.6600 T Shares 86.20% Market Fund PO Box 105504 Atlanta, GA 30348-5504 ------------------------------------------------------------------------------------------------------------------ SEI Corporation U.S. Treasury Attn: Rob Silvestri Securities Money One Freedom Valley Drive 9.5510 A Shares 99.94% Market Fund Oaks, PA 19456 ------------------------------------------------------------------------------------------------------------------ SunTrust Bank U.S. Treasury Attn: Susan Grider Securities Money Mail Center 3144 181,307,720.6700 T Shares 98.87% Market Fund PO Box 105504 Atlanta, GA 30348-5504 ------------------------------------------------------------------------------------------------------------------ Nationwide Insurance Company Trust Value Income Stock c/o IPO Portfolio Accounting 457,613.2190 A Shares 6.82% Fund PO Box 182029 Columbus, OH 43218-2029 ------------------------------------------------------------------------------------------------------------------
102
------------------------------------------------------------------------------------------------------------------ FUND NAME AND ADDRESS NUMBER OF % OF SHARES CLASS CLASS ------------------------------------------------------------------------------------------------------------------ Nissan Motor Corp.-USA 401K Plan RH03 Value Income Stock State Street Bank TTEE 3,275,864.9060 T Shares 5.03% Fund PO Box 1992 Attn: Cathie Noyes Boston, MA 02105-1992 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Mutual Fund Reconciliation Unit Value Income Stock Mail Center 3144 3,323,711.3140 T Shares 5.11% Fund PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Mutual Fund Reconciliation Unit Value Income Stock Mail Center 3144 5,186,284.0740 T Shares 7.97% Fund PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Mutual Fund Reconciliation Unit Value Income Stock Mail Center 3144 8,673,193.4520 T Shares 13.33% Fund PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ SunTrust Bank TTEE FBO Various Benefit Plans Value Income Stock Fascorp Recordkeeper 11,720,988.7740 T Shares 18.01% Fund 8515 E. Orchard Rd. #2T2 Greenwood Village, CO 80111-5002 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Value Income Stock Mutual Fund Reconciliation Unit Fund Mail Center 3144 30,892,174.9860 T Shares 47.48% PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ Federated Investors Virginia Intermediate Attn: Media Admin Fl. 17 4.7410 L Shares 19.93% Municipal Bond Fund 1001 Liberty Avenue Pittsburgh, PA 15222-3714 ------------------------------------------------------------------------------------------------------------------
103
------------------------------------------------------------------------------------------------------------------ FUND NAME AND ADDRESS NUMBER OF % OF SHARES CLASS CLASS ------------------------------------------------------------------------------------------------------------------ Federated Investors Virginia Intermediate Attn: Media Admin Fl. 17 4.7500 L Shares 19.93% Municipal Bond Fund 1001 Liberty Avenue Pittsburgh, PA 15222-3714 ------------------------------------------------------------------------------------------------------------------ SEI Corporation Virginia Intermediate Attn: Rob Silvestri Municipal Bond Fund One Freedom Valley Drive 9.2250 L Shares 19.97% Oaks, PA 19456 ------------------------------------------------------------------------------------------------------------------ Federated Investors Virginia Intermediate Attn: Media Admin Fl. 17 Municipal Bond Fund 1001 Liberty Avenue 4.7410 L Shares 40.16% Pittsburgh, PA 15222-3714 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Virginia Intermediate Mutual Fund Reconciliation Unit Municipal Bond Fund Mail Center 3144 12,127,595.9400 T Shares 30.42% PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Virginia Intermediate Mutual Fund Reconciliation Unit Municipal Bond Fund Mail Center 3144 765,416.8020 T Shares 66.59% PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ Federated Investors Virginia Municipal Attn: Media Admin Fl. 17 Bond Fund 1001 Liberty Avenue 4.6300 A Shares 20.02% Pittsburgh, PA 15222-3714 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Virginia Municipal Mutual Fund Reconciliation Unit Bond Fund Mail Center 3144 1,523,453.2320 A Shares 20.06% PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ Federated Investors Virginia Municipal Attn: Media Admin Fl. 17 4.6300 A Shares 39.90% Bond Fund 1001 Liberty Avenue Pittsburgh, PA 15222-3714 ------------------------------------------------------------------------------------------------------------------
104
------------------------------------------------------------------------------------------------------------------ FUND NAME AND ADDRESS NUMBER OF % OF SHARES CLASS CLASS ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Virginia Municipal Mutual Fund Reconciliation Unit 10,038,146.8080 L Shares 5.03% Bond Fund Mail Center 3144 PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ Wachovia Securities, LLC FBO Virginia Municipal Mr. Luis R. Montiel Bond Fund 6712 Baron Road 61,931.6530 T Shares 40.40% McLean, VA 22101-2907 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Virginia Municipal Mutual Fund Reconciliation Unit Bond Fund Mail Center 3144 1,731,978.5710 T Shares 57.27% PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ Trustman SunTrust Banks Virginia Tax-Free Mutual Fund Reconciliation Unit Money Market Fund Mail Center 3144 5,539,659.3140 A Shares 100% PO Box 105870 Atlanta, GA 30348-5870 ------------------------------------------------------------------------------------------------------------------ National Financial Services Corp. For Exclusive Benefit of our Cust. Virginia Tax-Free Attn: Mutual Fund Deparment Money Market Fund One World Financial Center 104,793,849.0400 T Shares 13.51% 200 Liberty Street FL 5 New York, NY 10281-5503 ------------------------------------------------------------------------------------------------------------------ STI Classic VA Tax Free Attn: Julia Hugenot Virginia Tax-Free SunTrust Capital Markets 28,330,271.8100 T Shares 86.49% Market Fund 303 Peachtree Street 25th Floor-MC 3906 Atlanta, GA 30308-3201 ------------------------------------------------------------------------------------------------------------------
105 FINANCIAL STATEMENTS The financial statements for the STI Classic Fund's fiscal year ended May 31, 2003, including notes thereto and the reports of PricewaterhouseCoopers LLP thereon, are herein incorporated by reference. A copy of the 2003 Annual Report to Shareholders must accompany the delivery of this SAI 106 APPENDIX A 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: A-1 - 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 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 A-2 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 1933 Act 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 A-3 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 APPENDIX B [LOGO] TRUSCO CAPITAL MANAGEMENT TRUSCO CAPITAL MANAGEMENT PROXY DISCLOSURE TO THE STI CLASSIC FUND SHAREHOLDERS Dear Shareholders: The Securities and Exchange Commission recently adopted new rules and rule amendments under the Investment Advisers Act of 1940, Release No. 2106; and SEC Releases 33-8188, 34-47304, and IC-25922, that address an investment adviser's fiduciary obligation to its clients when the adviser has authority to vote their proxies. UNDER OUR CURRENT CONTRACTUAL AGREEMENT, TRUSCO CAPITAL MANAGEMENT, INC. ("TRUSCO"), IS AUTHORIZED TO VOTE PROXIES ON BEHALF OF THE STI CLASSIC FUNDS. The new rules require an investment adviser that exercises voting authority over proxies to adopt policies and procedures reasonably designed to ensure that the adviser: 1) votes proxies in the best interests of clients; 2) discloses information about those policies and procedures; 3) discloses how clients may obtain information about proxy votes cast; and 4) maintains appropriate records relating to actual proxy voting. Trusco's existing Proxy Voting Committee ("Committee") has been expanded to ensure compliance with all of the requirements. After an exhaustive internal review, the Committee determined that the use of a professional proxy voting agency would be the most efficient and effective course of action. The Committee conducted comprehensive due diligence of the most respected proxy voting specialists in the industry and chose to hire Institutional Shareholder Services, ("ISS") as Trusco's independent third party agent to assist us with meeting our fiduciary obligations. Several of the determining factors in choosing ISS included its excellent research tools and technical support, consistent track record, and care in addressing all potential conflict of interest issues. More importantly, ISS's reliable and conservative historical voting selections generally mirror the highly principled voting standards of Trusco. The Committee recognizes that each proxy vote must be evaluated on its own merits. Factors such as a company's organizational structure, executive and operational management, the independence of the firm's Board of Directors, its corporate culture and governance process, and the impact of economic, environmental and social implications will remain key elements in all final voting procedures. To address inherent conflicts of interest with some Trusco relationships, the firm has taken the additional step of contracting with a separate ISS designated analytical team to assist with voting on any subject that Trusco might consider to be a material internal conflict of interest. Trusco refrains from investing in and making recommendations on specific firms wherein a director or officer may serve as an independent director on Trusco's, SunTrust Banks, Inc., ("SunTrust") or a related SunTrust affiliate's board of directors; and on matters in which an issuer has substantial banking or other financial relationships with Trusco and/or SunTrust, or a SunTrust affiliate. B-1 In order to provide shareholders with the most beneficial and objective proxy voting opinions, Trusco may call upon an appointed independent proxy voting agent to handle such conflict of interest voting matters. ISS will then vote the shares according to the wishes of this independent fiduciary. Trusco will have no power to alter or change the decision or final vote for any proxy matters entrusted to the properly appointed independent fiduciary proxy voting agent. Please be assured, that although Trusco has engaged ISS to assist with physical proxy voting matters, and we have generally adopted the ISS Proxy Voting Policies and Procedures as our own, we retain the primary obligation to review all issues and must actively monitor all information prior to each vote placed on behalf of shareholders. Trusco will continue to utilize all available resources in order to make well-informed, qualified proxy vote decisions. Should the occasion arise that ISS's recommendations and views do not match those of Trusco, the Trusco Committee will arrange to vote those shares accordingly. Further information may be obtained by contacting the STI Classic Funds by telephone at: 1-800-874-4770, Option 5 or by visiting www.sticlassicfunds.com. Again, please know that, as with all matters relating to the STI Classic Funds, we at Trusco take our fiduciary proxy voting obligations very seriously, and will do our utmost to protect the interests of each and every shareholder. Regards, Trusco Capital Management, Inc. B-2 08/2003 TRUSCO CAPITAL MANAGEMENT PROXY POLICY POLICY STATEMENT Trusco Capital Management, Inc. ("Trusco") employs a Proxy Committee approach ("Trusco Committee") that is responsible for establishing policies and procedures designed to ensure the firm ethically and effectively discharges its fiduciary obligation to vote all applicable proxies on behalf of the STI Classic Funds. The Trusco Committee will annually (or more often if needed), review, reaffirm and amend guidelines and strategies for all domestic and international funds. Trusco has engaged Institutional Shareholder Services ("ISS") as its agent to provide certain services and support related to the firm's proxy voting policies, procedures and processes. Trusco has contracted with ISS to provide administrative as well as functional services that include but are not limited to: 1. Access to and adoption of its U.S. Proxy policies, ERISA/Taft Hartley Proxy policies and Global Proxy policies; 2. Collection and coordination of proxy material forwarded by Trusco's client custodians; 3. Access to issuer-specific research and proxy analysis; 4. Proxy voting (both standard and exception based), reconciliation, and disclosure; and 5. Record keeping and voting record retention. The Trusco Committee will affirmatively vote proxies for proposals that, as interpreted, are deemed to be in the best economic interest of its clients as shareholders and beneficiaries to those actions. Generally, the Trusco Committee will follow the established ISS proxy voting guidelines. AN INDEPENDENT, OBJECTIVE APPROACH TO PROXY ISSUES Trusco will vote proxies for all of the STI Classic Funds. Trusco utilizes the services of an independent third party agent, Institutional Shareholder Services, Inc., ("ISS") to assist with facilitating and managing its fiduciary obligations regarding proxy voting, reviewing issues of corporate governance, and dealing with material conflicts of interest. Accordingly, Trusco will generally follow the pre-approved ISS proxy voting principles in matters concerning domestic and global proxy voting issues, as well as guidelines applicable to "TAFT HARTLEY" AND ERISA plans and relationships. Trusco has extensively reviewed ISS's policies along with prior years' actual voting records and has determined that, as a general rule, Trusco agrees with ISS's existing policies and will usually follow those guidelines to fulfill its proxy voting duties. Trusco will, however, continue to obtain and review all information regarding each issuer's proxy related material as it recognizes that there may not be one decision that is right for all situations and that each proxy vote must be evaluated on its own merits. Although this typically means that most issues are voted on a case-by-case basis, the Trusco Committee utilizes the firm's standard voting guidelines whenever B-3 possible to ensure consistency and relevancy with the overall proxy voting process. For example, some factors that are always considered include: an in-depth look at each company's organizational structure; executive and operating management styles, the independence of its Board of Directors, its corporate culture and governance processes, implicit and explicit social and economic product benefits and the impact or economic implications of the available alternatives. EXCEPTIONS TO POLICY The guidelines as outlined herein, do not apply where Trusco has contracted discretionary authority to vote shares to a sub-advisor or agent such as in the case of managed, separate, or wrap accounts. In those situations proxy votes cast by the sub-advisor will be governed by the sub-advisor's own proxy voting procedures. The Trusco Committee will annually review but need not necessarily approve the sub-advisor's or agent's proxy voting policies. CONFLICTS OF INTEREST Due to its diversified client base, numerous product lines, independent board of directors, and affiliation with SunTrust Banks, Inc, occasions may from time to time arise, in which the Trusco Committee believes that an actual material or a perceived material conflict exists. Several of the currently identified proxy voting conflicts include: 1. Common stock of SunTrust Banks, Inc., The Coca-Cola Company, Inc., Coca-Cola Enterprises, Inc., and/or other public corporate issuers with which either Trusco or SunTrust Banks, Inc., may have a similar on-going non-investment management associated relationship. 2. Other conflicts of interest may arise from time to time where the shares to be voted involve: a. An issuer with a director, officer or employee who presently serves as an independent director on the board of Trusco or SunTrust Banks, Inc.; b. An issuer having substantial and numerous banking, investment or other financial relationships with Trusco or SunTrust Banks, Inc.; and c. A direct common stock ownership position of five percent (5%) or greater held individually by Trusco or in conjunction with SunTrust Banks, Inc. and/or SunTrust Banks, Inc. affiliates Where a material conflict of interest exists or is perceived to exist on any proxy proposal, the Trusco Committee will determine the most fair and reasonable arrangements to be followed in order to properly address all conflict concerns. Trusco may employ one or more of the below listed suggestions: 1. Retain an independent fiduciary to vote the shares; 2. Vote according to ISS's (or similar agent's) standard policies; or 3. Pass the proxy material on to the client so that the client can vote on all issues. Although Trusco does its best to alleviate or diffuse known conflicts, there is no guarantee that all situations have been or will be mitigated through proxy policy incorporation. B-4 SECURITIES LENDING PROGRAM Several of the STI Classic Funds engage in "security lending" programs. (The fund loans fully paid stock to various broker-dealers and collects interest based on the underlying value of the position.) Trusco will generally refrain from voting securities loaned out under this lending agreement when the costs and lost revenue to the client combined with the administrative effects of retrieving the securities outweigh the benefit of voting the proxy. In addition, the Trusco Committee must make a good-faith determination that the individual proxy ballot decisions would not materially impact the portfolio manager's desire to retain the position in the portfolio, and that the entire position of loaned shares' votes would not significantly affect the overall voting outcome. If any factor is determined to be material, Trusco will initiate a total recall of the shares on loan to vote accordingly. ADDITIONAL INFORMATION Further information on Trusco Capital Management, Inc.'s U.S. DOMESTIC PROXY POLICIES, ERISA/TAFT HARTLEY PROXY POLICIES and GLOBAL/INTERNATIONAL PROXY POLICIES is available by contacting: STI Classic Funds by telephone at: 1-800-874-4770, Option 5, or via the web at www.sticlassicfunds.com. B-5 08/2003 TRUSCO CAPITAL MANAGEMENT PROXY VOTING GUIDELINES SUMMARY 1. AUDITORS Vote FOR proposals to ratify auditors, unless any of the following apply: o An auditor has a financial interest in or association with the company, and is therefore not independent; o Fees for non-audit services are excessive, or o There is reason to believe that the independent auditor has rendered an opinion which is neither accurate nor indicative of the company's financial position. 2. BOARD OF DIRECTORS VOTING ON DIRECTOR NOMINEES IN UNCONTESTED ELECTIONS Votes on director nominees should be made on a CASE-BY-CASE basis, examining the following factors: independence of the board and key board committees, attendance at board meetings, corporate governance provisions and takeover activity, long-term company performance, responsiveness to shareholder proposals, any egregious board actions, and any excessive non-audit fees or other potential auditor conflicts. CLASSIFICATION/DECLASSIFICATION OF THE BOARD Vote AGAINST proposals to classify the board. Vote FOR proposals to repeal classified boards and to elect all directors annually. INDEPENDENT CHAIRMAN (SEPARATE CHAIRMAN/CEO) Vote on a CASE-BY-CASE basis shareholder proposals requiring that the positions of chairman and CEO be held separately. Because some companies have governance structures in place that counterbalance a combined position, certain factors should be taken into account in determining whether the proposal warrants support. These factors include the presence of a lead director, board and committee independence, governance guidelines, company performance, and annual review by outside directors of CEO pay. MAJORITY OF INDEPENDENT DIRECTORS/ESTABLISHMENT OF COMMITTEES Vote FOR shareholder proposals asking that a majority or more of directors be independent unless the board composition already meets the proposed threshold by Trusco's definition of independence. Vote FOR shareholder proposals asking that board audit, compensation, and/or nominating committees be composed exclusively of independent directors if they currently do not meet that standard. 3. SHAREHOLDER RIGHTS SHAREHOLDER ABILITY TO ACT BY WRITTEN CONSENT Vote AGAINST proposals to restrict or prohibit shareholder ability to take action by written consent. Vote FOR proposals to allow or make easier shareholder action by written consent. SHAREHOLDER ABILITY TO CALL SPECIAL MEETINGS Vote AGAINST proposals to restrict or prohibit shareholder ability to call special meetings. Vote FOR proposals that remove restrictions on the right of shareholders to act independently of management. B-6 SUPERMAJORITY VOTE REQUIREMENTS Vote AGAINST proposals to require a supermajority shareholder vote. Vote FOR proposals to lower supermajority vote requirements. CUMULATIVE VOTING Vote AGAINST proposals to eliminate cumulative voting. Vote proposals to restore or permit cumulative voting on a CASE-BY-CASE basis relative to the company's other governance provisions. CONFIDENTIAL VOTING Vote FOR shareholder proposals requesting that corporations adopt confidential voting, use independent vote tabulators and use independent inspectors of election, as long as the proposal includes a provision for proxy contests as follows: In the case of a contested election, management should be permitted to request that the dissident group honor its confidential voting policy. If the dissidents agree, the policy remains in place. If the dissidents will not agree, the confidential voting policy is waived. Vote FOR management proposals to adopt confidential voting. 4. PROXY CONTESTS VOTING FOR DIRECTOR NOMINEES IN CONTESTED ELECTIONS Votes in a contested election of directors must be evaluated on a CASE-BY-CASE basis, considering the factors that include the long-term financial performance, management's track record, qualifications of director nominees (both slates), and an evaluation of what each side is offering shareholders. REIMBURSING PROXY SOLICITATION EXPENSES Vote CASE-BY-CASE. Where Trusco recommends in favor of the dissidents, we also recommend voting for reimbursing proxy solicitation expenses. 5. POISON PILLS Vote FOR shareholder proposals that ask a company to submit its poison pill for shareholder ratification. Review on a CASE-BY-CASE basis shareholder proposals to redeem a company's poison pill and management proposals to ratify a poison pill. 6. MERGERS AND CORPORATE RESTRUCTURINGS Vote CASE-BY-CASE on mergers and corporate restructurings based on such features as the fairness opinion, pricing, strategic rationale, and the negotiating process. 7. REINCORPORATION PROPOSALS Proposals to change a company's state of incorporation should be evaluated on a CASEBY-CASE basis, giving consideration to both financial and corporate governance concerns, including the reasons for reincorporating, a comparison of the governance provisions, and a comparison of the jurisdictional laws. Vote FOR reincorporation when the economic factors outweigh any neutral or negative governance changes. B-7 8. CAPITAL STRUCTURE COMMON STOCK AUTHORIZATION Votes on proposals to increase the number of shares of common stock authorized for issuance are determined on a CASE-BY-CASE basis using a model developed by ISS. Vote AGAINST proposals of companies with dual-class capital structures to increase the number of authorized shares of the class of stock that has superior voting rights. Vote FOR proposals to approve increases beyond the allowable increase when a company's shares are in danger of being delisted or if a company's ability to continue to operate as a going concern is uncertain. DUAL-CLASS STOCK Vote AGAINST proposals to create a new class of common stock with superior voting rights. Vote FOR proposals to create a new class of non-voting or sub-voting common stock if: o It is intended for financing purposes with minimal or no dilution to current shareholders; or o It is not designed to preserve the voting power of an insider or significant shareholder. 9. EXECUTIVE AND DIRECTOR COMPENSATION Votes with respect to compensation plans should be determined on a CASE-BY-CASE basis. Our methodology for reviewing compensation plans primarily focuses on the transfer of shareholder wealth (the dollar cost of pay plans to shareholders instead of simply focusing on voting power dilution). Using the expanded compensation data disclosed under the SEC's rules, Trusco will value every award type. Trusco will include in its analyses an estimated dollar cost for the proposed plan and all continuing plans. This cost, dilution to shareholders' equity, will also be expressed as a percentage figure for the transfer of shareholder wealth, and will be considered long with dilution to voting power. Once Trusco determines the estimated cost of the plan, we compare it to a company-specific dilution cap. Vote AGAINST equity plans that explicitly permit repricing or where the company has a history of repricing without shareholder approval. MANAGEMENT PROPOSALS SEEKING APPROVAL TO REPRICE OPTIONS Votes on management proposals seeking approval to reprice options are evaluated on a CASE-BY-CASE basis giving consideration to the following: o Historic trading patterns o Rationale for the repricing o Value-for-value exchange o Option vesting o Term of the option o Exercise price o Participation EMPLOYEE STOCK PURCHASE PLANS Votes on employee stock purchase plans should be determined on a CASE-BY-CASE basis. Vote FOR employee stock purchase plans where all of the following apply: o Purchase price is at least 85 percent of fair market value; o Offering period is 27 months or less; and o Potential voting power dilution (VPD) is ten percent or less. Vote AGAINST employee stock purchase plans where any of the opposite conditions obtain. B-8 SHAREHOLDER PROPOSALS ON COMPENSATION Vote on a CASE-BY-CASE basis for all other shareholder proposals regarding executive and director pay, taking into account company performance, pay level versus peers, pay level versus industry, and long term corporate outlook. 10. SOCIAL AND ENVIRONMENTAL ISSUES These issues cover a wide range of topics, including consumer and public safety, environment and energy, general corporate issues, labor standards and human rights, military business, and workplace diversity. In general, vote CASE-BY-CASE. While a wide variety of factors goes into each analysis, the overall principal guiding all vote recommendations focuses on how the proposal will enhance the economic value of the company. B-9 08/2003 TRUSCO CAPITAL MANAGEMENT GLOBAL PROXY VOTING GUIDELINES FOLLOWING IS A CONCISE SUMMARY OF GENERAL POLICIES FOR VOTING GLOBAL PROXIES. IN ADDITION, ISS HAS COUNTRY- AND MARKET-SPECIFIC POLICIES, WHICH ARE NOT CAPTURED BELOW. FINANCIAL RESULTS/DIRECTOR AND AUDITOR REPORTS Vote FOR approval of financial statements and director and auditor reports, unless: o there are concerns about the accounts presented or audit procedures used; or o the company is not responsive to shareholder questions about specific items that should be publicly disclosed. APPOINTMENT OF AUDITORS AND AUDITOR COMPENSATION Vote FOR the reelection of auditors and proposals authorizing the board to fix auditor fees, unless: o there are serious concerns about the accounts presented or the audit procedures used; o the auditors are being changed without explanation; or o nonaudit-related fees are substantial or are routinely in excess of standard annual audit fees. Vote AGAINST the appointment of external auditors if they have previously served the company in an executive capacity or can otherwise be considered affiliated with the company. ABSTAIN if a company changes its auditor and fails to provide shareholders with an explanation for the change. APPOINTMENT OF INTERNAL STATUTORY AUDITORS Vote FOR the appointment or reelection of statutory auditors, unless: o there are serious concerns about the statutory reports presented or the audit procedures used; o questions exist concerning any of the statutory auditors being appointed; or o the auditors have previously served the company in an executive capacity or can otherwise be considered affiliated with the company. ALLOCATION OF INCOME Vote FOR approval of the allocation of income, unless: o the dividend payout ratio has been consistently below 30 percent without adequate explanation; or o the payout is excessive given the company's financial position. STOCK (SCRIP) DIVIDEND ALTERNATIVE Vote FOR most stock (scrip) dividend proposals. Vote AGAINST proposals that do not allow for a cash option unless management demonstrates that the cash option is harmful to shareholder value. AMENDMENTS TO ARTICLES OF ASSOCIATION Vote amendments to the articles of association on a CASE-BY-CASE basis. CHANGE IN COMPANY FISCAL TERM Vote FOR resolutions to change a company's fiscal term unless a company's motivation for the change is to postpone its AGM. B-10 LOWER DISCLOSURE THRESHOLD FOR STOCK OWNERSHIP Vote AGAINST resolutions to lower the stock ownership disclosure threshold below five percent unless specific reasons exist to implement a lower threshold. AMEND QUORUM REQUIREMENTS Vote proposals to amend quorum requirements for shareholder meetings on a CASE-BY-CASE basis. TRANSACT OTHER BUSINESS Vote AGAINST other business when it appears as a voting item. DIRECTOR ELECTIONS Vote FOR management nominees in the election of directors, unless: o there are clear concerns about the past performance of the company or the board; or o the board fails to meet minimum corporate governance standards. Vote FOR individual nominees unless there are specific concerns about the individual, such as criminal wrongdoing or breach of fiduciary responsibilities. Vote AGAINST shareholder nominees unless they demonstrate a clear ability to contribute positively to board deliberations. Vote AGAINST individual directors if they cannot provide an explanation for repeated absences at board meetings (in countries where this information is disclosed). DIRECTOR COMPENSATION Vote FOR proposals to award cash fees to nonexecutive directors unless the amounts are excessive relative to other companies in the country or industry. Vote non-executive director compensation proposals that include both cash and share-based components on a CASE-BY-CASE basis. Vote proposals that bundle compensation for both non-executive and executive directors into a single resolution on a CASE-BY-CASE basis. Vote AGAINST proposals to introduce retirement benefits for non-executive directors. DISCHARGE OF BOARD AND MANAGEMENT Vote FOR discharge of the board and management, unless: o there are serious questions about actions of the board or management for the year in question; or o legal action is being taken against the board by other shareholders. DIRECTOR, OFFICER, AND AUDITOR INDEMNIFICATION AND LIABILITY PROVISIONS Vote proposals seeking indemnification and liability protection for directors and officers on a CASE-BY-CASE basis. Vote AGAINST proposals to indemnify auditors. B-11 BOARD STRUCTURE Vote FOR proposals to fix board size. Vote AGAINST the introduction of classified boards and mandatory retirement ages for directors. Vote AGAINST proposals to alter board structure or size in the context of a fight for control of the company or the board. SHARE ISSUANCE REQUESTS GENERAL ISSUANCES: Vote FOR issuance requests with preemptive rights to a maximum of 100 percent over currently issued capital. Vote FOR issuance requests without preemptive rights to a maximum of 20 percent of currently issued capital. SPECIFIC ISSUANCES: Vote on a CASE-BY-CASE basis on all requests, with or without preemptive rights. INCREASES IN AUTHORIZED CAPITAL Vote FOR nonspecific proposals to increase authorized capital up to 100 percent over the current authorization unless the increase would leave the company with less than 30 percent of its new authorization outstanding. Vote FOR specific proposals to increase authorized capital to any amount, unless: o the specific purpose of the increase (such as a share-based acquisition or merger) does not meet ISS guidelines for the purpose being proposed; or o the increase would leave the company with less than 30 percent of its new authorization outstanding after adjusting for all proposed issuances (and less than 25 percent for companies in Japan). Vote AGAINST proposals to adopt unlimited capital authorizations. REDUCTION OF CAPITAL Vote FOR proposals to reduce capital for routine accounting purposes unless the terms are unfavorable to shareholders. Vote proposals to reduce capital in connection with corporate restructuring on a CASE-BYCASE basis. CAPITAL STRUCTURES Vote FOR resolutions that seek to maintain or convert to a one share, one vote capital structure. Vote AGAINST requests for the creation or continuation of dual class capital structures or the creation of new or additional supervoting shares. PREFERRED STOCK Vote FOR the creation of a new class of preferred stock or for issuances of preferred stock up to 50 percent of issued capital unless the terms of the preferred stock would adversely affect the rights of existing shareholders. B-12 Vote FOR the creation/issuance of convertible preferred stock as long as the maximum number of common shares that could be issued upon conversion meets ISS's guidelines on equity issuance requests. Vote AGAINST the creation of a new class of preference shares that would carry superior voting rights to the common shares. Vote AGAINST the creation of blank check preferred stock unless the board clearly states that the authorization will not be used to thwart a takeover bid. Vote proposals to increase blank check preferred authorizations on a CASE-BY-CASE basis. DEBT ISSUANCE REQUESTS Vote nonconvertible debt issuance requests on a CASE-BY-CASE basis, with or without preemptive rights. Vote FOR the creation/issuance of convertible debt instruments as long as the maximum number of common shares that could be issued upon conversion meets ISS's guidelines on equity issuance requests. Vote FOR proposals to restructure existing debt arrangements unless the terms of the restructuring would adversely affect the rights of shareholders. PLEDGING OF ASSETS FOR DEBT Vote proposals to approve the pledging of assets for debt on a CASE-BY-CASE basis. INCREASE IN BORROWING POWERS Vote proposals to approve increases in a company's borrowing powers on a CASE-BY-CASE basis. SHARE REPURCHASE PLANS: Vote FOR share repurchase plans, unless: o clear evidence of past abuse of the authority is available; or o the plan contains no safeguards against selective buybacks. REISSUANCE OF SHARES REPURCHASED: Vote FOR requests to reissue any repurchased shares unless there is clear evidence of abuse of this authority in the past. CAPITALIZATION OF RESERVES FOR BONUS ISSUES/INCREASE IN PAR VALUE: Vote FOR requests to capitalize reserves for bonus issues of shares or to increase par value. REORGANIZATIONS/RESTRUCTURINGS: Vote reorganizations and restructurings on a CASE-BY-CASE basis. MERGERS AND ACQUISITIONS: Vote FOR mergers and acquisitions, unless: o the impact on earnings or voting rights for one class of shareholders is disproportionate to the relative contributions of the group; or o the company's structure following the acquisition or merger does not reflect good corporate governance. Vote AGAINST if the companies do not provide sufficient information upon request to make an informed voting decision. B-13 ABSTAIN if there is insufficient information available to make an informed voting decision. MANDATORY TAKEOVER BID WAIVERS: Vote proposals to waive mandatory takeover bid requirements on a CASE-BY-CASE basis. REINCORPORATION PROPOSALS: Vote reincorporation proposals on a CASE-BY-CASE basis. EXPANSION OF BUSINESS ACTIVITIES: Vote FOR resolutions to expand business activities unless the new business takes the company into risky areas. RELATED-PARTY TRANSACTIONS: Vote related-party transactions on a CASE-BY-CASE basis. COMPENSATION PLANS: Vote compensation plans on a CASE-BY-CASE basis. ANTITAKEOVER MECHANISMS: Vote AGAINST all antitakeover proposals unless they are structured in such a way that they give shareholders the ultimate decision on any proposal or offer. SHAREHOLDER PROPOSALS: Vote all shareholder proposals on a CASE-BY-CASE basis. Vote FOR proposals that would improve the company's corporate governance or business profile at a reasonable cost. Vote AGAINST proposals that limit the company's business activities or capabilities or result in significant costs being incurred with little or no benefit. B-14 08/2003 TRUSCO CAPITAL MANAGEMENT PROXY VOTING GUIDELINES The Trusco Capital Management Taft-Hartley Voting Policy is based upon the AFL-CIO Proxy Voting Guidelines, which comply with all the fiduciary standards delineated by the U.S. Department of Labor. Taft-Hartley client accounts are governed by the Employee Retirement Income Security Act (ERISA). ERISA sets forth the tenets under which pension fund assets must be managed and invested. Proxy voting rights have been declared by the Department of Labor to be valuable plan assets and therefore must be exercised in accordance with the fiduciary duties of loyalty and prudence. The duty of loyalty requires that the voting fiduciary exercise proxy voting authority solely in the economic interest of participants and plan beneficiaries. The duty of prudence requires that decisions be made based on financial criteria and that a clear process exists for evaluating proxy issues. The Trusco Taft-Hartley voting policy was carefully crafted to meet those requirements by promoting long-term shareholder value, emphasizing the "economic best interests" of plan participants and beneficiaries. Trusco will assess the short-term and long-term impact of a vote and will promote a position that is consistent with the long-term economic best interests of plan members embodied in the principle of a "worker-owner view of value." Our guidelines address a broad range of issues, including election of directors, executive compensation, proxy contests, auditor ratification, and tender offer defenses - all significant voting items that affect long-term shareholder value. In addition, these guidelines delve deeper into workplace issues that may have an impact on corporate performance, including: o Corporate policies that affect job security and wage levels; o Corporate policies that affect local economic development and stability; o Corporate responsibility to employees and communities; and o Workplace safety and health issues. All votes will be reviewed on a case-by-case basis, and no issues will be considered strictly routine. Each issue will be considered in the context of the company under review. In other words, proxy voting guidelines are just that - guidelines. When company-specific factors are taken into account, every proxy voting decision becomes a case-by-case decision. Keeping in mind the concept that no issue is considered "routine", outlined in the following pages are general voting parameters for various types of proxy voting issues (when there are no company-specific reasons for voting to the contrary). I) BOARD OF DIRECTORS PROPOSALS Electing directors is the single most important stock ownership right that shareholders can exercise. The board of directors is responsible for holding management accountable to performance standards on behalf of the shareholders. Trusco holds directors to a high standard when voting on their election, qualifications, and compensation. Votes on entire board of directors take into account factors that include: o Company performance relative to its peers; o Lack of majority independent board; o Board diversity; o Executive compensation-related (excessive salaries/bonuses/pensions, stock option repricing, misallocation of corporate funds, etc.); and o Failure of the board to respond to majority shareholder votes. B-15 Votes on individual director nominees are made on a case-by-case basis, taking into account factors that include: o Poor attendance; o Independence of the key board committees (audit, compensation, and nominating); o Performance of the key board committees; o Failure to establish key board committees; and o Interlocking directorships. CEO SERVING AS CHAIRMAN: A principal function of the board is to monitor management, and a fundamental responsibility of the chairman is to monitor the company's CEO. This duty is obviously compromised when the chairman is the CEO. Approximately 60 percent of companies in both the S&P 500 and Russell 3000 have joint chairman and CEO positions. A recent McKinsey survey of board members at 500 U.S. companies found that nearly 70 percent of directors polled said a CEO should not run the board. We WITHHOLD votes from CEOs who serve as chairman, and we vote FOR proposals to separate these positions. INDEPENDENT DIRECTORS: Trusco believes that a board independent of management is of critical value to safeguard a company and its shareholders. Board independence helps ensure that directors carry out their duties in an objective manner and without manager interference to select, monitor, and compensate management. We will cast votes in a manner consistent with supporting and reinforcing this philosophy. Independence is evaluated upon factors including: past or current employment with the company or its subsidiaries; the provision of consulting services; familial relationships; board interlocks; and service with a non-profit that receives contributions from the company. We vote FOR proposals that request that the board and/or its audit, compensation, and nominating committees be comprised of a majority of independent directors. We WITHHOLD votes from entire boards that are not majority-independent. BOARD STRUCTURE: Trusco supports the principle that all directors should be accountable to shareholder vote on an annual basis. A classified board is a board divided into separate classes (typically three), with only one class of nominees coming up to vote at the annual meeting each year. As a result, shareholders are only able to vote a single director approximately once every three years. A classified board makes it difficult to change control of the board through a proxy contest because typically only one-third of the seats will be at stake. The ultimate result is that classified boards can entrench management and preclude most takeover bids or proxy contests. Good corporate governance practice supports annually elected boards. We vote AGAINST classified boards when the issue comes up for vote. CUMULATIVE VOTING: Under a cumulative voting scheme, shareholders are permitted to have one vote per share for each director to be elected and may apportion these votes among the director candidates in any manner they wish. This voting method allows minority shareholders to influence the outcome of director contests by "cumulating" their votes for one nominee, thereby creating a measure of independence from management control. Trusco votes FOR proposals to allow cumulative voting and votes AGAINST proposals to eliminate it. POISON PILLS: Shareholder rights plans, more commonly known as poison pills, are warrants issued to shareholders allowing them to purchase shares from the company at a price far below market value when a certain ownership threshold has been reached, thereby effectively preventing a takeover. Poison pills can entrench management and give the board veto power over takeover bids, thereby altering the balance of power between shareholders and management. While we evaluate poison pills on a case-by-case basis depending on a company's particular set of circumstances, Trusco generally votes FOR proposals to B-16 eliminate or redeem poison pills. We vote FOR shareholder proposals to submit a company's poison pill to shareholder vote. PROPOSALS ON BOARD INCLUSIVENESS: Trusco votes FOR shareholder proposals asking a company to make efforts to seek more women and minority group members for service on the board. A more diverse group of directors benefits shareholders and the company. II) CAPITAL STRUCTURE INCREASE AUTHORIZED COMMON STOCK: corporations seek shareholder approval to increase their supply of common stock for a variety of business reasons. We vote FOR proposals to increase authorized common stock when management has provided a specific justification for the increase, evaluating proposals on a case-by-case basis. We believe that an increase of up to 50 percent is enough to allow a company to meet its capital needs. We vote AGAINST proposals to increase an authorization by more than 50 percent unless management provides compelling reasons for the increase. DUAL CLASS STRUCTURES: Trusco does not support dual share class structures. Incumbent management can use a dual class structure to gain unequal voting rights. A separate class of shares with superior voting rights can allow management to concentrate its power and insulate itself from the majority of its shareholders. An additional drawback is the added cost and complication of maintaining the two class system. We will vote FOR a one share, one vote capital structure, and we will vote AGAINST the creation or continuation of dual class structures. III) RATIFYING AUDITORS Ratifying auditors is no longer a routine procedure. Accounting scandals at companies such as Enron and WorldCom underscore the need to ensure auditor independence in the face of selling consulting services to audit clients. A study by Richard Frankel, Marilyn Johnson, and Karen Nelson found that the ratio of non-audit fees to total fees paid is negatively associated with stock market returns on the filing date, indicating that investors associate non-audit fees "with lower quality audits and, by implication, lower quality earnings." This study also found that companies that pay high non-audit fees are more likely to engage in earnings management. Auditors are the backbone upon which a company's financial health is measured, and auditor independence is essential for rendering objective opinions upon which investors then rely. When an auditor is paid more in consulting fees than for auditing, its relationship with the company is left open to conflicts of interest. Because accounting scandals evaporate shareholder value, any proposal to ratify auditors is examined for potential conflicts of interest, with particular attention to the fees paid to the auditor. We vote AGAINST ratification of a company's auditor if it receives more than one-quarter of its total fees for consulting. We support shareholder proposals to ensure auditor independence. IV) MERGERS, ACQUISITIONS, AND TRANSACTIONS Trusco votes for corporate transactions that take the high road to competitiveness and company growth. Trusco believes that structuring merging companies to build long-term relationships with a stable and quality work force and preserving good jobs creates long-term company value. We oppose corporate transactions which indiscriminately layoff workers and shed valuable competitive resources. Factors taken into account for mergers and acquisitions include: o Impact on shareholder value; o Potential synergies; o Corporate governance and shareholder rights; o Fairness opinion; o Offer price (cost vs. premium); and o Impact on community stakeholders and workforce employees. B-17 REINCORPORATION: Trusco reviews proposals to change a company's state of incorporation on a case-by-case basis. We vote FOR proposals to reincorporate in another state when the company has provided satisfactory business reasons and there is no significant reduction in shareholder rights. We vote AGAINST proposals to reincorporate that reduce shareholder rights. In cases of offshore reincorporations to tax havens, among other factors, we evaluate the effect upon any and all legal recourse of shareholders in a new jurisdiction, potential harm to company brands and image, and any actual, qualified economic benefit. V) EXECUTIVE COMPENSATION STOCK OPTION PLANS: Trusco supports compensating executives at a reasonable rate and believes that executive compensation should be strongly correlated to performance. Stock option and other forms of compensation should be performance-based with an eye toward improving shareholder value. Well-designed stock option plans align the interests of executives and shareholders by providing that executives benefit when stock prices rise as the company-- and shareholders-- prosper together. Many plans sponsored by management provide goals so easily attained that executives can realize massive rewards even though shareholder value is not necessarily created. Stock options that are awarded selectively and excessively can dilute shareholders' share value and voting power. In general, Trusco supports plans that are offered at fair terms to executives who satisfy well-defined performance goals. We evaluate option plans on a case-by-case basis, taking into consideration factors including: offer price, dilution to outstanding share value, dilution to share voting power, and the presence of any repricing provisions. We support plans that retain tax deductibility through the use of performance goals and oppose plans whose award size exceeds the tax deduction limit. Trusco votes FOR option plans that provide legitimately challenging performance targets that truly motivate executives in the pursuit of excellent performance. Likewise, we vote AGAINST plans that offer unreasonable benefits to executives that are not available to any other shareholders. STOCK OPTION EXPENSING: A recent long-term study of stock option awards found that there was no correlation whatsoever between executive stock ownership and company performance. Given stock option's accounting treatment of not being charged as an expense against earnings, options have provided the ultimate tax dodge for companies wishing to lavishly compensate employees. Misused stock options can give executives an incentive to inflate their company's earnings or make irresponsibly optimistic forecasts in order to cash in on options in hand. Trusco supports shareholder resolutions calling for stock option grants to be treated as an expense. PROPOSALS TO LIMIT EXECUTIVE AND DIRECTOR PAY: Trusco votes FOR shareholder proposals that seek additional disclosure of executive and director pay information (current SEC requirements only call for the disclosure of the top five most highly compensated executives and only if they earn more than $100,000 in salary and benefits). We vote FOR shareholder proposals that seek to eliminate outside directors' retirement benefits. We review on a case-by-case basis all other shareholder proposals that seek to limit executive and director pay. This includes shareholder proposals that seek to link executive compensation to customer, employee, or stakeholder satisfaction. GOLDEN PARACHUTES: golden parachutes are designed to protect the senior level employees of a corporation in the event of a change-in-control. Under most golden parachute agreements, senior level management employees receive a lump sum pay-out triggered by a change-in-control at usually two to three times base salary. These severance agreements grant extremely generous benefits to well-paid executives and most often offer no value to shareholders. Trusco votes FOR shareholder proposals to B-18 have all golden parachute agreements submitted for shareholder ratification, and we generally vote AGAINST all proposals to ratify golden parachutes. EMPLOYEE STOCK OWNERSHIP PLANS (ESOPS): Trusco generally votes FOR ESOPs which allow a company's employees to acquire stock in the company at a slight discount. Such plans help link employees' self-interest to the interests of the shareholders, thereby benefiting the company, its customers, and shareholders and creating long-term company value. VI) SOCIAL AND ENVIRONMENTAL ISSUES Increasingly, shareholders are presenting proposals related to company environmental practices, workplace practices, social issues and sustainability goals. Trusco provides specific narrative explanations for votes on these types of shareholder proposals. Trusco evaluates shareholder proposals on a case-by-case basis to determine if they are in the best economic interests of the plan participants and beneficiaries. Trusco clients select investment strategies and criteria for their portfolios. Trusco views its responsibility to protect plan beneficiary economic interests through the use of the proxy. To meet this obligation, Trusco votes consistent with the economic best interests of the participants and beneficiaries to create "high road" shareholder and economic value. In most cases, Trusco supports proposals that request management to report to shareholders information and practices that would help in evaluating the company's operations. In order to be able to intelligently monitor their investments, shareholders often need information best provided by the company itself. Trusco supports proposals that seek management compliance with shareholder interests to ensure that shareholders are fully informed about actions harmful to society with special attention to the company's legal and ethical obligations, impact on company profitability, and the potential negative publicity for disreputable practices. CERES PRINCIPLES: the CERES Principles, formulated by the Coalition of Environmentally Responsible Economies, require signing companies to address environmental issues, including protection of the biosphere, sustainable use of natural resources, reduction and disposal of wastes, energy conservation, and employee and community risk reduction. Evidence suggests that environmentally conscious companies may realize long-term savings by implementing programs to pollute less and conserve resources while realizing good public relations and new marketing opportunities. Moreover, the reports that are required of signing companies provide shareholders with more information concerning topics they may deem relevant to their company's financial well-being. Many companies have voluntarily adopted these principles and proven that environmental sensitivity makes good business sense. Trusco supports proposals that improve a company's public image, reduce exposure to liabilities, and establish standards so that environmentally responsible companies and markets are not at a competitive financial disadvantage. Trusco votes FOR the adoption of the CERES Principles and FOR reporting to shareholders on environmental issues. CORPORATE CONDUCT, HUMAN RIGHTS, AND LABOR CODES: Trusco generally supports proposals that call for the adoption and/or enforcement of clear principles or codes of conduct relating to countries in which there are systematic violations of human rights. These conditions include the use of slave, child, or prison labor, undemocratically elected governments, widespread reports by human rights advocates, fervent pro-democracy protests, and/or economic sanctions and boycotts. Many proposals refer to the seven core conventions, commonly referred to as the "Declaration on Fundamental Principles and Rights At Work," ratified by the International Labor Organization (ILO). The seven conventions fall under four broad categories: i) Right to organize and bargain collectively; ii) Non-discrimination in employment; iii) Abolition of forced labor; and iv) End of child labor. Each of the 180 member nations of the ILO body are bound to respect and promote these rights to the best of their B-19 abilities. Trusco supports the principles and codes of conduct relating to company investment in countries with patterns of human rights abuses (Northern Ireland, Columbia, Burma, former Soviet Union, and China). Trusco votes FOR proposals to implement and report on ILO codes of conduct. B-20 STI CLASSIC FUNDS PART C: OTHER INFORMATION POST-EFFECTIVE AMENDMENT NO. 48 ITEM 23. Exhibits: (a) Declaration of Trust as originally filed with Registrant's Registration Statement on Form N-1A, filed on 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., dated June 15,1993, as originally filed with the Registrant's Post-Effective Amendment No. 5, filed on 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) Revised Schedule A dated November 12, 2003 to the Revised Investment Advisory Agreement with Trusco Capital Management, Inc. dated June 15, 1993 is filed herewith. (d)(3) Investment Advisory Agreement with Sun Bank Capital Management, National Association (now Trusco Capital Management, Inc.) as originally filed with the Registrant's Post-Effective Amendment No. 6, filed on 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 the Registrant's Post-Effective Amendment No. 6, filed on 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) Form of Investment Subadvisory Agreement between Trusco Capital Management, Inc. and Zevenbergen Capital Investments LLC is filed herewith. (e) Distribution Agreement dated November 21, 1995 between the Trust and SEI Financial Services Company is incorporated herein by reference to Exhibit (e) of Post-Effective Amendment No. 47 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000935069-03-001371 on September 30, 2003. (f) Not applicable. (g)(1) Custodian Agreement with Trust Company Bank dated February 1, 1994, as originally filed with the Registrant's Post-Effective Amendment No. 13, filed on 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) Securities Lending Amendment dated October 1, 2002 to the Custodian Agreement dated February 1, 1994 between the Trust and SunTrust Bank is incorporated herein by reference to Exhibit (g)(2) of Post-Effective Amendment No. 47 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000935069-03-001371 on September 30, 2003. (g)(3) Amendment to the Custodian Agreement between the Trust and SunTrust Bank, formerly Trust Company Bank, dated as of February 1, 1994, as amended October 1, 2002, and Schedule A of such Agreement amended as of August 16, 1995 and January 1, 1996, is filed herewith. (g)(4) 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. C-1 (g)(5) Custodian Agreement dated January 29, 2003 between the Registrant, STI Classic Variable Trust and Brown Brothers Harriman & Co., with respect to the International Equity Fund, International Equity Index Fund and Strategic Income Fund, is incorporated herein by reference to Exhibit g(7) of Post-Effective Amendment No. 13 to the Registration Statement of the STI Classic Variable Trust (SEC No. 033-91476) filed with the SEC via EDGAR Accession No. 0000935069-03-00052 on April 25, 2003. (h)(1) Transfer Agent Agreement with Federated Services Company dated May 14, 1994, as originally filed with the Registrant's Post-Effective Amendment No. 9, filed on 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) Amended Schedule B dated November 12, 2003 to the Administration Agreement dated May 29, 1995 between the Registrant and SEI Investments Global Funds Services is filed herewith. (h)(4) 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. (h)(5) Shareholder Service Plan and Agreement relating to Institutional Shares, dated August 20, 2002, is incorporated herein by reference to Exhibit (h)(5) of Post-Effective Amendment No. 47 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000935069-03-001371 on September 30, 2003. (h)(6) Form of Shareholder Service Plan and Agreement relating to Trust Shares (now T Shares) is incorporated herein by reference to Exhibit (h)(6) of Post-Effective Amendment No. 47 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000935069-03-001371 on September 30, 2003. (h)(7) Shareholder Service Plan and Agreement relating to Corporate Trust Shares is incorporated herein by reference to Exhibit (h)(7) of Post-Effective Amendment No. 47 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000935069-03-001371 on September 30, 2003. (i) Opinion and Consent of Counsel is filed herewith. (j) Consent of PricewaterhouseCoopers LLP, independent auditors, is filed herewith. (k) Not applicable. (l) Not applicable. (m)(1) Distribution Plan relating to Investor Shares (now A Shares) 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 (now L Shares) dated May 29, 1995 as originally filed with Post-Effective Amendment No. 12, filed on 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. (m)(3) Distribution and Service Plan relating to B Shares dated February 11, 2003 is incorporated herein by reference to Exhibit (m)(3) of Post-Effective Amendment No. 47 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000935069-03-001371 on September 30, 2003. (m)(4) Amended Schedule A to the Distribution Plan relating to A Shares (formerly Investor Shares) dated November 12, 2003 is filed herewith. (n)(1) Rule 18f-3 Multiple Class Plan dated May 24, 1995, last amended November 12, 2003, is filed herewith. (o) Powers of Attorney for F. Wendell Gooch, Jonathan T. Walton, James O. Robbins, Thomas Gallagher, Richard W. Courts, II, Clarence H. Ridley and James Volk are filed herewith. C-2 (p)(1) Code of Ethics for STI Classic Funds is 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 Ethics for 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., as approved by the Board of Trustees on August 15, 2000, is 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. (p)(4) Code of Ethics for Zevenbergen Capital Investments LLC to be filed by amendment. 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. ITEM 25. Indemnification: Article VIII of the Agreement and Declaration of Trust filed as Exhibit (a) to the Registrant's Registration Statement is incorporated herein by reference. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") 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 U.S. Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and, therefore, is unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by trustees, directors, officers or controlling persons of the Registrant in connection with the successful defense of any act, suit or proceeding) is asserted by such trustees, directors, officers or controlling persons in connection with the shares being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issues. ITEM 26. Business and Other Connections of the Investment Adviser: Other business, profession, vocation, or employment of a substantial nature in which each director or principal officer of the Adviser is or has been, at any time during the last two fiscal years, engaged for his own account or in the capacity of director, officer, employee, partner or trustee are as follows: TRUSCO CAPITAL MANAGEMENT, INC. Trusco Capital Management, Inc. is the investment adviser for the STI Classic Funds. The principal address of Trusco Capital Management, Inc. is 50 Hurt Plaza, Suite 1400, Atlanta, Georgia 30303.
CONNECTION WITH OTHER NAME NAME OF OTHER COMPANY COMPANY ------------------------------------------------------------------------------------------- TRUSCO CAPITAL MANAGEMENT, INC. James M. Wells SunTrust Banks, Inc. Vice-Chairman Director C-3 CONNECTION WITH OTHER NAME NAME OF OTHER COMPANY COMPANY ------------------------------------------------------------------------------------------- TRUSCO CAPITAL MANAGEMENT, INC. William H. Rogers SunTrust Banks, Inc. Executive Vice President Director Douglas S. Phillips SunTrust Bank Chief Investment Officer President/CEO/Director Paul L. Robertson, III SunTrust Bank Vice President Executive Vice President/ Secretary/Treasurer Andrew J. Muldoon, III SunTrust Bank Executive Vice President Executive Vice President G. Bradley Ball SunTrust Bank Executive Vice President Executive Vice President Elizabeth G. Pola -- -- Managing Director Robert J. Rhodes SunTrust Bank Officer Executive Vice President Rebekah R. Alley -- -- Vice President David C. Anderson SunTrust Bank Vice President Vice President Charles B. Arrington SunTrust Bank Officer Vice President Frances J. Aylor -- -- Vice President Brett L. Barner SunTrust Bank Officer Vice President James N. Behre SunTrust Bank Officer Vice President Richard M. Bemis SunTrust Bank Vice President Vice President Theresa N. Benson SunTrust Bank Vice President Vice President Edward E. Best SunTrust Bank Vice President Managing Director C-4 CONNECTION WITH OTHER NAME NAME OF OTHER COMPANY COMPANY ------------------------------------------------------------------------------------------- TRUSCO CAPITAL MANAGEMENT, INC. Gordon Boardway SunTrust Bank Vice President Vice President Noel Crissman Boggan SunTrust Bank Officer Vice President Jeffrey C. Boucek -- -- Managing Director Robert S. Bowman SunTrust Bank Officer Managing Director Thomas J. Brachowski SunTrust Bank Officer Vice President Casey C. Brogdon SunTrust Bank Officer Managing Director Daniel Bromstad -- -- Vice President Marlon Brown SunTrust Bank Officer Vice President William B. Buie SunTrust Bank Officer Vice President George E. Calvert, Jr. SunTrust Bank Officer Vice President Ann Caner SunTrust Bank Vice President Vice President Chris D. Carter SunTrust Bank Vice President Vice President Denise E. Claridy -- -- Vice President Shane Coldren SunTrust Bank Officer Vice President Robert W. Corner SunTrust Bank Officer Managing Director J. Chadwick Deakins SunTrust Bank Officer Vice President C-5 CONNECTION WITH OTHER NAME NAME OF OTHER COMPANY COMPANY ------------------------------------------------------------------------------------------- TRUSCO CAPITAL MANAGEMENT, INC. L. Earl Denney SunTrust Bank Officer Managing Director James R. Dillon, Jr. SunTrust Bank Officer Managing Director Louis Joseph Douglass, IV -- -- Vice President Martin J. Duffy SunTrust Bank Officer Vice President Mary Durkin SunTrust Bank Officer Vice President Bob M. Farmer SunTrust Bank Vice President Managing Director Douglas J. Farmer -- -- Vice President James P. Foster SunTrust Bank Officer Vice President Holly Freeman SunTrust Bank Vice President Vice President Mark D. Garfinkel SunTrust Bank Officer 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 ------------------------------------------------------------------------------------------- TRUSCO CAPITAL MANAGEMENT, INC. Melvin E. Hamilton SunTrust Bank Vice President Managing Director Peter P. Hardy SunTrust Bank Officer Vice President Michael T. Hargadon -- -- Vice President Edward Hugh Head -- -- Vice President Ken Hessel -- -- Vice President Kristin R. Hildebrand -- -- Vice President Michael Todd Hill SunTrust Bank Officer Vice President Michael J. Honsharuk SunTrust Bank Officer Vice President Deborah Hopkins -- -- Vice President Michael A. Jenacova -- -- Vice President Christopher A. Jones -- -- Managing Director Christine Y. Keefe SunTrust Bank Vice President Vice President Alan S. Kelley SunTrust Bank, Atlanta Vice President Vice President James E. Kofron SunTrust Bank Officer Vice President Deborah A. Lamb -- -- Vice President Wayne G. Larochelle SunTrust Bank Vice President Managing Director C-7 CONNECTION WITH OTHER NAME NAME OF OTHER COMPANY COMPANY ------------------------------------------------------------------------------------------- TRUSCO CAPITAL MANAGEMENT, INC. Charles B. Leonard SunTrust Bank Officer Managing Director Daniel J. Lewis -- -- Vice President Tina Y. Long -- -- Vice President William Longan SunTrust Bank Officer Vice President Jennifer J. Love SunTrust Bank Vice President Vice President Kimberly C. Maichle SunTrust Bank Officer Vice President James B. Mallory SunTrust Bank Vice President Vice President Jeffrey E. Markunas SunTrust Bank Officer Managing Director Patrick K. Mason SunTrust Bank Vice President Vice President John N. Michie -- -- Vice President R. Douglas Mitchell -- -- Vice President Peter T. Montgomery SunTrust Bank Officer Vice President Elizabeth T. Morrison SunTrust Bank Officer Vice President Timothy James Nash SunTrust Bank Vice President Vice President Robert Neinken SunTrust Bank Senior Vice President Managing Director Harold F. Nelson SunTrust Bank Officer Managing Director C-8 CONNECTION WITH OTHER NAME NAME OF OTHER COMPANY COMPANY ------------------------------------------------------------------------------------------- TRUSCO CAPITAL MANAGEMENT, INC. Steven A. Noone SunTrust Bank Officer Managing Director Agnes G. Pampush SunTrust Bank Officer Managing Director Christopher Paolella SunTrust Bank Senior Vice President Managing Director Patrick Paparelli SunTrust Bank Vice President Managing Director Sheri L. Paquette SunTrust Bank Officer Vice President Ty Parrish SunTrust Bank Vice President Vice President Ronnie G. Pennell SunTrust Bank Officer Vice President Elliott A. Perny SunTrust Bank Officer Managing Director James Phebus Jr. SunTrust Bank Officer Vice President Gary Plourde SunTrust Bank Senior Vice President Managing Director Neil J. Powers SunTrust Bank Officer Managing Director Joe E. Ransom SunTrust Bank Officer Managing Director Lori A. Ravo -- -- Vice President Boyce G. Reid SunTrust Bank Officer Vice President Mills A. Riddick SunTrust Bank Officer Managing Director D. Kevin Roddey SunTrust Bank Officer Vice President James L. Savage SunTrust Bank Officer Vice President C-9 CONNECTION WITH OTHER NAME NAME OF OTHER COMPANY COMPANY ------------------------------------------------------------------------------------------- TRUSCO CAPITAL MANAGEMENT, INC. Marc H. Schneidau SunTrust Bank Officer Vice President Ronald H. Schwartz SunTrust Bank Officer Managing Director Michael G. Sebesta SunTrust Bank Officer Managing Director Dusty L. Self SunTrust Bank Officer Vice President J. Michael Shamburger SunTrust Bank Vice President Vice President Kevin W. Shea DA Capital Management, Inc. Principal Vice President Garrett P. Smith SunTrust Bank Officer Managing Director George D. Smith, Jr. SunTrust Bank Officer Managing Director 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 SunTrust Bank Vice President Managing Director Chad K. Stephens SunTrust Bank Officer Vice President Adam C. Stewart -- -- Vice President E. Sonny Surkin SunTrust Bank Officer Vice President Hubert Swecker SunTrust Bank Vice President Vice President C-10 CONNECTION WITH OTHER NAME NAME OF OTHER COMPANY COMPANY ------------------------------------------------------------------------------------------- TRUSCO CAPITAL MANAGEMENT, INC. Paul V. Taffe SunTrust Bank Vice President Vice President William F. Tarry SunTrust Bank Officer Vice President James M. Thomas SunTrust Bank Vice President Vice President Howard Udis SunTrust Bank Vice President Vice President Craig Urquhart SunTrust Bank Officer Vice President Mark Valle SunTrust Bank Vice President Vice President Stuart F. Van Arsdale SunTrust Bank Officer Managing Director Jeff Vogelbacker -- -- Managing Director David M. Walrod -- -- Vice President Joseph Walsh SunTrust Bank Vice President Vice President Darren C. Weems -- -- Vice President Elizabeth Wilson -- -- Managing Director William L. Wilson, Jr. SunTrust Bank Officer Vice President Donald Wordell -- -- Vice President Natalie Wright -- -- Vice President Stephen M. Yarbrough -- -- Managing Director Steven M. Yates SunTrust Bank Vice President Managing Director C-11 CONNECTION WITH OTHER NAME NAME OF OTHER COMPANY COMPANY ------------------------------------------------------------------------------------------- TRUSCO CAPITAL MANAGEMENT, INC. David S. Yealy SunTrust Bank Officer Managing Director ZEVENBERGEN CAPITAL INVESTMENTS LLC Zevenbergen Capital Investments LLC is the investment subadviser for the Aggressive Growth Stock and Emerging Growth Stock Funds. The principal address of Zevenbergen Capital Investments LLC is 601 Union Street, Seattle Washington 98101. CONNECTION WITH OTHER NAME NAME OF OTHER COMPANY COMPANY ------------------------------------------------------------------------------------------- ZEVENBERGEN CAPITAL INVESTMENTS LLC Brooke de Boutray -- -- Managing Director, Portfolio Manager Lisa Foley -- -- Managing Director, Investment Officer Leslie Tubbs -- -- Managing Director, Portfolio Manager Nancy A. Zevenbergen -- -- President and Chief Investment Officer
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 STI Classic Funds May 29, 1992 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 C-12 Expedition Funds June 9, 1997 Oak Associates Funds February 27, 1998 The Nevis Fund, Inc. June 29, 1998 CNI Charter Funds April 1, 1999 Amerindo Funds Inc. July 13, 1999 iShares Inc. January 28, 2000 iShares Trust April 25, 2000 Pitcairn Funds August 1, 2000 JohnsonFamily Funds, Inc. November 1, 2000 The MDL Funds January 24, 2001 Causeway Capital Management Trust September 20, 2001 The Japan Fund, Inc. October 7, 2002 TT International U.S.A. Master Trust October 6, 2003 TT International U.S.A. Feeder Trust October 6, 2003 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 -- 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 -- C-13 Position and Office Positions and Offices NAME WITH UNDERWRITER WITH REGISTRANT Kim Kirk Vice President & Managing Director -- John Krzeminski Vice President & Managing Director -- Karen LaTourette Secretary -- Alan H. Lauder Vice President -- 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: SunTrust Bank 303 Peachtree Street, N.E. Atlanta, GA 30308 Brown Brothers Harriman & Co. 40 Water Street Boston, MA 02109 (International Equity Fund, International Equity Index Fund and 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 Advisers: Trusco Capital Management, Inc. P.O. Box 3808 Orlando, Florida 32802 C-14 Trusco Capital Management, Inc. 50 Hurt Plaza, Suite 1400 Atlanta, Georgia 30303 Trusco Capital Management, Inc. 25 Park Place Atlanta, Georgia 30303 Zevenbergen Capital Investments LLC 601 Union Street Seattle, Washington 98101 ITEM 29. Management Services: None. ITEM 30. Undertakings: None. C -15 NOTICE A copy of the Agreement and Declaration of Trust for the 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-16 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 has duly caused this Post-Effective Amendment No. 48 to Registration Statement No. 033-45671 to be signed on its behalf by the undersigned, duly authorized, in the City of Oaks, Commonwealth of Pennsylvania on the 5th day of December, 2003. By: * ------------------------------- James Volk, President Pursuant to the requirements of the Securities Act, this Registration Statement has been signed below by the following persons in the capacity and on the dates indicated. * Trustee December 5, 2003 ------------------------------------ F. Wendell Gooch * Trustee December 5, 2003 ------------------------------------ Jonathan T. Walton * Trustee December 5, 2003 ------------------------------------ James O. Robbins * Trustee December 5, 2003 ------------------------------------ Thomas Gallagher * Trustee December 5, 2003 ------------------------------------ Richard W. Courts, II * Trustee December 5, 2003 ------------------------------------ Clarence H. Ridley * President December 5, 2003 ------------------------------------ James Volk /s/ Jennifer Spratley Treasurer & Chief December 5, 2003 ------------------------------------ Financial Officer Jennifer Spratley * By /s/ Cori Daggett ---------------------------------- Cori Daggett, pursuant to the powers of attorney filed herewith. C-17 EXHIBIT INDEX EXHIBIT NUMBER EXHIBIT EX-99.D2 Revised Schedule A dated November 12, 2003 to the Revised Investment Advisory Agreement with Trusco Capital Management, Inc. dated June 15, 1993. EX-99.D5 Form of Investment Subadvisory Agreement between Trusco Capital Management, Inc. and Zevenbergen Capital Investments LLC. EX-99.G3 Amendment to the Custodian Agreement between the Trust and SunTrust Bank, formerly Trust Company Bank, dated as of February 1, 1994, as amended October 1, 2002, and Schedule A of such Agreement amended as of August 16, 1995 and January 1, 1996. EX-99.H3 Amended Schedule B dated November 12, 2003 to the Administration Agreement dated may 29, 1995 between the Registrant and SEI Investments Global Funds Services. EX-99.I Opinion and Consent of Counsel. EX-99.J Consent of PricewaterhouseCoopers LLP, independent auditors. EX-99.M4 Amended Schedule A to the Distribution Plan relating to A Shares (formerly Investor Shares) dated November 12, 2003. EX-99.N1 Rule 18f-3 Multiple Class Plan dated May 24, 1995, last amended November 12, 2003. EX-99.O Powers of Attorney for F. Wendell Gooch, Jonathan T. Walton, James O. Robbins, Thomas Gallagher, Richard W. Courts, II, Clarence H. Ridley and James Volk. C-18