STATEMENT OF ADDITIONAL INFORMATION

                                STI CLASSIC FUNDS
                       SMALL CAP QUANTITATIVE EQUITY FUND

                                  APRIL 3, 2006

                               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 the Small Cap Quantitative Equity Fund (the "Fund") of the STI
Classic Funds (the "Trust"), as supplemented from time to time, and relates to
shares of the Fund, which are offered through three share classes (A Shares, C
Shares and I Shares).

This SAI is incorporated by reference into, and should be read in conjunction
with, the Fund's prospectuses dated April 3, 2006. Capitalized terms not defined
herein are defined in the prospectuses. A prospectus may be obtained by writing
to the Trust or calling toll-free 1-888-STI-FUND (1-888-784-3863).



                                TABLE OF CONTENTS

                                                                          
THE TRUST.................................................................     1
DESCRIPTION OF PERMITTED INVESTMENTS......................................     1
INVESTMENT LIMITATIONS....................................................    27
THE ADVISER...............................................................    29
THE ADMINISTRATOR.........................................................    30
THE PORTFOLIO MANAGER.....................................................    30
THE DISTRIBUTOR...........................................................    32
THE TRANSFER AGENT........................................................    35
THE CUSTODIAN.............................................................    35
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.............................    35
LEGAL COUNSEL.............................................................    35
TRUSTEES AND OFFICERS OF THE TRUST........................................    35
PURCHASING AND REDEEMING SHARES...........................................    40
DETERMINATION OF NET ASSET VALUE..........................................    41
TAXES.....................................................................    42
FUND TRANSACTIONS.........................................................    45
PORTFOLIO HOLDINGS........................................................    47
DESCRIPTION OF SHARES.....................................................    48
VOTING RIGHTS.............................................................    48
SHAREHOLDER LIABILITY.....................................................    49
LIMITATION OF TRUSTEES' LIABILITY.........................................    49
CODES OF ETHICS...........................................................    49
PROXY VOTING..............................................................    50
APPENDIX A - DESCRIPTION OF RATINGS.......................................   A-1
APPENDIX B - PROXY VOTING SUMMARIES.......................................   B-1




     THE TRUST

The 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 of units of beneficial interest
("shares") and different classes of shares of the Fund. The Trust reserves the
right to create and issue shares of additional funds and/or classes. The Fund is
diversified as that term is defined in the Investment Company Act of 1940, as
amended (the "1940 Act").

     DESCRIPTION OF PERMITTED INVESTMENTS

The Fund's investment objectives and principal investment strategies are
described in the prospectuses. The following information supplements, and should
be read in conjunction with, the prospectuses. The following are descriptions of
the permitted investments and investment practices discussed in the Fund's
prospectuses under the "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 Fund's 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 and mortgage-like assets such as home equity loans
or loans on manufactured housing. 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 that are backed by a single type of asset
are pooled together by asset type for purposes of calculating the Fund's
industry concentration levels.

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. There is also the
possibility that recoveries on repossessed collateral may not, in some cases, be
available to support payments on those securities.


                                       1



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.

BORROWING. As required by the 1940 Act, the 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 Fund is 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 Fund is authorized
to pledge portfolio securities as the Adviser deems appropriate in connection
with any borrowings.

Borrowing may subject the Fund to interest costs, which may exceed the interest
received on the securities purchased with the borrowed funds. The Fund 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.

CERTIFICATES OF DEPOSIT. Certificates of deposit are interest bearing
instruments with a specific maturity. They are issued by banks and savings and
loan institutions in exchange for the deposit of funds and normally can be
traded in the secondary market prior to maturity. Certificates of deposit with
penalties for early withdrawal will be considered illiquid.

COMMERCIAL PAPER. Commercial paper is 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.

CONVERTIBLE BONDS. Convertible bonds are bonds which may be converted, at the
option of either the issuer or the holder, into a specified amount of common
stock of the issuer, or in the case of exchangeable bonds, into the common stock
of another corporation. Convertible bonds are generally subordinate to other
publicly held debt of the issuer, and therefore typically have a lower credit
rating than non-convertible debt of the issuer. Convertible bonds generally
carry a lower coupon rate than the issuer would otherwise pay at issuance in
exchange for the conversion feature. In addition to the interest rate risk
factors generally associated with fixed income investments, the market risk of a
convertible bond is determined by changes in the credit quality of the issuer
and price changes and volatility of the stock into which the bond may be
converted. The conversion feature may cause a convertible bond to be
significantly more volatile than other types of fixed income investments.
Convertible bonds for which the


                                       2



value of the conversion feature is deemed worthless are generally referred to as
"busted" convertibles, and risk associated more closely approximates that of
similar debt without the conversion feature.

CORPORATE ISSUES. Corporate issues refer to debt instruments issued by private
corporations or other business entities. Bondholders, as creditors, have a prior
legal claim over common and preferred stockholders of the corporation as to both
income and assets for the principal and interest due to the bondholder. The Fund
will buy corporate issues subject to any quality constraints. Corporate issues
may also be issued by master limited partnerships and real estate investment
trusts, or REITS.

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.

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 the Fund sells the security becomes insolvent, the
Fund's right to repurchase the security may be restricted. Other risks involved
in entering into dollar rolls include the risk that the value of the security
may change adversely over the term of the dollar roll and that the security the
Fund is required to repurchase may be worth less than the security that the Fund
originally held. To avoid any leveraging concerns, the Fund will segregate U.S.
government or other liquid assets in an amount sufficient to cover its
repurchase obligation.

EQUIPMENT TRUST CERTIFICATES ("ETCS"). ETCs are issued by a trust formed to
finance large purchases of equipment, such as airplanes, at favorable interest
rates. Legal title on such equipment is held by a trustee. The trustee leases
the equipment and sells ETCs at a small discount to the purchase price of the
equipment. The lease payments are then used to pay principal and interest to the
ETC holders.

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 the
fund invests will cause the net asset value of the fund to fluctuate. The Fund
purchases 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:


                                       3



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.

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.

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.

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 the 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.

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.

Convertible bonds are bonds which may be converted, at the option of either the
issuer or the holder, into a specified amount of common stock of the issuer, or
in the case of exchangeable bonds, into the common stock of another corporation.
Convertible bonds are generally subordinate to other publicly held debt of the
issuer, and therefore typically have a lower credit rating than non-convertible
debt of the issuer. Convertible bonds generally carry a lower coupon rate than
the issuer would otherwise pay at issuance in exchange for the conversion
feature. In addition to the interest rate risk factors generally associated with
fixed income investments, the market risk of a convertible bond is determined by
changes in the credit


                                       4



quality of the issuer and price changes and volatility of the stock into which
the bond may be converted. The conversion feature may cause a convertible bond
to be significantly more volatile than other types of fixed income investments.
Convertible bonds for which the value of the conversion feature is deemed
worthless are generally referred to as "busted" convertibles, and risk
associated more closely approximates that of similar debt without the conversion
feature.

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. The 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. The Fund may
invest in the securities described below or other similar equity-linked
securities.

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.


                                       5



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.

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 obligations are U.S. Dollar
denominated obligations issued outside the United States by non-U.S.
corporations or other entities. Yankee dollar obligations are U.S. dollar
denominated obligations issued in the United States by non-U.S. corporations or
other entities. Yankee obligations are subject to the same risks that pertain to
the domestic issues, notably credit risk, market risk and liquidity risk.
Additionally, Yankee obligations are subject to certain sovereign risks. One
such risk is the possibility that a sovereign country might prevent capital from
flowing across their borders. Other risks include: adverse political and
economic developments; the extent and quality of government regulation of
financial markets and institutions; the imposition of foreign withholding taxes;
and the expropriation or nationalization or foreign issuers.

EXCHANGE TRADED FUNDS ("ETFS"). ETFs are investment companies whose shares are
bought and sold on a securities exchange. An ETF holds a portfolio of securities
designed to track a particular market segment or index. Some examples of ETFs
are SPDRs(R), streetTRACKS, DIAMONDSSM, NASDAQ 100 Index Tracking StockSM ("QQQs
SM") and iShares(R). A Fund could purchase an ETF to temporarily gain exposure
to a portion of the U.S. or foreign market while awaiting an opportunity to
purchase securities directly. The risks of owning an ETF generally reflect the
risks of owning the underlying securities they are designed to track, although
lack of liquidity in an ETF could result in it being more volatile than the
underlying portfolio of securities and ETFs have management fees that increase
their costs versus the costs of owning the underlying securities directly. See
also "Investment Company Shares" below.

FIXED INCOME SECURITIES. Fixed income securities are debt obligations issued by
corporations, municipalities and other borrowers. The market value of fixed
income investments will change in


                                       6



response to interest rate changes and other factors. During periods of falling
interest rates, the values of outstanding fixed income securities generally
rise. Conversely, during periods of rising interest rates, the values of such
securities generally decline. Moreover, while securities with longer maturities
tend to produce higher yields, the prices of longer maturity securities are also
subject to greater market fluctuations as a result of changes in interest rates.
Changes by recognized agencies in the rating of any fixed income security and in
the ability of an issuer to make payments of interest and principal will also
affect the value of these investments. Changes in the value of portfolio
securities will not affect cash income derived from these securities but will
affect the Fund's net asset value.

FLOATING RATE INSTRUMENTS. Floating rate instruments have a rate of interest
that is set as a specific percentage of a designated base rate (such as LIBOR).
Such obligations are frequently secured by letters of credit or other credit
support arrangements provided by banks. The quality of the underlying credit or
of the bank, as the case may be, must, in the Adviser's opinion be equivalent to
the long-term bond or commercial paper ratings stated in the prospectus. The
Adviser will monitor the earning power, cash flow and liquidity ratios of the
issuers of such instruments and the ability of an issuer of a demand instrument
to pay principal and interest on demand.

FOREIGN SECURITIES. Foreign securities may include U.S. dollar denominated
obligations or securities of foreign issuers denominated in other currencies.
Possible investments include obligations of foreign corporations and other
entities, obligations of foreign branches of U.S. banks and of foreign banks,
including, without limitation, European Certificates of Deposit, European Time
Deposits, European Bankers' Acceptances, Canadian Time Deposits, Europaper and
Yankee Certificates of Deposit, and investments in Canadian Commercial Paper and
foreign securities. These instruments have investment risks that differ in some
respects from those related to investments in obligations of U.S. domestic
issuers. These risks include future adverse political and economic developments,
the possible imposition of withholding taxes on interest or other income,
possible seizure, nationalization, or expropriation of foreign deposits, the
possible establishment of exchange controls or taxation at the source, greater
fluctuations in value due to changes in exchange rates, or the adoption of other
foreign governmental restrictions which might adversely affect the payment of
principal and interest on such obligations. These investments may also entail
higher custodial fees and sales commissions than domestic investments. Foreign
issuers of securities or obligations are often subject to accounting treatment
and engage in business practices different from those respecting domestic
issuers of similar securities or obligations. Foreign branches of U.S. banks and
foreign banks may be subject to less stringent reserve requirements than those
applicable to domestic branches of U.S. banks.

In making investment decisions for the Fund, the Adviser evaluates the risks
associated with investing Fund assets in a particular country, including risks
stemming from a country's financial infrastructure and settlement practices; the
likelihood of expropriation, nationalization or confiscation of invested assets;
prevailing or developing custodial practices in the country; the country's laws
and regulations regarding the safekeeping, maintenance and recovery of invested
assets, the likelihood of government-imposed exchange control restrictions which
could impair the liquidity of Fund assets maintained with custodians in that
country, as well as risks from political acts of foreign governments ("country
risks"). Of course, the Adviser cannot assure that the Fund will not suffer
losses resulting from investing in foreign countries.

Holding Fund assets in foreign countries through specific foreign custodians
presents additional risks, including but not limited to the risks that a
particular foreign custodian or depository will not exercise proper care with
respect to Fund assets or will not have the financial strength or adequate
practices and procedures to properly safeguard Fund assets.


                                       7



By investing in foreign securities, the Fund attempts to take advantage of
differences between both economic trends and the performance of securities
markets in the various countries, regions and geographic areas as prescribed by
the Fund's investment objective and policies. During certain periods the
investment return on securities in some or all countries may exceed the return
on similar investments in the United States, while at other times the investment
return may be less than that on similar U.S. securities. The international
investments of the Fund may reduce the effect that events in any one country or
geographic area will have on its investment holdings. Of course, negative
movement by the 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.

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. The Fund
may also enter into a contract to sell, for a fixed amount of U.S. dollars or
other appropriate currency, the amount of foreign currency approximating the
value of some or all of the Fund's securities denominated in the foreign
currency. The 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. The 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"). The Fund may use futures contracts and related
options for bona fide hedging; 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. To
the extent the Fund uses futures and/or options on futures, it will do so in
accordance with Rule 4.5 of the Commodity Exchange Act ("CEA"). The Trust, on
behalf of the Fund, has filed a notice of eligibility for exclusion from the
definition of the term "commodity pool operator" in accordance with Rule 4.5 and
therefore, the Fund is not subject to registration or regulation as a commodity
pool operator under the CEA.

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 the 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 the 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


                                       8



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.

The 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 as 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. The 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. The 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.

The 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. The 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.
The 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. The 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 the 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 the 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;


                                       9



(ii) 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 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:

     1.   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.

     2.   The market for high risk, high yield securities may be thinner and
          less active, causing market price volatility and limited liquidity in
          the secondary market. This may limit the ability of the Fund to sell
          these securities at their fair market values either to meet redemption
          requests, or in response to changes in the economy or the financial
          markets.

     3.   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.

     4.   The market for high risk, high yield securities may be adversely
          affected by legislative and regulatory developments.

HIGH YIELD FOREIGN SOVEREIGN DEBT SECURITIES. Investing in fixed and floating
rate high yield foreign sovereign debt securities will expose the Fund to the
direct or indirect consequences of political, social or economic changes in
countries that issue the securities. The ability of a foreign sovereign obligor
to make timely payments on its external debt obligations will also be strongly
influenced by the obligor's balance of payments, including export performance,
its access to international credits and investments, fluctuations in interest
rates and the extent of its foreign reserves. A country whose exports are
concentrated in a few commodities or whose economy depends on certain strategic
imports could be vulnerable to fluctuations in international prices of these
commodities or imports. To the extent that a country receives payment for its
exports in currencies other than dollars, its ability to make debt payments
denominated in dollars could be adversely affected. If a foreign sovereign
obligor cannot generate sufficient earnings from foreign trade to service its
external debt, it may need to depend on continuing loans and aid from foreign
governments, commercial banks and multilateral organizations, and inflows of
foreign investment. The commitment on the part of these foreign governments,
multilateral organizations and others to make such disbursements may be
conditioned on the government's implementation of economic reforms and/or
economic performance and the timely service of its obligations. Failure to
implement such reforms, achieve such levels of economic performance or repay
principal or interest when due may result in the cancellation of such third
parties' commitments to lend funds, which may further impair the obligor's
ability or willingness to timely service its debts.

ILLIQUID SECURITIES. Illiquid securities are securities that cannot be sold or
disposed of in the ordinary course of business (within seven days) at
approximately the prices at which they are valued. Because of their illiquid
nature, illiquid securities must be priced at fair value as determined in good
faith pursuant to procedures approved by the Trust's Board of Trustees (the
"Board"). 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


                                       10



disposition. Difficulty in selling illiquid securities may result in a loss or
may be costly to the 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).
The Fund will not invest more than 10% of its net assets in illiquid securities.

INVESTMENT COMPANY SHARES. The Fund 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 Fund. The Fund's purchase of such
investment company securities results in the layering of expenses, such that
shareholders would indirectly bear a proportionate share of the operating
expenses of such investment companies, including advisory fees, in addition to
paying the Fund's expenses. Under applicable regulations, unless an exception is
available, the Fund is prohibited from acquiring the securities of another
investment company if, as a result of such acquisition: (1) the Fund owns 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 Fund's total assets; or
(3) securities (other than treasury stock) issued by all investment companies
represent more than 10% of the total assets of the Fund.

For hedging or other purposes, the Fund may invest in investment companies that
seek to track the composition and/or performance of specific indexes or portions
of specific indexes. Certain of these investment companies, known as ETFs, are
traded on a securities exchange. (See "Exchange Traded Funds" above.) The market
prices of index-based investments will fluctuate in accordance with changes in
the underlying portfolio securities of the investment company and also due to
supply and demand of the investment company's shares on the exchange upon which
the shares are traded. Index-based investments may not replicate or otherwise
match the composition or performance of their specified index due to transaction
costs, among other things. Pursuant to an order issued by the SEC to iShares(R)
Funds and procedures approved by the Board, the Fund may invest in iShares Funds
in excess of the 5% and 10% limits described above, provided that the Fund has
described ETF investments in its prospectus and otherwise complies with the
conditions of the SEC, as it may be amended, and any other applicable investment
limitations. iShares(R) is a registered trademark of Barclays Global Investors,
N.A. ("BGI"). Neither BGI nor the iShares Funds makes any representations
regarding the advisability of investing in the Fund.

INVESTMENT GRADE OBLIGATIONS. Investment grade obligations are fixed income
obligations rated by one or more of the rating agencies in one of the four
highest rating categories at the time of purchase (e.g., AAA, AA, A or BBB by
Standard & Poor's Rating Group ("S&P") or Fitch, Inc., or Aaa, Aa, A or Baa by
Moody's Investor Services, Inc. ("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. The Fund may hold unrated securities if the Adviser considers the
risks involved in owning that security to be equivalent to the risks involved in
holding an instrument grade security. 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.


                                       11



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.

MEDIUM-TERM NOTES. Medium-term notes are periodically or continuously offered
corporate or agency debt that differs from traditionally underwritten corporate
bonds only in the process by which they are issued.

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 Appendix A to this SAI.

MORTGAGE-BACKED SECURITIES. The Fund may invest in mortgage-backed and
asset-backed securities. Mortgage-backed securities ("MBS") are securities which
represent ownership interests in, or are debt obligations secured entirely or
primarily by, "pools" of residential or commercial mortgage loans or other
asset-backed securities (the "Underlying Assets"). Such securities may be issued
by such entities as Government National Mortgage Association ("GNMA"), Federal
National Mortgage Association ("FNMA"), Federal Home Loan Mortgage Corporation
("FHLMC"), commercial banks, savings and loan


                                       12



associations, mortgage banks, or by issuers that are affiliates of or sponsored
by such entities. 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.
Each Fund will not purchase mortgage-backed securities that do not meet the
above minimum credit standards. In the case of mortgage-backed securities
representing ownership interests in the Underlying Assets, the principal and
interest payments on the underlying mortgage loans are distributed monthly to
the holders of the mortgage-backed securities. In the case of mortgage-backed
securities representing debt obligations secured by the Underlying Assets, the
principal and interest payments on the underlying mortgage loans, and any
reinvestment income thereon, provide the funds to pay debt service on such
mortgage-backed securities.

Certain mortgage-backed securities represent an undivided fractional interest in
the entirety of the Underlying Assets (or in a substantial portion of the
Underlying Assets, with additional interests junior to that of the
mortgage-backed security), and thus have payment terms that closely resemble the
payment terms of the Underlying Assets.

In addition, many mortgage-backed securities are issued in multiple classes.
Each class of such multi-class mortgage-backed securities, often referred to as
a "tranche," is issued at a specific fixed or floating coupon rate and has a
stated maturity or final distribution date. Principal prepayment on the
Underlying Assets may cause the MBS to be retired substantially earlier than
their stated maturities or final distribution dates. Interest is paid or accrues
on all or most classes of the MBS on a periodic basis, typically monthly or
quarterly. The principal of and interest on the Underlying Assets may be
allocated among the several classes of a series of MBS in many different ways.
In a relatively common structure, payments of principal (including any principal
prepayments) on the Underlying Assets are applied to the classes of a series of
MBS in the order of their respective stated maturities so that no payment of
principal will be made on any class of MBS until all other classes having an
earlier stated maturity have been paid in full.

An important feature of MBS is that the principal amount is generally subject to
partial or total prepayment at any time because the Underlying Assets (i.e.,
loans) generally may be prepaid at any time.

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 collateralized mortgage obligations, which are collateralized by
mortgage pass-through securities. Cash flows from the mortgage pass-through
securities are allocated to various tranches (a "tranche" is essentially a
separate security) in a predetermined, specified order. Each tranche has a
stated maturity - the latest date by which the tranche can be completely repaid,
assuming no prepayments - and has an average life - the average of the time to
receipt of a principal payment weighted by the size of the principal payment.
The average life is typically used as a proxy for maturity because the debt is
amortized (repaid a portion at a time), rather than being paid off entirely at
maturity, as would be the case in a straight debt instrument.

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.


                                       13



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.

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 Forward Commitment Securities" for more information.

MUNICIPAL LEASE OBLIGATIONS. Municipal lease obligations are securities issued
by state and local governments and authorities to finance the acquisition of
equipment and facilities. They may take the form of a lease, an installment
purchase contract, a conditional sales contract, or a participation interest in
any of the above.

MUNICIPAL SECURITIES. Municipal bonds include general obligation bonds, revenue
or special obligation bonds, private activity and industrial development bonds
and participation interests in municipal bonds. General obligation bonds are
backed by the taxing power of the issuing municipality. Revenue bonds are backed
by the revenues of a project or facility (for example, tolls from a bridge).
Certificates of participation represent an interest in an underlying obligation
or commitment, such as an obligation issued in connection with a leasing
arrangement. The payment of principal and interest on private activity and
industrial development bonds generally is totally dependent on the ability of a
facility's user to meet its financial obligations and the pledge, if any, of
real and personal property as security for the payment.

Municipal notes consist of general obligation notes, tax anticipation notes
(notes sold to finance working capital needs of the issuer in anticipation of
receiving taxes on a future date), revenue anticipation notes (notes sold to
provide needed cash prior to receipt of expected non-tax revenues from a
specific source), bond anticipation notes, certificates of indebtedness, demand
notes and construction loan notes. A Fund's investments in any of the notes
described above will be limited to those obligations (i) where both principal
and interest are backed by the full faith and credit of the United States, (ii)
which are rated MIG-2 or V-MIG-2 at the time of investment by Moody's, (iii)
which are rated SP-2 at the time of investment by S&P, or (iv) which, if not
rated by S&P or Moody's, are in the Adviser's judgment, of at least comparable
quality to MIG-2, VMIG-2 or SP-2.


                                       14



From time to time, a municipality may refund a bond that it has already issued
prior to the original bond's call date by issuing a second bond, the proceeds of
which are used to purchase securities. The securities are placed in an escrow
account pursuant to an agreement between the municipality and an independent
escrow agent. The principal and interest payments on the securities are then
used to pay off the original bondholders. For purposes of diversification and
industry concentration, pre-refunded bonds will be treated as governmental
issues.

Municipal bonds must be in one of the two highest short-term rating categories
by S&P or Moody's 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 Funds can demand payment of the obligation
at all times or at stipulated dates on short notice (not to exceed 30 days) at
par plus accrued interest. Such obligations are frequently secured by letters of
credit or other credit support arrangements provided by banks. The quality of
the underlying credit or of the bank, as the case may be, must, in the Adviser's
opinion, be equivalent to the long-term bond or commercial paper ratings stated
above. The Adviser will monitor the earning power, cash flow and liquidity
ratios of the issuers of such instruments and the ability of an issuer of a
demand instrument to pay principal and interest on demand. The Adviser may
purchase other types of tax-exempt instruments as long as they are of a quality
equivalent to the bond or commercial paper ratings stated above.

The Adviser has the authority to purchase securities at a price which would
result in a yield to maturity lower than that generally offered by the seller at
the time of purchase when they can simultaneously acquire the right to sell the
securities back to the seller, the issuer, or a third-party (the "writer") at an
agreed-upon price at any time during a stated period or on a certain date. Such
a right is generally denoted as a "standby commitment" or a "put." The purpose
of engaging in transactions involving puts is to maintain flexibility and
liquidity in order to meet redemptions and remain as fully invested as possible
in municipal securities. The right to put the securities depends on the writer's
ability to pay for the securities at the time the put is exercised. The Funds
will limit their put transactions to those with institutions which the Adviser
believes present minimum credit risks, and the Adviser will use its best efforts
to initially determine and thereafter monitor the financial strength of the put
providers by evaluating their financial statements and such other information as
is available in the marketplace. It may, however, be difficult to monitor the
financial strength of the writers where adequate current financial information
is not available. In the event that any writer is unable to honor a put for
financial reasons, the affected Fund would be a general creditor (i.e., on
parity with all other unsecured creditors)


                                       15



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 the Funds nor the Adviser
will review the proceedings relating to the issuance of municipal securities or
the basis for such opinions.

RULE 144A SECURITIES. The Fund may purchase securities that are not registered
under the Securities Act of 1933, as amended (the "1933 Act"), but that can be
sold to "qualified institutional buyers" in accordance with Rule 144A under the
1933 Act ("Rule 144A Securities"). An investment in Rule 144A Securities will be
considered illiquid and therefore subject to the Fund's limitation on the
purchase of illiquid securities (usually 15% of the fund's net assets, unless
the Fund's governing Board of Trustees


                                       16



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. 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.
The 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 the 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 Fund
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:

- -    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.

- -    CERTIFICATES OF DEPOSIT. Certificates of deposit are interest-bearing
     instruments with a specific maturity. They are issued by banks and savings
     and loan institutions in exchange for the deposit of funds and normally can
     be traded in the secondary market prior to maturity. Certificates of
     deposit with penalties for early withdrawal will be considered illiquid.

- -    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.

The Fund will not purchase obligations issued by the Adviser or its affiliates.


                                       17



OPTIONS. The 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, the 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 the 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.

The Fund may purchase and write options on an exchange or over-the-counter.
Over-the-counter options ("OTC options") differ from exchange-traded options in
several respects. They are transacted directly with dealers and not with a
clearing corporation, and therefore entail the risk of non-performance by the
dealer. OTC options are available for a greater variety of securities and for a
wider range of expiration dates and exercise prices than are available for
exchange-traded options. Because OTC options are not traded on an exchange,
pricing is done normally by reference to information from a market maker. It is
the SEC's position that OTC options are generally illiquid.

The market value of an option generally reflects the market price of an
underlying security. Other principal factors affecting market value include
supply and demand, interest rates, the pricing volatility of the underlying
security and the time remaining until the expiration date.

The Fund must cover all options it writes. For example, when the 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. The 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.

The 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, the 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. The 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.


                                       18



In another instance, the 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 the 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 the 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 the 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 Fund is not prohibited from investing in bank obligations
issued by clients of BISYS Group, Inc., the parent company of the Fund's
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 Fund will purchase. The Fund 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.

PREFERRED STOCK. Preferred stock is a corporate equity security that pays a
fixed or variable stream of dividends. Preferred stock is generally a non-voting
security.

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.

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


                                       19



invests primarily in mortgages on real property, which may secure construction,
development or long-term loans.

REITs in which the 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 the 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. The 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 the Fund may invest a substantial portion of its assets in REITs, the
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 to
make distributions to shareholders or unitholders, and may be subject to
defaults by borrowers and to


                                       20



self-liquidations. In addition, the performance of a REIT may be affected by its
failure to qualify for tax-free pass-through of income under the Code or its
failure to maintain exemption from registration under the 1940 Act. Changes in
prevailing interest rates may inversely affect the value of the debt securities
in which the Fund will invest. Changes in the value of portfolio securities will
not necessarily affect cash income derived from these securities but will affect
the 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 the Fund's investments.

REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
financial institutions. The Fund follows 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 the 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 the 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, the Fund will seek to
liquidate such collateral. However, the exercising of the 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 the Fund 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 the Fund, amounts to more than 15% of the Fund's net
assets. The investments of the Fund in repurchase agreements, at times, may be
substantial when, in the view of the Adviser, liquidity or other considerations
so warrant.

RESOURCE RECOVERY BONDS. Resource recovery bonds 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.

SECURITIES LENDING. The Fund may lend portfolio securities to brokers, dealers
and other financial organizations that meet capital and other credit
requirements or other criteria established by the Fund's Board. These loans, if
and when made, may not exceed 33 1/3% of the total asset value of the Fund
(including the loan collateral). The Fund will not lend portfolio securities to
its investment adviser, sub-adviser or their affiliates unless it has applied
for and received specific authority to do so from the SEC. Loans of portfolio
securities will be fully collateralized by cash, letters of credit or U.S.
government securities, and the collateral will be maintained in an amount equal
to at least 100% of the current market value of the loaned securities by marking
to market daily. Any gain or loss in the market price of the securities loaned
that might occur during the term of the loan would be for the account of the
Fund.

The Fund may pay a part of the interest earned from the investment of
collateral, or other fee, to an unaffiliated third party for acting as the
Fund's securities lending agent.

By lending its securities, the 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. The 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


                                       21


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 matter comes up for vote which would have a material effect
on the Fund or its investment, the Fund must attempt to terminate the loan and
regain the right to vote the securities. Any securities lending activity in
which the Fund may engage will be undertaken pursuant to Board approved
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 the Fund's
ability to recover the loaned securities or dispose of the collateral for the
loan, which could give rise to loss because of adverse market action, expenses
and/or delays in connection with the disposition of the underlying securities.

SHORT SALES. As consistent with the Fund's investment objective, the 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 the 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, the 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 the 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 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

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 Fund may purchase securities at a price which
would result in a yield-to-maturity lower than that generally offered by the
seller at the time of purchase when it can simultaneously acquire the right to
sell the securities back to the seller, the issuer, or a third party (the
writer) at an agreed-upon price at any time during a stated period or on a
certain date. Such a right is generally denoted as a "standby commitment" or a
"put." The purpose of engaging in transactions involving puts is to maintain
flexibility and liquidity to permit the Fund to meet redemptions and remain as
fully invested as possible in municipal securities. The Fund reserves the right
to engage in put transactions. The right to put the securities depends on the
writer's ability to pay for the securities at the time the put is exercised. The
Fund would limit its put transactions to institutions which the Adviser


                                       22



believes present minimal credit risks, and the Adviser would use its best
efforts to initially determine and continue to monitor the financial strength of
the sellers of the options by evaluating their financial statements and such
other information as is available in the marketplace. It may, however be
difficult to monitor the financial strength of the writers because adequate
current financial information may not be available. In the event that any writer
is unable to honor a put for financial reasons, the Fund would be a general
creditor (i.e., on a parity with all other unsecured creditors) of the writer.
Furthermore, particular provisions of the contract between the Fund and the
writer may excuse the writer from repurchasing the securities; for example, a
change in the published rating of the underlying securities or any similar event
that has an adverse effect on the issuer's credit or a provision in the contract
that the put will not be exercised except in certain special cases, for example,
to maintain portfolio liquidity. The Fund could, however, at any time sell the
underlying portfolio security in the open market or wait until the portfolio
security matures, at which time it should realize the full par value of the
security.

The securities purchased subject to a put may be sold to third persons at any
time, even though the put is outstanding, but the put itself, unless it is an
integral part of the security as originally issued, may not be marketable or
otherwise assignable. Therefore, the put would have value only to the Fund. Sale
of the securities to third parties or lapse of time with the put unexercised may
terminate the right to put the securities. Prior to the expiration of any put
option, the Fund could seek to negotiate terms for the extension of such an
option. If such a renewal cannot be negotiated on terms satisfactory to the
Fund, the Fund could, of course, sell the portfolio security. The maturity of
the underlying security will generally be different from that of the put. There
will be no limit to the percentage of portfolio securities that the Fund may
purchase subject to a standby commitment or put, but the amount paid directly or
indirectly for all standby commitments or puts which are not integral parts of
the security as originally issued held in the Fund will not exceed 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 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(R) 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


                                       23



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 Fund 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. A credit default swap is a specific
kind of counterparty agreement designed to transfer the third party credit risk
between parties. One party in the swap is a lender and faces credit risk from a
third party and the counterparty in the credit default swap agrees to insure
this risk in exchange for regular periodic payments (essentially an insurance
premium). If the third party defaults, the party providing insurance will have
to purchase from the insured party the defaulted asset.

Most swap agreements entered into by the Fund calculate the obligations of the
parties to the agreement on a "net basis." Consequently, the 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").

The 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 the Fund's investment
restriction concerning senior securities. Because they are two party contracts
and because they may have terms of greater than seven days, swap agreements may
be considered to be illiquid for the Fund's illiquid investment limitations. The
Fund will not enter into any swap agreement unless the Adviser believes that the
other party to the transaction is creditworthy. The 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.

The 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


                                       24



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 the Fund is contractually obligated to make. If the
other party to a swap agreement defaults, the Fund's risk of loss consists of
the net amount of payments that the Fund is contractually entitled to receive,
if any. The net amount of the excess, if any, of the 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
the 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 Fund and its Adviser believe that these transactions do
not constitute senior securities under the 1940 Act and, accordingly, will not
treat them as being subject to the 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.

TAXABLE MUNICIPAL SECURITIES. Taxable municipal securities are municipal
securities the interest on which is not exempt from federal income tax. Taxable
municipal securities include "private activity bonds" that are issued by or on
behalf of states or political subdivisions thereof to finance privately-owned or
operated facilities for business and manufacturing, housing, sports, and
pollution control and to finance activities of and facilities for charitable
institutions. Private activity bonds are also used to finance public facilities
such as airports, mass transit systems, ports, parking lots, and low income
housing. The payment of the principal and interest on private activity bonds is
not backed by a pledge of tax revenues, and is dependent solely on the ability
of the facility's user to meet its financial obligations, and may be secured by
a pledge of real and personal property so financed. Interest on these bonds may
not be exempt from federal income tax.

TRUST PREFERRED SECURITIES. Trust preferred securities are convertible preferred
shares issued by a Trust where proceeds from the sale are used to purchase
convertible subordinated debt from the issuer. The convertible subordinated debt
is the sole asset of the Trust. The coupon from the issuer to the Trust exactly
mirrors the preferred dividend paid by the Trust. Upon conversion by the
investors, the Trust in turn converts the convertible debentures and passes
through the shares to the investors.

U.S. GOVERNMENT SECURITIES. Certain investments of the Fund may include U.S.
government agency securities. Examples of types of U.S. government obligations
in which the Fund 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


                                       25



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. The Student Loan Marketing Association can issue
debt both as a U.S. government agency or as corporation. If the debt is issued
as a corporation, it is not considered a U.S. government obligation.

- -    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").

- -    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.

- -    TREASURY INFLATION PROTECTED NOTES ("TIPS"). TIPS are securities issued by
     the U.S. Treasury that are designed to provide inflation protection to
     investors. TIPS are income-generating instruments whose interest and
     principal payments are adjusted for inflation. The inflation adjustment,
     which is typically applied monthly to the principal of the bond, follows a
     designated inflation index, such as the consumer price index. A fixed
     coupon rate is applied to the inflation-adjusted principal so that as
     inflation rises, both the principal value and the interest payments
     increase. This can provide investors with a hedge against inflation, as it
     helps preserve the purchasing power of an investment Because of this
     inflation adjustment feature, inflation-protected bonds typically have
     lower yields than conventional fixed-rate bonds.

- -    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.

- -    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. See "Mortgage-Backed Securities."


                                       26



- -    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 the Fund's shares.

VARIABLE AND FLOATING RATE INSTRUMENTS. Certain of the obligations purchased by
the Fund 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 the Fund, as lender, and a borrower. Such notes
provide that the interest rate on the amount outstanding varies on a daily,
weekly or monthly basis depending upon a stated short-term interest rate index.
Both the lender and the borrower have the right to reduce the amount of
outstanding indebtedness at any time. There is no secondary market for the notes
and it is not generally contemplated that such instruments will be traded. The
quality of the note or the underlying credit must, in the opinion of the
Adviser, be equivalent to the ratings applicable to permitted investments for
the 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 FORWARD COMMITMENT SECURITIES. When-issued securities
are securities that are delivered and paid for normally within 45 days after the
date of commitment of purchase.

Although the Fund will only make commitments to purchase when-issued and forward
commitment securities with the intention of actually acquiring the securities,
the 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 when-issued and forward commitment
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.

The Fund will maintain, on a daily basis, high-quality, liquid assets in an
amount at least equal in value to its commitments to purchase when-issued and
forward commitment securities.

     INVESTMENT LIMITATIONS

FUNDAMENTAL POLICIES

The following investment limitations are fundamental policies of the Fund.
Fundamental policies cannot be changed without the consent of the holders of a
majority of the Fund's outstanding shares. The term


                                       27



"majority of the outstanding shares" means the vote of (i) 67% or more of the
Fund's shares present at a meeting, if more than 50% of the outstanding shares
of the Fund are present or represented by proxy, or (ii) more than 50% of the
Fund's outstanding shares, whichever is less.

The Fund may not:

     1.   With respect to 75% of the Fund's total assets, invest more than 5% of
          the value of the total assets of the 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 the 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 the Fund to purchase securities or
          require the 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.

     6.   Purchase or sell real estate, unless acquired as a result of ownership
          of securities or other instruments (but this shall not prevent the
          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 the 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 Fund and
may be changed by the Fund's Board of Trustees:


                                       28



     1.   Any change to the Fund's investment policy of investing at least 80%
          of the Fund's net assets in interests in equity U.S. traded securities
          that have small capitalizations is subject to 60 days prior notice to
          shareholders.

     2.   The Fund may not 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 would be invested in
          illiquid securities.

With the exception of the limitations on liquidity standards, the foregoing
percentages will apply at the time of the purchase of a security and shall not
be considered violated unless an excess occurs or exists immediately after and
as a result of a purchase of such security.

     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 Fund.
The Adviser is responsible for making investment decisions for the Fund and
continuously reviews, supervises and administers the Fund's investment program.
The Board of Trustees supervises the Adviser and establishes policies that the
Adviser must follow in its management activities. The principal business address
of the Adviser is 50 Hurt Plaza, Suite 1400, Atlanta, Georgia 30303. As of
December 31, 2005, the Adviser had discretionary management authority with
respect to approximately $70.4 billion of assets under management.

ADVISORY AGREEMENT WITH THE TRUST. The Adviser serves as investment adviser for
the Fund under the terms of an investment advisory agreement with the Trust
("Advisory Agreement"). Under the terms of the Advisory Agreement, the Adviser
serves as the investment adviser and makes the investment decisions for the Fund
and continuously reviews, supervises and administers the investment program of
the Fund, subject to the supervision of, and policies established by, the Board.
The continuance of the Advisory Agreement, after the first two years, must be
specifically approved at least annually (i) by the vote of the Board 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 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 Advisory Agreement will
terminate automatically in the event of its assignment, and is terminable at any
time without penalty by the Board or by a majority of the outstanding shares of
the Fund, on not less than 30 days nor more than 60 days written notice to the
Adviser, or by the Adviser on 90 days written notice to the Trust.

The Advisory Agreement provides 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
Agreement provides that if, for any fiscal year, the ratio of expenses of the
Fund (including amounts payable to the Adviser but excluding interest, taxes,
brokerage, litigation, and other extraordinary expenses) exceed limitations
established by certain states, the Adviser and/or the Administrator will bear
the amount of such excess. The Adviser will not be required to bear expenses of
the Trust to an extent which would result in the Fund's inability to qualify as
a regulated investment company under provisions of the Internal Revenue Code of
1986, as amended.

ADVISORY FEES PAID TO THE ADVISER. For its services under the Advisory
Agreement, the Adviser is entitled to a fee, which is calculated daily and paid
monthly, at an annual rate of 1.05% of the Fund's average daily net assets.


                                       29



The above fee is also subject to the following breakpoint discounts:

     First $500 million = none - full fee
     Next $500 million = 5% discount from full fee
     Over $1.0 billion = 10% discount from full fee

     THE ADMINISTRATOR

GENERAL. BISYS Fund Services Ohio, Inc. (the "Administrator"), serves as
administrator of the Trust and is an affiliate of BISYS Fund Services Limited
Partnership, the Trust's distributor. The Administrator, an Ohio corporation,
has its principal business offices at 3435 Stelzer Road, Columbus, Ohio 43219.
The Administrator and its affiliates provide administration and distribution
services to other investment companies.

MASTER SERVICES AGREEMENT WITH THE TRUST. The Trust and the Administrator have
entered into a master services agreement, as amended, (the "Master Services
Agreement") effective July 26, 2004. Under the Master Services Agreement, the
Administrator provides the Trust with administrative services, including
day-to-day administration of matters necessary to the Fund's operations,
maintenance of records and the books of the Trust, preparation of reports,
assistance with compliance monitoring of the Fund's activities, and certain
supplemental services in connection with the Trust's obligations under the
Sarbanes-Oxley Act of 2002.

The Master Services Agreement shall remain in effect for a period of five years
until July 31, 2009, and shall continue in effect for successive one year
periods subject to review at least annually by the Board unless terminated by
either party on not less than 90 days written notice to the other party.

ADMINISTRATION FEES PAID TO THE ADMINISTRATOR. Under the Master Services
Agreement, the Administrator is entitled to receive an asset-based fee for
administration, fund accounting and transfer agency services of 2.75 basis
points (0.0275%) on the first $25 billion in aggregate net assets of all series
of the Trust, including the Fund, 2.25 basis points (0.0225%) on the next $5
billion in aggregate net assets of all series of the Trust, including the Fund,
and 1.75 basis points (0.0175%) on the aggregate net assets of all series of the
Trust, including the Fund, over $30 billion, plus an additional class fee of
$2,500 per class per annum, applicable to each additional class of shares over
145 classes of shares. The Administrator may waive a portion of its fee.

     THE PORTFOLIO MANAGER

Set forth below is information regarding the individual who is primarily
responsible for the day-to-day management of the Fund ("portfolio manager"). All
information is as of January 5, 2006.

MANAGEMENT OF OTHER ACCOUNTS. The table below shows the number of other accounts
managed by the portfolio manager and the approximate total assets in the
accounts in each of the following categories: registered investment companies,
other pooled investment vehicles and other accounts. For each category, the
table also shows the number of accounts and the approximate total assets in the
accounts with respect to which the advisory fee is based on account performance.


                                       30





                         NUMBER OF OTHER ACCOUNTS MANAGED/
                           TOTAL ASSETS IN ACCOUNTS ($)            OTHER ACCOUNTS WITH
                    ------------------------------------------   PERFORMANCE-BASED FEES
                       REGISTERED      OTHER POOLED              --------------------------
NAME OF PORTFOLIO      INVESTMENT       INVESTMENT      OTHER    NUMBER &
     MANAGER            COMPANIES        VEHICLES     ACCOUNTS   CATEGORY   TOTAL ASSETS($)
- -----------------   ----------------   ------------   --------   --------   ---------------
                                                             
Edward E. Best      1/$249.7 million       None       1/$51.3      None           None
                                                      million


POTENTIAL CONFLICTS OF INTEREST. The portfolio manager's dual management of both
the Fund and the other accounts appearing in the table above may give rise to
potential conflicts of interest. If the Fund and the other accounts have
identical investment objectives, it is possible the portfolio manager could
favor one or more accounts over the Fund. Another potential conflict may arise
from the portfolio manager's knowledge about the size, timing and possible
market impact of Fund trades if the portfolio manager used this information to
the advantage of other accounts and to the disadvantage of the Fund. In
addition, aggregation of trades may create the potential for unfairness to the
Fund or an account if one account is favored over another in allocating the
securities purchased or sold. The Adviser has established policies and
procedures to ensure that the purchase and sale of securities among all funds
and accounts it manages are allocated in a manner the Adviser believes is fair
and equitable.

PORTFOLIO MANAGER COMPENSATION STRUCTURE. The portfolio manager earns a
competitive salary from the Adviser. In addition, the portfolio manager is
eligible to receive bonuses based on the performance of the specific funds he
manages and not on the performance of all funds of the Trust or of other
accounts he manages. Investment results are the basis for determining if such
bonuses are paid. Investment results are determined by comparing the Fund's
pre-tax total returns to the Fund's benchmarks and peer groups over multi-year
periods, as applicable. Where the portfolio manager manages multiple Funds, each
Fund is weighted based on the following criteria: each Fund's market value, its
relative strategic importance to the Adviser and its clients, as well as its
potential asset growth.

All full-time employees of the Adviser, including the Fund's portfolio manager,
are provided a benefits package on substantially similar terms. The percentage
of each individual's compensation provided by these benefits is dependant upon
length of employment, salary level, and several other factors. In addition,
certain portfolio managers may be eligible for one or more of the following
additional benefit plans:

     -    401 Excess Plan - This plan provides benefits which would otherwise be
          provided under the qualified cash or deferred ESOP plan adopted by the
          Adviser, were it not for the imposition of certain statutory limits on
          qualified plan benefits. Certain select individuals within specific
          salary levels may be eligible for this plan. Participation in the plan
          must be approved by the individual's senior executive for the
          business.

     -    ERISA Excess Retirement Plan - This plan provides for benefits to
          certain executives that cannot be paid to them under tax qualified
          pension plans as a result of federal restrictions. Certain select
          individuals within specific salary levels may be eligible for this
          plan. Participation in the plan must be approved by the individual's
          senior executive for the business.


                                       31



     -    Voluntary Functional Incentive Plan Deferral - This plan is a
          provision of a SunTrust Deferred Compensation Plan, which allows
          participants of selected annual incentive plans to voluntary defer
          portions of their incentive. Eligibility to participate in this plan
          is offered to employees of selected incentive plans who earn above a
          specified level of total compensation in the year prior to their
          deferral. The Adviser's annual incentive plans available to investment
          professionals offer this provision to employees who meet the
          compensation criteria level.

     -    Stock Option Awards - Stock options are granted annually to certain
          select individuals in specific compensation grade levels.
          Participation must be approved by the individual's senior executive
          for the business.

     -    Restricted Stock Awards - Restricted stock awards are granted to
          certain select individuals on a case-by-case basis to address special
          retention issues. Most salaried employees of SunTrust are eligible for
          restricted stock awards. The awards often vest based on the
          recipient's continued employment with the Adviser, but these awards
          may also carry additional vesting requirements, including performance
          conditions.

The relative mix of compensation represented by investment results, bonus and
salary will vary depending on the individual's results, contributions to the
organization, adherence to portfolio compliance and other factors.

SECURITIES OWNERSHIP OF PORTFOLIO MANAGERS. The table below shows the range of
equity securities beneficially owned by the portfolio manager in the Fund as of
April 3, 2006.



NAME OF PORTFOLIO MANAGER   RANGE OF SECURITIES OWNED
- -------------------------   -------------------------
                         
Edward E. Best                         None


     THE DISTRIBUTOR

The Trust and BISYS Fund Services Limited Partnership (the "Distributor") are
parties to a distribution agreement dated November 18, 2005 (the "Distribution
Agreement") whereby the Distributor acts as principal underwriter for the
Trust's shares. The Distributor is an affiliate of BISYS Fund Services Ohio,
Inc., which serves as the Trust's administrator and transfer agent. The
principal business address of the Distributor is 3435 Stelzer Road, Columbus,
Ohio 43219. 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. In addition, the A Shares of the
Fund have a distribution and service plan (the "A Plan"), and the C Shares of
the Fund have a distribution and service plan (the "C Plan").

After the initial two year term, 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


                                       32



respect to the Fund, by a majority of the outstanding shares of the Fund, upon
not more than 60 days written notice by either party.

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:



             $50,000   $100,000
            but less   but less   $250,000 but   $500,000 but
Less than     than       than       less than      less than    $1,000,000
 $50,000    $100,000   $250,000     $500,000      $1,000,000     and over
- ---------   --------   --------   ------------   ------------   ----------
                                                 
  5.00%       4.00%      3.00%        2.00%          1.75%         0.00%


     A SHARES AND C SHARES DISTRIBUTION PLANS

The Distribution Agreement and the A Plan adopted by the Trust provide that A
Shares of the Fund will pay the Distributor fees for furnishing services related
to (a) the distribution and sale of A Shares and (b) the shareholders servicing
of A Shares. The table below shows the maximum amount approved by the Board as
(i) aggregate fees for distribution and shareholder service activities and (ii)
the maximum amount of the fee allocated for shareholder servicing.



                                        Maximum Amount of
       Maximum A Plan          A Plan Distribution and Service Fee
Distribution and Service Fee    Payable for Shareholder Services*
- ----------------------------   -----------------------------------
                            
            0.35%                             0.25%


*    Up to the amount specified may be used to provide compensation for
     personal, ongoing servicing and/or maintenance of shareholder accounts with
     respect to the A Shares of the Fund.

The Board has approved the maximum amount shown in the table above. However, the
Board has currently approved the implementation of only the amount shown in the
table below. Payments under the A Plan may not exceed the amount shown below
unless the Board approves the implementation of a higher amount.



                                        Maximum Amount of
       Current A Plan          A Plan Distribution and Service Fee
Distribution and Service Fee    Allocated for Shareholder Services
- ----------------------------   -----------------------------------
                            
            0.30%                             0.25%


In addition, the Distribution Agreement, and the C Plan adopted by the Trust
provide that C Shares of the Fund will pay the Distributor a fee of up to 0.75%
of the average daily net assets of the Fund. The Distributor can use these fees
to compensate broker-dealers and service providers, including SunTrust and its
affiliates, which provide administrative and/or distribution services to C
Shares shareholders or their customers who beneficially own C Shares. In
addition, C Shares are subject to a service fee of up to 0.25% of the average
daily net assets of the C Shares of the Fund. This service fee will be used for
services provided and expenses incurred in maintaining shareholder accounts,
responding to shareholder inquiries and providing information on their
investments.


                                       33



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; automatically investing customer account cash
balances; providing periodic statements to customers; arranging for wires;
answering customer inquiries concerning their investments; assisting customers
in changing dividend options, account designations, and addresses; performing
sub-accounting functions; processing dividend payments from the Trust on behalf
of customers; and forwarding shareholder communications from the Trust (such as
proxies, shareholder reports, and dividend distribution and tax notices) to
these customers with respect to investments in the Trust. Certain state
securities laws may require those financial institutions providing such
distribution services to register as dealers pursuant to state law. Although
banking laws and regulations prohibit banks from distributing shares of open-end
investment companies such as the Trust, according to an opinion issued to the
staff of the SEC by the Office of the Comptroller of the Currency, financial
institutions are not prohibited from acting in other capacities for investment
companies, 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 and the C 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
and the C 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 and the C Plan
require that quarterly written reports of amounts spent under the A Plan and the
C Plan, respectively, and the purposes of such expenditures be furnished to and
reviewed by the Trustees. The A Plan and the C 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 C Shares, but C Shares are subject to a
contingent deferred sales charge if they are redeemed within one year of
purchase. Pursuant to the Distribution Agreement and the C Plan, C Shares are
subject to an ongoing distribution and service fee calculated on the Fund's
aggregate average daily net assets attributable to its C Shares.

Other than any portion of the sales charges imposed on purchases, the following
table shows the level of compensation that would be paid by the Distributor to
broker-dealers selling A Shares and C Shares, unless otherwise agreed upon by
the Distributor and such broker-dealer.



   ANNUAL PAYOUT 12(B)-1      INITIAL PAYMENT -         ANNUAL PAYOUT 12(B)-1
EFFECTIVE IMMEDIATELY (A)*   AT TIME OF SALE (C)   EFFECTIVE IN THE 13TH MONTH (C)
- --------------------------   -------------------   -------------------------------
                                             
           0.25%                    1.00%                       1.00%


*    Initial Front End Sales Charge for A Shares from 5.75% maximum to 2.00%
     depending on breakpoints (outlined in prospectus).


                                       34


     THE TRANSFER AGENT

BISYS Funds Services Ohio, Inc., 3435 Stelzer Road, Columbus, Ohio 43219 serves
as the transfer agent and dividend paying agent to the Trust.

     THE CUSTODIAN

SunTrust Bank, 303 Peachtree Street N.E., 14th Floor, Atlanta, GA 30308 serves
as the Fund's custodian. SunTrust Bank is paid on the basis of net assets and
transactions costs of the Fund.

     INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

PricewaterhouseCoopers LLP, located at 2 Commerce Square, Suite 1700, 2001
Market Street, Philadelphia, Pennsylvania 19103-7042, serves as the Trust's
independent registered public accounting firm.

     LEGAL COUNSEL

Morgan, Lewis & Bockius LLP, located at 111 Pennsylvania Avenue N.W.,
Washington, D.C. 20004, serves as legal counsel to the Trust.

     TRUSTEES AND OFFICERS OF THE TRUST

BOARD RESPONSIBILITIES. The management and affairs of the Trust and the Fund are
supervised by the Board under the laws of the Commonwealth of Massachusetts. The
Board is responsible for overseeing the Fund. 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, positions
with the Trust, principal occupations for the last five years and other
directorships held for each of the persons currently serving as Trustees of the
Trust.



                                                                                   NUMBER OF
                             POSITION    TERN OF OFFICE         PRINCIPAL        PORTFOLIOS IN
NAME, ADDRESS AND DATE OF      HELD       AND LENGTH OF   OCCUPATION(S) DURING    FUND COMPLEX
          BIRTH             WITH TRUST     TIME SERVED      THE PAST 5 YEARS        OVERSEEN      OTHER DIRECTORSHIPS HELD
- -------------------------   ----------   --------------   --------------------   -------------    ------------------------
                                                                                  
INTERESTED TRUSTEES*:
Richard W. Courts, II       Trustee      Indefinite;      Chairman, Atlantic           61        Cousins Properties,
3435 Stelzer Road                        since November   Investment Company                     Inc.; Genuine Parts
Columbus, OH 43219                       2001                                                    Company; SunTrust Bank
DOB 01/18/36

Clarence H. Ridley          Trustee      Indefinite;      Chairman, Haverty            61        Crawford & Co.
3435 Stelzer Road                        since November   Furniture
Columbus, OH 43219                       2001             Companies; Partner,
DOB 06/03/42                                              King and Spalding
                                                          LLP (law firm)
                                                          (1977 to 2000)



                                       35





                                                                                   NUMBER OF
                             POSITION    TERN OF OFFICE         PRINCIPAL        PORTFOLIOS IN
NAME, ADDRESS AND DATE OF      HELD       AND LENGTH OF   OCCUPATION(S) DURING    FUND COMPLEX
          BIRTH             WITH TRUST     TIME SERVED      THE PAST 5 YEARS        OVERSEEN      OTHER DIRECTORSHIPS HELD
- -------------------------   ----------   --------------   --------------------   -------------    ------------------------
                                                                                  
INDEPENDENT TRUSTEES**:
Thomas Gallagher            Trustee      Indefinite;      President, CEO,              61        Genuine Parts Company;
3435 Stelzer Road                        since May 2000   Genuine Parts                          Oxford Industries, Inc.
Columbus, OH 43219                                        Company
DOB 11/25/47

F. Wendell Gooch            Trustee      Indefinite;      Retired                      61        SEI Family of Funds
3435 Stelzer Road                        since May 1992
Columbus, OH 43219
DOB 12/03/32

Sidney E. Harris            Trustee      Indefinite;      Professor (since             61        ServiceMaster Company;
3435 Stelzer Road                        since November   2004), Dean                            Total System Services,
Columbus, OH 43219                       2004             (1997-2004), J. Mack                   Inc ; Transamerica
DOB 07/21/49                                              Robinson College                       Investors, Inc. (13 mutual
                                                          of Business, Georgia                   funds)
                                                          State University

Warren Y. Jobe              Trustee      Indefinite;      Retired. EVP,                61        WellPoint, Inc; UniSource
3435 Stelzer Road                        since November   Georgia Power                          Energy Corp.; HomeBanc
Columbus, OH 43219                       2004             Company and SVP,                       Corp.
DOB 11/12/40                                              Southern Company
                                                          (1998-2001)

Connie D. McDaniel          Trustee      Indefinite;      Vice President and           61                   None
3435 Stelzer Road                        since May 2005   Controller, The
Columbus, OH 43219                                        Coca-Cola Company
DOB 04/10/58

James O. Robbins            Trustee      Indefinite;      Retired. President,          61        Cox Communications;
3435 Stelzer Road                        since May 2000   CEO, Cox                               Humana, Inc. (health care)
Columbus, OH 43219                                        Communications, Inc.
DOB 07/04/42                                              (1985 - 2005)

Charles D. Winslow          Trustee      Indefinite;      Retired. Formerly            61                   None
3435 Stelzer Road                        since November   Partner, Accenture
Columbus, OH 43219                       2004             (consulting)
DOB 07/13/35


*    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.

**   Trustees who are not "interested persons" of the Trust as defined in the
     1940 Act.

BOARD COMMITTEES. The Board has established the following committees:

- -    AUDIT COMMITTEE. The Board's Audit Committee is composed exclusively of
     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 registered public accounting firm and whether to
     terminate this relationship; reviewing the independent registered public
     accounting firm's compensation, the proposed scope and terms of its
     engagement, and the firm's independence; pre-approving audit and non-audit
     services


                                       36



     provided by the Trust's independent registered public accounting firm to
     the Trust and certain other affiliated entities; serving as a channel of
     communication between the independent registered public accounting firm and
     the Trustees; reviewing the results of each external audit, including any
     qualifications in the independent registered public accounting firms'
     opinion, any related management letter, management's responses to
     recommendations made by the independent registered public accounting firm
     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
     registered public accounting firm that arose in connection with the
     preparation of those financial statements; considering, in consultation
     with the independent registered public accounting firm and the Trust's
     senior internal accounting executive, if any, the independent registered
     public accounting firm's report on the adequacy of the Trust's internal
     financial controls; reviewing, in consultation with the Trust's independent
     registered public accounting firm, 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, Jobe and Winslow, and Ms. McDaniel currently serve as
     members of the Audit Committee. The Audit Committee meets periodically, as
     necessary, and met three times in the most recently completed fiscal year.

- -    GOVERNANCE AND NOMINATING COMMITTEE. The Board's Governance and Nominating
     Committee is composed exclusively of independent Trustees of the Trust. The
     Governance and Nominating Committee operates under a written charter
     approved by the Board. The purposes of the Governance and Nominating
     Committee are: to evaluate the qualifications of candidates for Trustee and
     to make recommendations to the Independent trustees and the entire Board
     with respect to nominations for Trustee membership on the Board when
     necessary or considered advisable; to review periodically Board governance
     practices, procedures and operations and to recommend any appropriate
     changes to the Board; to review periodically the size and composition of
     the Board and to make recommendations to the Independent Trustees and the
     Board as to whether it may be appropriate to add to the membership of the
     Board; to review as necessary the committees established by the Board and
     to make recommendations to the Board; to review periodically Trustee
     compensation and any other benefits and to recommend any appropriate
     changes to the Board and the Independent Trustees; to review periodically
     and make recommendations regarding ongoing Trustee education and
     orientation for new Trustees; to make recommendations regarding any
     self-assessment conducted by the Board; and to review as necessary any
     other similar matters relating to the governance of the Trust at the
     request of any Trustee or on its own initiative. While the Governance and
     Nominating Committee is solely responsible for the selection and nomination
     of Trustees, the Governance and Nominating Committee may consider nominees
     recommended by shareholders. A nomination submission must be sent in
     writing to the Governance and Nominating Committee, addressed to the
     Secretary of the Trust, and must be accompanied by all information relating
     to the recommended nominee that is required to be disclosed in
     solicitations or proxy statements for the election of Trustees. Nomination
     submissions must also be accompanied by a written consent of the individual
     to stand for election if nominated by the Board and to serve if elected by
     the shareholders. Additional information must be provided regarding the
     recommended nominee as reasonably requested by the Governance and
     Nominating Committee. Messrs. Gallagher, Gooch, Harris, and Robbins
     currently serve as members of the Governance and Nominating Committee. Mr.
     Robbins is Chairman of the Governance and Nominating Committee. The
     Governance and Nominating Committee meets periodically as necessary. The
     Governance and Nominating Committee met once during the most recently
     completed fiscal year.

- -    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


                                       37



     under procedures approved by the Board. The principal responsibility of the
     Fair Value Pricing 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 nine
     times in the most recent fiscal year.

FUND SHARES OWNED BY BOARD MEMBERS. The following table shows the dollar amount
range of each Trustee's "beneficial ownership" of shares of the Fund 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 "Family of Investment Companies"
referenced in the table consists of the Trust and the STI Classic Variable
Trust.



                                                  AGGREGATE DOLLAR
                                         RANGE OF SHARES IN ALL INVESTMENT
                         DOLLAR RANGE     COMPANIES OVERSEEN BY TRUSTEE IN
   NAME OF TRUSTEE      OF FUND SHARES     FAMILY OF INVESTMENT COMPANIES
- ---------------------   --------------   ---------------------------------
                                   
INTERESTED TRUSTEES
Richard W. Courts, II        None                       None
Clarence H. Ridley           None                  Over $100,000

INDEPENDENT TRUSTEES
Thomas Gallagher             None                 $50,001-$100,000
F. Wendell Gooch             None                 $50,001-$100,000
Connie McDaniel              None                 $10,001-$50,000
James O. Robbins             None                       None
Sidney E. Harris             None                       None
Warren Y. Jobe               None                       None
Charles D. Winslow           None                       None


As of March 1, 2006, the Trustees and Officers of the Trust owned less than 1%
of the outstanding shares of the Trust.

BOARD COMPENSATION. The table below shows the compensation paid to the Trustees
during the fiscal period ended March 31, 2006. The "Fund Complex" referenced in
the table consists of the Trust and the STI Classic Variable Trust.



                              AGGREGATE         PENSION OR RETIREMENT   ESTIMATED ANNUAL
                        COMPENSATION FROM THE    BENEFITS ACCRUED AS      BENEFITS UPON    TOTAL COMPENSATION FROM THE
NAME OF TRUSTEE               TRUST ($)         PART OF FUND EXPENSES      RETIREMENT       TRUST AND FUND COMPLEX ($)
- ---------------------   ---------------------   ---------------------   ----------------   ---------------------------
                                                                               
INTERESTED TRUSTEES
Richard W. Courts, II           53,500                   N/A                   N/A                    53,500
Clarence H. Ridley              57,500                   N/A                   N/A                    57,500

INDEPENDENT TRUSTEES
Thomas Gallagher                78,000                   N/A                   N/A                    78,000
F. Wendell Gooch                70,000                   N/A                   N/A                    70,000
Connie McDaniel*                57,000                   N/A                   N/A                    57,000
James O. Robbins                63,500                   N/A                   N/A                    63,500



                                       38





                              AGGREGATE         PENSION OR RETIREMENT   ESTIMATED ANNUAL
                        COMPENSATION FROM THE    BENEFITS ACCRUED AS      BENEFITS UPON    TOTAL COMPENSATION FROM THE
NAME OF TRUSTEE               TRUST ($)         PART OF FUND EXPENSES      RETIREMENT       TRUST AND FUND COMPLEX ($)
- ---------------------   ---------------------   ---------------------   ----------------   ---------------------------
                                                                               
Jonathan T. Walton*             45,000                   N/A                   N/A                    45,000
Sidney E. Harris                61,000                   N/A                   N/A                    61,000
Warren Y. Jobe                  63,000                   N/A                   N/A                    63,000
Charles D. Winslow              62,000                   N/A                   N/A                    62,000


*    Ms. McDaniel was elected to serve as a Trustee of the Trust effective May
     17, 2005. Mr. Walton resigned as a Trustee of the Trust effective December
     31, 2005.

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. The officers of the Trust may also serve as officers to one or more
mutual funds for which BISYS Fund Services or its affiliates act as
administrator, distributor or transfer agent. None of the officers receive
compensation from the Trust for their services. Officers of the Trust are
elected annually by the Board and hold office until their respective successors
are chosen and qualified, or in each case until he or she sooner dies, resigns,
is removed or becomes disqualified.


                                       39




   NAME, ADDRESS,       POSITION(S)       TERM OF OFFICE AND
   DATE OF BIRTH      HELD WITH TRUST   LENGTH OF TIME SERVED       PRINCIPAL OCCUPATION(S) DURING THE PAST 5 YEARS
- -------------------   ---------------   ---------------------   -------------------------------------------------------
                                                       
OFFICERS:
R. Jeffrey Young      President         One Year; since July    Senior Vice President, Relationship Management, BISYS
3435 Stelzer Road                       2004                    Fund Services (since 2002); Vice President, Client
Columbus, OH 43219                                              Services, BISYS Fund Services (1997-2002)
DOB 08/22/64

Deborah A. Lamb       Executive Vice    One Year; since         Chief Compliance Officer, Managing Director, Trusco
50 Hurt Plaza         President;        September 2004;         Capital Management, Inc. (since 2003); President,
Suite 1400            Assistant         since November 2003;    Investment Industry Consultants, LLC (since 2000);
Atlanta, GA 30303     Secretary;        since August 2004       Director of Compliance, INVESCO, Inc. (1995-2000)
DOB 10/02/52          Chief             (respectively)
                      Compliance
                      Officer

David L. Hughes       Treasurer,        One Year; since  May    Vice President, Financial Administration, BISYS Fund
3435 Stelzer Road     Chief             2005                    Services (since 2005); Assistant Vice President,
Columbus, OH 43219    Financial                                 Evergreen Investments (2000 to 2004); Fund Accounting
DOB 01/23/65          Officer                                   Manager, Fidelity Investments (1998 to 2000)

Cynthia J. Surprise   Secretary         One Year; since         Senior Counsel, Legal Services, BISYS Fund Services
3435 Stelzer Road                       February 2005           (since 2004);  Director and Counsel, Investors Bank &
Columbus, OH 43219                                              Trust Company (1999-2004)
DOB 07/08/46

Alaina V. Metz        Assistant         One Year; since July    Vice President Blue Sky Compliance, BISYS Fund Services
3435 Stelzer Road     Secretary         2004                    (since 2002); Chief Administrative Officer, Blue Sky
Columbus, OH 43219                                              Compliance, BISYS Fund Services (1995-2002)
DOB 04/07/67

Jennifer English      Assistant         One Year; since         Assistant Counsel, Legal Services, BISYS Fund Services
3435 Stelzer Road     Secretary         November 2005           (since 2005); Assistant Counsel, PFPC Inc (2002-2005);
Columbus, OH 43219                                              Associate Legal Product Manager, Fidelity Investments
DOB 03/05/72                                                    (2001); Regulatory Specialist, Wellington Management
                                                                Company, LLP (1998-2001)


     PURCHASING AND REDEEMING SHARES

Purchases and redemptions of shares of the Fund may be made on any day the New
York Stock Exchange ("NYSE") is open for business. Shares of the 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.

It is currently the Trust's policy to pay for all redemptions in cash, however,
the Trust retains the right to alter this policy to provide for redemptions in
whole or in part by a distribution in-kind of readily marketable securities held
by the Fund in lieu of cash. Shareholders may incur brokerage charges on the
sale of any such securities so received in payment of redemptions. A shareholder
will at all times be entitled to aggregate cash redemptions from all series of
the Trust up to the lesser of $250,000 or 1% of


                                       40



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 the
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 the 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 C Shares of the Fund for A Shares of the
Fund, and will waive any sales charges that would otherwise apply, for those
investors who hold C 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.

The Trust also imposes 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. The Fund adheres to Section 2(a)(41) and Rule 2a-4 thereunder,
of the 1940 Act with respect to the valuation of portfolio securities. In
general, securities for which market quotations are readily available are valued
at current market value, and all other securities are valued at fair value as
determined in good faith by the Trusts' Board of Trustees. In complying with the
1940 Act, the Trust relies on guidance provided by the SEC and by the SEC staff
in various interpretive letters and other guidance.

EQUITY SECURITIES. Securities listed on a securities exchange, market or
automated quotation system for which quotations are readily available, including
securities traded over the counter, are valued at the 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.


                                       41



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. Prices for most securities held
by the Fund are provided daily by third-party independent pricing agents that
are approved by the Board of Trustees of the Trust. The valuations provided by
third-party independent pricing agents are reviewed daily by the Administrator.

     TAXES

The following is a summary of certain federal, state and foreign income tax
considerations generally affecting the Fund and its investors. No attempt is
made to present a detailed explanation of the tax treatment of the Fund or its
investors, and the discussion here and in the Trust's prospectuses is not
intended as a substitute for careful tax planning.

This summary does not address all of the tax consequences that may be relevant
to specific investors in the Fund in light of such investors' particular
circumstances or to investors subject to special treatment under any tax laws.

PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO SPECIFIC
QUESTIONS ABOUT FEDERAL, STATE, LOCAL, OR FOREIGN TAXES.

FEDERAL INCOME TAX

This discussion of federal income tax considerations is based on the Internal
Revenue Code of 1986, as amended, 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 Fund must distribute annually to its shareholders at least
the sum of 90% of its net investment income excludable from gross income plus
90% of its investment company taxable income (generally, net investment income
plus net short-term capital gain) (the "Distribution Requirement") and also must
meet several additional requirements. Among these requirements are the
following: (i) at least 90% of the Fund's gross income each taxable year must be
derived from dividends, interest, payments with respect to securities loans, and
gains from the sale or other disposition of stock or securities or foreign
currencies, or certain other income, (ii) at the close of each quarter of the
Fund's taxable year, at least 50% of the value of its total assets must be
represented by cash and cash items, U.S. government securities, securities of
other RICs and other securities, with such other securities limited, in respect
to any one issuer, to an amount that does not exceed 5% of the value of the
Fund's assets and that does not represent more than 10% of the outstanding
voting securities of such issuer; and (iii) at the close of each quarter of the
Fund's taxable year, not more than 25% of the value of the Fund's assets may be
invested in securities (other than U.S. government securities or the securities
of other RICs) of any one issuer, or of two or more issuers engaged in same or
similar businesses if the Fund owns at least 20% of the voting power of such
issuers, or the securities of one or more qualified publicly traded
partnerships.

Notwithstanding the Distribution Requirement described above, which only
requires the Fund to distribute at least 90% of its annual investment company
taxable income and does not require any minimum distribution of net capital
gains (the excess of net long-term capital gains over net short-term


                                       42



capital loss), the Fund will be subject to a nondeductible 4% excise tax to the
extent it fails to distribute by the end of any calendar year 98% of its
ordinary income for that year and 98% of its capital gain net income for the
one-year period ending on October 31 of that year (and any retained amount from
that prior calendar year on which the Fund paid no federal income tax). The Fund
intends to make sufficient distributions prior to the end of each calendar year
to avoid liability for the federal excise tax applicable to regulated investment
companies but can make no assurances that distributions will be sufficient to
avoid this tax.

If the Fund fails to maintain qualification as a RIC for a tax year, the Fund
will be subject to federal income tax on its taxable income and gains at
corporate rates, without any benefit for distributions paid to shareholders, and
distributions to shareholders will be taxed as ordinary income to the extent of
the Fund's current and accumulated earnings and profits. In such case, the
dividends received deduction generally will be available for eligible corporate
shareholders (subject to certain limitations) and the lower tax rates applicable
to qualified dividend income would be available to individual shareholders. The
Board reserves the right not to maintain qualification of the Fund as a RIC if
it determines such course of action to be beneficial to shareholders.

The Fund may invest in complex securities. These investments may be subject to
numerous special and complex tax rules. These rules could affect whether gains
and losses recognized by the Fund are treated as ordinary income or capital
gains, accelerate the recognition of income to the Fund, and/or defer the Fund's
ability to recognize losses. In turn, these rules may affect the amount, timing
or character of the income distributed to shareholders by the Fund.

The Fund receives income in the form of dividends and interest on Fund
investments. This income, less expenses incurred in the operation of the Fund,
constitutes its net investment income from which dividends may be paid to you.
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 the 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 the Fund shareholder to be
qualified dividend income, the 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
the Fund's shares. Any distributions by the Fund may be taxable to shareholders
regardless of whether they are received in cash or in additional shares. The
Fund may derive capital gains and losses in connection with sales or other
dispositions of the Fund's portfolio securities. Distributions from net
short-term capital gains will be taxable to you as ordinary income.
Distributions from net long-term capital gains will be taxable to you as
long-term capital gains regardless of how long you have held your shares in the
fund. 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.

Shareholders who have not held Fund shares for a full year should be aware that
the Fund may designate and distribute, as ordinary income or capital gain, a
percentage of income that is not equal to the actual amount of such income
earned during the period of investment in the Fund.


                                       43



The 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 the Fund's distributions exceed its income realized during a taxable year,
all or a portion of the distributions made in the same taxable year may be
recharacterized as a return of capital to shareholders. A return of capital
distribution will generally not be taxable, but will reduce each shareholder's
cost basis in the Fund and result in higher reported capital gain or lower
reported capital loss when those shares on which distribution was received are
sold.

If a shareholder that is a tax-exempt investor (e.g., a pension plan, individual
retirement account, 401(k), similar tax-advantaged plan, charitable
organization, etc.) incurs debt to finance the acquisition of its shares, a
portion of the income received by that shareholder with respect to its shares
would constitute unrelated business taxable income ("UBTI"). A tax-exempt
investor is generally subject to federal income tax to the extent that its UBTI
for a taxable year exceeds its annual $1,000 exclusion. If a charitable
remainder trust incurs any UBTI in a taxable year, all of its net income for the
taxable year is subject to federal income tax.

Sale, Redemption or Exchange of Fund Shares

Sales, redemptions and exchanges of Fund shares are generally taxable
transactions for federal, state and local income tax purposes.

Any gain or loss recognized on a sale or redemption of shares of the Fund by a
shareholder who holds his or her 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 fund held for six
months or less will be disallowed to the extent of any exempt interest dividends
(which are dividends by the Fund as attributable to tax-exempt interest derived
from state or local bonds) 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.

STATE TAXES

The Fund is not liable for any income or franchise tax in Massachusetts if it
qualifies as a RIC for federal income tax purposes. Distributions by the Fund to
investors and the ownership of shares may be subject to state and local taxes.

Shareholders are urged to consult their tax advisors regarding state and local
taxes affecting an investment in shares of the Fund.

Many states grant tax-free status to dividends paid to you from interest earned
on direct obligations of the U.S. Government, subject in some states to minimum
investment requirements that must be met by the Fund. Investments in Government
National Mortgage Association and Fannie Mae securities, bankers' acceptances,
commercial paper and repurchase agreements collaterized by U.S. government
securities do


                                       44



not generally qualify for tax-free treatment. The rules on exclusion of this
income are different for corporations.

FOREIGN TAXES

Interest received by the Fund may be subject to income, withholding or other
taxes imposed by foreign countries and U.S. possessions that would reduce the
yield on the Fund's 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.

     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 Board, the Adviser is responsible for placing the orders to
execute transactions for the 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. 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. While the Adviser generally seeks reasonably competitive spreads or
commissions, the Trust will not necessarily be paying the lowest spread or
commission available due to reasons described herein.

The money market securities in which the Fund invests 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. Money market and debt
securities are generally traded on a net basis and do not normally involve
either brokerage commissions or transfer taxes. The Fund may also enter into
financial futures and option contracts, which normally involve brokerage
commissions. The cost of executing portfolio securities transactions of the
Trust will primarily consist of dealer spreads and underwriting commissions.

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 Fund's Adviser may select a broker based
upon brokerage or research services provided to the Adviser. The Adviser may pay
a higher commission than otherwise obtainable from other brokers in return for
such services only if a good faith determination is made that the commission is
reasonable in relation to the services provided.

Section 28(e) of the 1934 Act permits the Adviser, under certain circumstances,
to cause the 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


                                       45



that access to independent investment research is beneficial to their investment
decision-making processes and, therefore, to the 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
Fund's 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 National Association of Securities Dealers 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).

BROKERAGE WITH FUND AFFILIATES. The 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.


                                       46



     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 Fund invests since such
contracts generally have remaining maturities of less than one-year. The Fund
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. Variations in turnover rate may be due to market
conditions, fluctuating volume of shareholder purchases and redemptions or
changes in the Adviser's investment outlook.


                                       47



     PORTFOLIO HOLDINGS

The Board of Trustees has approved a policy and procedures that govern the
timing and circumstances regarding the disclosure of Fund portfolio holdings
information to shareholders and third parties. These policies and procedures are
designed to ensure that disclosure of information regarding the Fund's portfolio
securities is in the best interests of Fund shareholders, and include procedures
to address conflicts between the interests of the Fund's shareholders, on the
one hand, and those of the Fund's investment adviser, principal underwriter or
any affiliated person of the Fund, its investment adviser, or its principal
underwriter, on the other. Pursuant to such procedures, the Board has authorized
the Adviser's Chief Compliance Officer (the "CCO") to authorize the release of
the Fund's portfolio holdings, as necessary, in conformity with the foregoing
principles. The Fund's CCO reports quarterly to the Board regarding the
implementation of such policies and procedures.

Pursuant to applicable law, the Fund is required to disclose its complete
portfolio holdings quarterly, within 60 days of the end of each fiscal quarter
(currently, each March 31, June 30, September 30, and December 31). The Fund
discloses a complete schedule of investments in each Semi-Annual Report and
Annual Report to Fund shareholders or, following the first and third fiscal
quarters, in quarterly holdings reports filed with the SEC on Form N-Q.
Semi-Annual and Annual Reports are distributed to Fund shareholders. Quarterly
holdings reports filed with the SEC on Form N-Q are not distributed to Fund
shareholders, but are available, free of charge, on the EDGAR database on the
SEC's website at www.sec.gov and may be reviewed and copied at the SEC's public
reference room. Information on the operation and terms of usage of the SEC
public reference room is available at http://www.sec.gov/info/edgar/prrrules.htm
or by calling 1-800-SEC-0330.

The Fund's Annual Reports and Semi-Annual Reports will be available, free of
charge, on the Trust's website at www.sticlassicfunds.com. The Trust's website
also provides information about the Fund's complete portfolio holdings as of the
end of the most recent calendar quarter (i.e., each March 31, June 30, September
30, and December 31). This information on the website is provided with a lag of
at least 15 days and is available until updated the next calendar quarter. The
information on the Trust's website is publicly available to all categories of
persons.

In addition to information provided to shareholders and the general public, from
time to time rating and ranking organizations, such as S&P and Morningstar,
Inc., may request complete portfolio holdings information in connection with
rating the Fund. Similarly, institutional investors, financial planners, pension
plan sponsors and/or their consultants may request a complete list of portfolio
holdings in order to assess the risks of the Fund's portfolio along with related
performance attribution statistics. The Trust believes that these third parties
have legitimate objectives in requesting such portfolio holdings information.
The Trust may also disclose the portfolio holdings to broker-dealers and/or
pricing services in order to allow the Fund to accurately price and potentially
sell portfolio securities. The Trust's policies and procedures provide that the
Adviser's CCO may authorize disclosure of portfolio holdings information to such
parties at differing times and/or with different lag times to such third parties
provided that the recipient is, either by contractual agreement or otherwise by
law, (i) required to maintain the confidentiality of the information and (ii)
prohibited from using the information to facilitate or assist in any securities
transactions or investment program.

The Trust requires any third party receiving non-public holdings information to
enter into a Confidentiality Agreement with the Adviser. The Confidentiality
Agreement provides, among other things, that non-public portfolio holdings
information will be kept secret and confidential and that such information will
be used solely for the purpose of analysis and evaluation of the Fund.
Specifically, the Confidentiality Agreement prohibits anyone in possession of
non-public portfolio holdings information from purchasing or selling securities
based on such information, or from disclosing such information to


                                       48



other persons, except for those who are actually engaged in, and need to know,
such information to perform the analysis or evaluation of the Fund.

Currently, the Trust has arrangements to provide additional disclosure of
portfolio holdings information on a monthly basis with no lag time to the
following third parties: ABN-AMRO, Advest, Inc., AG Edwards & Sons, Inc., Banc
of America Securities, LLC, BB&T Capital Markets, Credit Suisse First Boston,
LLC, Davenport & Company, LLC, Empirical Research Partners, Freidman, Billings,
Ramsey & Co., Inc., Janney Montgomery Scott, LLC, JP Morgan Securities, Inc.,
Merrill Lynch Pierce Fenner & Smith, Inc., FTN Midwest Research, Morgan Keegan &
Co., Inc., Oppenheimer & Company, Piper Jaffray & Co., Raymond James Financial,
Inc., RBC Dain Rauscher, Inc, Smith Barney, UBS Financial Services, Inc., and
Wachovia Bank, N.A.

Currently, the Trust has arrangements to provide additional disclosure of
complete portfolio holdings information on a quarterly basis with no lag to the
following third parties: Aon Consulting, Inc., Callan Associates, Inc., Colonial
Consulting, Inc., CRA Business Strategies Group, Gabriel Roder, Smith & Co., New
England Pension Consultants, Prime Buchholz & Associates, Inc., and Watson Wyatt
Investment Consulting, Inc.

Currently, the Trust has arrangements to provide additional disclosure of
complete portfolio holdings information on a weekly basis with a lag time of 7
days to S&P.

In addition, the Trust's service providers, such as the custodian, administrator
and transfer agent, may receive portfolio holdings information in connection
with their services to the Fund. Financial printers, proxy voting service
providers and pricing information vendors may receive portfolio holdings
information, as necessary, in connection with their services to the Fund.

No compensation or other consideration is paid to or received by any party in
connection with the disclosure of portfolio holdings information, including the
Fund, the Adviser and its affiliates or recipient of the Fund's portfolio
holdings information.

     DESCRIPTION OF SHARES

The Declaration of Trust authorizes the issuance of an unlimited number of
shares of the Fund each of which represents an equal proportionate interest in
the Fund with each other share. Shares are entitled upon liquidation to a pro
rata share in the net assets of the Fund. Shareholders have no preemptive
rights. The Declaration of Trust provides that the Trustees of the Trust may
create additional series of shares. 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. The 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 the Fund without shareholder approval. While the Trustees
have no present


                                       49


intention of exercising this power, they may do so if the Fund fails to reach or
maintain a viable size or for some other extraordinary reason.

In addition, a Trustee may be removed by the remaining Trustees or by
shareholders at a special meeting called upon written request of shareholders
owning at least 10% of the outstanding shares of the Trust. In the event that
such a meeting is requested, the Trust will provide appropriate assistance and
information to the shareholders requesting the meeting.

     SHAREHOLDER LIABILITY

The Trust is an entity of the type commonly known as a "Massachusetts business
trust." Under Massachusetts law, shareholders of such a trust could, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. Even if, however, the Trust were held to be a partnership, the
possibility of the shareholders' incurring financial loss for that reason
appears remote because the Trust's Declaration of Trust contains an express
disclaimer of shareholder liability for obligations of the Trust and requires
that notice of such disclaimer be given in each agreement, obligation or
instrument entered into or executed by or on behalf of the Trust or the
Trustees, and because the Declaration of Trust provides for indemnification out
of the Trust property for any investor held personally liable for the
obligations of the Trust.

     LIMITATION OF TRUSTEES' LIABILITY

The Declaration of Trust provides that a Trustee shall be liable only for his
own willful defaults and, if reasonable care has been exercised in the selection
of officers, agents, employees or investment advisers, shall not be liable for
any neglect or wrongdoing of any such person. The Declaration of Trust also
provides that the Trust will indemnify its Trustees and officers against
liabilities and expenses incurred in connection with actual or threatened
litigation in which they may be involved because of their offices with the Trust
unless it is determined in the manner provided in the Declaration of Trust that
they have not acted in good faith in the reasonable belief that their actions
were in the best interests of the Trust. However, nothing in the Declaration of
Trust shall protect or indemnify a Trustee against any liability for his willful
misfeasance, bad faith, gross negligence or reckless disregard of his duties.
Nothing contained in this section attempts to disclaim a Trustee's individual
liability in any manner inconsistent with the federal securities laws.

     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 and the 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 and the Adviser are prohibited from acquiring
beneficial ownership of securities offered in connection with initial public
offerings. Certain access persons of the Adviser are further prohibited from
acquiring beneficial ownership of securities offered in connection with a
limited offering. The Distributor's Code 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.


                                       50



     PROXY VOTING

The Board has delegated the responsibility for decisions regarding proxy voting
for securities held by the Fund to the Adviser. The Adviser will vote such
proxies in accordance with its proxy policies and procedures, which are included
in Appendix B to this SAI. The Board of Trustees will periodically review the
Fund's proxy voting record.

The Trust is required to disclose annually the Fund's complete proxy voting
record on Form N-PX. Beginning August 31, 2006, the Fund's proxy voting record
for the most recent 12 month period ending June 30 will be available on the
Fund's website at www.sticlassicfunds.com, and without charge upon request by
calling 1-888-STI-FUND (1-888-784-3863), or by writing to the Fund at STI
Classic Funds, c/o BISYS Fund Services Limited Partnership, 3435 Stelzer Road,
Columbus, Ohio 43219. The Fund's proxy voting record is also available on the
SEC's website at www.sec.gov.


                                       51



                                   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 & Poor's Ratings Group (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 Investor
     Services, Inc. ("Moody's") have a superior ability for repayment of senior
     short-term debt obligations. Prime-1 repayment ability will often be
     evidenced by many of the following characteristics:

     -    Leading market positions in well-established industries.

     -    High rates of return on funds employed.

     -    Conservative capitalization structure with moderate reliance on debt
          and ample asset protection.

     -    Broad margins in earnings coverage of fixed financial charges and high
          internal cash generation.

     -    Well-established access to a range of financial markets and assured
          sources of alternate liquidity.

The rating F1 (Highest Credit Quality) is the highest commercial rating assigned
by Fitch, Inc. ("Fitch"). Paper rated F1 is regarded as having the strongest
capacity for timely payment of financial commitments. The rating F2 (Good Credit
Quality) is the second highest commercial paper rating assigned by Fitch which
reflects a satisfactory capacity for timely payment of financial commitments,
but the margin of safety is not as great as in the case of the higher ratings.

The rating TBW-1 by Thomson BankWatch ("Thomson") indicates a very high
likelihood that principal and interest will be paid on a timely basis.

DESCRIPTION OF MUNICIPAL NOTE RATINGS

Moody's highest rating for state and municipal and other short-term notes is
MIG-1 and VMIG-l. Short-term municipal securities rated MIG-1 or VMIG-1 are of
the best quality. They have strong protection from established cash flows,
superior liquidity support, or demonstrated broad-based access to the market for
refinancing or both. Short-term municipal securities rated MIG-2 or VMIG-2 are
of high quality. Margins of protection are ample although not so large as in the
MIG-I/VMIG-2 group.

An S&P note rating reflects the liquidity concerns and market access risks
unique to notes. Notes due in three years or less will likely receive a note
rating. Notes maturing beyond three years will most likely receive a long-term
debt rating. The following criteria will be used in making that assessment:



     -    Amortization Schedule - the larger the final maturity relative to
          other maturities, the more likely it will be treated as a note, and

     -    Source of Payment - the more dependent the issue is on the market for
          its refinancing, the more likely it will be treated as a note.

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



(TRUSCO CAPITAL MANAGEMENT LOGO)

TRUSCO CAPITAL MANAGEMENT PROXY DISCLOSURE TO THE STI CLASSIC FUNDS SHAREHOLDERS

Dear Shareholders:

Securities and Exchange Commission rules under the Investment Advisers Act of
1940 and the Investment Company Act of 1940 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 rules require an investment company to adopt policies and procedures
reasonably designed to ensure that the fund: 1) votes proxies in the best
interests of clients; 2) discloses information about those policies and
procedures and how to obtain copies; 3) discloses how clients may obtain
information about proxy votes cast; and 4) maintains appropriate records
relating to actual proxy voting.

The STI Classic Funds' board has delegated voting authority to Trusco and
accordingly has adopted Trusco's proxy voting policies.

Trusco's existing Proxy Voting Committee ("Committee") is structured to seek to
ensure compliance with all of the requirements. After an extensive review, the
Committee determined that the use of a professional proxy voting agency would be
the most efficient and effective course of action to accommodate certain
portions of the regulations. The Committee conducted comprehensive due diligence
of the most established proxy voting agencies in the industry and chose to hire
Institutional Shareholder Services ("ISS") as Trusco's agent to assist us with
meeting the administrative, clerical and recordkeeping aspects of our fiduciary
obligations.

Several of the determining factors in choosing ISS as an agent to provide such
services included its comprehensive research tools and advanced, state of the
art technical and system support.

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, structure of the board of directors, corporate culture
and governance process, and the impact of economic, environmental and social
implications remain key elements in all voting decisions.

To address material conflicts of interest, as defined by SEC regulations,
involving Trusco relationships, the Committee will engage the services of an
independent fiduciary voting service to vote on any proxies for securities for
which the Committee determines a material conflict of interest exists so as to
provide shareholders with the most beneficial and objective proxy voting
possible.

Material conflicts might occur, for example, (1) in the case of securities of a
company where a director or officer may serve as an independent director on
Trusco's, SunTrust Banks, Inc. ("SunTrust") or a related


                                       B-1



SunTrust affiliate's board of directors or (2) where an issuer has substantial
banking or other financial relationships with Trusco and/or SunTrust, or a
SunTrust affiliate.

If the Committee engages an independent fiduciary voting service to perform the
voting analysis, ISS, as our agent for administrative, clerical and
recordkeeping proxy services, will then vote the shares according to the
directions of the independent fiduciary. Trusco will have no power to
participate in, alter or change the decision or final vote for any proxy matters
entrusted to the properly appointed independent fiduciary.

Please be assured that although Trusco has engaged ISS to assist with physical
proxy voting matters, we retain the primary obligation of proxy voting and will
review all issues and actively monitor all information prior to determining each
vote placed on behalf of shareholders. Trusco will continue to utilize available
resources in order to make well-informed, qualified proxy vote decisions.

Further information, such as copies of Trusco's Proxy Policies and Procedures
and voting records of the STI Classic Funds, may be obtained without charge by
contacting the STI Classic Funds by telephone at 1-888-STI-FUND (784-3863) or by
visiting www.sticlassicfunds.com. The policies and procedures are also available
in the STI Classic Funds' Statement of Additional Information. Actual voting
records will also be filed and available on the SEC's website.

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 continue to do our utmost to protect the interests of each and every
shareholder.

Regards,

Trusco Capital Management, Inc.


                                       B-2



                  TRUSCO CAPITAL MANAGEMENT, INC. PROXY POLICY

Trusco Capital Management, Inc. ("Trusco") has a Proxy Committee ("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 all discretionary client accounts and funds.
Annually (or more often as needed), the Committee will review, reaffirm and/or
amend guidelines, strategies and proxy policies for all domestic and
international client accounts, funds and product lines.

After an extensive review of established service providers including size,
experience and technical capabilities, Trusco contracted with Institutional
Shareholder Services ("ISS") as its agent to provide certain administrative,
clerical, functional recordkeeping and support services related to the firm's
proxy voting processes/procedures, which include, but are not limited to:

     1.   The collection and coordination of proxy material from each custodian
          for each Trusco client's account, including Trusco's managed fund
          clients.

     2.   The facilitation of the mechanical act of proxy voting,
          reconciliation, and disclosure for each Trusco client's accounts,
          including Trusco's fund clients, in accordance with Trusco's proxy
          policies and the Committee's direction.

     3.   Required record keeping and voting record retention of all Trusco
          proxy voting on behalf Trusco's clients, including Trusco's fund
          clients.

As reflected in Trusco's proxy policies, the Committee will affirmatively vote
proxies for proposals that it interprets are deemed to be in the best economic
interest of its clients as shareholders and beneficiaries to those actions.

The Committee will retain the ability to consider client specific preferences
and/or develop and apply criteria unique to its client base and product lines,
where appropriate. As needed, this information will be communicated to ISS as
Trusco's agent to ensure that the relative shares proxies will be voted
accordingly. The Committee has reviewed ISS' capabilities as agent for the
administerial services above and is confident in its abilities to effectively
provide these services. The Committee will monitor such capability on an ongoing
basis.

               AN INDEPENDENT, OBJECTIVE APPROACH TO PROXY ISSUES

In the absence of express contractual provisions to the contrary, the Committee
will vote proxies for all Trusco discretionary investment management clients and
Trusco managed funds, such as the STI Classic Funds.

As indicated above, the Committee utilizes the services of ISS, an independent
third party agent, to assist with facilitating the administrative, clerical,
functional and recordkeeping proxy duties and to assist in managing certain
aspects of our proxy obligations. Accordingly, Trusco maintains its own proxy
policies for U.S. domestic and global proxy voting issues, as well as guidelines
applicable to "Taft Hartley" plans and relationships. ERISA accounts will be
voted in accordance with the U.S. domestic proxy policy as ERISA specific
guidelines and requirements are incorporated into this policy.

Trusco provides and maintains the following standard proxy voting policies:


                                       B-3



     -    Trusco U.S. Domestic Proxy Policy (applied to both ERISA and Non-ERISA
          related accounts)

     -    Trusco Taft Hartley Proxy Policy

     -    Trusco Global/International Proxy Policy

These policies are available as described below. Both brief and extended
summaries are available for the Trusco Taft Hartley Proxy Policy and the Trusco
Global/International Proxy Policy.

The Committee's process includes a review and evaluation of relevant,
information related to the issuer's proxy, applying the firm's proxy voting
policy in a prudent and appropriate manner ensuring votes are cast in the best
interest of our clients.

                              EXCEPTIONS TO POLICY

The Trusco Proxy Policies and guidelines as outlined herein generally will not
be applied where Trusco has further delegated discretionary investment
management and the authority to vote shares to a properly appointed subadvisor,
such as may be the case in some managed separate accounts, wrap programs, and
funds.

In those situations proxy votes cast by the subadvisor will be governed by the
subadvisor's proxy voting policies and procedures.

                              CONFLICTS OF INTEREST

Due to its diversified client base, numerous product lines, independent board of
directors, and affiliation with SunTrust Banks, Inc., and its subsidiaries, the
Committee may determine a potential conflict exists in connection with a proxy
vote based on the SEC guidelines. In such instances, the Committee will review
the potential conflict to determine if it is material.

Examples of material conflicts of interest which may arise could include those
where the shares to be voted involve:

     1.   Common stock of SunTrust Banks, Inc., The Coca-Cola Company, Inc.,
          and/or other public corporate issuers with which either Trusco or
          SunTrust Banks, Inc. or its affiliates, may have a similar on-going
          non-investment management associated relationship.

     2.   An issuer with a director, officer or employee who presently serves as
          an independent director on the board of Trusco or SunTrust Banks, Inc.
          or any of its affiliates.

     3.   An issuer having substantial and numerous banking, investment or other
          financial relationships with Trusco, SunTrust Banks, Inc. or its
          affiliates.

     4.   A director or senior officer of Trusco or SunTrust Banks, Inc. serving
          on the board of a publicly held company.

     5.   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 its affiliates


                                       B-4



Although Trusco utilizes a pre-determined proxy voting policy, occasions may
arise in which a conflict of interest could be deemed to be material. In this
case, the Committee will determine the most fair and reasonable procedure to be
followed in order to properly address all conflict concerns. The Committee may
employ one or more of the options listed below:

     1.   Retain an independent fiduciary to vote the shares.

     2.   Send the proxy material to the client (in the case of mutual funds,
          the funds' shareholders) so he or she may vote the proxies.

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.

                           SECURITIES LENDING PROGRAM

Trusco also manages assets for several clients (including mutual funds, such as
the STI Classic Funds) who engage in "security lending" programs. A typical
security lending program such as the "STI Classic Securities Lending Program" is
where the clients or funds lend equities and/or fixed-income assets from their
accounts or portfolio to various approved-broker-dealers against cash collateral
(102% of loan value) and earn incremental income by: 1.) extracting intrinsic
value from each loan; and, 2.) generating investment income through reinvestment
activities involving cash collateral. Consistent with SEC guidelines, the
Committee will generally refrain from voting securities loaned out under this
type of lending arrangement when the costs and lost revenue to the client or
fund combined with the administrative effects of recalling the securities
outweigh the benefit of voting the proxy. In addition, the 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 by the Committee, Trusco will initiate a total recall of the shares
on loan to vote accordingly.

Under the current STI Classic Securities Lending Program, Trusco is required to
notify the Custodian to recall securities on loan 10 business days prior to the
record date if Trusco wishes to vote proxy on the securities so as to ensure
that they are in Custodian's possession by the voting deadline.

                             ADDITIONAL INFORMATION

Trusco clients:

Extended summaries of Trusco Capital Management, Inc.'s U.S. Domestic Proxy
Policy (includes ERISA related accounts,) Taft Hartley Proxy Policy, and
Global/International Proxy Policy and voting records are available to clients
upon request. (Complete copies are quite voluminous but are also available.) For
this information, or to obtain information about specific voting issues, please
contact Trusco Capital Management, Inc, Attn: Proxy Voting Committee
Administrator, 50 Hurt Plaza, 14th Floor, Atlanta, Georgia, 30303, by telephone
at 404.827.6177, or via e-mail at: PMP.operations@truscocapital.com.

STI Classic Funds and STI Classic Variable Trust shareholders:

Shareholders of the STI Classic Funds or the STI Classic Variable Trust may
access this information by contacting the STI Classic Funds by telephone at
1-888-STI-FUND (784-3863) or by visiting www.sticlassicfunds.com.


                                       B-5



          2006 TRUSCO CAPITAL MANAGEMENT GLOBAL PROXY VOTING GUIDELINES

Following is a concise summary of general policies for voting global proxies. In
addition, Trusco 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:

     -    there are concerns about the accounts presented or audit procedures
          used; or

     -    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:

     -    there are serious concerns about the accounts presented or the audit
          procedures used;

     -    the auditors are being changed without explanation; or

     -    non audit-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:

     -    there are serious concerns about the statutory reports presented or
          the audit procedures used;

     -    questions exist concerning any of the statutory auditors being
          appointed; or

     -    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:

     -    the dividend payout ratio has been consistently below 30 percent
          without adequate explanation; or

     -    the payout is excessive given the company's financial position.

Stock (Scrip) Dividend Alternative


                                       B-6



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.

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:

     -    Adequate disclosure has not been provided in a timely manner;

     -    There are clear concerns over questionable finances or restatements;

     -    There have been questionable transactions with conflicts of interest;

     -    There are any records of abuses against minority shareholder
          interests; and

     -    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).


                                       B-7



Vote AGAINST labor representatives if they sit on either the audit or
compensation committee, as they are not required to be on those committees.

Director Compensation

Vote FOR proposals to award cash fees to non-executive 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:

     -    there are serious questions about actions of the board or management
          for the year in question; or

     -    legal action is being taken against the board by other shareholders.

Vote AGAINST proposals to remove approval of discharge of board and management
from the agenda.

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.

Board Structure

Vote FOR proposals to fix board size.

Vote AGAINST 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:


                                       B-8



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:

     -    the specific purpose of the increase (such as a share-based
          acquisition or merger) does not meet Trusco's guidelines for the
          purpose being proposed; or

     -    the increase would leave the company with less than 30 percent of its
          new authorization outstanding after adjusting for all proposed
          issuances.

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.

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
Trusco's guidelines on equity issuance requests.


                                       B-9



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
Trusco'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:

     -    clear evidence of past abuse of the authority is available; or

     -    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.


                                      B-10



Reorganizations/Restructurings

Vote reorganizations and restructurings on a CASE-BY-CASE basis.

Mergers and Acquisitions

Vote FOR mergers and acquisitions, unless:

     -    the impact on earnings or voting rights for one class of shareholders
          is disproportionate to the relative contributions of the group; or

     -    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.

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.


                                      B-11



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-12