-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GQzQb00/Wn5rOQ2SbyjysJv+B/scsEeBY5zHpc6HYrWb7yykcA1PRQ44SleeqqSG W0RhcgZzz9OVQidxFTNOLA== 0000950152-06-006291.txt : 20060731 0000950152-06-006291.hdr.sgml : 20060731 20060731173233 ACCESSION NUMBER: 0000950152-06-006291 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20060731 DATE AS OF CHANGE: 20060731 EFFECTIVENESS DATE: 20060801 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STI CLASSIC FUNDS CENTRAL INDEX KEY: 0000883939 IRS NUMBER: 232678674 STATE OF INCORPORATION: OH FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-06557 FILM NUMBER: 06992107 BUSINESS ADDRESS: STREET 1: 3435 STELZER RD. CITY: COLUMBUS STATE: OH ZIP: 43219 BUSINESS PHONE: 6144708000 MAIL ADDRESS: STREET 1: 3435 STELZER RD. CITY: COLUMBUS STATE: OH ZIP: 43219 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STI CLASSIC FUNDS CENTRAL INDEX KEY: 0000883939 IRS NUMBER: 232678674 STATE OF INCORPORATION: OH FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 033-45671 FILM NUMBER: 06992108 BUSINESS ADDRESS: STREET 1: 3435 STELZER RD. CITY: COLUMBUS STATE: OH ZIP: 43219 BUSINESS PHONE: 6144708000 MAIL ADDRESS: STREET 1: 3435 STELZER RD. CITY: COLUMBUS STATE: OH ZIP: 43219 0000883939 S000004641 STI Classic Balanced Fund C000012643 A Shares STBLX C000012644 C Shares SCBFX C000012645 I Shares SBATX 0000883939 S000004658 STI Classic Capital Appreciation Fund C000012678 A Shares STCIX C000012679 C Shares STCFX C000012680 I Shares STCAX 0000883939 S000004660 STI Classic Large Cap Relative Value Fund C000012686 A Shares CFVIX C000012687 C Shares CVIBX C000012688 I Shares CRVAX 0000883939 S000004661 STI Classic International Equity Fund C000012689 A Shares SCIIX C000012690 C Shares SIEFX C000012691 I Shares STITX 0000883939 S000004662 STI Classic International Equity Index Fund C000012692 A Shares SIIIX C000012693 C Shares SIIFX C000012694 I Shares SIEIX 0000883939 S000004663 STI Classic Mid-Cap Equity Fund C000012695 A Shares SCAIX C000012696 C Shares SCMEX C000012697 I Shares SAGTX 0000883939 S000004664 STI Classic Mid-Cap Value Equity Fund C000012698 A Shares SAMVX C000012699 C Shares SMVFX C000012700 I Shares SMVTX 0000883939 S000004665 STI Classic Small Cap Growth Stock Fund C000012701 A Shares SCGIX C000012702 C Shares SSCFX C000012703 I Shares SSCTX 0000883939 S000004666 STI Classic Small Cap Value Equity Fund C000012704 A Shares SASVX C000012705 C Shares STCEX C000012706 I Shares SCETX 0000883939 S000004667 STI Classic Large Cap Quantitative Equity Fund C000012707 A Shares SQEAX C000012708 C Shares SQELX C000012709 I Shares SQETX 0000883939 S000004668 STI Classic Quality Growth Stock Fund C000012710 A Shares SXSAX C000012711 C Shares STTFX C000012712 I Shares STTAX 0000883939 S000004669 STI Classic Large Cap Value Equity Fund C000012713 A Shares SVIIX C000012714 C Shares SVIFX C000012715 I Shares STVTX 0000883939 S000004673 STI Classic Aggressive Growth Stock Fund C000012728 A Shares SAGAX C000012729 C Shares SAGLX C000012730 I Shares SCATX 0000883939 S000004674 STI Classic Emerging Growth Stock Fund C000012731 A Shares SCEAX C000012732 C Shares SEGLX C000012733 I Shares SEGTX 0000883939 S000004675 STI Classic U.S. Government Securities Ultra-Short Bond Fund C000012734 I Shares SIGVX 0000883939 S000004676 STI Classic High Quality Bond Fund C000012735 I Shares SHQIX 0000883939 S000004677 STI Classic Ultra-Short Bond Fund C000012736 I Shares SISSX 0000883939 S000004678 STI Classic Total Return Bond Fund C000012737 I Shares STRIX 0000883939 S000004679 STI Classic Florida Tax-Exempt Bond Fund C000012738 A Shares SFLTX C000012739 C Shares SCFEX C000012740 I Shares SCFTX 0000883939 S000004680 STI Classic Georgia Tax-Exempt Bond Fund C000012741 A Shares SGTEX C000012742 C Shares SCGTX C000012743 I Shares SGATX 0000883939 S000004681 STI Classic High Income Fund C000012744 A Shares SAHIX C000012745 C Shares STHIX C000012746 I Shares STHTX 0000883939 S000004692 STI Classic Investment Grade Bond Fund C000012757 A Shares STGIX C000012758 C Shares SCIGX C000012759 I Shares STIGX 0000883939 S000004693 STI Classic Investment Grade Tax-Exempt Bond Fund C000012760 A Shares SISIX C000012761 C Shares SCITX C000012762 I Shares STTBX 0000883939 S000004694 STI Classic Limited-Term Federal Mortgage Securities Fund C000012763 A Shares SLTMX C000012764 C Shares SCLFX C000012765 I Shares SLMTX 0000883939 S000004695 STI Classic Maryland Municipal Bond Fund C000012766 A Shares SMMAX C000012767 C Shares CMDBX C000012768 I Shares CMDTX 0000883939 S000004696 STI Classic North Carolina Tax-Exempt Bond Fund C000012769 A Shares SNCIX C000012770 C Shares SNCLX C000012771 I Shares CNCTX 0000883939 S000004697 STI Classic Short-Term Bond Fund C000012772 A Shares STSBX C000012773 C Shares SCBSX C000012774 I SHares SSBTX 0000883939 S000004698 STI Classic Short-Term U.S. Treasury Securities Fund C000012775 A Shares STSFX C000012776 C Shares SSUSX C000012777 I Shares SUSTX 0000883939 S000004699 STI Classic Strategic Income Fund C000012778 A Shares SAINX C000012779 C Shares STIFX C000012780 I Shares STICX 0000883939 S000004700 STI Classic U.S. Government Securities Fund C000012781 A Shares SCUSX C000012782 C Shares SGUSX C000012783 I Shares SUGTX 0000883939 S000004701 STI Classic Virginia Intermediate Municipal Bond Fund C000012784 A Shares CVIAX C000012785 C Shares SVILX C000012786 I Shares CRVTX 0000883939 S000004702 STI Classic Virginia Municipal Bond Fund C000012787 A Shares SVIAX C000012788 C Shares CVMBX C000012789 I Shares CVMTX 0000883939 S000004723 STI Classic Core Bond Fund C000012868 A Shares CBPSX C000012869 C Shares SCBLX C000012870 I Shares SAMFX 0000883939 S000004724 STI Classic Intermediate Bond Fund C000012871 A Shares IBASX C000012872 C Shares IBLSX C000012873 I Shares SAMIX 0000883939 S000004725 STI Classic Limited Duration Fund C000012874 I Shares SAMLX 0000883939 S000004726 STI Classic Prime Quality Money Market Fund C000012875 A Shares SQIXX C000012876 C Shares SQFXX C000012877 I Shares SQTXX 0000883939 S000004727 STI Classic Tax-Exempt Money Market Fund C000012878 A Shares SEIXX C000012879 I Shares STTXX 0000883939 S000004728 STI Classic U.S. Government Securities Money Market Fund C000012880 A Shares SUIXX C000012881 I Shares STUXX 0000883939 S000004729 STI Classic U.S. Treasury Money Market Fund C000012882 A Shares SATXX C000012883 I Shares CUSXX 0000883939 S000004730 STI Classic Virginia Tax-Free Money Market Fund C000012884 A Shares CIAXX C000012885 I Shares CFMXX 0000883939 S000004731 STI Classic Institutional Cash Management Money Market Fund C000012886 Institutional Shares CICXX 0000883939 S000004732 STI Classic Institutional U.S. Government Securities Money Market Fund C000012887 Institutional Shares CRGXX 0000883939 S000004733 STI Classic Institutional U.S. Treasury Securities Money Market Fund C000012888 Corporate Trust Shares C000012889 Institutional Shares CIUXX 0000883939 S000004734 STI Classic Institutional Municipal Cash Reserve Money Market Fund C000012890 Institutional Shares CMRXX 0000883939 S000004735 STI Classic Life Vision Aggressive Growth Fund C000012891 A Shares SLAAX C000012892 B Shares SLABX C000012893 I Shares CVMGX C000012894 C Shares CLVLX 0000883939 S000004736 STI Classic Life Vision Conservative Fund C000012895 A Shares SVCAX C000012896 B Shares SCCBX C000012897 I Shares SCCTX C000012898 C Shares SCCLX 0000883939 S000004737 STI Classic Life Vision Growth and Income Fund C000012899 A Shares SGIAX C000012900 B Shares SGIBX C000012901 I Shares CLVGX C000012902 C Shares SGILX 0000883939 S000004738 STI Classic Life Vision Moderate Growth Fund C000012903 A Shares SVMAX C000012904 B Shares SVGBX C000012905 I Shares CLVBX C000012906 C Shares SVGLX 0000883939 S000004739 STI Classic Life Vision Target Date 2015 Fund C000012907 A Shares LVFAX C000012908 C Shares LVFCX C000012909 I Shares LVFIX 0000883939 S000004740 STI Classic Life Vision Target Date 2025 Fund C000012910 A Shares LVTAX C000012911 C Shares LVTCX C000012912 I Shares LVTIX 0000883939 S000004741 STI Classic Life Vision Target Date 2035 Fund C000012913 A Shares LVRAX C000012914 C Shares LVRCX C000012915 I Shares LVRIX 0000883939 S000004750 Seix High Yield Fund C000012926 A Shares HYPSX C000012927 C Shares HYLSX C000012928 I Shares SAMHX 0000883939 S000011297 Seix Floating Rate High Income Fund C000031119 A Shares SFRAX C000031120 C Shares C000031121 I Shares SAMBX 0000883939 S000011298 STI Classic Small Cap Quantitative Equity Fund C000031122 A Shares SCQAX C000031123 C Shares SCQEX C000031124 I Shares SCQIX 485BPOS 1 l21615ae485bpos.txt STI CLASSIC FUNDS 485BPOS AS FILED WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION ON July 31, 2006 File No. 033-45671 File No. 811-06557 U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ] POST-EFFECTIVE AMENDMENT NO. 65 [X] AND REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ] AMENDMENT NO. 67 [X] STI CLASSIC FUNDS (Exact Name of Registrant as Specified in Charter) 101 Federal Street Boston, Massachusetts 02110 (Address of Principal Executive Offices, Zip Code) Registrant's Telephone Number, including Area Code: 1-888-784-3863 Cynthia Surprise c/o BISYS Fund Services Ohio, Inc. 100 Summer Street, Suite 1500 Boston, MA 02110 (Name and Address of Agent for Service) Copies to: Richard W. Grant, Esquire W. John McGuire, Esquire Morgan, Lewis & Bockius LLP Morgan, Lewis & Bockius LLP One Oxford Centre 1111 Pennsylvania Avenue, NW Pittsburgh, PA 15219-6401 Washington, DC 20004 It is proposed that this filing become effective (check appropriate box): [ ] Immediately upon filing pursuant to paragraph (b) [X] On August 1, 2006 pursuant to paragraph (b) [ ] 60 days after filing pursuant to paragraph (a)(1) [ ] On [date] pursuant to paragraph (a)(1) [ ] 75 days after filing pursuant to paragraph (a)(2) [ ] On [date] pursuant to paragraph (a) of Rule 485 STI CLASSIC FUNDS Institutional Shares PROSPECTUS STI CLASSIC MONEY MARKET FUNDS Classic Institutional Cash Management Money Market Fund Classic Institutional Municipal Cash Reserve Money Market Fund Classic Institutional U.S. Government Securities Money Market Fund Classic Institutional U.S. Treasury Securities Money Market Fund Investment Adviser: Trusco Capital Management, Inc. (the "Adviser") August 1, 2006 The Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense. PROSPECTUS ABOUT THIS PROSPECTUS The STI Classic Funds is a mutual fund family that offers shares in separate investment portfolios that have individual investment goals and strategies. This prospectus gives you important information about the Institutional Shares of the Classic Institutional Money Market Funds ("Funds") that you should know before investing. Please read this prospectus and keep it for future reference. This prospectus has been arranged into different sections so that you can easily review this important information. On the next page, there is some general information you should know about risk and return that is common to each of the Funds. For more detailed information about each Fund, please see: 2 CLASSIC INSTITUTIONAL CASH MANAGEMENT MONEY MARKET FUND 4 CLASSIC INSTITUTIONAL MUNICIPAL CASH RESERVE MONEY MARKET FUND 6 CLASSIC INSTITUTIONAL U.S. GOVERNMENT SECURITIES MONEY MARKET FUND 9 CLASSIC INSTITUTIONAL U.S. TREASURY SECURITIES MONEY MARKET FUND 11 MORE INFORMATION ABOUT RISK 11 MORE INFORMATION ABOUT FUND INVESTMENTS 12 THIRD-PARTY RATINGS 12 INFORMATION ABOUT PORTFOLIO HOLDINGS 12 INVESTMENT ADVISER 13 PORTFOLIO MANAGERS 13 PURCHASING AND SELLING FUND SHARES 16 MARKET TIMING POLICIES AND PROCEDURES 16 DIVIDENDS AND DISTRIBUTIONS 17 TAXES 18 FINANCIAL HIGHLIGHTS INSIDE PRIVACY POLICY BACK COVER BACK HOW TO OBTAIN MORE INFORMATION COVER ABOUT THE STI CLASSIC FUNDS
- -------------------------------------------------------------------------------- (SUITCASE ICON) FUND SUMMARY (TELESCOPE ICON) INVESTMENT STRATEGY (LIFE PRESERVER WHAT ARE THE PRINCIPAL RISKS OF INVESTING? ICON) (TARGET ICON) PERFORMANCE INFORMATION (LINE GRAPH ICON) WHAT IS AN AVERAGE? (COIN ICON) FUND FEES AND EXPENSES (MOUNTAIN ICON) MORE INFORMATION ABOUT FUND INVESTMENTS (ICON) THIRD-PARTY RATINGS (MAGNIFYING GLASS INVESTMENT ADVISER ICON) (HAND SHAKE ICON) PURCHASING AND SELLING FUND SHARES
- -------------------------------------------------------------------------------- AUGUST 1, 2006 PROSPECTUS 1 CUSIP/TICKER SYMBOLS
FUND NAME CLASS INCEPTION* TICKER CUSIP Classic Institutional Cash Management Money Market Fund Institutional Shares 10/25/95 CICXX 784766354 Classic Institutional Municipal Cash Reserve Money Market Fund Institutional Shares 8/2/05 CMRXX 78476A629 Classic Institutional U.S. Government Securities Money Market Fund Institutional Shares 8/1/94 CRGXX 784767808 Classic Institutional U.S. Treasury Securities Money Market Fund Institutional Shares 12/12/96 CIUXX 784766347
* The performance included under "Performance Information" may include the performance of other classes of the Fund and/or predecessors of the Fund. RISK/RETURN INFORMATION COMMON TO THE STI CLASSIC FUNDS Each Fund is a mutual fund. A mutual fund pools shareholders' money and, using professional investment managers, invests it in securities. Each Fund has its own investment goal and strategies for reaching that goal. The Adviser invests Fund assets in a way that it believes will help a Fund achieve its goal. Still, investing in each Fund involves risk and there is no guarantee that a Fund will achieve its goal. The Adviser's judgments about the markets, the economy or companies may not anticipate actual market movements, economic conditions or company performance, and these judgments may affect the return on your investment. In fact, no matter how good a job the Adviser does, you could lose money on your investment in the Fund, just as you could with other investments. A FUND SHARE IS NOT A BANK DEPOSIT AND IT IS NOT INSURED OR GUARANTEED BY THE FDIC OR ANY GOVERNMENT AGENCY. Each Fund's investment goal may be changed without shareholder approval. Before investing, make sure that the Fund's goal matches your own. CLASSIC INSTITUTIONAL CASH MANAGEMENT MONEY MARKET FUND 2 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL As high a level of current income as is consistent with preservation of capital and liquidity - --------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS Money market instruments - --------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to increase income without adding undue risk - --------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Conservative investors seeking current income through a liquid investment - ---------------------------------------------------------------------------------------------------------
(TELESCOPE ICON) INVESTMENT STRATEGY The Classic Institutional Cash Management Money Market Fund invests exclusively in high quality U.S. dollar-denominated money market instruments. The Fund invests in obligations of (i) the U.S. Treasury, (ii) agencies and instrumentalities of U.S. and foreign governments, (iii) domestic and foreign banks, (iv) domestic and foreign corporate issuers, and (v) supranational entities, as well as repurchase agreements. The Fund may invest a portion of its assets in securities that are restricted as to resale. In selecting investments for the Fund, the Adviser tries to increase income without adding undue risk by analyzing maturity, yields, market sectors and credit risk. As a money market fund, the Fund follows strict rules about credit risk, maturity and diversification of its investments. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? An investment in the Fund is subject to income risk, which is the possibility that the Fund's yield will decline due to falling interest rates. A Fund share is not a bank deposit and is not insured or guaranteed by the FDIC or any government agency. In addition, although a money market fund seeks to keep a constant price per share of $1.00, you may lose money by investing in the Fund. U.S. government securities can exhibit price movements resulting from changes in interest rates. Treasury inflation protected securities ("TIPS") can also exhibit price movements as a result of changing inflation expectations and seasonal inflation patterns. Certain U.S. government securities are backed by the full faith and credit of the U.S. Government, while others are backed by the ability of the issuing entity to borrow from the U.S. Treasury or by the issuing entity's own resources. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. Foreign securities involve special risks such as economic or financial instability, lack of timely or reliable financial information and unfavorable political or legal developments. Restricted securities may increase the level of illiquidity in the Fund during any period that qualified institutional buyers become uninterested in purchasing these restricted securities. The Adviser intends to invest only in restricted securities that it believes present minimal liquidity risk. (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's Institutional Shares from year to year.* (BAR CHART) 1996 5.47 1997 5.63 1998 5.52 1999 5.12 2000 6.33 2001 4.13 2002 1.80 2003 0.97 2004 1.22 2005 3.11
BEST QUARTER WORST QUARTER 1.63% 0.21% 12/31/00 3/31/04
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 2.26%. CLASSIC INSTITUTIONAL CASH MANAGEMENT MONEY MARKET FUND PROSPECTUS 3 - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the iMoneyNet, Inc. First Tier Institutions-Only Average. These returns assume shareholders redeem all of their shares at the end of the period indicated.
INSTITUTIONAL SHARES 1 YEAR 5 YEARS 10 YEARS Classic Institutional Cash Management Money Market Fund 3.11% 2.24% 3.91% iMoneyNet, Inc. First Tier Institutions-Only Average 2.93% 2.03% 3.71%
To obtain information about the Fund's current yield, call 1-888-STI-FUND. (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN AVERAGE? ------------------------------------------------------------- An average is a composite of mutual funds with similar investment goals. The iMoneyNet, Inc. First Tier Institutions-Only Average is a widely-recognized composite of money market funds that invest in commercial paper, bank obligations and short-term investments in the highest rating category. The number of funds in the Average varies. (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
INSTITUTIONAL SHARES Investment Advisory Fees(1) 0.12% Other Expenses 0.04% ------------------------------- Total Annual Operating Expenses(2) 0.16%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser has contractually agreed to waive fees and reimburse expenses until at least August 1, 2007 in order to keep Total Annual Operating Expenses from exceeding 0.17%. If at any point before August 1, 2009, Total Annual Operating Expenses are less than the applicable expense cap, the Adviser may retain the difference to recapture any of the prior waivers or reimbursements. In addition, the Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These voluntary waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $16 $52 $90 $205
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." CLASSIC INSTITUTIONAL MUNICIPAL CASH RESERVE MONEY MARKET FUND 4 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL High current interest income exempt from federal income taxes, while preserving capital and liquidity - --------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS Municipal money market instruments - --------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to increase income without adding risk by analyzing credit quality - --------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Conservative investors who want to receive current tax-exempt income from their investment - ---------------------------------------------------------------------------------------------------------
(TELESCOPE ICON) INVESTMENT STRATEGY The Classic Institutional Municipal Cash Reserve Money Market Fund invests substantially all of its net assets in money market instruments issued by municipalities and issuers that pay income exempt from regular federal income tax. The Fund may invest up to 100% of its net assets in securities subject to the alternative minimum tax. The Fund may invest a portion of its assets in securities that are restricted as to resale. In selecting investments for the Fund, the Adviser analyzes the credit quality and structure of each security to minimize risk. The Adviser actively manages the Fund's average maturity based on current interest rates and the Adviser's outlook of the market. As a money market fund, the Fund follows strict rules about credit risk, maturity and diversification of its investments. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? An investment in the Fund is subject to income risk, which is the possibility that the Fund's yield will decline due to falling interest rates. A Fund share is not a bank deposit and is not insured or guaranteed by the FDIC or any government agency. In addition, although a money market fund seeks to keep a constant price per share of $1.00, you may lose money by investing in the Fund. There may be economic or political changes that impact the ability of municipal issuers to repay principal and to make interest payments on municipal securities. Changes in the financial condition or credit rating of municipal issuers also may adversely affect the value of the Fund's securities. Restricted securities may increase the level of fund illiquidity to the extent that qualified institutional buyers become, for a time, uninterested in purchasing these restricted securities. The Adviser intends to invest only in restricted securities that it believes present minimal liquidity risk. (TARGET ICON) PERFORMANCE INFORMATION No performance information is included because the Fund does not have performance history for a full calendar year. CLASSIC INSTITUTIONAL MUNICIPAL CASH RESERVE MONEY MARKET FUND PROSPECTUS 5 (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
INSTITUTIONAL SHARES Investment Advisory Fees 0.15% Other Expenses 0.08% ------------------------------- Total Annual Operating Expenses 0.23% ------------------------------- Fee Waivers and Expense Reimbursements(1) (0.03)% ------------------------------- Net Operating Expenses 0.20%
(1) The Adviser has contractually agreed to waive fees and reimburse expenses until at least August 1, 2007 in order to keep Total Annual Operating Expenses from exceeding 0.20%. If at any point before August 1, 2009, Total Annual Operating Expenses are less than the expense cap, the Adviser may retain the difference to recapture any of the prior waivers or reimbursements. In addition, the Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. Such waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR* 3 YEARS 5 YEARS 10 YEARS $20 $71 $127 $290
* Without waivers and reimbursements, Year 1 costs would be $24. - ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." CLASSIC INSTITUTIONAL U.S. GOVERNMENT SECURITIES MONEY MARKET FUND 6 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL High current income to the extent consistent with the preservation of capital and the maintenance of liquidity - --------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS U.S. Treasury and government agency securities, and repurchase agreements - --------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to increase income without adding undue risk by analyzing yields - --------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Conservative investors seeking current income through a liquid investment - ---------------------------------------------------------------------------------------------------------
(TELESCOPE ICON) INVESTMENT STRATEGY The Classic Institutional U.S. Government Securities Money Market Fund invests exclusively in U.S. Treasury obligations, obligations issued or guaranteed as to principal and interest by agencies or instrumentalities of the U.S. Government, repurchase agreements involving these securities, and shares of registered money market funds that invest in the foregoing. In selecting investments for the Fund, the Adviser tries to increase income without adding undue risk by analyzing yields. The Adviser actively manages the maturity of the Fund and its portfolio to maximize the Fund's yield based on current market interest rates and the Adviser's outlook on the market. As a money market fund, the Fund follows strict rules about credit risk, maturity and diversification of its investments. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? An investment in the Fund is subject to income risk, which is the possibility that the Fund's yield will decline due to falling interest rates. A Fund share is not a bank deposit and is not insured or guaranteed by the FDIC or any government agency. In addition, although a money market fund seeks to keep a constant price per share of $1.00, you may lose money by investing in the Fund. Mortgage-backed investments involve risk of loss due to prepayments and, like any bond, due to default. Because of the sensitivity of mortgage-related securities to changes in interest rates, the Fund's performance may be more volatile than if it did not hold these securities. U.S. government securities can exhibit price movements resulting from changes in interest rates. Treasury inflation protected securities ("TIPS") can also exhibit price movements as a result of changing inflation expectations and seasonal inflation patterns. Certain U.S. government securities are backed by the full faith and credit of the U.S. government, while others are backed by the ability of the issuing entity to borrow from the U.S. Treasury or by the issuing entity's own resources. CLASSIC INSTITUTIONAL U.S. GOVERNMENT SECURITIES MONEY MARKET FUND PROSPECTUS 7 (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's Institutional Shares from year to year.* (BAR CHART) 1996 5.31 1997 5.50 1998 5.36 1999 4.99 2000 6.18 2001 4.02 2002 1.72 2003 0.94 2004 1.16 2005 3.00
BEST QUARTER WORST QUARTER 1.59% 0.20% (12/31/00) (3/31/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 2.20%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the iMoneyNet, Inc. Government Institutional Average. These returns assume shareholders redeem all of their shares at the end of the period indicated.
INSTITUTIONAL SHARES 1 YEAR 5 YEARS 10 YEARS Classic Institutional U.S. Government Securities Money Market Fund 3.00% 2.16% 3.80% iMoneyNet, Inc. Government Institutional Average 2.79% 1.91% N/A
To obtain information about the Fund's current yield, call 1-888-STI-FUND. (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN AVERAGE? ------------------------------------------------------------- An average is a composite of mutual funds with similar investment goals. The iMoneyNet, Inc. Government Institutional Average is a widely-recognized composite of money market funds that invest in U.S. Treasury bills, repurchase agreements, or agencies of the U.S. Government. The number of funds in the Average varies. CLASSIC INSTITUTIONAL U.S. GOVERNMENT SECURITIES MONEY MARKET FUND 8 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
INSTITUTIONAL SHARES Investment Advisory Fees(1) 0.15% Other Expenses 0.04% ------------------------------- Total Annual Operating Expenses(2) 0.19%
(1)Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2)The Adviser has contractually agreed to waive fees and reimburse expenses until at least August 1, 2007 in order to keep Total Annual Operating Expenses from exceeding 0.20%. If at any point before August 1, 2009, Total Annual Operating Expenses are less than the applicable expense cap, the Adviser may retain the difference to recapture any of the prior waivers or reimbursements. In addition, the Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These voluntary waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $19 $61 $107 $243
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." CLASSIC INSTITUTIONAL U.S. TREASURY SECURITIES MONEY MARKET FUND PROSPECTUS 9 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL As high a level of current income as is consistent with preservation of capital and liquidity INVESTMENT FOCUS U.S. Treasury securities and repurchase agreements PRINCIPAL INVESTMENT STRATEGY Attempts to increase income without adding undue risk by analyzing yields INVESTOR PROFILE Conservative investors seeking current income through a liquid investment
(TELESCOPE ICON) INVESTMENT STRATEGY The Classic Institutional U.S. Treasury Securities Money Market Fund invests exclusively in U.S. Treasury bills, notes, bonds and components of these securities, repurchase agreements collateralized by these securities, and shares of registered money market funds that invest in the foregoing. The Fund limits its investments so as to obtain the highest investment quality rating by a nationally recognized statistical rating organization (AAAm by Standard & Poor's). In selecting investments for the Fund, the Adviser tries to increase income without adding undue risk by analyzing yields for various maturities. The Adviser actively manages the maturity of the Fund and its portfolio to maximize the Fund's yield based on current market interest rates and the Adviser's outlook on the market. As a money market fund, the Fund follows strict rules about credit risk, maturity and diversification of its investments. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? An investment in the Fund is subject to income risk, which is the possibility that the Fund's yield will decline due to falling interest rates. A Fund share is not a bank deposit and is not insured or guaranteed by the FDIC or any government agency. In addition, although a money market fund seeks to keep a constant price per share of $1.00, you may lose money by investing in the Fund. Although the Fund's U.S. Treasury securities are considered to be among the safest investments, they are not guaranteed against price movements due to changing interest rates. (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's Institutional Shares from year to year.* (BAR CHART) 1997 5.44 1998 5.30 1999 4.83 2000 6.06 2001 3.66 2002 1.55 2003 0.90 2004 1.08 2005 2.89
BEST QUARTER WORST QUARTER 1.57% 0.17% (12/31/00) (6/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 2.19%. CLASSIC INSTITUTIONAL U.S. TREASURY SECURITIES MONEY MARKET FUND 10 PROSPECTUS - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the iMoneyNet, Inc. Treasury & Repo Retail Average. These returns assume shareholders redeem all of their shares at the end of the period indicated.
INSTITUTIONAL SHARES 1 YEAR 5 YEARS SINCE INCEPTION* Classic Institutional U.S. Treasury Securities Money Market Fund 2.89% 2.01% 3.52% iMoneyNet, Inc. Treasury & Repo Retail Average 2.39% 1.56% 3.01%
* Since inception of the Institutional Shares on December 12, 1996. Benchmark returns since November 30, 1996 (benchmark returns available only on a month end basis). To obtain information about the Fund's current yield, call 1-888-STI-FUND. (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN AVERAGE? ------------------------------------------------------------- An average is a composite of mutual funds with similar investment goals. The iMoneyNet, Inc. Treasury & Repo Retail Average is a widely- recognized composite of money market funds that invest in U.S. Treasury bills and repurchase agreements backed by these securities. The number of funds in the Average varies. (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
INSTITUTIONAL SHARES Investment Advisory Fees(1) 0.14% Other Expenses 0.04% ------------------------------- Total Annual Operating Expenses(2) 0.18%
(1)Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2)The Adviser has contractually agreed to waive fees and reimburse expenses until at least August 1, 2007 in order to keep Total Annual Operating Expenses from exceeding 0.20%. If at any point before August 1, 2009, Total Annual Operating Expenses are less than the applicable expense cap, the Adviser may retain the difference to recapture any of the prior waivers or reimbursements. In addition, the Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These voluntary waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $18 $58 $101 $230
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." MORE INFORMATION ABOUT RISK PROSPECTUS 11 (LIFE PRESERVER ICON) MORE INFORMATION ABOUT RISK CREDIT RISK Classic Institutional Cash Management Money Market Fund The possibility that an issuer will be unable to make timely payments of either principal or interest. FIXED INCOME RISK All Funds The market value of fixed income investments changes in response to interest rate changes and other factors. During periods of falling interest rates, the values of outstanding fixed income securities generally rise. Moreover, while securities with longer maturities tend to produce higher yields, the prices of longer maturity securities are also subject to greater market fluctuations as a result of changes in interest rates. In addition to these fundamental risks, different types of fixed income securities may be subject to credit risk, which is the possibility that an issuer will be unable to make timely payments of either principal or interest. FOREIGN SECURITY RISK Classic Institutional Cash Management Money Market Fund Investments in securities of foreign companies or governments can be more volatile than investments in U.S. companies or governments. Diplomatic, political, or economic developments, including nationalization or appropriation, could affect investments in foreign countries. Foreign securities markets generally have less trading volume and less liquidity than U.S. markets. Foreign companies or governments generally are not subject to uniform accounting, auditing, and financial reporting standards comparable to those applicable to domestic U.S. companies or governments. Transaction costs are generally higher than those in the U.S. and expenses for custodial arrangements of foreign securities may be somewhat greater than typical expenses for custodial arrangements of similar U.S. securities. Some foreign governments levy withholding taxes against dividend and interest income. Although in some countries a portion of these taxes are recoverable, the non-recovered portion will reduce the income received from the securities comprising the portfolio. MORTGAGE-BACKED SECURITY RISK Classic Institutional U.S. Government Securities Money Market Fund Mortgage-backed securities are fixed income securities representing an interest in a pool of underlying mortgage loans. Mortgage-backed securities are sensitive to changes in interest rates, but may respond to these changes differently from other fixed income securities due to the likelihood that a change in the general level of interest rates will impact the magnitude and timing of any prepayments of the underlying mortgage loans. As a result, it may not be possible to accurately determine in advance the actual maturity date or average life of a mortgage-backed security. The uncertainty inherent in assessing prepayment risk makes it difficult to calculate the average maturity of a portfolio including mortgage-backed securities, and therefore, to assess the volatility risk of the Fund. MUNICIPAL ISSUER RISK Classic Institutional Municipal Cash Reserve Money Market Fund There may be economic or political changes that impact the ability of municipal issuers to repay principal and to make interest payments on municipal securities. Changes to the financial condition or credit rating of municipal issuers may also adversely affect the value of the Fund's municipal securities. Constitutional or legislative limits on borrowing by municipal issuers may result in reduced supplies of municipal securities. Moreover, certain municipal securities are backed only by a municipal issuer's ability to levy and collect taxes. (MOUNTAIN ICON) MORE INFORMATION ABOUT FUND INVESTMENTS This prospectus describes the Funds' primary strategies, and the Funds will normally invest in the types of securities described in this prospectus. However, in addition to the investments and strategies described in this prospectus, each Fund also may invest in other securities, use other strategies and engage in other investment practices. These investments and strategies, as well as those described in this prospectus, are described in detail in the Statement of Additional THIRD-PARTY RATINGS 12 PROSPECTUS Information. Of course, a Fund cannot guarantee that it will achieve its investment goal. (ICON) THIRD-PARTY RATINGS Each Fund has been rated AAAm by Standard & Poor's Rating Services and Aaa by Moody's Investor Services, Inc. The National Association of Insurance Commissioners has approved each Fund as an eligible investment for insurance companies. INFORMATION ABOUT PORTFOLIO HOLDINGS A description of the Funds' policies and procedures with respect to the circumstances under which the Funds disclose their portfolio securities is available in the Statement of Additional Information. (MAGNIFYING GLASS ICON) INVESTMENT ADVISER Trusco Capital Management, Inc. ("Trusco" or the "Adviser"), 50 Hurt Plaza, Suite 1400, Atlanta, Georgia 30303, serves as the investment adviser to the Funds. As of June 30, 2006, the Adviser had approximately $71 billion in assets under management. For the fiscal year ended March 31, 2006, the following Funds paid the Adviser advisory fees (after waivers) based on the respective Fund's average daily net assets of: Classic Institutional Cash Management Money Market Fund 0.13% Classic Institutional U.S. Government Securities Money Market Fund 0.17% Classic Institutional U.S. Treasury Securities Money Market Fund 0.16%
For its advisory services to the Classic Institutional Municipal Cash Reserve Money Market Fund, the Adviser is entitled to receive an annual advisory fee of 0.15% based on the Fund's average daily net assets. The Adviser has contractually agreed to waive fees and reimburse expenses until at least August 1, 2007 in order to keep total operating expenses of each Fund from exceeding the applicable expense cap. If at any point before August 1, 2009, total annual operating expenses are less than the applicable expense cap, the Adviser may retain the difference to recapture any of the prior waivers or reimbursements. Since August 1, 2005, the following breakpoints have been used in computing the advisory fee for all Funds:
AVERAGE DAILY NET ASSETS DISCOUNT FROM FULL FEE - ------------------------ ---------------------- First $1 billion None - Full Fee Next $1.5 billion 5% Next $2.5 billion 10% Over $5 billion 20%
Based on average daily net assets for the fiscal year ended March 31, 2006, the asset levels of the following Funds had reached a breakpoint in the advisory fee.* Had the Fund's asset levels been lower, the Adviser may have been entitled to receive maximum advisory fees as follows: Classic Institutional Cash Management Money Market Fund 0.13% Classic Institutional U.S. Treasury Money Market Fund 0.15%
*Fund expenses in the "Annual Fund Operating Expenses" tables shown earlier in this Prospectus reflect the advisory breakpoints. A discussion regarding the basis for the Board of Trustees' approval of the investment advisory contracts with the Adviser appears in the Funds' semi-annual report to shareholders for the period ended September 30, 2005. The Adviser is responsible for making investment decisions for the Funds and continuously reviews, supervises and administers each Fund's respective investment program. The Board of Trustees supervises the Adviser and establishes policies that the Adviser must follow in its management activities. The Adviser may use its affiliates as brokers for Fund transactions. An investment adviser has certain fiduciary obligations to its clients when the adviser has authority to vote their proxies. Under the current contractual agreement, the Adviser is authorized to vote proxies on behalf of each Fund. Information regarding the Adviser's, and thus each Fund's, Proxy Voting Policies and Procedures is provided in the Statement of Additional Information. A copy of the Funds' Proxy Voting Policies and Procedures may be obtained by contacting the STI Classic Funds at 1-888-STI-FUND, or by visiting www.sticlassicfunds.com. PURCHASING AND SELLING FUND SHARES PROSPECTUS 13 PORTFOLIO MANAGERS The following individuals are primarily responsible for the day-to-day management of the Funds. Mr. Robert S. Bowman, CFA, has served as Managing Director of Trusco since January 1999. He has managed the CLASSIC INSTITUTIONAL CASH MANAGEMENT MONEY MARKET FUND since its inception and the CLASSIC INSTITUTIONAL MUNICIPAL CASH RESERVE MONEY MARKET FUND since August 2005. He has more than 15 years of investment experience. Mr. Greg Hallman has served as Vice President of Trusco since February 2006, after serving as Associate since November 1999. He has co-managed the CLASSIC INSTITUTIONAL U.S. GOVERNMENT SECURITIES MONEY MARKET FUND since August 2006 and the CLASSIC INSTITUTIONAL U.S. TREASURY SECURITIES MONEY MARKET FUND since November 2004. He has more than 7 years of investment experience. Ms. Kimberly C. Maichle, CFA, has served as Director of Trusco since February 2006, after serving as Vice President since July 1995. She has co-managed the CLASSIC INSTITUTIONAL U.S. GOVERNMENT SECURITIES MONEY MARKET FUND since August 2006 and the CLASSIC INSTITUTIONAL U.S. TREASURY SECURITIES MONEY MARKET FUND since November 2004. She has more than 17 years of investment experience. Mr. E. Dean Speer, CFA, CPA, has served as Director of Trusco since February 2006, after serving as Vice President since June 2001. He has co-managed the CLASSIC INSTITUTIONAL U.S. GOVERNMENT SECURITIES MONEY MARKET FUND since August 2006 and the CLASSIC INSTITUTIONAL U.S. TREASURY SECURITIES MONEY MARKET FUND since January 2005. He has more than 8 years of investment experience. The Statement of Additional Information provides additional information regarding the Funds' portfolio managers' compensation, other accounts managed by the portfolio managers and the portfolio managers' ownership of securities of the Funds. (HAND SHAKE ICON) PURCHASING AND SELLING FUND SHARES This section tells you how to purchase and sell (sometimes called "redeem") Institutional Shares of the Funds. HOW TO PURCHASE FUND SHARES The Funds offer Institutional Shares exclusively to financial institutions and intermediaries for their own accounts or for the accounts of customers for which they act as fiduciary agent, investment adviser, or custodian and which consist of: - - assets of a bona fide trust, or - - assets of a business entity possessing a tax identification number. Shares are sold without a sales charge, although institutions may charge their customers for services provided in connection with the purchase of shares. Institutional shares will be held of record by (in the name of) your institution. Depending upon the terms of your account, however, you may have, or be given, the right to vote your Institutional Shares. WHEN CAN YOU PURCHASE SHARES? You may purchase shares on any day that the New York Stock Exchange ("NYSE") and the Federal Reserve are open for business (a "Business Day"). The price per share (the offering price) will be the net asset value per share ("NAV") next determined after the Funds receive your purchase order in proper form. Each Fund calculates its NAV once each Business Day at the regularly-scheduled close of normal trading on the NYSE (normally 4:00 p.m., Eastern Time.) So, for you to be eligible to receive dividends declared on the day you submit your purchase order, a Fund or its authorized agent must receive your order in proper form before 10:30 a.m., Eastern Time for the Classic Institutional Municipal Cash Reserve Money Market Fund and before 3:00 p.m., Eastern Time for other Funds and federal funds (readily available funds) before 6:00 p.m., Eastern Time. Otherwise, your purchase order will be effective the following Business Day, as long as each Fund receives federal funds before calculating its NAV the following day. If the NYSE closes early -- such as on days in advance of certain holidays -- the Funds will calculate NAV as of the earlier closing time. YOU MAY HAVE TO TRANSMIT YOUR PURCHASE AND SALE REQUESTS TO YOUR INSTITUTION OR INTERMEDIARY AT AN EARLIER TIME FOR YOUR TRANSACTION TO BECOME EFFECTIVE THAT DAY. THIS ALLOWS YOUR INSTITUTION OR INTERMEDIARY TIME TO PROCESS YOUR REQUEST AND PURCHASING AND SELLING FUND SHARES 14 PROSPECTUS TRANSMIT IT TO THE TRANSFER AGENT IN TIME TO MEET THE ABOVE STATED FUND CUT-OFF TIMES. FOR MORE INFORMATION ABOUT HOW TO PURCHASE OR SELL FUND SHARES, INCLUDING SPECIFIC ORDER ENTRY CUT-OFF TIMES, PLEASE CONTACT YOUR INSTITUTION OR INTERMEDIARY DIRECTLY. A Fund may reject any purchase order. HOW THE FUNDS CALCULATE NAV NAV is calculated by adding the total value of a Fund's investments and other assets, subtracting its liabilities and then dividing that figure by the number of outstanding shares of the Fund. In calculating NAV, each Fund generally values its investment portfolio using the amortized cost valuation method, which is described in detail in the Statement of Additional Information. If the Adviser determines in good faith that this method is unreliable during certain market conditions or for other reasons, a Fund may value its portfolio at market price or at fair value as determined in good faith using methods approved by the Board of Trustees. Each Fund expects its NAV to remain constant at $1.00 per share, although the Fund cannot guarantee this. MINIMUM PURCHASES To purchase Institutional Shares for the first time, you must invest at least $5,000,000 for the Classic Institutional Municipal Cash Reserve Money Market Fund and $10,000,000 for the other Funds. A Fund may accept investments of smaller amounts at its discretion. IN-KIND PURCHASES Payment for shares of a Fund may, in the discretion of the Adviser, be made in the form of securities that are permissible investments for such Fund. In connection with an in-kind securities payment, a Fund will require, among other things, that the securities (a) meet the investment objectives and policies of the Fund; (b) are acquired for investment and not for resale; (c) are liquid securities that are not restricted as to transfer either by law or liquidity of markets; (d) have a value that is readily ascertainable (e.g., by a listing on a nationally recognized securities exchange); and (e) are valued on the day of purchase in accordance with the pricing methods used by the Fund. For further information about this form of payment, please call 1-888-STI-FUND. CUSTOMER IDENTIFICATION FOREIGN INVESTORS The Funds do not generally accept investments in Institutional Shares by non-U.S. citizens or entities. CUSTOMER IDENTIFICATION AND VERIFICATION To help the government fight the funding of terrorism and money laundering activities, federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account. When you open an account, you will be asked to provide your name, residential street address, date of birth, Social Security number or tax identification number. You may also be asked for other information that will allow the Funds to identify you. Entities are also required to provide additional documentation. This information will be verified to ensure the identity of all persons opening a mutual fund account. In certain instances, the Funds are required to collect documents to fulfill their legal obligation. Documents provided in connection with your application will be used solely to establish and verify a customer's identity. The Funds are required by law to reject your new account application if the required identifying information is not provided. Attempts to collect the missing information required on the application will be performed by either contacting you or, if applicable, your broker. If this information is unable to be obtained within a timeframe established in the sole discretion of the Funds your application will be rejected. Upon receipt of your application in proper form (or upon receipt of all identifying information required on the application), your investment will be accepted and your order will be processed at the NAV next-determined. However, the Funds reserve the right to close your account at the then-current day's price if the Funds are unable to verify your identity. Attempts to verify your identity will be performed within a timeframe established in the sole discretion of the Funds. If the Funds are unable to verify your identity, the Funds reserve the right to liquidate your account at the then-current day's price and remit proceeds to you via check. The Funds reserve the further right to hold your proceeds until your original check clears the bank. In PURCHASING AND SELLING FUND SHARES PROSPECTUS 15 such an instance, you may be subject to a gain or loss on Fund shares and will be subject to corresponding tax implications. ANTI-MONEY LAUNDERING PROGRAM Customer identification and verification is part of the Funds' overall obligation to deter money laundering under federal law. The Funds have adopted an anti-money laundering compliance program designed to prevent the Funds from being used for money laundering or the financing of terrorist activities. In this regard, the Funds reserve the right to (i) refuse, cancel or rescind any purchase or exchange order, (ii) freeze any account and/or suspend account services, or (iii) involuntarily redeem your account in cases of threatening conduct or suspected fraudulent or illegal activity. These actions will be taken when, in the sole discretion of Fund management, they are deemed to be in the best interest of the Funds or in cases when the Funds are requested or compelled to do so by governmental or law enforcement authority. HOW TO SELL YOUR FUND SHARES You may sell your shares on any Business Day by contacting the Funds. If you are a customer of a financial institution or intermediary, you must contact that institution or intermediary directly for information about how to sell your shares including any specific cut-off times required. Holders of Institutional Shares may sell shares by following the procedures established when they opened their account or accounts with the Funds or with their financial institution or intermediary. The sale price of each share will be the NAV next determined after the Funds receive your request in proper form. Redemption orders must be received by the Funds on a Business Day before 10:30 a.m., Eastern Time for the Classic Institutional Municipal Cash Reserve Money Market Fund and before 3:00 p.m., Eastern Time for all other Money Market Funds. Orders received after these times will be executed the following Business Day. A MEDALLION SIGNATURE GUARANTEE] by a bank or other financial institution (a notarized signature is not sufficient) is required to redeem shares: - - made payable to someone other than the registered shareholder; - - sent to an address or bank account other than the address or bank account of record; or - - sent to an address or bank account of record that has been changed within the last 15 calendar days. Other documentation may be required depending on the registration of the account. ] MEDALLION SIGNATURE GUARANTEE: A Medallion Signature Guarantee verifies the authenticity of your signature and helps ensure that changes to your account are in fact authorized by you. A Medallion Signature Guarantee may be obtained from a domestic bank or trust company, broker, dealer, clearing agency, savings association or other financial institution participating in a Medallion Program recognized by the Securities Trading Association. Signature guarantees from financial institutions that do not reflect one of the following are not part of the program and will not be accepted. The acceptable Medallion programs are Securities Transfer Agents Medallion Program, (STAMP), Stock Exchange Medallion Program, (SEMP), or the New York Stock Exchange, Inc. Medallion Program, (NYSE MSP). Contact your local financial adviser for further assistance. RECEIVING YOUR MONEY Normally, the Funds will send your sale proceeds within five Business Days after a Fund receives your request, but a Fund may take up to seven days to pay the sale proceeds if making immediate payment would adversely affect the Fund (for example, to allow the Fund to raise capital in the case of a large redemption). REDEMPTIONS IN KIND The Funds generally pay redemption proceeds in cash. However, under unusual conditions that make the payment of cash unwise (and for the protection of the Funds' remaining shareholders), a Fund might pay all or part of your redemption proceeds in liquid securities with a market value equal to the redemption price (redemption in kind). It is highly unlikely that your shares would ever be redeemed in kind, but if they were you would probably have to pay transaction costs to sell the securities distributed to you, as well as taxes on any capital gains from the sale as with any redemption. MARKET TIMING POLICIES AND PROCEDURES 16 PROSPECTUS SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES A Fund may suspend your right to sell your shares if the NYSE restricts trading, the SEC declares an emergency or for other reasons approved by the SEC. More information about this is in the Statement of Additional Information. TELEPHONE TRANSACTIONS Purchasing and selling Fund shares over the telephone is extremely convenient, but not without risk. Although the Funds have certain safeguards and procedures to confirm the identity of callers and the authenticity of instructions, the Funds are not responsible for any losses or costs incurred by following telephone instructions the Funds reasonably believe to be genuine. If you or your financial institution or intermediary transact with the Funds over the telephone, you will generally bear the risk of any loss. The Funds reserve the right to modify, suspend or terminate telephone transaction privileges at any time. To redeem shares by telephone: - - redemption checks must be made payable to the registered shareholder; and - - redemption checks must be mailed to an address or wired to a bank account of record that has been associated with the shareholder account for at least 15 calendar days. MARKET TIMING POLICIES AND PROCEDURES The Funds are money market funds and seek to provide a high degree of liquidity, current income and a stable net asset value of $1.00 per share. The Funds are designed to serve as short-term cash equivalent investments for shareholders and, therefore, expect shareholders to engage in frequent purchases and redemptions. Because of the inherently liquid nature of the Funds' investments, and money market instruments in general, and the Funds' intended purpose to serve as short-term investment vehicles for shareholders, the Adviser has informed the Board of Trustees that it believes that it would not be in shareholders' best interests to place any limitations on the frequency of shareholder purchases and redemptions into and out of the Funds. As a result, the Board has not adopted a Fund policy or procedures with respect to frequent purchases and redemptions. DISTRIBUTION OF FUND SHARES The distributor may provide financial assistance in connection with pre-approved seminars, conferences and advertising to the extent permitted by applicable state or self-regulatory agencies, such as the National Association of Securities Dealers. From its own assets, the Adviser, or its affiliates may make payments based on gross sales and current assets to selected brokerage firms or institutions. The amount of these payments may be substantial. The minimum aggregate sales required for eligibility for such payments, and the factors in selecting the brokerage firms and institutions to which they will be made, are determined from time to time by the Adviser. Furthermore, in addition to the fees that may be paid by the Funds, the Adviser or its affiliates may pay fees from its own capital resources to brokers, banks, financial advisers, retirement plan service providers and other financial intermediaries, including affiliates, for providing distribution-related or shareholder services. DIVIDENDS AND DISTRIBUTIONS Each Fund declares dividends daily and pays these dividends monthly. Each Fund makes distributions of its net realized capital gains, if any, at least annually. If you own Fund shares on a Fund's record date, you will be entitled to receive the distribution. You will receive dividends and distributions in the form of additional Fund shares unless you elect to receive payment in cash. To elect cash payment, you must notify the Fund in writing prior to the date of the distribution. Your election will be effective for dividends and distributions paid after the Funds receive your written notice. To cancel your election, simply send the Funds written notice. TAXES PROSPECTUS 17 TAXES PLEASE CONSULT YOUR TAX ADVISOR REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL, STATE AND LOCAL INCOME TAXES. Below the Funds have summarized some important tax issues that affect the Funds and their shareholders. This summary is based on current tax laws, which may change. Each Fund will distribute substantially all of its net investment income and its net realized capital gains, if any, at least annually. The dividends and distributions you receive may be subject to federal, state and local taxation, depending upon your tax situation. Distributions you receive from a Fund may be taxable whether or not you reinvest them. Income distributions are generally taxable at ordinary income tax rates and will not qualify for the reduced tax rates applicable to qualified dividend income. EACH SALE OR EXCHANGE OF FUND SHARES MAY BE A TAXABLE EVENT. FOR TAX PURPOSES, AN EXCHANGE OF YOUR FUND SHARES FOR SHARES OF ANOTHER STI CLASSIC FUND IS TREATED THE SAME AS A SALE. A transfer from one share class to another share class in the same STI Classic Fund should not be a taxable event. Shareholders of the Funds, however, should be aware that because the Funds each expect to maintain a stable $1.00 net asset value per share, they should not expect to realize any gain or loss on the sale or exchange of Fund shares. The Classic Institutional Municipal Cash Reserve Money Market Fund intends to distribute federally tax-exempt income. This Fund may invest a portion of its assets in securities that generate taxable income for federal or state income taxes. Income exempt from federal tax may be subject to state and local taxes. Any capital gains distributed by this Fund may be taxable. This Fund expects to pay "exempt interest dividends" that are generally excludable from an investor's gross income for regular federal income tax purposes. However, the receipt of exempt-interest dividends may cause recipients of Social Security or Railroad Retirement benefits to be taxed on a portion of such benefits. In addition, the receipt of exempt-interest dividends may result in liability for federal alternative minimum tax and for state (including state alternative minimum tax) and local taxes, both for individual and corporate shareholders. Corporate shareholders will be required to take the interest on municipal securities into account in determining their alternative minimum taxable income. If you have a tax-advantaged or other retirement account you will generally not be subject to federal taxation on income and capital gain distributions until you begin receiving your distributions from your retirement account. You should consult your tax advisor regarding the rules governing your own retirement plan. Except for the Classic Institutional Municipal Cash Reserve Money Market Fund, the Funds expect to distribute primarily ordinary income dividends taxable at the maximum rate of 35%. Many states grant tax-free status to dividends paid from interest earned on direct obligations of the U.S. Government, subject to certain limitations. MORE INFORMATION ABOUT TAXES IS IN THE STATEMENT OF ADDITIONAL INFORMATION. FINANCIAL HIGHLIGHTS 18 PROSPECTUS FINANCIAL HIGHLIGHTS The financial highlights table is intended to help you understand a Fund's financial performance for the period of the Fund's (and its predecessor's) operations. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This financial information has been audited by PricewaterhouseCoopers LLP, except the information for the year ended May 31, 2001, which has been audited by a predecessor independent accounting firm that has ceased operations. The Report of Independent Registered Public Accounting Firm for each period shown, along with the Funds' financial statements and related notes, are included in the Annual Reports to Shareholders for such periods. The 2006 Annual Report is available upon request and without charge by calling 1-888-STI-FUND or on the Funds' website at www.sticlassicfunds.com.
NET ASSET NET REALIZED DIVIDENDS VALUE, NET AND UNREALIZED FROM NET DISTRIBUTIONS BEGINNING INVESTMENT GAINS (LOSSES) TOTAL FROM INVESTMENT FROM REALIZED OF PERIOD INCOME ON INVESTMENTS OPERATIONS INCOME CAPITAL GAINS --------- ---------- -------------- ---------- ---------- ------------- CLASSIC INSTITUTIONAL CASH MANAGEMENT MONEY MARKET FUND INSTITUTIONAL SHARES Year Ended March 31, 2006................. $1.00 0.04 -- 0.04 (0.04) -- Period Ended March 31, 2005**............. $1.00 0.01 -- 0.01 (0.01) -- Year Ended May 31, 2004................... $1.00 0.01 -- 0.01 (0.01) --* Year Ended May 31, 2003................... $1.00 0.01 -- 0.01 (0.01) -- Year Ended May 31, 2002................... $1.00 0.03 -- 0.03 (0.03) -- Year Ended May 31, 2001................... $1.00 0.06 -- 0.06 (0.06) -- CLASSIC INSTITUTIONAL MUNICIPAL CASH RESERVE MONEY MARKET FUND INSTITUTIONAL SHARES Period Ended March 31, 2006(a)............ $1.00 0.02 -- 0.02 (0.02) -- CLASSIC INSTITUTIONAL U.S. GOVERNMENT SECURITIES MONEY MARKET FUND INSTITUTIONAL SHARES Year Ended March 31, 2006................. $1.00 0.03 -- 0.03 (0.03) -- Period Ended March 31, 2005**............. $1.00 0.01 -- 0.01 (0.01) -- Year Ended May 31, 2004................... $1.00 0.01 -- 0.01 (0.01) -- Year Ended May 31, 2003................... $1.00 0.01 -- 0.01 (0.01) -- Year Ended May 31, 2002................... $1.00 0.03 -- 0.03 (0.03) -- Year Ended May 31, 2001................... $1.00 0.06 -- 0.06 (0.06) -- CLASSIC INSTITUTIONAL U.S. TREASURY SECURITIES MONEY MARKET FUND INSTITUTIONAL SHARES Year Ended March 31, 2006................. $1.00 0.03 -- 0.03 (0.03) -- Period Ended March 31, 2005**............. $1.00 0.01 -- 0.01 (0.01) -- Year Ended May 31, 2004................... $1.00 0.01 -- 0.01 (0.01) --* Year Ended May 31, 2003................... $1.00 0.01 -- 0.01 (0.01) --* Year Ended May 31, 2002................... $1.00 0.02 -- 0.02 (0.02) -- Year Ended May 31, 2001................... $1.00 0.06 -- 0.06 (0.06) --
+ Not annualized for periods less than one year. ++ Annualized for periods less than one year. * Amount less than $0.005. ** Effective June 1, 2004, these Funds adopted a change in the amortization and accretion methodology on fixed income securities. The cumulative effect of this change in methodology was immaterial. (a) Commenced operations on August 2, 2005. FINANCIAL HIGHLIGHTS PROSPECTUS 19
RATIO OF TOTAL RATIO OF NET EXPENSES TO DIVIDENDS NET ASSET NET ASSETS, RATIO OF INVESTMENT INCOME AVERAGE NET ASSETS AND VALUE, END TOTAL END OF NET EXPENSES TO TO AVERAGE (EXCLUDING WAIVERS DISTRIBUTIONS OF PERIOD RETURN+ PERIOD (000) AVERAGE NET ASSETS++ NET ASSETS++ AND EXPENSE OFFSET)++ ------------- --------- ------- ------------ -------------------- ------------ --------------------- (0.04) $1.00 3.62% $2,975,521 0.17% 3.60% 0.19% (0.01) $1.00 1.43% $2,591,527 0.19% 1.71% 0.26% (0.01) $1.00 0.86% $2,368,849 0.25% 0.86% 0.29% (0.01) $1.00 1.46% $2,985,750 0.25% 1.45% 0.29% (0.03) $1.00 2.68% $3,409,606 0.25% 2.61% 0.29% (0.06) $1.00 6.13% $3,229,400 0.25% 5.91% 0.30% (0.02) $1.00 1.79% $ 125,982 0.19% 2.78% 0.23% (0.03) $1.00 3.51% $ 951,775 0.21% 3.48% 0.21% (0.01) $1.00 1.36% $ 894,653 0.25% 1.63% 0.26% (0.01) $1.00 0.82% $ 858,260 0.27% 0.82% 0.29% (0.01) $1.00 1.40% $1,040,066 0.26% 1.39% 0.29% (0.03) $1.00 2.61% $1,025,714 0.27% 2.49% 0.30% (0.06) $1.00 5.98% $ 896,189 0.26% 5.72% 0.29% (0.03) $1.00 3.41% $ 901,777 0.20% 3.45% 0.20% (0.01) $1.00 1.31% $ 697,095 0.25% 1.62% 0.26% (0.01) $1.00 0.77% $ 420,948 0.26% 0.71% 0.29% (0.01) $1.00 1.30% $ 653,340 0.26% 1.23% 0.29% (0.02) $1.00 2.28% $ 551,599 0.26% 2.25% 0.30% (0.06) $1.00 5.74% $ 580,227 0.27% 5.44% 0.30%
[THIS PAGE INTENTIONALLY LEFT BLANK] INVESTMENT ADVISER: Trusco Capital Management, Inc. 50 Hurt Plaza, Suite 1400 Atlanta, Georgia 30303 More information about the STI Classic Funds is available without charge through the following: STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI includes detailed information about the STI Classic Funds. The SAI is on file with the SEC and is incorporated by reference into this prospectus. This means that the SAI, for legal purposes, is a part of this prospectus. ANNUAL AND SEMI-ANNUAL REPORTS: These reports list each Fund's holdings and contain information from the Funds' managers about strategies and recent market conditions and trends and their impact on Fund performance. The reports also contain detailed financial information about the Funds. TO OBTAIN AN SAI, ANNUAL OR SEMI-ANNUAL REPORT, OR MORE INFORMATION: TELEPHONE: 1-888-STI-FUND MAIL: STI Classic Funds BISYS Fund Services Limited Partnership 3435 Stelzer Road Columbus, Ohio 43219 WEBSITE: www.sticlassicfunds.com SEC: You can also obtain the SAI or the Annual and Semi-Annual reports, as well as other information about the STI Classic Funds, from the EDGAR Database on the SEC's website at http://www.sec.gov. You may review and copy documents at the SEC Public Reference Room in Washington, DC (for information on the operation of the Public Reference Room, call 202-942-8090). You may request documents by mail from the SEC, upon payment of a duplicating fee, by writing to: Securities and Exchange Commission, Public Reference Section, Washington, DC 20549-0102. You may also obtain this information, upon payment of a duplicating fee, by e-mailing the SEC at publicinfo@sec.gov. The STI Classic Funds' Investment Company Act registration number is 811-06557. STI CLASSIC FUNDS STI CLASSIC FUNDS I Shares PROSPECTUS STI CLASSIC BOND AND MONEY MARKET FUNDS BOND FUNDS Core Bond Fund Florida Tax-Exempt Bond Fund Georgia Tax-Exempt Bond Fund High Income Fund High Quality Bond Fund Intermediate Bond Fund Investment Grade Bond Fund Investment Grade Tax-Exempt Bond Fund Limited Duration Fund Limited-Term Federal Mortgage Securities Fund Maryland Municipal Bond Fund North Carolina Tax-Exempt Bond Fund Seix Floating Rate High Income Fund Seix High Yield Fund Short-Term Bond Fund Short-Term U.S. Treasury Securities Fund Strategic Income Fund Total Return Bond Fund Ultra-Short Bond Fund U.S. Government Securities Fund U.S. Government Securities Ultra-Short Bond Fund Virginia Intermediate Municipal Bond Fund MONEY MARKET FUNDS Prime Quality Money Market Fund Tax-Exempt Money Market Fund U.S. Government Securities Money Market Fund U.S. Treasury Money Market Fund Virginia Tax-Free Money Market Fund Investment Adviser: Trusco Capital Management, Inc. (the "Adviser") August 1, 2006 The Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense. PROSPECTUS ABOUT THIS PROSPECTUS The STI Classic Funds is a mutual fund family that offers shares in separate investment portfolios that have individual investment goals and strategies. This prospectus gives you important information about the I Shares of the Bond and Money Market Funds ("Funds") that you should know before investing. Please read this prospectus and keep it for future reference. This prospectus has been arranged into different sections so that you can easily review this important information. On the next page, there is some general information you should know about risk and return that is common to each of the Funds. For more detailed information about each Fund, please see: 2 CORE BOND FUND 5 FLORIDA TAX-EXEMPT BOND FUND 8 GEORGIA TAX-EXEMPT BOND FUND 11 HIGH INCOME FUND 14 HIGH QUALITY BOND FUND 17 INTERMEDIATE BOND FUND 20 INVESTMENT GRADE BOND FUND 23 INVESTMENT GRADE TAX-EXEMPT BOND FUND 26 LIMITED DURATION FUND 29 LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND 32 MARYLAND MUNICIPAL BOND FUND 35 NORTH CAROLINA TAX-EXEMPT BOND FUND 38 SEIX FLOATING RATE HIGH INCOME FUND 41 SEIX HIGH YIELD FUND 44 SHORT-TERM BOND FUND 47 SHORT-TERM U.S. TREASURY SECURITIES FUND 50 STRATEGIC INCOME FUND 53 TOTAL RETURN BOND FUND 56 ULTRA-SHORT BOND FUND 59 U.S. GOVERNMENT SECURITIES FUND 62 U.S. GOVERNMENT SECURITIES ULTRA-SHORT BOND FUND 65 VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND 68 PRIME QUALITY MONEY MARKET FUND 70 TAX-EXEMPT MONEY MARKET FUND 72 U.S. GOVERNMENT SECURITIES MONEY MARKET FUND 74 U.S. TREASURY MONEY MARKET FUND 76 VIRGINIA TAX-FREE MONEY MARKET FUND 78 MORE INFORMATION ABOUT RISK 82 MORE INFORMATION ABOUT FUND INVESTMENTS 82 THIRD-PARTY RATINGS 82 INFORMATION ABOUT PORTFOLIO HOLDINGS 82 INVESTMENT ADVISER 84 PORTFOLIO MANAGERS 85 PURCHASING AND SELLING FUND SHARES 89 MARKET TIMING POLICIES AND PROCEDURES 90 REDEMPTION FEE POLICY 91 DIVIDENDS AND DISTRIBUTIONS 91 TAXES 94 FINANCIAL HIGHLIGHTS INSIDE PRIVACY POLICY BACK COVER BACK HOW TO OBTAIN MORE INFORMATION COVER ABOUT THE STI CLASSIC FUNDS
- -------------------------------------------------------------------------------- (SUITCASE FUND SUMMARY ICON) (TELESCOPE INVESTMENT STRATEGY ICON) (LIFE WHAT ARE THE PRINCIPAL RISKS OF INVESTING? PRESERVER ICON) (TARGET PERFORMANCE INFORMATION ICON) (LINE GRAPH WHAT IS AN INDEX/AVERAGE/OBJECTIVE? ICON) (COIN ICON) FUND FEES AND EXPENSES (MOUNTAIN MORE INFORMATION ABOUT FUND INVESTMENTS ICON) (THIRD-PARTY THIRD-PARTY RATINGS RATINGS ICON) (MAGNIFYING INVESTMENT ADVISER GLASS ICON) (HAND SHAKE PURCHASING AND SELLING FUND SHARES ICON)
- -------------------------------------------------------------------------------- AUGUST 1, 2006 PROSPECTUS 1 CUSIP/TICKER SYMBOLS
FUND NAME CLASS INCEPTION* TICKER CUSIP BOND FUNDS Core Bond Fund I Shares 10/11/04 SAMFX 78476A603 Florida Tax-Exempt Bond Fund I Shares 1/25/94 SCFTX 784766719 Georgia Tax-Exempt Bond Fund I Shares 1/18/94 SGATX 784766685 High Income Fund I Shares 10/3/01 STHTX 784767766 High Quality Bond Fund I Shares 10/29/03 SHQIX 784767519 Intermediate Bond Fund I Shares 10/11/04 SAMIX 78476A884 Investment Grade Bond Fund I Shares 7/16/92 STIGX 784766701 Investment Grade Tax-Exempt Bond Fund I Shares 10/21/93 STTBX 784766883 Limited Duration Fund I Shares 10/11/04 SAMLX 78476A405 Limited-Term Federal Mortgage Securities Fund I Shares 6/6/94 SLMTX 784766628 Maryland Municipal Bond Fund I Shares 3/1/96 CMDTX 784766131 North Carolina Tax-Exempt Bond Fund I Shares 3/21/05 CNCFX 78476A777 Seix Floating Rate High Income Fund I Shares 3/2/06 SAMBX 78476A587 Seix High Yield Fund I Shares 10/11/04 SAMHX 78476A843 Short-Term Bond Fund I Shares 3/15/93 SSBTX 784766826 Short-Term U.S. Treasury Securities Fund I Shares 3/15/93 SUSTX 784766792 Strategic Income Fund I Shares 11/30/01 STICX 784767691 Total Return Bond Fund I Shares 10/15/03 STRIX 784767493 Ultra-Short Bond Fund I Shares 4/15/02 SISSX 784767642 U.S. Government Securities Fund I Shares 8/1/94 SUGTX 784766644 U.S. Government Securities Ultra-Short Bond Fund I Shares 4/11/02 SIGVX 784767634 Virginia Intermediate Municipal Bond Fund I Shares 1/11/93 CRVTX 784767105 MONEY MARKET FUNDS Prime Quality Money Market Fund I Shares 6/8/92 SQTXX 784766107 Tax-Exempt Money Market Fund I Shares 6/8/92 STTXX 784766503 U.S. Government Securities Money Market Fund I Shares 6/8/92 STUXX 784766305 U.S. Treasury Money Market Fund I Shares 2/18/87 CUSXX 784767402 Virginia Tax-Free Money Market Fund I Shares 6/15/89 CFMXX 784767501
* The performance included under "Performance Information" may include the performance of other classes of the Fund and/or predecessors of the Fund. RISK/RETURN INFORMATION COMMON TO THE STI CLASSIC FUNDS Each Fund is a mutual fund. A mutual fund pools shareholders' money and, using professional investment managers, invests it in securities. Each Fund has its own investment goal and strategies for reaching that goal. The Adviser invests Fund assets in a way that it believes will help a Fund achieve its goal. Still, investing in each Fund involves risk and there is no guarantee that a Fund will achieve its goal. The Adviser's judgments about the markets, the economy or companies may not anticipate actual market movements, economic conditions or company performance, and these judgments may affect the return on your investment. In fact, no matter how good a job the Adviser does, you could lose money on your investment in the Fund, just as you could with other investments. A FUND SHARE IS NOT A BANK DEPOSIT AND IT IS NOT INSURED OR GUARANTEED BY THE FDIC OR ANY GOVERNMENT AGENCY. The value of your investment in a Fund (other than a money market fund) is based on the market prices of the securities the Fund holds. These prices change daily due to economic and other events that affect particular companies and other issuers. These price movements, sometimes called volatility, may be greater or lesser depending on the types of securities a Fund owns and the markets in which they trade. The effect on a Fund of a change in the value of a single security will depend on how widely the Fund diversifies its holdings. Each Fund's investment goal may be changed without shareholder approval. Before investing, make sure that the Fund's goal matches your own. CORE BOND FUND 2 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Total return that consistently exceeds the total return of the broad U.S. investment grade bond market INVESTMENT FOCUS Investment grade debt securities SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Invest in fixed income securities with an emphasis on corporate and mortgage-backed securities INVESTOR PROFILE Investors who want to receive income from their investment, as well as an increase in the value of the investment
(TELESCOPE ICON) INVESTMENT STRATEGY The Core Bond Fund invests in various types of income producing debt securities including mortgage- and asset-backed securities, government and agency obligations, corporate obligations and floating rate loans. The Fund may invest in debt obligations of U.S. and non-U.S. issuers, including emerging market debt. Under normal circumstances, the Fund invests at least 80% of its net assets in fixed income securities. These securities will be chosen from the broad universe of available fixed income securities rated investment grade by at least one national securities rating agency or unrated securities that the Adviser believes are of comparable quality. The Fund may invest up to 20% of its net assets in below investment grade, high yield debt obligations. The Fund may also invest a portion of its assets in securities that are restricted as to resale. The Adviser anticipates that the Fund's modified adjusted duration will generally range from 3 to 6 years, similar to that of the Lehman Brothers Aggregate Bond Index, the Fund's comparative benchmark. In selecting investments for the Fund, the Adviser generally selects a greater weighting in obligations of domestic corporations and mortgage-backed securities relative to the Fund's comparative benchmark, and a lower relative weighting in U.S. Treasury and government agency issues. Because securities tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell derivative instruments (such as futures, options and swaps, including credit default swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate or credit risks. The Fund may count the value of certain derivatives with investment grade fixed income characteristics towards its policy to invest, under normal circumstances, at least 80% of its net assets in fixed income securities. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. Mortgage-backed investments involve risk of loss due to prepayments and, like any bond, due to default. Because of the sensitivity of mortgage-related securities to changes in interest rates, the Fund's performance may be more volatile than if it did not hold these securities. Foreign securities involve special risks such as currency fluctuations, economic or financial instability, lack of timely or reliable financial information and unfavorable political or legal developments. These risks are increased for investments in emerging markets. Below investment grade securities (sometimes referred to as "junk bonds") involve greater risk of default or downgrade and are more volatile than investment grade securities. Below investment grade securities may also be less liquid than higher quality securities. The risks associated with floating rate loans are similar to the risks of below investment grade securities. In addition, the value of the collateral securing the loan may decline, causing a loan to be substantially unsecured. Difficulty in selling a floating rate loan may result in a loss. Borrowers may pay back principal before the scheduled due date when interest rates decline, which may require the Fund to replace a particular loan with a lower-yielding security. There may be less CORE BOND FUND PROSPECTUS 3 extensive public information available with respect to loans than for rated, registered or exchange listed securities. The Fund may assume the credit risk of the primary lender in addition to the borrower, and investments in loan assignments may involve the risks of being a lender. U.S. government securities can exhibit price movements resulting from changes in interest rates. Treasury inflation protected securities ("TIPS") can also exhibit price movements as a result of changing inflation expectations and seasonal inflation patterns. Certain U.S. government securities are backed by the full faith and credit of the U.S. Government, while others are backed by the ability of the issuing entity to borrow from the U.S. Treasury or by the issuing entity's own resources. Restricted securities may increase the level of illiquidity in the Fund during any period that qualified institutional buyers become uninterested in purchasing these restricted securities. The Adviser intends to invest only in restricted securities that it believes present minimal liquidity risk. Because the Fund invests in derivatives, it is exposed to additional volatility and potential losses. Credit default swaps can increase the Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. The use of derivatives may cause the Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. The Fund began operating on October 11, 2004. Performance prior to October 11, 2004 is that of the Class I Shares of the Seix Core Bond Fund, the Fund's predecessor, which began operations on December 30, 1997. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1998 7.81% 1999 -0.53% 2000 10.40% 2001 6.83% 2002 7.58% 2003 4.82% 2004 4.59% 2005 2.13%
BEST QUARTER WORST QUARTER 4.25% -2.16% (9/30/01) (6/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was -1.02%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Lehman Brothers U.S. Aggregate Index. These returns assume shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
SINCE I SHARES* 1 YEAR 5 YEARS INCEPTION** - ---------------------------------------------------------- Fund Returns Before Taxes 2.13% 5.17% 5.43% - ---------------------------------------------------------- Fund Returns After Taxes on Distributions 0.72% 3.42% 3.38% - ---------------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares 1.38% 3.37% 3.37% - ---------------------------------------------------------- Lehman Brothers U.S. Aggregate Index (reflects no deduction for fees, expenses or taxes) 2.43% 5.87% 6.06% - ----------------------------------------------------------
* Performance prior to October 11, 2004 is that of the predecessor fund's Class I Shares. ** Since inception of the predecessor fund on December 30, 1997. CORE BOND FUND 4 PROSPECTUS (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Lehman Brothers U.S. Aggregate Index is a widely-recognized index of U.S. Treasury and agency securities, corporate bond issues, mortgage-backed securities, asset-backed securities and corporate mortgage-backed securities. (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
I SHARES Redemption Fee (as a percentage of net asset value)* 2.00%
* This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees 0.25% Other Expenses(1) 0.06% ----------------- Total Annual Operating Expenses(2) 0.31%
(1) Adjusted to reflect an expected change in Other Expenses for the current fiscal year. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $32 $100 $174 $393
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." FLORIDA TAX-EXEMPT BOND FUND PROSPECTUS 5 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Current income exempt from federal income taxes for Florida residents with shares themselves expected to be exempt from the Florida intangible personal property tax INVESTMENT FOCUS Florida municipal securities SHARE PRICE VOLATILITY Low PRINCIPAL INVESTMENT STRATEGY Attempts to invest more Fund assets in undervalued sectors and less in overvalued ones INVESTOR PROFILE Florida residents who want income exempt from federal income taxes
(TELESCOPE ICON) INVESTMENT STRATEGY The Florida Tax-Exempt Bond Fund invests at least 80% of its net assets in municipal securities with income exempt from federal income taxes, and the shares themselves are expected to be exempt from the Florida intangible personal property tax. Issuers of these securities can be located in Florida, Puerto Rico and other U.S. territories and possessions. In addition, the Fund may invest up to 20% of its net assets in securities subject to the alternative minimum tax or in certain taxable debt securities. In selecting investments for the Fund, the Adviser tries to limit risk as much as possible. Based on the Adviser's analysis of municipalities, credit risk, market trends and investment cycles, the Adviser attempts to invest more of the Fund's assets in undervalued market sectors and less in overvalued sectors. The Adviser tries to diversify the Fund's holdings within Florida. The Adviser also tries to identify and invest in municipal issuers with improving credit and avoid those with deteriorating credit. Under certain circumstances, such as a national financial emergency or a temporary decline in availability of Florida obligations, the Fund may invest up to 20% of its assets in securities subject to the Florida intangible personal property tax and/or securities that generate income subject to federal personal income taxes. These securities may include short-term municipal securities outside Florida or certain taxable fixed income securities. In addition, to implement its investment strategy, the Fund may buy or sell, derivative instruments (such as futures, options, swaps and inverse floaters) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. There may be economic or political changes that impact the ability of municipal issuers to repay principal and to make interest payments on municipal securities. Changes in the financial condition or credit rating of municipal issuers also may adversely affect the value of the Fund's securities. The Fund's concentration of investments in securities of issuers located in Florida subjects the Fund to economic and government policies within Florida. Because the Fund invests in derivatives, it is exposed to additional volatility and potential losses. Inverse floaters are volatile and involve leverage risk. Certain derivatives may cause taxable income. FLORIDA TAX-EXEMPT BOND FUND 6 PROSPECTUS (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* 1996 3.94% 1997 7.82% 1998 6.25% 1999 -2.31% 2000 11.64% 2001 3.68% 2002 10.57% 2003 4.11% 2004 2.17% 2005 2.45%
(BAR CHART) BEST QUARTER WORST QUARTER 5.38% -2.41% (9/30/02) (6/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was -0.39%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Lehman Brothers 10-Year Municipal Bond Index and the Lipper Florida Municipal Debt Funds Objective. These returns assume shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
I SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes 2.45% 4.55% 4.96% Fund Returns After Taxes on Distributions 2.37% 4.33% 4.78% Fund Returns After Taxes on Distributions and Sale of Fund Shares 2.76% 4.30% 4.72% Lehman Brothers 10-Year Municipal Bond Index (reflects no deduction for fees, expenses or taxes) 2.74% 5.45% 5.69% Lipper Florida Municipal Debt Funds Objective (reflects no deduction for taxes) 3.33% 4.67% 4.69%
(LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX/OBJECTIVE? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Lehman Brothers 10-Year Municipal Bond Index is a widely-recognized index of long-term investment grade tax-exempt bonds. The Index includes general obligation bonds, revenue bonds, insured bonds and prefunded bonds with maturities between 8 and 12 years. The Index represents various market sectors and geographic locations. The Lipper Florida Municipal Debt Funds Objective is a composite index of mutual funds with investment goals similar to the Fund's goals. It reports the average return of the Florida intermediate-term municipal bond mutual funds tracked by Lipper Analytical Services, Inc. The number of funds in the Objective varies. FLORIDA TAX-EXEMPT BOND FUND PROSPECTUS 7 (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
I SHARES Redemption Fee (as a percentage of net asset value)* 2.00%
* This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.55% Other Expenses 0.06% ----------------- Total Annual Operating Expenses(2) 0.61%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $62 $195 $340 $762
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." GEORGIA TAX-EXEMPT BOND FUND 8 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Current income exempt from federal and state income taxes for Georgia residents without undue risk INVESTMENT FOCUS Georgia municipal securities SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Attempts to invest more Fund assets in undervalued sectors and less in overvalued ones INVESTOR PROFILE Georgia residents who want income exempt from federal and state income taxes
(TELESCOPE ICON) INVESTMENT STRATEGY The Georgia Tax-Exempt Bond Fund invests at least 80% of its net assets in municipal securities with income exempt from federal and Georgia income taxes. Issuers of these securities can be located in Georgia, Puerto Rico and other U.S. territories and possessions. In addition, the Fund may invest up to 20% of its assets in securities subject to the alternative minimum tax or in certain taxable debt securities. In selecting investments for the Fund, the Adviser tries to limit risk as much as possible. Based on the Adviser's analysis of municipalities, credit risk, market trends and investment cycles, the Adviser attempts to invest more of the Fund's assets in undervalued market sectors and less in overvalued sectors. The Adviser tries to diversify the Fund's holdings within Georgia. The Adviser also tries to identify and invest in municipal issuers with improving credit and avoid those with deteriorating credit. In addition, to implement its investment strategy, the Fund may buy or sell, derivative instruments (such as futures, options, swaps and inverse floaters) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. There may be economic or political changes that impact the ability of municipal issuers to repay principal and to make interest payments on municipal securities. Changes in the financial condition or credit rating of municipal issuers also may adversely affect the value of the Fund's securities. The Fund's concentration of investments in securities of issuers located in Georgia subjects the Fund to economic conditions and government policies within Georgia. Because the Fund invests in derivatives, it is exposed to additional volatility and potential losses. Inverse floaters are volatile and involve leverage risk. Certain derivatives may cause taxable income. GEORGIA TAX-EXEMPT BOND FUND PROSPECTUS 9 (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1996 3.53% 1997 8.17% 1998 5.79% 1999 -2.26% 2000 9.43% 2001 4.32% 2002 9.17% 2003 3.85% 2004 2.84% 2005 2.76%
BEST QUARTER WORST QUARTER 4.39% -2.70% (9/30/02) (6/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was -0.20%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Lehman Brothers 10-Year Municipal Bond Index and the Lipper Georgia Municipal Debt Funds Objective. These returns assume shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
I SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes 2.76% 4.56% 4.70% Fund Returns After Taxes on Distributions 2.74% 4.46% 4.61% Fund Returns After Taxes on Distributions and Sale of Fund Shares 3.02% 4.43% 4.57% Lehman Brothers 10-Year Municipal Bond Index (reflects no deduction for fees, expenses or taxes) 2.74% 5.45% 5.69% Lipper Georgia Municipal Debt Funds Objective (reflects no deduction for taxes) 2.36% 4.51% 4.73%
(LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX/OBJECTIVE? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Lehman Brothers 10-Year Municipal Bond Index is a widely-recognized index of long-term investment grade tax-exempt bonds. The Index includes general obligation bonds, revenue bonds, insured bonds and prefunded bonds with maturities between 8 and 12 years. The Index represents various market sectors and geographic locations. The Lipper Georgia Municipal Debt Funds Objective is a composite index of mutual funds with investment goals similar to the Fund's goals. It reports the average return of the Georgia intermediate-term municipal bond mutual funds tracked by Lipper Analytical Services, Inc. The number of funds in the Objective varies. GEORGIA TAX-EXEMPT BOND FUND 10 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
I SHARES Redemption Fee (as a percentage of net asset value)* 2.00%
* This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.55% Other Expenses 0.08% ----------------- Total Annual Operating Expenses(2) 0.63%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $64 $202 $351 $786
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." HIGH INCOME FUND PROSPECTUS 11 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOALS PRIMARY High current income SECONDARY Total return INVESTMENT FOCUS High yield corporate and other debt instruments of U.S. and non-U.S. issuers SHARE PRICE VOLATILITY High PRINCIPAL INVESTMENT STRATEGY Attempts to identify lower-rated securities offering high current income of issuers generating adequate cash flow to meet their obligations INVESTOR PROFILE Investors who seek high current income and who are willing to accept greater share price volatility through investment in high yield, below investment grade debt instruments
(TELESCOPE ICON) INVESTMENT STRATEGY The High Income Fund invests primarily in a diversified portfolio of higher yielding, lower-rated income producing debt instruments, including corporate obligations, floating rate loans and other debt obligations. The Fund may invest in debt obligations of U.S. and non-U.S. issuers, including emerging market debt. The Fund will invest at least 65%, and may invest up to 100%, of its assets in securities rated below investment grade by either Moody's Investor Services, Inc. or Standard & Poor's Rating Services or in unrated securities that the Adviser believes are of comparable quality. Such securities are commonly known as "junk bonds" and offer greater risks than investment grade debt securities. The Fund may also invest a portion of its assets in securities that are restricted as to resale. In selecting securities for the Fund, the Adviser employs a research driven process designed to identify value areas within the high yield market. The Adviser seeks to identify securities which meet the following criteria: (1) industries that have strong fundamentals; (2) companies that have good business prospects and increasing credit strength; and (3) issuers with stable or growing cash flows and effective management. Because securities tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell derivative instruments (such as futures, options and swaps, including credit default swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate or credit risks. The Fund may count the value of certain derivatives with below investment grade fixed income characteristics towards its policy to invest, under normal circumstances, at least 65% of its net assets in non-investment grade fixed income securities. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. Below investment grade securities (sometimes referred to as "junk bonds") involve greater risk of default or downgrade and are more volatile than investment grade securities. Below investment grade securities may also be less liquid than higher quality securities. The risks associated with floating rate loans are similar to the risks of below investment grade securities. In addition, the value of the collateral securing the loan may decline, causing a loan to be substantially unsecured. Difficulty in selling a floating rate loan may result in a loss. Borrowers may pay back principal before the scheduled due date when interest rates decline, which may require the Fund to replace a particular loan with a lower-yielding security. There may be less extensive public information available with respect to loans than for rated, registered or exchange listed securities. The Fund may assume the credit risk of the primary lender in addition to the borrower, and investments in loan assignments may involve the risks of being a lender. Foreign securities involve special risks such as currency fluctuations, economic or financial instability, lack of timely or reliable financial information and unfavorable political or legal developments. These risks are increased for investments in emerging markets. HIGH INCOME FUND 12 PROSPECTUS Restricted securities may increase the level of illiquidity in the Fund during any period that qualified institutional buyers become uninterested in purchasing these restricted securities. The Adviser intends to invest only in restricted securities that it believes present minimal liquidity risk. Because the Fund invests in derivatives, it is exposed to additional volatility and potential losses. Credit default swaps can increase the Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. The use of derivatives may cause the Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 2002 -3.34% 2003 25.81% 2004 10.32% 2005 4.21%
BEST QUARTER WORST QUARTER 8.73% -5.50% (6/30/03) (6/30/02)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 3.49%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Lehman Brothers U.S. Corporate High Yield Bond Index. These returns assume shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
SINCE I SHARES 1 YEAR INCEPTION* Fund Returns Before Taxes 4.21% 9.08% Fund Returns After Taxes on Distributions 0.23% 5.50% Fund Returns After Taxes on Distributions and Sale of Fund Shares 3.23% 5.72% Lehman Brothers U.S. Corporate High Yield Bond Index (reflects no deduction for fees, expenses or taxes) 2.74% 10.62%
* Since inception of the I Shares on October 3, 2001. Benchmark returns since September 30, 2001 (benchmark returns available only on a month end basis). (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Lehman Brothers U.S. Corporate High Yield Bond Index is a widely-recognized, market value-weighted (higher market value bonds have more influence than lower market value bonds) index which covers the universe of fixed rate, non-investment grade debt. HIGH INCOME FUND PROSPECTUS 13 (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
I SHARES Redemption Fee (as a percentage of net asset value)* 2.00%
* This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.60% Other Expenses 0.15% ----------------- Total Annual Operating Expenses(2) 0.75%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) Effective August 1, 2006, the Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses to the level shown below. These waivers may be discontinued at any time.
I SHARES High Income Fund 0.70%
- ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $77 $240 $417 $930
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." HIGH QUALITY BOND FUND 14 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Current income and price appreciation INVESTMENT FOCUS High quality fixed income securities SHARE PRICE VOLATILITY Low PRINCIPAL INVESTMENT STRATEGY Attempts to identify intermediate duration securities that offer solid return potential and yield INVESTOR PROFILE Conservative investors seeking to maximize income and yield consistent with intermediate share price volatility
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the High Quality Bond Fund invests at least 80% of its net assets in high quality fixed income securities. These securities will be primarily U.S. government, corporate and mortgage-backed securities rated A or better by at least one national securities rating agency or unrated securities that the Adviser believes are of comparable quality. The Fund may also invest in futures, options, taxable municipal securities, asset-backed securities and collateralized mortgage obligations ("CMOs"). The Fund may invest in debt securities of U.S. and non-U.S. issuers. The Adviser allocates the Fund's investments based on the Adviser's analysis of duration, yield curve structure, relative value sector and security analysis. The average duration of the Fund's portfolio will typically range from 3 to 10 years. The Adviser may retain securities if the rating of the security falls below investment grade and the Adviser deems retention of the security to be in the best interests of the Fund. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. Mortgage-backed investments involve risk of loss due to prepayments and, like any bond, due to default. Because of the sensitivity of mortgage-related securities to changes in interest rates, the Fund's performance may be more volatile than if it did not hold these securities. Foreign securities involve special risks such as currency fluctuations, economic or financial instability, lack of timely or reliable financial information and unfavorable political or legal developments. U.S. government securities can exhibit price movements resulting from changes in interest rates. Treasury inflation protected securities ("TIPS") can also exhibit price movements as a result of changing inflation expectations and seasonal inflation patterns. Certain U.S. government securities are backed by the full faith and credit of the U.S. Government, while others are backed by the ability of the issuing entity to borrow from the U.S. Treasury or by the issuing entity's own resources. For information about the risks involved when investing in derivatives, see "More Information About Risk." HIGH QUALITY BOND FUND PROSPECTUS 15 (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 2004 2.08% 2005 1.16%
BEST QUARTER WORST QUARTER 2.44% -2.48% (9/30/04) (6/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was -0.33%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Lehman Brothers U.S. Intermediate Government/Credit A+ Index. These returns assume shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
SINCE I SHARES 1 YEAR INCEPTION* Fund Returns Before Taxes 1.16% 1.83% Fund Returns After Taxes on Distributions 0.01% 0.84% Fund Returns After Taxes on Distributions and Sale of Fund Shares 0.75% 0.99% Lehman Brothers U.S. Intermediate Government/Credit A+ Index (reflects no deduction for fees, expenses or taxes) 1.71% 1.89%
* Since inception of the I Shares on October 29, 2003. Benchmark returns since September 30, 2003 (benchmark returns available only on a month end basis). (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Lehman Brothers U.S. Intermediate Government/Credit A+ Index is a widely-recognized index which represents the intermediate portion of the Lehman Brothers Government/Credit index. It consists of Treasury, Agencies and Credit securities with one year or more to maturity, and up to but not including 10 years of maturity. The underlying securities within the index have an average credit quality of A and better. The Lehman Brothers Government/Credit Index is a widely-recognized, market-value weighted index of U.S. Treasury and agency securities, corporate bond issues and mortgaged-backed securities having maturities of 10 years or less. HIGH QUALITY BOND FUND 16 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
I SHARES Redemption Fee (as a percentage of net asset value)* 2.00%
* This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.40% Other Expenses(2) 0.06% ----------------- Total Annual Operating Expenses(3) 0.46%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) Adjusted to reflect an expected change in Other Expenses for the current fiscal year. (3) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $47 $148 $258 $579
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." INTERMEDIATE BOND FUND PROSPECTUS 17 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Total return that consistently exceeds the total return of the broad U.S. dollar-denominated, investment grade market of intermediate-term government and corporate bonds INVESTMENT FOCUS Intermediate-term investment grade debt securities SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Invest in intermediate-term fixed income securities with an emphasis on corporate and mortgage-backed securities INVESTOR PROFILE Investors who want to receive income from their investment, as well as an increase in the value of the investment
(TELESCOPE ICON) INVESTMENT STRATEGY The Intermediate Bond Fund invests in various types of income producing debt securities including mortgage- and asset-backed securities, government and agency obligations, corporate obligations and floating rate loans. The Fund may invest in debt securities of U.S. and non-U.S. issuers, including emerging market debt. Under normal circumstances, the Fund invests at least 80% of its net assets in fixed income securities. These securities will be chosen from the broad universe of available intermediate-term fixed income securities rated investment grade by at least one national securities rating agency or unrated securities that the Adviser believes are of comparable quality. The Fund may invest up to 20% of its net assets in below investment grade, high yield debt obligations. The Fund may also invest a portion of its assets in securities that are restricted as to resale. The Adviser anticipates that the Fund will maintain an average-weighted maturity of 3 to 10 years and the Fund will be managed with a duration that is close to that of its comparative benchmark, the Lehman Brothers Intermediate Government/Credit Bond Index, which is generally between 3 to 4 years. In selecting investments for the Fund, the Adviser generally selects a greater weighting in obligations of domestic corporations and mortgage-backed securities relative to the Fund's comparative benchmark, and a lower relative weighting in U.S. Treasury and government agency issues. Because securities tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell derivative instruments (such as futures, options and swaps, including credit default swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate or credit risks. The Fund may count the value of certain derivatives with investment grade intermediate term fixed income characteristics towards its policy to invest, under normal circumstances, at least 80% of its net assets in fixed income securities. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. Mortgage-backed investments involve risk of loss due to prepayments and, like any bond, due to default. Because of the sensitivity of mortgage-related securities to changes in interest rates, the Fund's performance may be more volatile than if it did not hold these securities. Foreign securities involve special risks such as currency fluctuations, economic or financial instability, lack of timely or reliable financial information and unfavorable political or legal developments. These risks are increased for investments in emerging markets. Below investment grade securities (sometimes referred to as "junk bonds") involve greater risk of default or downgrade and are more volatile than investment grade securities. Below investment grade securities may also be less liquid than higher quality securities. The risks associated with floating rate loans are similar to the risks of below investment grade securities. In addition, the value of the collateral securing the loan may decline, causing a loan to be substantially unsecured. Difficulty in selling a floating rate loan may result in a loss. Borrowers may pay back principal before INTERMEDIATE BOND FUND 18 PROSPECTUS the scheduled due date when interest rates decline, which may require the Fund to replace a particular loan with a lower-yielding security. There may be less extensive public information available with respect to loans than for rated, registered or exchange listed securities. The Fund may assume the credit risk of the primary lender in addition to the borrower, and investments in loan assignments may involve the risks of being a lender. U.S. government securities can exhibit price movements resulting from changes in interest rates. Treasury inflation protected securities ("TIPS") can also exhibit price movements as a result of changing inflation expectations and seasonal inflation patterns. Certain U.S. government securities are backed by the full faith and credit of the U.S. Government, while others are backed by the ability of the issuing entity to borrow from the U.S. Treasury or by the issuing entity's own resources. Restricted securities may increase the level of illiquidity in the Fund during any period that qualified institutional buyers become uninterested in purchasing these restricted securities. The Adviser intends to invest only in restricted securities that it believes present minimal liquidity risk. Because the Fund invests in derivatives, it is exposed to additional volatility and potential losses. Credit default swaps can increase the Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. The use of derivatives may cause the Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. The Fund began operating on October 11, 2004. Performance prior to October 11, 2004 is that of the Class I Shares of the Seix Intermediate Bond Fund, the Fund's predecessor, which began operations on June 30, 1999. This bar chart shows changes in the performance of the Fund's I Shares from year to year. (BAR CHART) 2000 10.19% 2001 7.03% 2002 7.18% 2003 4.03% 2004 3.69% 2005 1.38%
BEST QUARTER WORST QUARTER 4.33% -2.33% (9/30/01) (6/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was -0.40%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Lehman Brothers Intermediate Government/Credit Bond Index. These returns assume shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
SINCE I SHARES* 1 YEAR 5 YEARS INCEPTION** - --------------------------------------------------------- Fund Returns Before Taxes 1.38% 4.64% 5.30% - --------------------------------------------------------- Fund Returns After Taxes on Distributions 0.06% 2.82% 3.30% - --------------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares 0.92% 2.88% 3.31% - --------------------------------------------------------- Lehman Brothers Intermediate Government/ Credit Bond Index (reflects no deduction for fees, expenses or taxes) 1.58% 5.50% 5.92% - ---------------------------------------------------------
* Performance prior to October 11, 2004 is that of the predecessor fund's Class I Shares. ** Since inception of the predecessor fund on June 30, 1999. INTERMEDIATE BOND FUND PROSPECTUS 19 (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Lehman Brothers Intermediate Government/Credit Bond Index is a widely-recognized, market-value weighted (higher market value bonds have more influence than lower market value bonds) index of U.S. Treasury and agency securities, corporate bond issues and mortgage-backed securities having maturities of 10 years or less. (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
I SHARES Redemption Fee (as a percentage of net asset value)* 2.00%
* This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees 0.25% Other Expenses(1) 0.05% ----------------- Total Annual Operating Expenses(2) 0.30%
(1) Adjusted to reflect an expected change in Other Expenses for the current fiscal year. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $31 $97 $169 $381
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." INVESTMENT GRADE BOND FUND 20 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL High total return through current income and capital appreciation, while preserving the principal amount invested INVESTMENT FOCUS Investment grade U.S. government and corporate debt securities SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Attempts to identify relatively inexpensive securities in a selected market index INVESTOR PROFILE Investors who want to receive income from their investment, as well as an increase in the value of the investment
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Investment Grade Bond Fund invests at least 80% of its net assets in fixed income securities rated investment grade by at least one national securities rating agency or unrated securities that the Adviser believes are of comparable quality. The Adviser focuses on corporate debt securities, U.S. Treasury obligations, and mortgage-backed securities. The Fund may invest in debt obligations of U.S. and non-U.S. issuers. The Fund may invest up to 20% of its net assets in below investment grade, high yield debt obligations, including emerging market debt and floating rate loans. The Fund may also invest a portion of its assets in securities that are restricted as to resale. In selecting investments for the Fund, the Adviser tries to minimize risk while attempting to outperform selected market indices. Currently, the Adviser's selected index is the Lehman Brothers U.S. Government/Credit Index, a widely-recognized, unmanaged index of investment grade government and corporate debt securities. The Adviser seeks to invest more in portions of the Index that seem relatively inexpensive, and less in those that seem expensive. The Adviser allocates the Fund's investments among various market sectors based on the Adviser's analysis of historical data, yield information and credit ratings. Because securities tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell derivative instruments (such as futures, options and swaps, including credit default swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate or credit risks. The Fund may count the value of certain derivatives with investment grade fixed income characteristics towards its policy to invest, under normal circumstances, at least 80% of its net assets in investment grade fixed income securities. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. Mortgage-backed investments involve risk of loss due to prepayments and, like any bond, due to default. Because of the sensitivity of mortgage-related securities to changes in interest rates, the Fund's performance may be more volatile than if it did not hold these securities. U.S. government securities can exhibit price movements resulting from changes in interest rates. Treasury inflation protected securities ("TIPS") can also exhibit price movements as a result of changing inflation expectations and seasonal inflation patterns. Certain U.S. government securities are backed by the full faith and credit of the U.S. Government, while others are backed by the ability of the issuing entity to borrow from the U.S. Treasury or by the issuing entity's own resources. Foreign securities involve special risks such as currency fluctuations, economic or financial instability, lack of timely or reliable financial information and unfavorable political or legal developments. These risks are increased for investments in emerging markets. Below investment grade securities (sometimes referred to as "junk bonds") involve greater risk of default or downgrade and are more volatile than investment grade securities. Below investment grade securities may also be less liquid than higher quality securities. The risks associated with floating rate loans are similar to the risks of below investment grade securities. In addition, the value of the collateral securing the loan may decline, causing a loan to be substantially unsecured. Difficulty in selling a floating rate loan may result in a loss. Borrowers may pay back principal before the scheduled due date when interest rates decline, INVESTMENT GRADE BOND FUND PROSPECTUS 21 which may require the Fund to replace a particular loan with a lower-yielding security. There may be less extensive public information available with respect to loans than for rated, registered or exchange listed securities. The Fund may assume the credit risk of the primary lender in addition to the borrower, and investments in loan assignments may involve the risks of being a lender. Restricted securities may increase the level of illiquidity in the Fund during any period that qualified institutional buyers become uninterested in purchasing these restricted securities. The Adviser intends to invest only in restricted securities that it believes present minimal liquidity risk. Because the Fund invests in derivatives, it is exposed to additional volatility and potential losses. Credit default swaps can increase the Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. The use of derivatives may cause the Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1996 2.34% 1997 9.08% 1998 9.19% 1999 -1.53% 2000 6.57% 2001 9.06% 2002 7.42% 2003 3.70% 2004 4.09% 2005 2.16%
BEST QUARTER WORST QUARTER 5.39% -3.47% (9/30/98) (6/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was -0.25%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Lehman Brothers U.S. Government/Credit Index, Lehman Brothers U.S. Aggregate Index and the Lipper Intermediate Investment-Grade Debt Funds Objective. These returns assume shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
I SHARES 1 YEAR 5 YEARS 10 YEARS - ------------------------------------------------------- Fund Returns Before Taxes 2.16% 5.26% 5.15% - ------------------------------------------------------- Fund Returns After Taxes on Distributions 0.83% 3.65% 3.10% - ------------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares 1.40% 3.52% 3.11% - ------------------------------------------------------- Lehman Brothers U.S. Government/Credit Index (reflects no deduction for fees, expenses or taxes) 2.37% 6.11% 6.17% - ------------------------------------------------------- Lehman Brothers U.S. Aggregate Index (reflects no deduction for fees, expenses or taxes) 2.43% 5.87% 6.16% - ------------------------------------------------------- Lipper Intermediate Investment-Grade Debt Funds Objective (reflects no deduction for taxes) 1.77% 5.27% 5.35% - -------------------------------------------------------
INVESTMENT GRADE BOND FUND 22 PROSPECTUS (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX/OBJECTIVE? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Lehman Brothers U.S. Government/Credit Index is a widely-recognized composite made up of the Lehman Brothers U.S. Government Index and the Lehman Brothers U.S. Credit Index, which include U.S. government, Treasury and agency securities, as well as high grade corporate bonds. The Lehman Brothers U.S. Aggregate Index is a widely-recognized index of securities that are SEC-registered, taxable, and dollar denominated. The Index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. The Lipper Intermediate Investment-Grade Debt Funds Objective is a widely-recognized, equally weighted average that invests primarily in investment grade debt issues (rated in the top four grades) with dollar-weighted average maturities of five to ten years. The number of funds in the Objective varies. (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
I SHARES Redemption Fee (as a percentage of net asset value)* 2.00%
* This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.50% Other Expenses 0.06% ----------------- Total Annual Operating Expenses(2) 0.56%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $57 $179 $313 $701
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." INVESTMENT GRADE TAX-EXEMPT BOND FUND PROSPECTUS 23 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL High total return through (i) current income that is exempt from federal income taxes and (ii) capital appreciation, while preserving the principal amount invested INVESTMENT FOCUS Investment grade municipal securities SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Attempts to invest more Fund assets in undervalued sectors and less in overvalued ones INVESTOR PROFILE Investors who want to receive tax-free current income and an increase in the value of their investment
(TELESCOPE ICON) INVESTMENT STRATEGY The Investment Grade Tax-Exempt Bond Fund invests at least 80% of its net assets in investment grade tax-exempt obligations, like municipal securities. The issuers of these securities may be located in any U.S. state, territory or possession. In addition, the Fund may invest up to 20% of its assets in securities subject to the alternative minimum tax or in certain taxable debt securities. In selecting investments for the Fund, the Adviser tries to limit risk as much as possible. Based on the Adviser's analysis of municipalities, credit risk, market trends and investment cycles, the Adviser attempts to invest more of the Fund's assets in undervalued market sectors and less in overvalued sectors. The Adviser also tries to identify and invest in municipal issuers with improving credit and avoid those with deteriorating credit. The Adviser anticipates that the Fund's average weighted maturity will range from 4 to 10 years. The Adviser may retain securities if the rating of the security falls below investment grade and the Adviser deems retention of the security to be in the best interests of the Fund. Because securities tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell, derivative instruments (such as futures, options, swaps and inverse floaters) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. There may be economic or political changes that impact the ability of municipal issuers to repay principal and to make interest payments on municipal securities. Changes in the financial condition or credit rating of municipal issuers also may adversely affect the value of the Fund's securities. Because the Fund invests in derivatives, it is exposed to additional volatility and potential losses. Inverse floaters are volatile and involve leverage risk. Certain derivatives may cause taxable income. INVESTMENT GRADE TAX-EXEMPT BOND FUND 24 PROSPECTUS (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1996 5.52% 1997 7.79% 1998 7.06% 1999 -0.26% 2000 10.87% 2001 5.51% 2002 10.38% 2003 4.41% 2004 3.49% 2005 2.22%
BEST QUARTER WORST QUARTER 4.79% -1.67% (9/30/02) (6/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 0.05%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average total returns for the periods ended December 31, 2005, to those of the Lehman Brothers 5-Year Municipal Bond Index and the Lipper Intermediate Municipal Debt Funds Objective. These returns assume shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
I SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes 2.22% 5.17% 5.65% Fund Returns After Taxes on Distributions 2.09% 4.44% 4.86% Fund Returns After Taxes on Distributions and Sale of Fund Shares 2.49% 4.42% 4.84% Lehman Brothers 5-Year Municipal Bond Index (reflects no deduction for fees, expenses or taxes) 0.95% 4.62% 4.78% Lipper Intermediate Municipal Debt Funds Objective (reflects no deduction for taxes) 1.62% 4.32% 4.57%
(LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX/OBJECTIVE? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Lehman Brothers 5-Year Municipal Bond Index is a widely-recognized index of intermediate investment grade tax-exempt bonds. The Index includes general obligation bonds, revenue bonds, insured bonds and prefunded bonds with maturities between 4 and 6 years. The Lipper Intermediate Municipal Debt Funds Objective is a composite of mutual funds with investment goals similar to the Fund's goals. It reports the average of intermediate term municipal bond mutual funds tracked by Lipper Analytical Services, Inc. The number of funds in the Objective varies. INVESTMENT GRADE TAX-EXEMPT BOND FUND PROSPECTUS 25 (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
I SHARES Redemption Fee (as a percentage of net asset value)* 2.00%
* This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.50% Other Expenses 0.07% ----------------- Total Annual Operating Expenses(2) 0.57%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2 )The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $58 $183 $318 $714
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." LIMITED DURATION FUND 26 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Current income, while preserving liquidity and principal INVESTMENT FOCUS Short-term U.S. dollar-denominated, investment grade fixed income securities SHARE PRICE VOLATILITY Low PRINCIPAL INVESTMENT STRATEGY Attempts to identify U.S. dollar-denominated, investment grade fixed income securities that offer high current income while preserving liquidity and principal INVESTOR PROFILE Investors who want to receive income from their investment
(TELESCOPE ICON) INVESTMENT STRATEGY The Limited Duration Fund invests in U.S. dollar-denominated, investment grade fixed income securities, including corporate and bank obligations, government securities, and mortgage-and asset-backed securities of U.S. and non-U.S. issuers, rated A or better by at least one national securities rating agency or unrated securities that the Adviser believes are of comparable quality. The Fund will maintain an average credit quality of AA or Aa and all securities held in the Fund will have interest rate durations of 180 days or less. For floating rate notes, the interest rate duration will be based on the next interest rate reset date. In deciding which securities to buy and sell, the Adviser emphasizes securities that are within the targeted segment of the U.S. dollar-denominated, fixed income securities markets and will generally focus on investments that have good business prospects, credit strength, stable cash flows and effective management. The Adviser may retain securities if the rating of the security falls below investment grade and the Adviser deems retention of the security to be in the best interests of the Fund. Because securities tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying asset and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. Mortgage-backed investments involve risk of loss due to prepayments and, like any bond, due to default. Because of the sensitivity of mortgage-related securities to changes in interest rates, the Fund's performance may be more volatile than if it did not hold these securities. Foreign securities involve special risks such as economic or financial instability, lack of timely or reliable financial information and unfavorable political or legal developments. U.S. government securities can exhibit price movements resulting from changes in interest rates. Treasury inflation protected securities ("TIPS") can also exhibit price movements as a result of changing inflation expectations and seasonal inflation patterns. Certain U.S. government securities are backed by the full faith and credit of the U.S. Government, while others are backed by the ability of the issuing entity to borrow from the U.S. Treasury or by the issuing entity's own resources. For information about the risks involved when investing in derivatives, see "More Information About Risk." LIMITED DURATION FUND PROSPECTUS 27 (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. The Fund began operating on October 11, 2004. Performance prior to October 11, 2004 is that of the Class I Shares of the Seix Limited Duration Fund, the Fund's predecessor, which began operations on October 25, 2002. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 2003 0.97% 2004 1.20% 2005 3.20%
BEST QUARTER WORST QUARTER 0.97% 0.14% (12/31/05) (6/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 2.25%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Merrill 3-Month Treasury Bill Index. These returns assume shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
I SHARES* 1 YEAR SINCE INCEPTION** - ------------------------------------------------------- Fund Returns Before Taxes 3.20% 1.72% - ------------------------------------------------------- Fund Returns After Taxes on Distributions 2.11% 1.10% - ------------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares 2.07% 1.11% - ------------------------------------------------------- Merrill 3-Month Treasury Bill Index (reflects no deduction for fees, expenses or taxes) 3.07% 1.84% - -------------------------------------------------------
* Performance prior to October 11, 2004 is that of the predecessor fund's Class I Shares. ** Since inception of the predecessor fund on October 25, 2002. Benchmark returns since September 30, 2002 (benchmark returns available only on a month end basis). (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Merrill 3-Month Treasury Bill Index is a widely-recognized index based on the 3 month U.S. Treasury bills. LIMITED DURATION FUND 28 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
I SHARES Redemption Fee (as a percentage of net asset value)* 2.00%
* This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees 0.10% Other Expenses(1) 0.06% ----------------- Total Annual Operating Expenses(2) 0.16%
(1) Adjusted to reflect an expected change in Other Expenses for the current fiscal year. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $16 $52 $90 $205
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND PROSPECTUS 29 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL High current income, while preserving capital INVESTMENT FOCUS Mortgage-backed securities SHARE PRICE VOLATILITY Low PRINCIPAL INVESTMENT STRATEGY Attempts to identify securities that are less prone to prepayment risk INVESTOR PROFILE Conservative investors who want to receive income from their investment
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Limited-Term Federal Mortgage Securities Fund invests at least 80% of its net assets in U.S. government agency mortgage-backed securities, such as Fannie Mae, GNMA and collateralized mortgage obligations. In selecting investments for the Fund, the Adviser tries to identify securities that the Adviser expects to perform well in rising and falling markets. The Adviser also attempts to reduce the risk that the underlying mortgages are prepaid by focusing on securities that it believes are less prone to this risk. For example, Fannie Mae or GNMA securities that were issued years ago may be less prone to prepayment risk because there have been many opportunities for prepayment, but few have occurred. Because securities tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. Mortgage-backed investments involve risk of loss due to prepayments and, like any bond, due to default. Because of the sensitivity of mortgage-related securities to changes in interest rates, the Fund's performance may be more volatile than if it did not hold these securities. U.S. government securities can exhibit price movements resulting from changes in interest rates. Treasury inflation protected securities ("TIPS") can also exhibit price movements as a result of changing inflation expectations and seasonal inflation patterns. Certain U.S. government securities are backed by the full faith and credit of the U.S. Government, while others are backed by the ability of the issuing entity to borrow from the U.S. Treasury or by the issuing entity's own resources. For information about the risks involved when investing in derivatives, see "More Information About Risk." LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND 30 PROSPECTUS (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1996 4.53% 1997 6.74% 1998 6.90% 1999 1.25% 2000 8.59% 2001 7.41% 2002 7.50% 2003 1.42% 2004 2.36% 2005 1.55%
BEST QUARTER WORST QUARTER 4.36% -1.70% (9/30/01) (6/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 0.79%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Merrill Lynch 1-5 Year AAA U.S. Treasuries/ Agencies Index and the Merrill Lynch 1-5 Year U.S. Treasuries Index. These returns assume shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
I SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes 1.55% 4.01% 4.79% Fund Returns After Taxes on Distributions 0.13% 2.53% 2.83% Fund Returns After Taxes on Distributions and Sale of Fund Shares 1.00% 2.54% 2.87% Merrill Lynch 1-5 Year AAA U.S. Treasuries/Agencies Index (reflects no deduction for fees, expenses or taxes) 1.45% 4.17% 5.11% Merrill Lynch 1-5 Year U.S. Treasuries Index (reflects no deduction for fees, expenses or taxes) 1.39% 4.07% 5.04%
(LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Merrill Lynch 1-5 Year AAA U.S. Treasuries/Agencies Index includes U.S. government and agency bonds that have a minimum issue size of $150 million. The current market value of the Index is $1.50 trillion with duration of 2.06 years and yield to maturity of 2.48%. The Merrill Lynch 1-5 Year U.S. Treasuries Index is a widely-recognized, capitalization weighted (companies with larger market capitalizations have more influence than those with smaller market capitalizations) index of U.S. Treasury securities with maturities of 1 year or greater and no more than 5 years. LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND PROSPECTUS 31 (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
I SHARES Redemption Fee (as a percentage of net asset value)* 2.00%
* This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.50% Other Expenses 0.08% ------------------- Total Annual Operating Expenses(2) 0.58%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $59 $186 $324 $726
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." MARYLAND MUNICIPAL BOND FUND 32 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL High current income exempt from federal and Maryland income tax, consistent with preservation of capital - --------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS Maryland municipal securities - --------------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Moderate - --------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Invests primarily in investment grade municipal securities - --------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Maryland residents who want income exempt from federal and state income taxes - ---------------------------------------------------------------------------------------------------------
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Maryland Municipal Bond Fund invests at least 80% of its net assets in municipal securities, including securities subject to the alternative minimum tax, with income exempt from federal and Maryland income taxes. In addition, the Fund may invest up to 20% of its assets in certain taxable debt securities. Issuers of these securities can be located in Maryland, Puerto Rico and other U.S. territories and possessions. In selecting investments for the Fund, the Adviser tries to limit risk by buying primarily investment grade securities. There are no limits on the Fund's average weighted maturity or on the remaining maturities of individual securities. In addition, to implement its investment strategy, the Fund may buy or sell, derivative instruments (such as futures, options, swaps and inverse floaters) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. There may be economic or political changes that impact the ability of municipal issuers to repay principal and to make interest payments on municipal securities. Changes in the financial condition or credit rating of municipal issuers also may adversely affect the value of the Fund's securities. The Fund's concentration of investments in securities of issuers located in Maryland subjects the Fund to economic and government policies of Maryland. The Fund is non-diversified, which means that it may invest in the securities of relatively few issuers. As a result, the Fund may be more susceptible to a single adverse economic or regulatory occurrence affecting one or more of these issuers, and may experience increased volatility due to its investments in those securities. Because the Fund invests in derivatives, it is exposed to additional volatility and potential losses. Inverse floaters are volatile and involve leverage risk. Certain derivatives may cause taxable income. MARYLAND MUNICIPAL BOND FUND PROSPECTUS 33 (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1997 8.78% 1998 5.87% 1999 -3.33% 2000 11.31% 2001 4.54% 2002 8.91% 2003 4.22% 2004 3.33% 2005 2.62%
BEST QUARTER WORST QUARTER 4.24% -2.08% (9/30/02) (6/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 0.19%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Lehman Brothers 10-Year Municipal Bond Index and the Lipper Maryland Municipal Debt Funds Objective. These returns assume shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
SINCE I SHARES 1 YEAR 5 YEARS INCEPTION* Fund Returns Before Taxes 2.62% 4.70% 4.62% Fund Returns After Taxes on Distributions 2.48% 4.31% 4.92% Fund Returns After Taxes on Distributions and Sale of Fund Shares 3.16% 4.29% 4.39% Lehman Brothers 10-Year Municipal Bond Index (reflects no deduction for fees, expenses or taxes) 2.74% 5.45% 5.72% Lipper Maryland Municipal Debt Funds Objective (reflects no deduction for taxes) 2.55% 4.52% 4.70%
* Since inception of the I Shares on March 1, 1996. Benchmark returns since February 29, 1996 (benchmark returns available only on a month end basis). (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX/OBJECTIVE? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Lehman Brothers 10-Year Municipal Bond Index is a widely-recognized index of long-term investment grade tax-exempt bonds. The Index includes general obligation bonds, revenue bonds, insured bonds and prefunded bonds with maturities between 8 and 12 years. The Index represents various market sectors and geographic locations. The Lipper Maryland Municipal Debt Funds Objective is an average of funds that limit their assets to those securities that are exempt from taxation in a specified state (double tax-exempt) or city (triple tax-exempt). The number of funds in the Objective varies. MARYLAND MUNICIPAL BOND FUND 34 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
I SHARES Redemption Fee (as a percentage of net asset value)* 2.00%
* This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.55% Other Expenses 0.10% ------------------- Total Annual Operating Expenses(2) 0.65%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $66 $208 $362 $810
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." NORTH CAROLINA TAX-EXEMPT BOND FUND PROSPECTUS 35 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Current income exempt from federal and state income taxes for North Carolina residents without undue risk INVESTMENT FOCUS North Carolina municipal securities SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Attempts to invest more Fund assets in undervalued sectors and less in overvalued ones INVESTOR PROFILE North Carolina residents who want income exempt from federal and state income taxes
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the North Carolina Tax-Exempt Bond Fund invests at least 80% of its net assets in municipal securities with income exempt from federal and North Carolina income taxes. Issuers of these securities can be located in North Carolina, Puerto Rico and other U.S. territories and possessions. In addition, the Fund may invest up to 20% of its assets in securities subject to the alternative minimum tax or in certain taxable debt securities. In selecting investments for the Fund, the Adviser tries to limit risk as much as possible. Based on the Adviser's analysis of municipalities, credit risk, market trends and investment cycles, the Adviser attempts to invest more of the Fund's assets in undervalued market sectors and less in overvalued sectors. The Adviser tries to diversify the Fund's holdings within North Carolina. The Adviser also tries to identify and invest in municipal issuers with improving credit and avoid those with deteriorating credit. In addition, to implement its investment strategy, the Fund may buy or sell, derivative instruments (such as futures, options, swaps and inverse floaters) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THE FUND? Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. There may be economic or political changes that impact the ability of municipal issuers to repay principal and to make interest payments on municipal securities. Changes in the financial condition or credit rating of municipal issuers also may adversely affect the value of the Fund's securities. The Fund is non-diversified, which means that it may invest in the securities of relatively few issuers. As a result, the Fund may be more susceptible to a single adverse economic or regulatory occurrence affecting one or more of these issuers, and may experience increased volatility due to its investments in those securities. The Fund's concentration of investments in securities of issuers located in North Carolina subjects the Fund to economic and government policies of North Carolina. Because the Fund invests in derivatives, it is exposed to additional volatility and potential losses. Inverse floaters are volatile and involve leverage risk. Certain derivatives may cause taxable income. (TARGET ICON) PERFORMANCE INFORMATION The bar chart and performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. The Fund commenced operations on March 21, 2005. Performance between January 8, 2004 and March 21, 2005 is that of the CCMI Tax-Exempt North Carolina Bond Fund, the Fund's predecessor. NORTH CAROLINA TAX-EXEMPT BOND FUND 36 PROSPECTUS This bar chart shows the performance of the Fund's I Shares for the last year.* (BAR CHART) 2005 2.29%
BEST QUARTER WORST QUARTER 3.18% -1.07% (6/30/05) (3/31/05)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was -0.04%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Lehman Brothers 10-Year Municipal Bond Index. These returns assume shareholders redeem all of their shares at the end of the periods indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - -------------------------------------------------------------
I SHARES* 1 YEAR SINCE INCEPTION** Fund Returns Before Taxes 2.29% 2.92% Fund Returns After Taxes on Distributions 2.17% 2.86% Fund Returns After Taxes on Distributions and Sale of Fund Shares 2.56% 2.88% Lehman Brothers 10-Year Municipal Bond Index (reflects no deduction for fees, expenses or taxes) 2.74% 3.44%
* Performance between January 8, 2004 and March 21, 2005 is that of the predecessor fund. ** Since inception of the predecessor fund on January 8, 2004. Benchmark returns since December 31, 2003 (benchmark returns available only on a month end basis.) (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Lehman Brothers 10-Year Municipal Bond Index is a widely recognized index of long-term investment grade tax-exempt bonds. The index includes general obligation bonds, revenue bonds, insured bonds and prefunded bonds with maturities between 8 and 12 years. NORTH CAROLINA TAX-EXEMPT BOND FUND PROSPECTUS 37 (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
I SHARES Redemption Fee (as a percentage of net asset value)* 2.00%
* This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.55% Other Expenses 0.12% ------- Total Annual Operating Expenses(2) 0.67%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser has contractually agreed to waive fees and reimburse expenses until at least August 1, 2007 in order to keep Total Annual Operating Expenses from exceeding 0.71%. If at any point before August 1, 2009, Total Annual Operating Expenses are less than the applicable expense cap, the Adviser may retain the difference to recapture any of the prior waivers or reimbursements. In addition, the Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These voluntary waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $68 $214 $373 $835
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Distribution of Fund Shares." SEIX FLOATING RATE HIGH INCOME FUND 38 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL To provide a high level of current income by investing primarily in first and second lien senior floating rate loans and other floating rate debt securities. INVESTMENT FOCUS Senior floating rate loans and other floating rate debt securities SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Invest in a portfolio of interests in first and second lien senior secured floating rate loans and other floating rate debt securities INVESTOR PROFILE Investors who seek: - Current income and a hedge against rising interest rates; - Diversification by adding assets that have traditionally exhibited low correlation to other asset classes; - Relatively high risk adjusted returns compared to other short term investment vehicles.
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Seix Floating Rate High Income Fund invests at least 80% of its net assets in a combination of first and second lien senior floating rate loans and other floating rate debt securities. These loans are loans made by banks and other large financial institutions to various companies and are senior in the borrowing companies' capital structure. Coupon rates are floating, not fixed and are tied to a benchmark lending rate, the most popular of which is LIBOR ("London Interbank Offered Rate"). LIBOR is based on rates that contributor banks in London charge each other for interbank deposits and is typically used to set coupon rates on floating rate debt securities. The interest rates of these floating rate debt securities vary periodically based upon a benchmark indicator of prevailing interest rates. The Fund may invest all or substantially all of its assets in floating rate loans and debt securities that are rated below investment grade, or in comparable unrated securities. The Fund may also invest up to 20% of its total assets in any combination of junior debt securities or securities with a lien on collateral lower than a senior claim on collateral, high yield fixed rate bonds, investment grade fixed income debt obligations, asset-backed securities (such as special purpose trusts investing in bank loans), money market securities and repurchase agreements. In deciding which debt securities to buy and sell, the portfolio managers will emphasize securities which are within the segment of the high yield market it has targeted, which are securities rated either "BB" and "B" by Standard & Poor's Rating Services or "Ba" and "B" by Moody's Investor Services, Inc. or unrated securities that the Adviser believes are of comparable quality. The Fund may invest up to 20% of its total assets in senior loans made to non-U.S. borrowers provided that no more than 5% of these loans are non-U.S. dollar denominated. The Fund may also engage in certain hedging transactions. Preservation of capital is considered when consistent with the Fund's objective. Some types of senior loans in which the Fund may invest require that an open loan for a specific amount be continually offered to a borrower. These types of senior loans are commonly referred to as revolvers. Because revolvers contractually obligate the lender (and therefore those with an interest in the loan) to fund the loan at the borrower's discretion, the Fund must have funds sufficient to cover its contractual obligation. Therefore the Fund will maintain, on a daily basis, high-quality, liquid assets in an amount at least equal in value to its contractual obligation to fulfill the revolving senior loan. The Fund will not encumber any assets that are otherwise encumbered. The Fund will limit its investments in such obligations to no more than 25% of the Fund's total assets. In addition, to implement its investment strategy, the Fund may buy or sell to a limited extent, derivative instruments (such as futures, options, credit linked notes and swaps, including credit default and total return swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate or credit risks. The Fund may count the value of certain derivatives with floating rate debt or high yield bond characteristics towards its policy to invest, under normal circumstances, at least 80% of its net assets in a combination of senior floating rate loans and other floating rate debt securities and high yield bonds. SEIX FLOATING RATE HIGH INCOME FUND PROSPECTUS 39 (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. Economic and other market events may reduce the demand for certain senior loans held by the Fund, which may adversely impact the net asset value of the Fund. Loans and other debt securities are subject to credit risk. Credit risk is the possibility that an issuer will fail to make timely payments of interest or principal, or go bankrupt. The lower the ratings of such debt securities, the greater their risks. In addition, lower rated securities have higher risk characteristics, and changes in economic conditions are likely to cause issuers of these securities to be unable to meet their obligations. Many floating rate loans are such lower rated securities. Below investment grade securities (sometimes referred to as "junk bonds") involve greater risk of default or downgrade and are more volatile than investment grade securities. Below investment grade securities may also be less liquid than higher quality securities. The risks associated with floating rate loans are similar to the risks of below investment grade securities. In addition, the value of the collateral securing the loan may decline, causing a loan to be substantially unsecured. Difficulty in selling a floating rate loan may result in a loss. Borrowers may pay back principal before the scheduled due date when interest rates decline, which may require the Fund to replace a particular loan with a lower-yielding security. There may be less extensive public information available with respect to loans than for rated, registered or exchange listed securities. The Fund may assume the credit risk of the primary lender in addition to the borrower, and investments in loan assignments may involve the risks of being a lender. Foreign securities involve special risks such as currency fluctuations, economic or financial instability, lack of timely or reliable financial information and unfavorable political or legal developments. These risks are increased for investments in emerging markets. The Fund is non-diversified, which means that it may invest in the securities of relatively few issuers. As a result, the Fund may be more susceptible to a single adverse economic or regulatory occurrence affecting one or more of these issuers, and may experience increased volatility due to its investments in those securities. Because the Fund invests in derivatives, it is exposed to additional volatility and potential losses. Credit default swaps can increase the Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. Total return swaps could result in losses if their reference index, security, or investments do not perform as anticipated. The use of derivatives may cause the Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. (TARGET ICON) PERFORMANCE INFORMATION No performance information is included because the Fund does not have performance history for a full calendar year. SEIX FLOATING RATE HIGH INCOME FUND 40 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
I SHARES Redemption Fee (as a percentage of net asset value)* 2.00%
* This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees 0.45% Other Expenses(1) 0.10% ------------------- Total Annual Fund Operating Expenses(2) 0.55%
(1) Other Expenses are based on estimated amounts for the current fiscal year. (2) The Adviser has contractually agreed to waive fees and reimburse expenses until at least August 1, 2007 in order to keep Total Annual Operating Expenses from exceeding 0.55%. If at any point before August 1, 2009, Total Annual Operating Expenses are less than the applicable expense cap, the Adviser may retain the difference to recapture any of the prior waivers or reimbursements. In addition, the Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These voluntary waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS $56 $176
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." SEIX HIGH YIELD FUND PROSPECTUS 41 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL PRIMARY High income SECONDARY Capital appreciation INVESTMENT FOCUS High yield corporate and other debt instruments of U.S. and non-U.S. entities SHARE PRICE VOLATILITY High PRINCIPAL INVESTMENT STRATEGY Attempts to identify lower rated, higher yielding bonds offering above average total return INVESTOR PROFILE Investors who seek above average total return
(TELESCOPE ICON) INVESTMENT STRATEGY The Seix High Yield Fund invests in various types of lower rated, higher yielding debt instruments, including corporate obligations, floating rate loans and other debt obligations. The Fund may invest in debt obligations of U.S. and non-U.S. issuers, including emerging market debt. Under normal circumstances, the Fund invests at least 80% of its net assets in high yield securities. These securities will be chosen from the broad universe of available U.S. dollar-denominated, high yield securities rated below investment grade by either Moody's Investor Services, Inc. or Standard & Poor's Rating Services or unrated securities that the Adviser believes are of comparable quality. Such securities are commonly known as "junk bonds" and offer greater risks than investment grade bonds. Although the Fund seeks to achieve its investment objective primarily through investment in high yield securities, the Fund may invest up to 20% of its net assets in investment grade securities. The Fund will be managed with a duration that is close to the Fund's comparative benchmark, the Merrill Lynch High Yield Master Index, which is generally between 3 and 6 years. The Fund may also invest a portion of its assets in securities that are restricted as to resale. In selecting securities for the Fund, the Adviser employs a research driven process designed to identify value areas within the high yield market. In deciding which securities to buy and sell, the portfolio managers will emphasize securities which are within the segment of the high yield market it has targeted for emphasis, which are "BB" and "B" rated issuers. The Adviser seeks to identify securities which meet the following criteria: (1) industries that have strong fundamentals; (2) companies that have good business prospects and increasing credit strength; and (3) issuers with stable or growing cash flows and effective management. Because securities tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell derivative instruments (such as futures, options and swaps, including credit default swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate or credit risks. The Fund may count the value of certain derivatives with below investment grade fixed income characteristics towards its policy to invest, under normal circumstances, at least 80% of its net assets in high yield corporate securities rated as non- investment grade. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. Below investment grade securities (sometimes referred to as "junk bonds") involve greater risk of default or downgrade and are more volatile than investment grade securities. Below investment grade securities may also be less liquid than higher quality securities. The risks associated with floating rate loans are similar to the risks of below investment grade securities. In addition, the value of the collateral securing the loan may decline, causing a loan to be substantially unsecured. Difficulty in selling a floating rate loan may result in a loss. Borrowers may pay back principal before the scheduled due date when interest rates decline, which may require the Fund to replace a particular loan with a lower-yielding security. There may be less extensive public information available with respect to loans than for rated, registered or exchange listed securities. The Fund may assume the credit risk of the primary lender in addition to the borrower, and investments in loan assignments may involve the risks of being a lender. Foreign securities involve special risks such as currency fluctuations, economic or financial instability, lack of timely or reliable financial information and unfavorable SEIX HIGH YIELD FUND 42 PROSPECTUS political or legal developments. These risks are increased for investments in emerging markets. Restricted securities may increase the level of illiquidity in the Fund during any period that qualified institutional buyers become uninterested in purchasing these restricted securities. The Adviser intends to invest only in restricted securities that it believes present minimal liquidity risk. Because the Fund invests in derivatives, it is exposed to additional volatility and potential losses. Credit default swaps can increase the Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. The use of derivatives may cause the Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. The Fund began operating on October 11, 2004. Performance prior to October 11, 2004 is that of the Class I Shares of the Seix High Yield Fund, the Fund's predecessor, which began operations on December 29, 2000. This bar chart shows changes in the performance of the Fund's I Shares from year to year. (BAR CHART) 2001 11.33% 2002 6.34% 2003 15.56% 2004 8.34% 2005 2.62%
BEST QUARTER WORST QUARTER 5.78% -1.66% (3/31/01) (3/31/05)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 0.24%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Merrill Lynch High Yield Master Index. These returns assume shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
SINCE I SHARES* 1 YEAR 5 YEARS INCEPTION** Fund Returns Before Taxes 2.62% 8.75% 8.74% Fund Returns After Taxes on Distributions 0.07% 6.09% 6.08% Fund Returns After Taxes on Distributions and Sale of Fund Shares 1.81% 5.91% 5.90% Merrill Lynch High Yield Master Index (reflects no deduction for fees, expenses or taxes) 2.83% 8.76% 9.07%
* Performance prior to October 11, 2004 is that of the predecessor fund's Class I Shares. ** Since inception of the predecessor fund on December 29, 2000. Benchmark returns since November 30, 2000 (benchmark returns available only on a month end basis). (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Merrill Lynch High Yield Master Index is a widely-recognized index of U.S. high yield corporate bond issues having maturities of at least one year. SEIX HIGH YIELD FUND PROSPECTUS 43 (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
I SHARES Redemption Fee (as a percentage of net asset value)* 2.00%
* This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.43% Other Expenses(2) 0.06% ----------------- Total Annual Operating Expenses(3) 0.49%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) Adjusted to reflect an expected change in Other Expenses for the current fiscal year. (3) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $50 $157 $274 $616
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." SHORT-TERM BOND FUND 44 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL High current income, while preserving capital INVESTMENT FOCUS Investment grade U.S. government and corporate debt securities SHARE PRICE VOLATILITY Low PRINCIPAL INVESTMENT STRATEGY Attempts to identify securities that offer a comparably better return than similar securities for a given level of credit risk INVESTOR PROFILE Income oriented investors who are willing to accept increased risk for the possibility of returns greater than money market investing
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Short-Term Bond Fund invests at least 80% of its net assets in a diversified portfolio of short- to medium-term investment grade U.S. Treasury, corporate debt, mortgage-backed and asset-backed securities. The Fund expects that it will normally maintain an effective maturity of 3 years or less. In selecting investments for the Fund, the Adviser attempts to identify securities that offer a comparably better investment return for a given level of credit risk. For example, short-term bonds generally have better returns than money market instruments, with a fairly modest increase in credit risk and/or volatility. The Adviser manages the Fund from a total return perspective. That is, the Adviser makes day-to-day investment decisions for the Fund with a view towards maximizing returns. The Adviser analyzes yields, market sectors and credit risk in an effort to identify attractive investments with the best risk/reward trade-off. Because securities tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. The Adviser may retain securities if the rating of the security falls below investment grade and the Adviser deems retention of the security to be in the best interests of the Fund. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will lose value because of increases in interest rates. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. Mortgage-backed investments involve risk of loss due to prepayments and, like any bond, due to default. Because of the sensitivity of mortgage-related securities to changes in interest rates, the Fund's performance may be more volatile than if it did not hold these securities. U.S. government securities can exhibit price movements resulting from changes in interest rates. Treasury inflation protected securities ("TIPS") can also exhibit price movements as a result of changing inflation expectations and seasonal inflation patterns. Certain U.S. government securities are backed by the full faith and credit of the U.S. Government, while others are backed by the ability of the issuing entity to borrow from the U.S. Treasury or by the issuing entity's own resources. For information about the risks involved when investing in derivatives, see "More Information About Risk." SHORT-TERM BOND FUND PROSPECTUS 45 (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1996 3.90% 1997 6.78% 1998 6.84% 1999 0.92% 2000 7.64% 2001 7.54% 2002 2.59% 2003 2.53% 2004 0.98% 2005 1.67%
BEST QUARTER WORST QUARTER 3.86% -1.04% (9/30/01) (6/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 2.02%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Citigroup 1-3 Year Government/Credit Index. These returns assume shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
I SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes 1.67% 3.03% 4.10% Fund Returns After Taxes on Distributions 0.57% 1.74% 2.33% Fund Returns After Taxes on Distributions and Sale of Fund Shares 1.08% 1.81% 2.39% Citigroup 1-3 Year Government/Credit Index (reflects no deduction for fees, expenses or taxes) 1.82% 4.19% 5.11%
(LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Citigroup 1-3 Year Government/ Credit Index is a widely-recognized index of U.S. Treasury securities, government agency obligations, and corporate debt securities rated at least investment grade (BBB). The securities in the Index have maturities of 1 year or greater and less than 3 years. SHORT-TERM BOND FUND 46 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
I SHARES Redemption Fee (as a percentage of net asset value)* 2.00%
* This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.40% Other Expenses 0.08% ----------------- Total Annual Operating Expenses(2) 0.48%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $49 $154 $269 $604
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." SHORT-TERM U.S. TREASURY SECURITIES FUND PROSPECTUS 47 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL High current income, while preserving capital - --------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS Short-term U.S. Treasury securities - --------------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Low - --------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify Treasury securities with maturities that offer a comparably better return potential and yield than either shorter maturity or longer maturity securities for a given level of interest rate risk - --------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Income oriented investors who are willing to accept increased risk for the possibility of returns greater than money market investing - ---------------------------------------------------------------------------------------------------------
(TELESCOPE ICON) INVESTMENT STRATEGY The Short-Term U.S. Treasury Securities Fund invests exclusively in short-term U.S. Treasury securities (those with remaining maturities of 5 years or less) and shares of registered money market funds that invest in the foregoing. The Fund intends to maintain an average weighted maturity from 1 to 3 years. The Fund offers investors the opportunity to capture the advantage of investing in short-term bonds over money market instruments. Generally, short-term bonds offer a comparably better return than money market instruments, with a modest increase in interest rate risk. The Adviser manages the Fund from a total return perspective. That is, the Adviser makes day-to-day investment decisions for the Fund with a view toward maximizing total return. The Adviser tries to select those U.S. Treasury securities that offer the best risk/reward trade-off. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will lose value because of increases in interest rates. Interest rate risk is generally higher for investments with longer maturities or durations. Short-term U.S. Treasury securities may underperform other segments of the fixed income market or the fixed income market as a whole. U.S. Treasury securities are considered to be among the safest investments, however, they are not guaranteed against price movements due to changing interest rates. Treasury inflation protected securities ("TIPS") can exhibit price movements as a result of changing inflation expectations and seasonal inflation patterns. For information about the risks involved when investing in derivatives, see "More Information About Risk." SHORT-TERM U.S. TREASURY SECURITIES FUND 48 PROSPECTUS (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1996 4.52% 1997 5.86% 1998 6.24% 1999 2.71% 2000 6.65% 2001 6.55% 2002 4.61% 2003 1.37% 2004 0.18% 2005 1.38%
BEST QUARTER WORST QUARTER 2.64% -0.94% (9/30/01) (6/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 0.77%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Citigroup 1-3 Year Treasury Index and the Citigroup 6-Month Treasury Bill Index. These returns assume shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
I SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes 1.38% 2.79% 3.98% Fund Returns After Taxes on Distributions 0.51% 1.69% 2.41% Fund Returns After Taxes on Distributions and Sale of Fund Shares 0.90% 1.74% 2.43% Citigroup 1-3 Year Treasury Index (reflects no deduction for fees, expenses or taxes) 1.65% 3.66% 4.79% Citigroup 6-Month Treasury Bill Index (reflects no deduction for fees, expenses or taxes) 3.10% 2.59% 4.04%
(LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Citigroup 1-3 Year Treasury Index is a widely-recognized index of U.S. Treasury securities with maturities of one year or greater and less than three years. The Citigroup 6-Month Treasury Bill Index is a widely-recognized index of the 6 month U.S. Treasury bills. SHORT-TERM U.S. TREASURY SECURITIES FUND PROSPECTUS 49 (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
I SHARES Redemption Fee (as a percentage of net asset value)* 2.00%
* This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.40% Other Expenses 0.14% ----------------- Total Annual Operating Expenses(2) 0.54%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) Effective August 1, 2006, the Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses to the level shown below. These waivers may be discontinued at any time.
I SHARES Short-Term U.S. Treasury Securities Fund 0.50%
- ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $55 $173 $302 $677
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." STRATEGIC INCOME FUND 50 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOALS PRIMARY Current income SECONDARY Preservation of capital INVESTMENT FOCUS High yield corporate, government, and other debt instruments of U.S. and non-U.S. issuers SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Attempts to increase income while reducing share price volatility through diversification across three major sectors of the fixed income market INVESTOR PROFILE Investors who seek high current income with reduced risk of share price volatility
(TELESCOPE ICON) INVESTMENT STRATEGY The Strategic Income Fund invests primarily in a diversified portfolio of high yield corporate obligations, government securities, and floating rate loans. The Fund may invest in U.S. and non-U.S. debt obligations, including emerging market debt. The Fund will maintain a minimum average credit quality of BBB. The Fund will invest at least 15%, but not more than 60%, of its assets in a particular sector. The Fund may also invest a portion of its assets in securities that are restricted as to resale. In selecting corporate debt securities for the Fund, the Adviser seeks out companies with good fundamentals and performing prospects that are currently out of favor with investors. The primary basis for security selection is the potential income offered by the security relative to the Adviser's assessment of the issuer's ability to generate the cash flow required to meet its obligation. The Adviser employs a "bottom-up" approach, identifying investment opportunities based on the underlying financial and economic fundamentals of the specific issuer. Because securities tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell derivative instruments (such as futures, options and swaps, including credit default swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate or credit risks. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. Below investment grade securities (sometimes referred to as "junk bonds") involve greater risk of default or downgrade and are more volatile than investment grade securities. Below investment grade securities may also be less liquid than higher quality securities. The risks associated with floating rate loans are similar to the risks of below investment grade securities. In addition, the value of the collateral securing the loan may decline, causing a loan to be substantially unsecured. Difficulty in selling a floating rate loan may result in a loss. Borrowers may pay back principal before the scheduled due date when interest rates decline, which may require the Fund to replace a particular loan with a lower-yielding security. There may be less extensive public information available with respect to loans than for rated, registered or exchange listed securities. The Fund may assume the credit risk of the primary lender in addition to the borrower, and investments in loan assignments may involve the risks of being a lender. Foreign securities involve special risks such as currency fluctuations, economic or financial instability, lack of timely or reliable financial information and unfavorable political or legal developments. These risks are increased for investments in emerging markets. U.S. government securities can exhibit price movements resulting from changes in interest rates. Treasury STRATEGIC INCOME FUND PROSPECTUS 51 inflation protected securities ("TIPS") can also exhibit price movements as a result of changing inflation expectations and seasonal inflation patterns. Certain U.S. government securities are backed by the full faith and credit of the U.S. Government, while others are backed by the ability of the issuing entity to borrow from the U.S. Treasury or by the issuing entity's own resources. Restricted securities may increase the level of illiquidity in the Fund during any period that qualified institutional buyers become uninterested in purchasing these restricted securities. The Adviser intends to invest only in restricted securities that it believes present minimal liquidity risk. Because the Fund invests in derivatives, it is exposed to additional volatility and potential losses. Credit default swaps can increase the Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. The use of derivatives may cause the Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 2002 3.58% 2003 11.50% 2004 10.67% 2005 -1.53%
BEST QUARTER WORST QUARTER 5.89% -1.75% (12/31/04) (6/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 1.11%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of a Hybrid 34/33/33 Blend of the Merrill Lynch AAA U.S. Treasury/Agency Master Index, Merrill Lynch U.S. High Yield Master II Index and the Merrill Lynch Global Government Bond II ex U.S. Index. These returns assume shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
SINCE I SHARES 1 YEAR INCEPTION* - ---------------------------------------------------- Fund Returns Before Taxes -1.53% 5.55% - ---------------------------------------------------- Fund Returns After Taxes on Distributions -3.43% 3.37% - ---------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares -0.84% 3.47% - ---------------------------------------------------- Hybrid 34/33/33 Blend of the Following Market Benchmarks 3.10% 0.27% - ---------------------------------------------------- Merrill Lynch AAA U.S. Treasury/Agency Master Index (reflects no deduction for fees, expenses or taxes) 2.66% -0.22% - ---------------------------------------------------- Merrill Lynch U.S. High Yield Master II Index (reflects no deduction for fees, expenses or taxes) 2.74% 0.23% - ---------------------------------------------------- Merrill Lynch Global Government Bond II ex U.S. Index (reflects no deduction for fees, expenses or taxes) 5.60% 0.82% - ----------------------------------------------------
* Since inception of the I Shares on November 30, 2001. STRATEGIC INCOME FUND 52 PROSPECTUS (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Merrill Lynch AAA U.S. Treasury/Agency Master Index is a widely-recognized U.S. government index that tracks the performance of the combined U.S. Treasury and U.S. agency markets. It includes U.S. dollar- denominated, U.S. Treasury and U.S. agency bonds, issued in the U.S. domestic bond market, having at least one year remaining term to maturity, a fixed coupon schedule and a minimum amount outstanding of $1 billion for U.S. Treasuries and $150 million for U.S. agencies. The Merrill Lynch U.S. High Yield Master II Index is a widely-recognized, market-value weighted (higher market value bonds have more influence than lower value bonds) index that tracks the performance of below investment grade U.S. dollar-denominated corporate bonds publicly issued in the U.S. domestic market. The Merrill Lynch Global Government Bond II ex U.S. Index is a widely-recognized subset of the Merrill Lynch Global Government Bond Index including Belgian, Danish, Irish, Italian, New Zealand, Portuguese, Spanish, and Swedish returns. The Merrill Lynch Global Government Bond Index is a widely-recognized, broad-based index consisting of various maturities comprising Australian, Canadian, Dutch, French, German, Japanese, Swiss, U.K., and U.S. individual country returns. (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
I SHARES Redemption Fee (as a percentage of net asset value)* 2.00%
* This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.60% Other Expenses 0.12% ----------------- Total Annual Operating Expenses(2) 0.72%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $74 $230 $401 $894
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." TOTAL RETURN BOND FUND PROSPECTUS 53 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Current income and price appreciation INVESTMENT FOCUS Government, corporate, and mortgage-backed debt securities, plus other opportunistic investments SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Attempts to recognize relative value in fixed income markets INVESTOR PROFILE Investors seeking diversification and attractive total returns in the fixed income market
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Total Return Bond Fund invests at least 80% of its net assets in fixed income securities. These securities will be chosen from a wide array of debt securities, primarily utilizing government, corporate and mortgage-backed securities and floating rate loans. The Fund may also invest in convertible bonds, preferred stocks, taxable municipal securities, asset-backed securities and collateralized mortgage obligations ("CMOs"). The Fund may invest in debt securities of U.S. and non-U.S. issuers, including emerging market debt. The Fund's investments may include high yield securities rated below investment grade by at least one national securities rating agency or unrated securities that the Adviser believes are of comparable quality. The Fund may also invest a portion of its assets in securities that are restricted as to resale. The Adviser allocates the Fund's investments among various market sectors based on the Adviser's analysis of duration, yield curve structure and relative value sector and security analysis. The average weighted maturity of the Fund's portfolio will typically range from 4 to 10 years. Because securities tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell derivative instruments (such as futures, options and swaps, including credit default swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate or credit risks. The Fund may count the value of certain derivatives with fixed income characteristics towards its policy to invest, under normal circumstances, at least 80% of its net assets in fixed income securities. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. Below investment grade securities (sometimes referred to as "junk bonds") involve greater risk of default or downgrade and are more volatile than investment grade securities. Below investment grade securities may also be less liquid than higher quality securities. The risks associated with floating rate loans are similar to the risks of below investment grade securities. In addition, the value of the collateral securing the loan may decline, causing a loan to be substantially unsecured. Difficulty in selling a floating rate loan may result in a loss. Borrowers may pay back principal before the scheduled due date when interest rates decline, which may require the Fund to replace a particular loan with a lower-yielding security. There may be less extensive public information available with respect to loans than for rated, registered or exchange listed securities. The Fund may assume the credit risk of the primary lender in addition to the borrower, and investments in loan assignments may involve the risks of being a lender. Foreign securities involve special risks such as currency fluctuations, economic or financial instability, lack of timely or reliable financial information and unfavorable political or legal developments. These risks are increased for investments in emerging markets. Mortgage-backed investments involve risk of loss due to prepayments and, like any bond, due to default. Because of the sensitivity of mortgage-related securities to changes in interest rates, the Fund's performance may be more volatile than if it did not hold these securities. TOTAL RETURN BOND FUND 54 PROSPECTUS U.S. government securities can exhibit price movements resulting from changes in interest rates. Treasury inflation protected securities ("TIPS") can also exhibit price movements as a result of changing inflation expectations and seasonal inflation patterns. Certain U.S. government securities are backed by the full faith and credit of the U.S. Government, while others are backed by the ability of the issuing entity to borrow from the U.S. Treasury or by the issuing entity's own resources. Restricted securities may increase the level of illiquidity in the Fund during any period that qualified institutional buyers become uninterested in purchasing these restricted securities. The Adviser intends to invest only in restricted securities that it believes present minimal liquidity risk. Because the Fund invests in derivatives, it is exposed to additional volatility and potential losses. Credit default swaps can increase the Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. The use of derivatives may cause the Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 2004 4.28% 2005 1.47%
BEST QUARTER WORST QUARTER 3.22% -3.03% (9/30/04) (6/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was -0.96%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Lehman Brothers U.S. Aggregate Index. These returns assume shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
SINCE I SHARES 1 YEAR INCEPTION* - ----------------------------------------------------- Fund Returns Before Taxes 1.47% 3.18% - ----------------------------------------------------- Fund Returns After Taxes on Distributions 0.07% 1.86% - ----------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares 0.95% 1.95% - ----------------------------------------------------- Lehman Brothers U.S. Aggregate Index (reflects no deductions for fees, expenses or taxes) 2.43% 3.14% - -----------------------------------------------------
* Since inception of the I Shares on October 15, 2003. Benchmark return since September 30, 2003 (benchmark returns available only on a month end basis). (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Lehman Brothers U.S. Aggregate Index is a widely-recognized index of U.S. Treasury and agency securities, corporate bond issues, mortgage-backed securities, asset-backed securities and corporate mortgage-backed securities. TOTAL RETURN BOND FUND PROSPECTUS 55 (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
I SHARES Redemption Fee (as a percentage of net asset value)* 2.00%
* This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.35% Other Expenses(2) 0.11% ----------------- Total Annual Operating Expenses(3) 0.46%
(1 )Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2 )Adjusted to reflect the elimination of the shareholder service fee effective August 1, 2005. (3 )Effective August 1, 2006, the Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses to the level shown below. These waivers may be discontinued at any time.
I SHARES Total Return Bond Fund 0.43%
- ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $47 $148 $258 $579
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." ULTRA-SHORT BOND FUND 56 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL High current income consistent with preserving capital and maintaining liquidity INVESTMENT FOCUS Short duration investment grade money market and fixed income securities SHARE PRICE VOLATILITY Low PRINCIPAL INVESTMENT STRATEGY Attempts to identify short duration securities that offer a comparably better return potential and yield than money market funds INVESTOR PROFILE Conservative investors seeking to maximize income consistent with limited share price volatility
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Ultra-Short Bond Fund invests at least 80% of its net assets in short duration, investment grade money market and fixed income securities including, but not limited to, U.S. Treasury and agency securities, obligations of supranational entities and foreign governments, domestic and foreign corporate debt obligations, taxable municipal debt securities, mortgage-backed and asset-backed securities, repurchase agreements, and other mutual funds. The Fund normally expects to maintain an average effective duration between 3 months and 1 year. Individual purchases will generally be limited to securities with an effective duration of less than 5 years. In selecting investments for the Fund, the Adviser attempts to maximize income by identifying securities that offer an acceptable yield for a given level of credit risk and maturity. The Adviser may retain securities if the rating of the security falls below investment grade and the Adviser deems retention of the security to be in the best interests of the Fund. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? The price ("NAV") of the Fund will fluctuate depending on general changes in interest rates as well as changes in the yields of the specific securities in the Fund. General (or macro) changes in interest rates may be as a result of economic developments or Federal Reserve policy while issuer specific changes in yield may be as a result of a change in creditworthiness of a particular issuer or industry. In general, the NAV of the Fund will rise when interest rates fall, and likewise, the NAV of the Fund will fall when interest rates rise. An objective of the Fund is to minimize NAV fluctuation by (a) maintaining the Fund average weighted duration between three months and one year and (b) diversifying the Fund among issuers and industries. Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. Short-term U.S. government debt securities may underperform other segments of the fixed income market or the fixed income market as a whole. Mortgage-backed investments involve risk of loss due to prepayments and, like any bond, due to default. Because of the sensitivity of mortgage-related securities to changes in interest rates, the Fund's performance may be more volatile than if it did not hold these securities. Foreign securities involve special risks such as currency fluctuations, economic or financial instability, lack of timely or reliable financial information and unfavorable political or legal developments. These risks are increased for investments in emerging markets. U.S. government securities can exhibit price movements resulting from changes in interest rates. Treasury inflation protected securities ("TIPS") can also exhibit price movements as a result of changing inflation expectations and seasonal inflation patterns. Certain U.S. government securities are backed by the full faith and credit of the U.S. Government, while others are backed by the ability of the issuing entity to borrow from the U.S. Treasury or by the issuing entity's own resources. For information about the risks involved when investing in derivatives, see "More Information About Risk." (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. ULTRA-SHORT BOND FUND PROSPECTUS 57 This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 2003 1.16% 2004 1.22% 2005 3.00%
BEST QUARTER WORST QUARTER 0.92% -0.62% (9/30/04) (6/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 1.90%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Citigroup 6-Month Treasury Bill Index, iMoneyNet, Inc. First Tier Institutional Average, and Lipper Ultra-Short Obligation Funds Average. These returns assume shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
I SHARES 1 YEAR SINCE INCEPTION* - ------------------------------------------------------- Fund Returns Before Taxes 3.00% 2.17% - ------------------------------------------------------- Fund Returns After Taxes on Distributions 1.87% 1.37% - ------------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares 1.94% 1.38% - ------------------------------------------------------- Citigroup 6-Month Treasury Bill Index (reflects no deductions for fees, expenses or taxes) 3.03% 1.83% - ------------------------------------------------------- iMoneyNet, Inc. First Tier Institutional Average (reflects no deduction for taxes) 2.93% 1.55% - ------------------------------------------------------- Lipper Ultra-Short Obligation Funds Average (reflects no deduction for taxes) 2.54% 2.09% - -------------------------------------------------------
* Since inception of the I Shares on April 15, 2002. Benchmark returns since March 31, 2002 (benchmark returns available only on a month end basis). (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX/AVERAGE? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Citigroup 6-Month Treasury Bill Index is a widely-recognized index of the 6-month U.S. Treasury Bills. The iMoneyNet, Inc. First Tier Institutional Average is a widely recognized composite of money market funds that invest in securities rated in the highest category by at least two recognized rating agencies. The Lipper Ultra-Short Obligation Funds Average consists of funds that invest at least 65% of their assets in investment grade debt issues, or better, and maintain a portfolio dollar-weighted average maturity between 91 days and 365 days. The number of funds in the Average varies. ULTRA-SHORT BOND FUND 58 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
I SHARES Redemption Fee (as a percentage of net asset value)* 2.00%
* This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.22% Other Expenses(2) 0.08% ----------------- Total Annual Operating Expenses(3) 0.30%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) Adjusted to reflect the elimination of the shareholder service fee effective August 1, 2005. (3) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $31 $97 $169 $381
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." U.S. GOVERNMENT SECURITIES FUND PROSPECTUS 59 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL High current income, while preserving capital INVESTMENT FOCUS Mortgage-backed securities and U.S. Treasury obligations SHARE PRICE VOLATILITY Low to moderate PRINCIPAL INVESTMENT STRATEGY Attempts to increase income without adding undue risk INVESTOR PROFILE Conservative investors who want to receive income from their investment
(TELESCOPE ICON) INVESTMENT STRATEGY The U.S. Government Securities Fund invests at least 80% of its net assets in U.S. government debt securities, such as mortgage- backed securities and U.S. Treasury obligations. In an attempt to provide a consistently high dividend without adding undue risk, the Fund focuses its investments in mortgage-backed securities. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will lose value because of increases in interest rates. Interest rate risk is generally higher for investments with longer maturities or durations. U.S. government debt securities may underperform other segments of the fixed income market or the fixed income market as a whole. Mortgage-backed investments involve risk of loss due to prepayments and, like any bond, due to default. Because of the sensitivity of mortgage-related securities to changes in interest rates, the Fund's performance may be more volatile than if it did not hold these securities. U.S. government securities can exhibit price movements resulting from changes in interest rates. Treasury inflation protected securities ("TIPS") can also exhibit price movements as a result of changing inflation expectations and seasonal inflation patterns. Certain U.S. government securities are backed by the full faith and credit of the U.S. Government, while others are backed by the ability of the issuing entity to borrow from the U.S. Treasury or by the issuing entity's own resources. For information about the risks involved when investing in derivatives, see "More Information About Risk." (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1996 2.55% 1997 8.94% 1998 8.16% 1999 -0.97% 2000 10.98% 2001 6.92% 2002 9.68% 2003 1.30% 2004 3.42% 2005 2.02%
BEST QUARTER WORST QUARTER 4.82% -2.24% (9/30/01) (3/31/96)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was -0.61. U.S. GOVERNMENT SECURITIES FUND 60 PROSPECTUS - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average total returns for the periods ended December 31, 2005, to those of the Merrill Lynch Government/Mortgage Custom Index and the Lehman Brothers Intermediate U.S. Government Bond Index. These returns assume shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
I SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes 2.02% 4.62% 5.23% Fund Returns After Taxes on Distributions 0.70% 2.98% 3.19% Fund Returns After Taxes on Distributions and Sale of Fund Shares 1.31% 3.01% 3.21% Merrill Lynch Government/ Mortgage Custom Index (reflects no deduction for fees, expenses or taxes) 2.64% 5.47% 6.09% Lehman Brothers Intermediate U.S. Government Bond Index (reflects no deduction for fees, expenses or taxes) 1.68% 4.82% 5.50%
(LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Merrill Lynch Government/ Mortgage Custom Index is a synthetic index created by combining, at their respective market weights (i) the Merrill Lynch Government Master Index, which is a widely-recognized index comprised of U.S. Treasury securities and U.S. government agency securities with a maturity of at least 1 year; and (ii) the Merrill Lynch Mortgage Master Index, which is a widely-recognized index comprised of mortgage-backed securities including 15 and 30 year single family mortgages in addition to aggregated pooled mortgages. The Lehman Brothers Intermediate U.S. Government Bond Index is a widely-recognized, market value-weighted (higher market value bonds have more influence than lower market value bonds) index of U.S. Treasury securities, U.S. government agency obligations, and corporate debt backed by the U.S. Government, fixed-rate nonconvertible corporate debt securities, Yankee bonds, and nonconvertible debt securities issued by or guaranteed by foreign governments and agencies. All securities in the Index are rated investment grade (BBB) or higher, with maturities of at least 1 year. U.S. GOVERNMENT SECURITIES FUND PROSPECTUS 61 (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
I SHARES Redemption Fee (as a percentage of net asset value)* 2.00%
* This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.50% Other Expenses 0.07% ----------------- Total Annual Operating Expenses(2) 0.57%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $58 $183 $318 $714
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." U.S. GOVERNMENT SECURITIES ULTRA-SHORT BOND FUND 62 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL High current income consistent with preserving capital and maintaining liquidity - --------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS Short duration U.S. government securities - --------------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Low - --------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify short duration U.S. government securities that offer a comparably better return potential and yield than money market funds - --------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Conservative investors seeking to maximize income consistent with limited share price volatility and the relative safety of U.S. government securities - ---------------------------------------------------------------------------------------------------------
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the U.S. Government Securities Ultra-Short Bond Fund invests at least 80% of its net assets in short duration U.S. Treasury securities, U.S. agency securities, U.S. agency mortgage-backed securities, repurchase agreements, and other U.S. government securities. The Fund expects to maintain an average effective duration between 3 months and 1 year. Individual purchases will generally be limited to securities with an effective duration of less than 5 years. In selecting investments for the Fund, the Adviser attempts to maximize income by identifying securities that offer an acceptable yield for a given maturity. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? The price per share (net asset value or "NAV") of the Fund will fluctuate depending on general changes in interest rates as well as changes in the yields of the specific securities in the Fund. General (or macro) changes in interest rates may be a result of economic developments or Federal Reserve policy. In general, the NAV of the Fund will rise when interest rates fall, and likewise, the NAV of the Fund will fall when interest rates rise. An objective of the Fund is to minimize NAV fluctuation by (a) maintaining the Fund average weighted duration between three months and one year and (b) investing the Fund in U.S. government and agency securities. Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. U.S. government debt securities may underperform other segments of the fixed income market or the fixed income market as a whole. Mortgage-backed investments involve risk of loss due to prepayments and, like any bond, due to default. Because of the sensitivity of mortgage-related securities to changes in interest rates, the Fund's performance may be more volatile than if it did not hold these securities. U.S. government securities can exhibit price movements resulting from changes in interest rates. Treasury inflation protected securities ("TIPS") can also exhibit price movements as a result of changing inflation expectations and seasonal inflation patterns. Certain U.S. government securities are backed by the full faith and credit of the U.S. Government, while others are backed by the ability of the issuing entity to borrow from the U.S. Treasury or by the issuing entity's own resources. For information about the risks involved when investing in derivatives, see "More Information About Risk." U.S. GOVERNMENT SECURITIES ULTRA-SHORT BOND FUND PROSPECTUS 63 (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 2003 0.72 2004 1.81 2005 2.45
BEST QUARTER WORST QUARTER 0.88% -0.13% (6/30/05) (6/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 1.92%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Citigroup 6 Month Treasury Bill Index, iMoneyNet Government Institutional Average, and Lipper Ultra-Short Obligations Funds Average. These returns assume shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
I SHARES 1 YEAR SINCE INCEPTION* Fund Returns Before Taxes 2.45% 2.09% Fund Returns After Taxes on Distributions 1.30% 1.26% Fund Returns After Taxes on Distributions and Sale of Fund Shares 1.59% 1.29% Citigroup 6 Month Treasury Bill Index (reflects no deductions for fees, expenses or taxes) 3.03% 1.83% iMoneyNet, Inc. Government Institutional Average (reflects no deductions for taxes) 2.79% 1.45% Lipper Ultra-Short Obligations Funds Average (reflects no deductions for taxes) 2.54% 2.00%
* Since inception of the I Shares on April 11, 2002. Benchmark returns since March 31, 2002 (benchmark returns available only on a month end basis). (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX/AVERAGE? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Citigroup 6 Month Treasury Bill Index is a widely-recognized index of the 6 month U.S. Treasury Bills. An average is a composite of mutual funds with similar investment goals. The iMoneyNet, Inc. Government Institutional Average is a widely-recognized composite of money market funds that invest in U.S. Treasury bills, repurchase agreements, or securities issued by agencies of the U.S. Government. The Lipper Ultra-Short Obligations Funds Average consists of funds that invest at least 65% of their assets in investment grade debt issues, or better, and maintain a portfolio dollar-weighted average maturity between 91 days and 365 days. The number of funds in the Average varies. U.S. GOVERNMENT SECURITIES ULTRA-SHORT BOND FUND 64 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
I SHARES Redemption Fee (as a percentage of net asset value)* 2.00%
* This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.20% Other Expenses 0.14% ------------------------------- Total Annual Operating Expenses(2) 0.34%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) Effective August 1, 2006, the Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses to the level shown below. These waivers may be discontinued at any time.
I SHARES U.S. Government Securities Ultra-Short Bond Fund 0.28%
- ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $35 $109 $191 $431
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND PROSPECTUS 65 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL High current income exempt from federal and Virginia income tax, consistent with preservation of capital INVESTMENT FOCUS Virginia municipal securities SHARE PRICE VOLATILITY Low PRINCIPAL INVESTMENT STRATEGY Attempts to limit risk by investing in investment grade municipal securities with an intermediate average maturity INVESTOR PROFILE Virginia residents who want income exempt from federal and state income taxes
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Virginia Intermediate Municipal Bond Fund invests at least 80% of its net assets in municipal securities, including securities subject to the alternative minimum tax, with income exempt from federal and Virginia income taxes. In addition, the Fund may invest up to 20% of its net assets in certain taxable debt securities. Issuers of these securities can be located in Virginia, Puerto Rico and other U.S. territories and possessions. In selecting investments for the Fund, the Adviser tries to limit risk by buying investment grade securities. The Adviser also considers stability and growth of principal. The Adviser expects that the Fund's average weighted maturity will range from 5 to 10 years but there is no limit on the maturities of individual securities. In addition, to implement its investment strategy, the Fund may buy or sell, derivative instruments (such as futures, options, swaps and inverse floaters) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. There may be economic or political changes that impact the ability of municipal issuers to repay principal and to make interest payments on municipal securities. Changes in the financial condition or credit rating of municipal issuers also may adversely affect the value of the Fund's securities. The Fund is non-diversified, which means that it may invest in the securities of relatively few issuers. As a result, the Fund may be more susceptible to a single adverse economic or regulatory occurrence affecting one or more of these issuers, and may experience increased volatility due to its investments in those securities. The Fund's concentration of investments in securities of issuers located in Virginia subjects the Fund to economic and government policies of Virginia. Because the Fund invests in derivatives, it is exposed to additional volatility and potential losses. Inverse floaters are volatile and involve leverage risk. Certain derivatives may cause taxable income. VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND 66 PROSPECTUS (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1996 2.95% 1997 7.25% 1998 5.21% 1999 -2.34% 2000 9.39% 2001 4.44% 2002 7.88% 2003 3.82% 2004 2.66% 2005 2.32%
BEST QUARTER WORST QUARTER 3.71% -2.08% (9/30/02) (6/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 0.22%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Lehman Brothers 5-Year Municipal Bond Index and the Lipper Other States Intermediate Municipal Debt Funds Objective. These returns assume shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
I SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes 2.32% 4.20% 4.31% Fund Returns After Taxes on Distributions 2.21% 3.85% 4.09% Fund Returns After Taxes on Distributions and Sale of Fund Shares 2.80% 3.86% 4.12% Lehman Brothers 5-Year Municipal Bond Index (reflects no deduction for fees, expenses or taxes) 0.95% 4.62% 4.78% Lipper Other States Intermediate Municipal Debt Funds Objective (reflects no deduction for taxes) 1.45% 4.03% 4.16%
(LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX/OBJECTIVE? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Lehman Brothers 5-Year Municipal Bond Index is a widely-recognized index composed of tax-exempt bonds with maturities ranging between 4 and 6 years. The Lipper Other States Intermediate Municipal Debt Funds Objective is an average of funds that invest in municipal debt issues with dollar-weighted average maturities of five to ten years and are exempt from taxation on a specified city or state basis. The number of funds in the Objective varies. VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND PROSPECTUS 67 (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
I SHARES Redemption Fee (as a percentage of net asset value)* 2.00%
* This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.55% Other Expenses 0.08% ----------------- Total Annual Operating Expenses(2) 0.63%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) Effective August 1, 2006, the Adviser has contractually agreed to waive all or a portion of its fees and reimburse expenses until at least August 1, 2007 in order to limit Total Operating Expenses to the following level:
I SHARES Virginia Intermediate Municipal Bond Fund 0.60%
If at any point before August 1, 2009, Total Annual Operating Expenses are less than the expense cap, the Adviser may retain the difference to recapture any of the prior waivers or reimbursements. In addition, the Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These voluntary waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR* 3 YEARS 5 YEARS 10 YEARS $61 $199 $348 $783
* Without waivers and reimbursements, Year 1 costs would be $64. - ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." PRIME QUALITY MONEY MARKET FUND 68 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL High current income, while preserving capital and liquidity INVESTMENT FOCUS Money market instruments PRINCIPAL INVESTMENT STRATEGY Attempts to identify money market instruments with the most attractive risk/return trade-off INVESTOR PROFILE Conservative investors who want to receive current income from their investment
(TELESCOPE ICON) INVESTMENT STRATEGY The Prime Quality Money Market Fund invests exclusively in high quality U.S. money market instruments and foreign money market instruments denominated in U.S. dollars. The Fund may invest a portion of its assets in securities that are restricted as to resale. In selecting investments for the Fund, the Adviser tries to increase income without adding undue risk. The Adviser analyzes maturity, yields, market sectors and credit risk. Investments are made in money market instruments with the most attractive risk/return trade-off. As a money market fund, the Fund follows strict rules about credit risk, maturity and diversification of its investments. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? An investment in the Fund is subject to income risk, which is the possibility that the Fund's yield will decline due to falling interest rates. A Fund share is not a bank deposit and is not insured or guaranteed by the FDIC or any government agency. In addition, although a money market fund seeks to keep a constant price per share of $1.00, you may lose money by investing in the Fund. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. Foreign securities involve special risks such as economic or financial instability, lack of timely or reliable financial information and unfavorable political or legal developments. Restricted securities may increase the level of illiquidity in the Fund during any period that qualified institutional buyers become uninterested in purchasing these restricted securities. The Adviser intends to invest only in restricted securities that it believes present minimal liquidity risk. (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1996 4.99% 1997 5.15% 1998 5.10% 1999 4.74% 2000 6.04% 2001 3.72% 2002 1.44% 2003 0.67% 2004 0.85% 2005 2.74%
BEST QUARTER WORST QUARTER 1.55% 0.12% (9/30/00) (3/31/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 2.10%. PRIME QUALITY MONEY MARKET FUND PROSPECTUS 69 - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the iMoneyNet, Inc. First Tier Retail Average. These returns assume shareholders redeem all of their shares at the end of the period indicated.
I SHARES 1 YEAR 5 YEARS 10 YEARS Prime Quality Money Market Fund 2.74% 1.88% 3.53% iMoneyNet, Inc. First Tier Retail Average 2.46% 1.65% 3.33%
To obtain information about the Fund's current yield, call 1-888-STI-FUND. (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN AVERAGE? ------------------------------------------------------------- An average is a composite of mutual funds with similar investment goals. The iMoneyNet, Inc. First Tier Retail Average is a widely-recognized composite of money market funds that invest in securities rated in the highest category by at least two recognized rating agencies. The number of funds in the Average varies. (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.50% Other Expenses 0.06% ----------------- Total Annual Operating Expenses(2) 0.56%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $57 $179 $313 $701
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." TAX-EXEMPT MONEY MARKET FUND 70 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL High current interest income exempt from federal income taxes, while preserving capital and liquidity INVESTMENT FOCUS Municipal money market instruments PRINCIPAL INVESTMENT STRATEGY Attempts to increase income without added risk by analyzing credit quality INVESTOR PROFILE Conservative investors who want to receive current tax-exempt income from their investment
(TELESCOPE ICON) INVESTMENT STRATEGY The Tax-Exempt Money Market Fund invests substantially all of its net assets in money market instruments issued by municipalities and issuers that pay income exempt from regular federal income taxes. In addition, the Fund may invest up to 20% of its net assets in securities subject to the alternative minimum tax. The Fund may invest a portion of its assets in securities that are restricted as to resale. In selecting investments for the Fund, the Adviser analyzes the credit quality and structure of each security to minimize risk. The Adviser actively manages the Fund's average maturity based on current interest rates and the Adviser's outlook of the market. As a money market fund, the Fund follows strict rules about credit risk, maturity and diversification of its investments. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? An investment in the Fund is subject to income risk, which is the possibility that the Fund's yield will decline due to falling interest rates. A Fund share is not a bank deposit and is not insured or guaranteed by the FDIC or any government agency. In addition, although a money market fund seeks to keep a constant price per share of $1.00, you may lose money by investing in the Fund. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. There may be economic or political changes that impact the ability of municipal issuers to repay principal and to make interest payments on municipal securities. Changes in the financial condition or credit rating of municipal issuers also may adversely affect the value of the Fund's securities. Restricted securities may increase the level of illiquidity in the Fund during any period that qualified institutional buyers become uninterested in purchasing these restricted securities. The Adviser intends to invest only in restricted securities that it believes present minimal liquidity risk. (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1996 3.06% 1997 3.23% 1998 3.02% 1999 2.80% 2000 3.69% 2001 2.26% 2002 0.92% 2003 0.55% 2004 0.77% 2005 1.95%
BEST QUARTER WORST QUARTER 0.98% 0.08% (6/30/00) (9/30/03)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 1.42%. TAX-EXEMPT MONEY MARKET FUND PROSPECTUS 71 - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the iMoneyNet, Inc. Tax-Free Retail Average. These returns assume shareholders redeem all of their shares at the end of the period indicated.
I SHARES 1 YEAR 5 YEARS 10 YEARS Tax-Exempt Money Market Fund 1.95% 1.28% 2.22% iMoneyNet, Inc. Tax-Free Retail Average 1.74% 1.15% 2.04%
To obtain information about the Fund's current yield, call 1-888-STI-FUND. (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN AVERAGE? ------------------------------------------------------------- An average is a composite of mutual funds with similar investment goals. The iMoneyNet, Inc. Tax-Free Retail Average is a widely-recognized composite of money market funds that invest in short-term municipal securities, the income of which is exempt from federal taxation. The number of funds in the Average varies. (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.44% Other Expenses 0.06% ----------------- Total Annual Operating Expenses(2) 0.50%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $51 $160 $280 $628
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." U.S. GOVERNMENT SECURITIES MONEY MARKET FUND 72 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL High current income, while preserving capital and liquidity INVESTMENT FOCUS U.S. Treasury and government agency securities, and repurchase agreements PRINCIPAL INVESTMENT STRATEGY Attempts to increase income without adding undue risk by analyzing yields INVESTOR PROFILE Conservative investors who want to receive current income
(TELESCOPE ICON) INVESTMENT STRATEGY The U.S. Government Securities Money Market Fund invests exclusively in U.S. Treasury obligations, obligations issued or guaranteed as to principal and interest by agencies or instrumentalities of the U.S. Government, repurchase agreements involving these securities, and shares of registered money market funds that invest in the foregoing. In selecting investments for the Fund, the Adviser tries to increase income without adding undue risk by analyzing yields. The Adviser actively manages the maturity of the Fund and its portfolio to maximize the Fund's yield based on current market interest rates and the Adviser's outlook on the market. As a money market fund, the Fund follows strict rules about credit risk, maturity and diversification of its investments. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? An investment in the Fund is subject to income risk, which is the possibility that the Fund's yield will decline due to falling interest rates. A Fund share is not a bank deposit and is not insured or guaranteed by the FDIC or any government agency. In addition, although a money market fund seeks to keep a constant price per share of $1.00, you may lose money by investing in the Fund. Although the Fund's U.S. government securities are considered to be among the safest investments, they are not guaranteed against price movements due to changing interest rates. (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1996 4.81% 1997 4.99% 1998 4.88% 1999 4.41% 2000 5.71% 2001 3.67% 2002 1.35% 2003 0.55% 2004 0.77% 2005 2.57%
BEST QUARTER WORST QUARTER 1.49% 0.10% (12/31/00) (3/31/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 1.99%. U.S. GOVERNMENT SECURITIES MONEY MARKET FUND PROSPECTUS 73 - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the iMoneyNet, Inc. Government & Agencies Retail Average. These returns assume shareholders redeem all of their shares at the end of the period indicated.
I SHARES 1 YEAR 5 YEARS 10 YEARS U.S. Government Securities Money Market Fund 2.57% 1.78% 3.36% iMoneyNet, Inc. Government & Agencies Retail Average 2.45% 1.64% 3.25%
To obtain information about the Fund's yield, call 1-888-STI-FUND. (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN AVERAGE? ------------------------------------------------------------- An average is a composite of mutual funds with similar investment goals. The iMoneyNet, Inc. Government & Agencies Retail Average is a widely-recognized composite of all money market funds that invest in U.S. Treasury bills, repurchase agreements or securities issued by agencies of the U.S. Government. The number of funds in the Average varies. (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.55% Other Expenses 0.06% ----------------- Total Annual Operating Expenses(2) 0.61%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $62 $195 $340 $762
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." U.S. TREASURY MONEY MARKET FUND 74 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL High current income, while maintaining liquidity INVESTMENT FOCUS Money market instruments issued and guaranteed by the U.S. Treasury PRINCIPAL INVESTMENT STRATEGY Investing in U.S. Treasury obligations and repurchase agreements INVESTOR PROFILE Conservative investors who want to receive current income from their investment
(TELESCOPE ICON) INVESTMENT STRATEGY The U.S. Treasury Money Market Fund invests solely in U.S. Treasury obligations, repurchase agreements that are collateralized by obligations issued or guaranteed by the U.S. Treasury, and shares of registered money market funds that invest in the foregoing. The Fund limits its investments so as to obtain the highest investment quality rating by a nationally recognized statistical rating organization (AAAm by Standard and Poor's Corporation). As a money market fund, the Fund follows strict rules about credit risk, maturity and diversification of its investments. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? An investment in the Fund is subject to income risk, which is the possibility that the Fund's yield will decline due to falling interest rates. A Fund share is not a bank deposit and is not insured or guaranteed by the FDIC or any government agency. In addition, although a money market fund seeks to keep a constant price per share of $1.00, you may lose money by investing in the Fund. Although the Fund's U.S. Treasury securities are considered to be among the safest investments, they are not guaranteed against price movements due to changing interest rates. (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1996 4.77% 1997 4.93% 1998 4.82% 1999 4.38% 2000 5.63% 2001 3.32% 2002 1.17% 2003 0.50% 2004 0.69% 2005 2.48%
BEST QUARTER WORST QUARTER 1.46% 0.07% (12/31/00) (6/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 1.98%. U.S. TREASURY MONEY MARKET FUND PROSPECTUS 75 - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the iMoneyNet, Inc. Treasury & Repo Retail Average. These returns assume shareholders redeem all of their shares at the end of the period indicated.
I SHARES 1 YEAR 5 YEARS 10 YEARS U.S. Treasury Money Market Fund 2.48% 1.63% 3.25% iMoneyNet, Inc. Treasury & Repo Retail Average 2.39% 1.56% 3.21%
To obtain information about the Fund's current yield, call 1-888-STI-FUND. (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN AVERAGE? ------------------------------------------------------------- An average is a composite of mutual funds with similar investment goals. The iMoneyNet, Inc. Treasury & Repo Retail Average is a widely- recognized composite of money market funds that invest in U.S. Treasury bills and repurchase agreements backed by these securities. The number of funds in the Average varies. (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.54% Other Expenses 0.05% ----------------- Total Annual Operating Expenses(2) 0.59%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $60 $189 $329 $738
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." VIRGINIA TAX-FREE MONEY MARKET FUND 76 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL High current income exempt from federal and Virginia income taxes, while preserving capital and liquidity INVESTMENT FOCUS Virginia municipal money market instruments PRINCIPAL INVESTMENT STRATEGY Attempts to increase income without added risk by analyzing credit quality INVESTOR PROFILE Virginia residents who want to receive current income exempt from federal and state income taxes
(TELESCOPE ICON) INVESTMENT STRATEGY The Virginia Tax-Free Money Market Fund invests substantially all of its assets in money market instruments issued by municipalities and issuers that pay income exempt from federal and Virginia income taxes. Issuers of these securities can be located in Virginia, Puerto Rico and other U.S. territories and possessions. In addition, the Fund may invest up to 20% of its net assets in securities subject to the alternative minimum tax. The Fund may invest a portion of its assets in securities that are restricted as to resale. In selecting investments for the Fund, the Adviser analyzes the credit quality and structure of each security to minimize risk. The Adviser actively manages the Fund's average maturity based on current interest rates and the Adviser's outlook of the market. As a money market fund, the Fund follows strict rules about credit risk, maturity and diversification of its investments. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? An investment in the Fund is subject to income risk, which is the possibility that the Fund's yield will decline due to falling interest rates. A Fund share is not a bank deposit and is not insured or guaranteed by the FDIC or any government agency. In addition, although a money market fund seeks to keep a constant price per share of $1.00, you may lose money by investing in the Fund. The Fund's concentration of investments in securities of issuers located in Virginia subjects the Fund to economic and government policies within Virginia. There may be economic or political changes that impact the ability of municipal issuers to repay principal and to make interest payments on municipal securities. Changes in the financial condition or credit rating of municipal issuers also may adversely affect the value of the Fund's securities. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. Restricted securities may increase the level of illiquidity in the Fund during any period that qualified institutional buyers become uninterested in purchasing these restricted securities. The Adviser intends to invest only in restricted securities that it believes present minimal liquidity risk. (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1996 2.89% 1997 3.08% 1998 2.93% 1999 2.81% 2000 3.71% 2001 2.31% 2002 0.97% 2003 0.62% 2004 0.81% 2005 2.02%
BEST QUARTER WORST QUARTER 0.98% 0.10% (6/30/00) (9/30/03)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 1.41%. VIRGINIA TAX-FREE MONEY MARKET FUND PROSPECTUS 77 - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the iMoneyNet, Inc. Tax-Free Retail Average. These returns assume shareholders redeem all of their shares at the end of the period indicated.
I SHARES 1 YEAR 5 YEARS 10 YEARS - ------------------------------------------------------- Virginia Tax-Free Money Market Fund 2.02% 1.34% 2.21% - ------------------------------------------------------- iMoneyNet, Inc. Tax-Free Retail Average 1.74% 1.15% 2.04% - -------------------------------------------------------
To obtain information about the Fund's current yield, call 1-888-STI-FUND. (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN AVERAGE? ------------------------------------------------------------- An average is a composite of mutual funds with similar investment goals. The iMoneyNet, Inc. Tax-Free Retail Average is a widely-recognized composite of money market funds that invest in short-term municipal securities, the income of which is exempt from federal taxation. The number of funds in the Average varies. (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees 0.40% Other Expenses 0.06% ----------------- Total Annual Operating Expenses(1) 0.46%
(1) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $47 $148 $258 $579
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." MORE INFORMATION ABOUT RISK 78 PROSPECTUS (LIFE PRESERVER ICON) MORE INFORMATION ABOUT RISK BELOW INVESTMENT GRADE RISK Core Bond Fund High Income Fund Intermediate Bond Fund Investment Grade Bond Fund Investment Grade Tax-Exempt Bond Fund Limited Duration Fund Seix Floating Rate High Income Fund Seix High Yield Fund Short-Term Bond Fund Strategic Income Fund Total Return Bond Fund Ultra-Short Bond Fund High yield securities, which are also known as "junk bonds," involve greater risks of default or downgrade and are more volatile than investment grade securities. High yield securities involve greater risk of default or price declines than investment grade securities due to actual or perceived changes in an issuer's credit-worthiness. In addition, issuers of high yield securities may be more susceptible than other issuers to economic downturns. High yield securities are subject to the risk that the issuer may not be able to pay interest or dividends and ultimately to repay principal upon maturity. Discontinuation of these payments could substantially adversely affect the market value of the security. High yield securities may be less liquid than higher quality investments. A security whose credit rating has been lowered may be particularly difficult to sell. DERIVATIVES RISK Core Bond Fund Florida Tax-Exempt Bond Fund Georgia Tax-Exempt Bond Fund High Income Fund High Quality Bond Fund Intermediate Bond Fund Investment Grade Bond Fund Investment Grade Tax-Exempt Bond Fund Limited Duration Fund Limited-Term Federal Mortgage Securities Fund Maryland Municipal Bond Fund North Carolina Tax-Exempt Bond Fund Seix Floating Rate High Income Fund Seix High Yield Fund Short-Term Bond Fund Short-Term U.S. Treasury Securities Fund Strategic Income Fund Total Return Bond Fund Ultra-Short Bond Fund U.S. Government Securities Fund U.S. Government Securities Ultra-Short Bond Fund Virginia Intermediate Municipal Bond Fund Derivatives may involve risks different from, and possibly greater than, those of traditional investments. A Fund may use derivatives (such as futures, options, and swaps and inverse floaters) to attempt to achieve its investment objective and offset certain investment risks, while at the same time maintaining liquidity. These positions may be established for hedging or non- hedging purposes. Risks associated with the use of derivatives include those associated with hedging and leveraging activities: - - 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. - - A Fund experiencing losses over certain ranges in the market that exceed losses experienced by a fund that does not use derivatives. - - There may be an imperfect or no correlation between the changes in market value of the securities held by a Fund and the prices of derivatives. - - There may not be a liquid secondary market for derivatives. - - Trading restrictions or limitations may be imposed by an exchange. - - Government regulations may restrict trading in derivatives. - - The other party to an agreement (e.g., options or swaps) may default; however, in certain circumstances, such counterparty risk may be reduced by having an organization with very good credit act as intermediary. Because options premiums paid or received by a Fund are small in relation to the market value of the investments underlying the options, buying and selling put and call options can be more speculative than investing directly in securities. A Fund's investments in securities whose interest rates bear an inverse relationship to the interest rate on another security or the value of an index are called MORE INFORMATION ABOUT RISK PROSPECTUS 79 inverse floaters. An investment in inverse floaters may involve greater risk than an investment in a fixed rate bond. Because changes in the interest rate on the other security or index inversely affect the residual interest paid on the inverse floater, the value and income on an inverse floater are generally more volatile than that of a fixed rate bond. Inverse floaters have varying degrees of liquidity, and the market for these securities is relatively volatile. These securities tend to underperform the market for fixed rate bonds in a rising interest rate environment, but tend to outperform the market for fixed rate bonds when interest rates decline. Credit default swaps can increase a Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. The use of derivatives may cause a Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. Total return swaps could result in losses if their reference index, security or investments do not perform as anticipated. EMERGING MARKETS RISK Core Bond Fund High Income Fund Intermediate Bond Fund Investment Grade Bond Fund Seix Floating Rate High Income Fund Seix High Yield Fund Strategic Income Fund Total Return Bond Fund Ultra-Short Bond Fund Emerging market countries are countries that the World Bank or the United Nations considers to be emerging or developing. Most countries or regions are included in this category, except for Australia, Canada, Hong Kong, Japan, New Zealand, Singapore, the United Kingdom, the United States and most of the countries located in Western Europe. Emerging markets may be more likely to experience political turmoil or rapid changes in market or economic conditions than more developed countries. In addition, the financial stability of issuers (including governments) in emerging market countries may be more precarious than in other countries. As a result, there will tend to be an increased risk of price volatility associated with a Fund's investments in emerging market countries, which may be magnified by currency fluctuations relative to the U.S. dollar. Governments of some emerging market countries have defaulted on their bonds and may do so in the future. EXCHANGE TRADED FUND RISK Core Bond Fund Florida Tax-Exempt Bond Fund Georgia Tax-Exempt Bond Fund High Income Fund High Quality Bond Fund Intermediate Bond Fund Investment Grade Bond Fund Investment Grade Tax-Exempt Bond Fund Limited Duration Fund Limited-Term Federal Mortgage Securities Fund Maryland Municipal Bond Fund North Carolina Tax-Exempt Bond Fund Seix Floating Rate High Income Fund Seix High Yield Fund Short-Term Bond Fund Short-Term U.S. Treasury Securities Fund Strategic Income Fund Total Return Bond Fund Ultra-Short Bond Fund U.S. Government Securities Fund U.S. Government Securities Ultra-Short Bond Fund Virginia Intermediate Municipal Bond Fund The Funds may purchase shares of exchange-traded funds ("ETFs") to temporarily gain exposure to a particular portion of the market while awaiting an opportunity to purchase securities directly. ETFs are investment companies that are bought and sold on a securities exchange. An ETF holds a portfolio of securities designed to track a particular market segment or index. ETFs, like mutual funds, have expenses associated with their operation, including advisory fees. When a Fund invests in an ETF, in addition to directly bearing expenses associated with its own operations, it will bear a pro rata portion of the ETF's expense. The risks of owning shares of an ETF generally reflect the risks of owning the underlying securities the ETF is designed to track, although lack of liquidity in an ETF could result in being more volatile than the underlying portfolio of securities. In addition, because of ETF expenses, compared to owning the underlying securities directly, it may be more costly to own an ETF. MORE INFORMATION ABOUT RISK 80 PROSPECTUS FIXED INCOME RISK All Funds The prices of a Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, a Fund's fixed income securities will decrease in value if interest rates rise and vice versa. Long-term debt securities generally are more sensitive to changes in interest rates, usually making them more volatile than short-term debt securities and thereby increasing risk. Debt securities are also subject to credit risk, which is the possibility than an issuer will fail to make timely payments of interest or principal, or go bankrupt. The lower the ratings of such debt securities, the greater their risks. In addition, lower rated securities have higher risk characteristics, and changes in economic conditions are likely to cause issuers of these securities to be unable to meet their obligations. Debt securities are also subject to income risk, which is the possibility that falling interest rates will cause a Fund's income to decline. Income risk is generally higher for short-term bonds. FLOATING RATE LOAN RISK Core Bond Fund High Income Fund Intermediate Bond Fund Investment Grade Bond Fund Seix Floating Rate High Income Fund Seix High Yield Fund Strategic Income Fund Total Return Bond Fund As fixed income securities, investments in floating rate loans are subject to interest rate risk, but that risk is less because the interest rate of the loan adjusts periodically. As debt securities, investments in floating rate loans are subject to credit risk. Many floating rate loans are in unrated or lower credit rated securities. When a security is unrated, a Fund must rely more heavily on the analytical ability of the Adviser. Many floating rate loan investments share the same risks as high yield securities, although these risks are reduced when the floating rate loans are senior and secured as opposed to many high yield securities that are junior and unsecured. Floating rate securities are often subject to restrictions on resale which can result in reduced liquidity. A floating rate loan also may not be fully collateralized, although one lending institution will often be required to monitor collateral. Borrowers may repay principal faster than the scheduled due date which may result in a Fund replacing that loan with a lower-yielding security. Investment in loan participation interests may result in increased exposure to financial services sector risk. A loan may not be fully collateralized which may cause the loan to decline significantly in value, although one lending institution acting as agent for all of the lenders will generally be required to administer and manage the loan and, with respect to collateralized loans, to service or monitor the collateral. Certain portfolio managers and other personnel of the Adviser may also manage similar investment portfolios of floating rate loans for another non-investment adviser contracted affiliated business, Seix Structured Products, LLC ("SSP"). SSP is a subsidiary of SunTrust Bank and an affiliate of the Adviser, but not a client of the Adviser. In that role, this group purchases bank loans on behalf of SSP, for purposes of subsequent collateralized loan obligation ("CLO") transactions where the Adviser and its affiliate, SunTrust Capital Markets, Inc., will serve as collateral manager and as structuring agent/placement agent, respectively. The trustee and custodian of the CLO transactions are not affiliated entities of the Adviser or SunTrust Capital Markets. In addition, the Adviser serves as adviser to an account established with its affiliate, SunTrust Equity Funding, LLC for the purpose of purchasing high yield securities for subsequent sale to these same CLO transactions. Each of these transactions is subject to the approval of the independent trustee of the CLO transaction. In addition to disclosure to the trustee, all such transactions are fully disclosed to potential investors in the CLO's Offering and Disclosure documents. As a result of these multiple investment-oriented and associated relationships, there exists a potential risk that the portfolio managers may favor other adviser and non-adviser contracted businesses over a Fund, especially when allocating certain types of transactions. The Adviser has created and implemented additional policies and procedures designed to protect shareholders against such conflicts; however, there can be no absolute guarantee that a Fund will always participate in the same MORE INFORMATION ABOUT RISK PROSPECTUS 81 or similar investments or receive equal or better individual investment allocations at any given time. FOREIGN SECURITY RISK Core Bond Fund High Income Fund High Quality Bond Fund Intermediate Bond Fund Investment Grade Bond Fund Limited Duration Fund Prime Quality Money Market Fund Seix Floating Rate High Income Fund Seix High Yield Fund Strategic Income Fund Total Return Bond Fund Ultra-Short Bond Fund Investments in securities of foreign companies or governments can be more volatile than investments in U.S. companies or governments. Political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. Diplomatic, political, or economic developments, including nationalization or appropriation, could affect investments in foreign countries. Foreign securities markets generally have less trading volume and less liquidity than U.S. markets. The value of securities denominated in foreign currencies, and of dividends from such securities, can change significantly when foreign currencies strengthen or weaken relative to the U.S. dollar. As a result, changes in the value of those currencies compared to the U.S. dollar may affect (positively or negatively) the value of a Fund's investment. Certain foreign currencies may be particularly volatile, and foreign governments may intervene in the currency markets, causing a decline in value or liquidity in a Fund's foreign currency holdings. These currency movements may happen separately from and in response to events that do not otherwise affect the value of the security in the issuer's home country. Foreign companies or governments generally are not subject to uniform accounting, auditing, and financial reporting standards comparable to those applicable to domestic U.S. companies or governments. Transaction costs are generally higher than those in the U.S. and expenses for custodial arrangements of foreign securities may be somewhat greater than typical expenses for custodial arrangements of similar U.S. securities. Some foreign governments levy withholding taxes against dividend and interest income. Although in some countries a portion of these taxes are recoverable, the non-recovered portion will reduce the income received from the securities comprising the portfolio. MORTGAGE-BACKED SECURITY RISK Core Bond Fund High Income Fund High Quality Bond Fund Intermediate Bond Fund Investment Grade Bond Fund Limited Duration Fund Limited-Term Federal Mortgage Securities Fund Seix High Yield Fund Short-Term Bond Fund Strategic Income Fund Total Return Bond Fund Ultra-Short Bond Fund U.S. Government Securities Fund U.S. Government Securities Ultra-Short Bond Fund Mortgage-backed securities are fixed income securities representing an interest in a pool of underlying mortgage loans. Mortgage-backed securities are sensitive to changes in interest rates, but may respond to these changes differently from other fixed income securities due to the likelihood that a change in the general level of interest rates will impact the magnitude and timing of any prepayments of the underlying mortgage loans. As a result, it may not be possible to accurately determine in advance the actual maturity date or average life of a mortgage-backed security. The uncertainty inherent in assessing prepayment risk makes it difficult to calculate the average maturity of a portfolio including mortgage-backed securities, and therefore, to assess the volatility risk of a Fund. MUNICIPAL ISSUER RISK Florida Tax-Exempt Bond Fund Georgia Tax-Exempt Bond Fund Investment Grade Tax-Exempt Bond Fund Maryland Municipal Bond Fund North Carolina Tax-Exempt Bond Fund Tax-Exempt Money Market Fund Virginia Intermediate Municipal Bond Fund Virginia Tax-Free Money Market Fund MORE INFORMATION ABOUT FUND INVESTMENTS 82 PROSPECTUS There may be economic or political changes that impact the ability of municipal issuers to repay principal and to make interest payments on municipal securities. Changes to the financial condition or credit rating of municipal issuers may also adversely affect the value of a Fund's municipal securities. Constitutional or legislative limits on borrowing by municipal issuers may result in reduced supplies of municipal securities. Moreover, certain municipal securities are backed only by a municipal issuer's ability to levy and collect taxes. In addition, a Fund's concentration of investments in issuers located in a single state makes the Fund more susceptible to adverse political or economic developments affecting that state. The Fund also may be riskier than mutual funds that buy securities of issuers in numerous states. REGIONAL RISK Florida Tax-Exempt Bond Fund Georgia Tax-Exempt Bond Fund Maryland Municipal Bond Fund North Carolina Tax-Exempt Bond Fund Virginia Intermediate Municipal Bond Fund Virginia Tax-Free Money Market Fund To the extent that a Fund's investments are concentrated in a specific geographic region, the Fund may be subject to the political and other developments affecting that region. Regional economies are often closely interrelated, and political and economic developments affecting one region, country or state often affect other regions, countries or states, thus subjecting a Fund to additional risks. (MOUNTAIN ICON) MORE INFORMATION ABOUT FUND INVESTMENTS This prospectus describes the Funds' primary strategies, and the Funds will normally invest in the types of securities described in this prospectus. However, in addition to the investments and strategies described in this prospectus, each Fund also may invest in other securities, use other strategies and engage in other investment practices. These investments and strategies, as well as those described in this prospectus, are described in detail in the Statement of Additional Information. The investments and strategies described in this prospectus are those that the Funds use under normal conditions. During unusual economic or market conditions, or for temporary defensive or liquidity purposes, each Bond Fund may invest up to 100% of its assets in cash, money market instruments, repurchase agreements and short-term obligations that would not ordinarily be consistent with a Fund's objectives. In addition, each Bond Fund may shorten its average weighted maturity to as little as 90 days. A Bond Fund will do so only if the Adviser believes that the risk of loss outweighs the opportunity for higher income. Of course, a Fund cannot guarantee that it will achieve its investment goal. (RIBBON ICON) THIRD-PARTY RATINGS The U.S. Government Securities Money Market Fund and the U.S. Treasury Money Market Fund have been rated AAAm by Standard & Poor's Rating Services and Aaa by Moody's Investor Services, Inc. The National Association of Insurance Commissioners has approved the U.S. Government Securities Money Market Fund and the U.S. Treasury Money Market Fund as eligible investments for insurance companies. INFORMATION ABOUT PORTFOLIO HOLDINGS A description of the Funds' policies and procedures with respect to the circumstances under which the Funds disclose their portfolio securities is available in the Statement of Additional Information. (MAGNIFYING GLASS ICON) INVESTMENT ADVISER Trusco Capital Management, Inc., 50 Hurt Plaza, Suite 1400, Atlanta, Georgia 30303, ("Trusco" or the "Adviser") serves as the investment adviser to the Funds. Seix Advisors, a fixed income division of Trusco, located at 10 Mountainview Road, Suite C-200, Upper Saddle River, NJ 07458, manages the following STI Classic Funds: Core Bond Fund, High Income Fund, High Quality Bond Fund, Intermediate Bond Fund, Investment Grade Bond Fund, Limited-Term Federal Mortgage Securities Fund, Seix Floating Rate High Income Fund, Seix High Yield Fund, Strategic Income Fund, Total Return Bond Fund and U.S. Government Securities Fund. As of June 30, 2006, the Adviser had approximately $71 billion in assets under management. INVESTMENT ADVISER PROSPECTUS 83 For the fiscal year ended March 31, 2006, the following Funds paid the Adviser advisory fees (after waivers) based on the respective Fund's average daily net assets of: Core Bond Fund 0.25% Florida Tax-Exempt Bond Fund 0.57% Georgia Tax-Exempt Bond Fund 0.57% High Income Fund 0.59% High Quality Bond Fund 0.41% Intermediate Bond Fund 0.25% Investment Grade Bond Fund 0.58% Investment Grade Tax-Exempt Bond Fund 0.58% Limited Duration Fund 0.10% Limited-Term Federal Mortgage Securities Fund 0.54% Maryland Municipal Bond Fund 0.56% North Carolina Tax-Exempt Bond Fund 0.56%* Prime Quality Money Market Fund 0.52% Seix High Yield Fund 0.45% Short-Term Bond Fund 0.47% Short-Term U.S. Treasury Securities Fund 0.45% Strategic Income Fund 0.65% Tax-Exempt Money Market Fund 0.45% Total Return Bond Fund 0.38% Ultra-Short Bond Fund 0.22% U.S. Government Securities Fund 0.58% U.S. Government Securities Money Market Fund 0.56% U.S. Government Securities Ultra-Short Bond Fund 0.15% U.S. Treasury Money Market Fund 0.55% Virginia Intermediate Municipal Bond Fund 0.58%* Virginia Tax-Free Money Market Fund 0.40%
* The Adviser has contractually agreed to waive fees and reimburse expenses of the North Carolina Tax-Exempt Bond Fund and the Virginia Intermediate Municipal Bond Fund until at least August 1, 2007 in order to keep total operating expenses from exceeding the applicable expense cap. If at any point before August 1, 2009, total annual operating expenses are less than the expense cap, the Adviser may retain the difference to recapture any of the prior waivers or reimbursements. For its advisory services to the Seix Floating Rate High Income Fund, the Adviser is entitled to receive an annual advisory fee of 0.45% based on the Fund's average daily net assets. The Adviser has contractually agreed to waive fees and reimburse expenses until at least August 1, 2007 in order to keep total annual operating expenses from exceeding the expense cap. If at any point before August 1, 2009, total annual operating expenses are less than the expense cap, the Adviser may retain the difference to recapture any of the prior waivers or reimbursements. Since August 1, 2005, the following breakpoints are used in computing the advisory fee: BOND FUNDS
Average Daily Net Assets Discount From Full Fee First $500 million None -- Full Fee Next $500 million 5% Over $1 billion 10%
MONEY MARKET FUNDS
Average Daily Net Assets Discount From Full Fee First $1 billion None -- Full Fee Next $1.5 billion 5% Next $2.5 billion 10% Over $5 billion 20%
Based on average daily net assets for the fiscal year ended March 31, 2006, the asset levels of the following Funds had reached a breakpoint in the advisory fee.* Had the Funds' asset levels been lower, the Adviser may have been entitled to receive maximum advisory fees as follows: Prime Quality Money Market Fund 0.55% Seix High Yield Fund 0.45% Tax-Exempt Money Market Fund 0.45% U.S. Treasury Money Market Fund 0.55%
* Fund expenses in the "Annual Fund Operating Expenses" tables shown earlier in this prospectus reflect the advisory breakpoints. A discussion regarding the basis for the Board of Trustees' approval of the investment advisory contracts with the Adviser appears in the Funds' semi-annual report to shareholders for the period ended September 30, 2005. The Adviser is responsible for making investment decisions for the Funds and continuously reviews, supervises and administers each Fund's respective investment program. The Board of Trustees supervises the Adviser and establishes policies that the Adviser must follow in its management activities. The Adviser may use its affiliates as brokers for fund transactions. An investment adviser has a fiduciary obligation to its clients when the adviser has authority to vote their proxies. Under the current contractual agreement, the Adviser is authorized to vote proxies on behalf of each Fund. Information regarding the Adviser's, and thus each Fund's, Proxy Voting Policies and Procedures is provided in the Statement of Additional Information. A copy of the Funds' Proxy Voting Policies and PORTFOLIO MANAGERS 84 PROSPECTUS Procedures may be obtained by contacting the STI Classic Funds at 1-888-STI-FUND, or by visiting www.sticlassicfunds.com. PORTFOLIO MANAGERS The following individuals are primarily responsible for the day-to-day management of the Funds. Mr. Robert S. Bowman, CFA, has served as Managing Director of Trusco since January 1999. He has managed the VIRGINIA TAX-FREE MONEY MARKET FUND since May 1995, the TAX-EXEMPT MONEY MARKET FUND since July 2000, and the U.S. GOVERNMENT SECURITIES MONEY MARKET FUND since October 2000. He has more than 15 years of investment experience. Mr. Joseph Calabrese, CFA, has served as Managing Director since joining Trusco in May 2004. He has co-managed the LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND and the U.S. GOVERNMENT SECURITIES FUND since July 2004. He has also co-managed the LIMITED DURATION FUND since its inception, after serving as portfolio manager for the Fund's predecessor fund, the Seix Limited Duration Fund. Prior to joining Trusco, Mr. Calabrese served as Senior Portfolio Manager of Seix Investment Advisors, Inc. from May 1997 to May 2004. He has more than 19 years of investment experience. Mr. George E. Calvert, Jr., has served as Vice President of Trusco since August 2000. He has managed the MARYLAND MUNICIPAL BOND FUND, VIRGINIA MUNICIPAL BOND FUND and the VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND since August 2000. Mr. Calvert has more than 28 years of investment experience. Mr. Chris Carter, CFA, has served as Vice President since joining Trusco in July 2003. He has managed the GEORGIA TAX-EXEMPT BOND FUND since August 2003 and the NORTH CAROLINA TAX-EXEMPT BOND FUND since March 2005. Prior to joining Trusco, Mr. Carter served as a Portfolio Manager and Fixed Income Trader of Evergreen Investment Management Company from January 2002 to July 2003, after serving as Portfolio Manager and Fixed Income Trader of Wachovia Asset Management from September 1998 to January 2002. He has more than 15 years of investment experience. Mr. Robert W. Corner has served as Managing Director of Trusco since September 1996. He has co-managed the ULTRA-SHORT BOND FUND since July 2004, after managing the Fund since its inception. Mr. Corner has also co-managed the SHORT-TERM BOND FUND since January 2003 and has co-managed the U.S. GOVERNMENT SECURITIES ULTRA-SHORT BOND FUND since July 2004, after managing it since its inception. He has more than 19 years of investment experience. Mr. George Goudelias has served as Managing Director since joining Trusco in May 2004. He has co-managed the HIGH INCOME FUND since July 2004. He has also co-managed the SEIX FLOATING RATE HIGH INCOME FUND and the SEIX HIGH YIELD FUND since their inception. Prior to joining Trusco, Mr. Goudelias served as Director of High Yield Research of Seix Investment Advisors, Inc. from February 2001 to May 2004. He has more than 20 years of investment experience. Mr. Greg Hallman has served as Vice President of Trusco since February 2006 after serving as Associate since November 1999. He has co-managed the PRIME QUALITY MONEY MARKET FUND and the U.S. TREASURY MONEY MARKET FUND since November 2004 and the U.S. GOVERNMENT SECURITIES MONEY MARKET FUND since August 2006. He has more than 7 years of investment experience. Ms. Kimberly C. Maichle, CFA, has served as Director of Trusco since February 2006 after serving as Vice President since July 1995. She has co-managed the PRIME QUALITY MONEY MARKET FUND and the U.S. TREASURY MONEY MARKET FUND since November 2004 and the U.S. GOVERNMENT SECURITIES MONEY MARKET FUND since August 2006. She has more than 17 years of investment experience. Mr. Michael McEachern, CFA, has served as Managing Director since joining Trusco in May 2004. He has co-managed the HIGH INCOME FUND and the STRATEGIC INCOME FUND since July 2004. He also has co-managed the SEIX FLOATING RATE HIGH INCOME FUND and the SEIX HIGH YIELD FUND since their inception after serving as the portfolio manager of the Seix High Yield Fund's predecessor fund. Prior to joining Trusco, Mr. McEachern served as Senior Portfolio Manager of Seix Investment Advisors, Inc. from June 1997 to May 2004. He has more than 21 years of investment experience. Mr. H. Rick Nelson has served as Managing Director of Trusco since March 2002. He has co-managed the SHORT-TERM U.S. TREASURY SECURITIES FUND since January 2005, the SHORT-TERM BOND FUND since PURCHASING AND SELLING FUND SHARES PROSPECTUS 85 January 2003, the ULTRA-SHORT BOND FUND since July 2004 and the U.S. GOVERNMENT SECURITIES ULTRA-SHORT BOND FUND since July 2004. Prior to joining Trusco, Mr. Nelson served as Senior Vice President at Wachovia Asset Management from June 1985 to March 2002. He has more than 24 years of investment experience. Mr. Brian Nold has served as a Senior High Yield Analyst since joining Trusco in May 2004. He has co-managed the HIGH INCOME FUND since August 2006. Prior to joining Trusco, Mr. Nold served as a Senior High Yield Analyst at Seix Investment Advisors, Inc. from March 2003 to May 2004. He has more than 6 years of investment experience. Mr. Ronald Schwartz, CFA, has served as Managing Director of Trusco since July 2000. He has managed the FLORIDA TAX-EXEMPT BOND FUND since its inception and the INVESTMENT GRADE TAX-EXEMPT BOND FUND since its inception. He has more than 25 years of investment experience. Mr. E. Dean Speer, CFA, CPA, has served as Director of Trusco since February 2006 after serving as Vice President since June 2001. He has co-managed the PRIME QUALITY MONEY MARKET FUND and the U.S. TREASURY MONEY MARKET FUND since January 2005 and the U.S. GOVERNMENT SECURITIES MONEY MARKET FUND since August 2006. He has more than 8 years of investment experience. Mr. Chad Stephens has served as Vice President of Trusco since December 2000, and has co-managed the SHORT-TERM U.S. TREASURY SECURITIES FUND since January 2005, the ULTRA-SHORT BOND FUND since August 2006 and the U.S. GOVERNMENT SECURITIES ULTRA-SHORT BOND FUND since August 2006. He has more than 15 years of investment experience. Mr. John Talty, CFA, has served as Executive Vice President since joining Trusco in May 2004. He has co-managed the TOTAL RETURN BOND FUND, INVESTMENT GRADE BOND FUND, LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND, and U.S. GOVERNMENT SECURITIES FUND since July 2004. He also has co-managed the CORE BOND FUND, the INTERMEDIATE BOND FUND and the LIMITED DURATION FUND since their inception, after serving as Portfolio Manager for each Fund's predecessor fund, the SEIX CORE BOND FUND, SEIX INTERMEDIATE BOND FUND AND SEIX LIMITED DURATION FUND respectively. Prior to joining Trusco, Mr. Talty served as President and Senior Portfolio Manager of Seix Investment Advisors, Inc. from January 1993 to May 2004. He has more than 25 years of investment experience. Mr. Perry Troisi has served as Managing Director since joining Trusco in May 2004. He has co-managed the HIGH QUALITY BOND FUND, TOTAL RETURN BOND FUND, and the INVESTMENT GRADE BOND FUND since July 2004. He has also co-managed the CORE BOND FUND and the INTERMEDIATE BOND FUND since their inception, after serving as Portfolio Manager for each Fund's predecessor Fund, the Seix Core Bond Fund and Seix Intermediate Bond Fund, respectively. Prior to joining Trusco, Mr. Troisi served as Senior Portfolio Manager of Seix Investment Advisors, Inc. from November 1999 to May 2004. He has more than 20 years of investment experience. Mr. Adrien Webb, CFA, has served as Managing Director since joining Trusco in May 2004. He has co-managed the HIGH QUALITY BOND FUND and the STRATEGIC INCOME FUND since October 2004. Prior to joining Trusco, Mr. Webb served as Senior Portfolio Manager of Seix Investment Advisors, Inc. from May 2000 to May 2004. He has more than 11 years of investment experience. The Statement of Additional Information provides additional information regarding the portfolio managers' compensation, other accounts managed by the portfolio managers, potential conflicts of interest and the portfolio managers' ownership of securities in the Funds. (HAND SHAKE ICON) PURCHASING AND SELLING FUND SHARES This section tells you how to purchase and sell (sometimes called "redeem") I Shares of the Funds. HOW TO PURCHASE FUND SHARES The Funds offer I Shares exclusively to financial institutions and intermediaries for their own accounts or for the accounts of customers for which they act as PURCHASING AND SELLING FUND SHARES 86 PROSPECTUS fiduciary agent, investment adviser, or custodian and which consist of: - - assets of a bona fide trust, or - - assets of a business entity possessing a tax identification number. As a result, you, as a customer of a financial institution or intermediary may purchase I Shares through accounts made with financial institutions or intermediaries. I Shares will be held of record by (in the name of) your financial institution or intermediary. Depending upon the terms of your account, however, you may have, or be given, the right to vote your I Shares. WHEN CAN YOU PURCHASE SHARES? You may purchase shares on any day that the New York Stock Exchange ("NYSE") is open for business (a "Business Day"). But you may not purchase shares of the Money Market Funds on days when the Federal Reserve is closed. The price per share (the offering price) will be the net asset value per share ("NAV") next determined after the Funds receive your purchase order in proper form. Each Fund calculates its NAV once each Business Day at the regularly-scheduled close of normal trading on the NYSE (normally, 4:00 p.m., Eastern Time). So, for you to receive the current Business Day's NAV for each Fund (except the Money Market Funds), a Fund or its authorized agent must receive your purchase order in proper form before 4:00 p.m., Eastern Time. If the NYSE closes early - such as on days in advance of certain holidays - the Funds will calculate NAV as of the earlier closing time. The Funds will not accept orders that request a particular day or price for the transaction or any other special conditions. Each Money Market Fund calculates its NAV once each Business Day at the regularly-scheduled close of normal trading on the NYSE (normally 4:00 p.m., Eastern Time). So, for you to be eligible to receive dividends declared on the day you submit your purchase order, a Money Market Fund or its authorized agent must receive your order in proper form before 10:30 a.m., Eastern Time for the Tax-Exempt Money Market Fund and Virginia Tax-Free Money Market Fund or before 3:00 p.m., Eastern Time for the Prime Quality Money Market Fund, U.S. Government Securities Money Market Fund and U.S. Treasury Money Market Fund. Also each Money Market Fund must receive federal funds (readily available funds) before 6:00 p.m., Eastern Time. Otherwise, your purchase order will be effective the following Business Day, as long as each Money Market Fund receives federal funds before calculating its NAV the following day. YOU MAY HAVE TO TRANSMIT YOUR PURCHASE AND SALE REQUESTS TO YOUR FINANCIAL INSTITUTION OR INTERMEDIARY AT AN EARLIER TIME FOR YOUR TRANSACTION TO BECOME EFFECTIVE THAT DAY. THIS ALLOWS THE FINANCIAL INSTITUTION OR INTERMEDIARY TIME TO PROCESS YOUR REQUEST AND TRANSMIT IT TO THE TRANSFER AGENT IN TIME TO MEET THE ABOVE STATED FUND CUT-OFF TIMES. FOR MORE INFORMATION ABOUT HOW TO PURCHASE OR SELL FUND SHARES, INCLUDING A SPECIFIC FINANCIAL INSTITUTION'S OR INTERMEDIARY'S INTERNAL ORDER ENTRY CUT-OFF TIME, PLEASE CONTACT YOUR FINANCIAL INSTITUTION OR INTERMEDIARY DIRECTLY. A Fund may reject any purchase order. HOW THE FUNDS CALCULATE NAV NAV is calculated by adding the total value of a Fund's investments and other assets, subtracting its liabilities and then dividing that figure by the number of outstanding shares of the Fund. In calculating NAV, each Fund (except the Money Market Funds) generally values its investment portfolio at market price. In calculating NAV for each Money Market Fund, each Fund generally values its investment portfolio using the amortized cost valuation method, which is described in detail in the Statement of Additional Information. If market prices are not readily available or a Fund reasonably believes that market prices or amortized cost valuation method are unreliable, such as in the case of a security value that has been materially affected by events occurring after the relevant market closes, the Fund is required to price those securities at fair value as determined in good faith using methods approved by the Board of Trustees. A Fund's determination of a security's fair value price often involves the consideration of a number of subjective factors, and is therefore subject to the unavoidable risk that the value that a Fund assigns to a security may be higher or lower than the security's value would be if a reliable market quotation for the security was readily available. When valuing fixed income securities with remaining maturities of more than 60 days, the Funds use the PURCHASING AND SELLING FUND SHARES PROSPECTUS 87 value of the security provided by pricing services. The values provided by a pricing service may be based upon market quotations for the same security, securities expected to trade in a similar manner, or a pricing matrix. When valuing fixed income securities with remaining maturities of 60 days or less, the Funds use the security's amortized cost. Amortized cost and the use of a pricing matrix in valuing fixed income securities are forms of fair value pricing. Fair value prices may be determined in good faith using methods approved by the Board of Trustees. Each Money Market Fund expects its NAV to remain constant at $1.00 per share, although the Fund cannot guarantee this. With respect to non-U.S. securities held by a Fund, the Fund may take factors influencing specific markets or issues into consideration in determining the fair value of a non-U.S. security. International securities markets may be open on days when the U.S. markets are closed. In such cases, the value of any international securities owned by a Fund may be significantly affected on days when investors cannot buy or sell shares. In addition, due to the difference in times between the close of the international markets and the time a Fund prices its shares, the value the Fund assigns to securities generally will not be the same as the primary markets or exchanges. In determining fair value prices, a Fund may consider the performance of securities on their primary exchanges, foreign currency appreciation/depreciation, securities market movements in the U.S., or other relevant information as related to the securities. IN-KIND PURCHASES Payment for shares of a Fund may, in the discretion of the Adviser, be made in the form of securities that are permissible investments for such Fund. In connection with an in-kind securities payment, a Fund will require, among other things, that the securities (a) meet the investment objectives and policies of the Fund; (b) are acquired for investment and not for resale; (c) are liquid securities that are not restricted as to transfer either by law or liquidity of markets; (d) have a value that is readily ascertainable (e.g., by a listing on a nationally recognized securities exchange); and (e) are valued on the day of purchase in accordance with the pricing methods used by the Fund. For further information about this form of payment, please call 1-888-STI-FUND. CUSTOMER IDENTIFICATION FOREIGN INVESTORS The Funds do not generally accept investments in I Shares by non-U.S. citizens or entities. CUSTOMER IDENTIFICATION AND VERIFICATION To help the government fight the funding of terrorism and money laundering activities, federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account. When you open an account, you will be asked to provide your name, residential street address, date of birth, Social Security number or tax identification number. You may also be asked for other information that will allow us to identify you. Entities are also required to provide additional information. This information will be verified to ensure the identity of all persons opening a mutual fund account. In certain instances, the Funds are required to collect documents to fulfill its legal obligation. Documents provided in connection with your application will be used solely to establish and verify a customer's identity. The Funds are required by law to reject your new account application if the required identifying information is not provided. Attempts to collect the missing information required on the application will be performed by either contacting you or, if applicable, your broker. If this information is unable to be obtained within a timeframe established in the sole discretion of the Funds your application will be rejected. Upon receipt of your application in proper form (or upon receipt of all identifying information required on the application), your investment will be accepted and your order will be processed at the NAV next-determined. However, the Funds reserve the right to close your account at the then-current day's price if the Funds are unable to verify your identity. Attempts to verify your identity will be performed within a timeframe established in the sole discretion of the Funds. If the Funds are unable to verify your identity, the Funds reserve the right to liquidate your account at the then-current day's price and remit proceeds to you via check. The Funds reserve the further right to hold your proceeds until your original check clears the bank. In such an instance, you PURCHASING AND SELLING FUND SHARES 88 PROSPECTUS may be subject to a gain or loss on Fund shares and will be subject to corresponding tax implications. ANTI-MONEY LAUNDERING PROGRAM Customer identification and verification is part of the Funds' overall obligation to deter money laundering under federal law. The Funds have adopted an anti-money laundering compliance program designed to prevent the Funds from being used for money laundering or the financing of terrorist activities. In this regard, the Funds reserve the right to (i) refuse, cancel or rescind any purchase or exchange order, (ii) freeze any account and/or suspend account services, or (iii) involuntarily redeem your account in cases of threatening conduct or suspected fraudulent or illegal activity. These actions will be taken when, in the sole discretion of Fund management, they are deemed to be in the best interest of the Funds or in cases when the Funds are requested or compelled to do so by governmental or law enforcement authority. HOW TO SELL YOUR FUND SHARES You may sell your shares on any Business Day by contacting your financial institution or intermediary. Your financial institution or intermediary will give you information about how to sell your shares including any specific cut-off times required. Holders of I Shares may sell shares by following the procedures established when they opened their account or accounts with the Funds or with their financial institution or intermediary. The sale price of each share will be the NAV next determined after the Funds receive your request in proper form. Redemption orders must be received by the Money Market Funds on any Business Day before 10:30 a.m., Eastern Time for the Tax-Exempt Money Market Fund and Virginia Tax-Free Money Market Fund or 3:00 p.m., Eastern Time for the Prime Quality Money Market Fund, U.S. Government Securities Money Market Fund and U.S. Treasury Money Market Fund. Orders received after these times will be executed the following Business Day. A MEDALLION SIGNATURE GUARANTEE[DIAMOND SYMBOL] by a bank or other financial institution (a notarized signature is not sufficient) is required to redeem shares: - - made payable to someone other than the registered shareholder; - - sent to an address or bank account other than the address or bank account of record; or - - sent to an address or bank account of record that has been changed within the last 15 calendar days. Other documentation may be required depending on the registration of the account. [DIAMOND SYMBOL] MEDALLION SIGNATURE GUARANTEE: A Medallion Signature Guarantee verifies the authenticity of your signature and helps ensure that changes to your account are in fact authorized by you. A Medallion Signature Guarantee may be obtained from a domestic bank or trust company, broker, dealer, clearing agency, savings association or other financial institution participating in a Medallion Program recognized by the Securities Trading Association. Signature guarantees from financial institutions that do not reflect one of the following are not part of the program and will not be accepted. The acceptable Medallion programs are Securities Transfer Agents Medallion Program, (STAMP), Stock Exchange Medallion Program, (SEMP), or the New York Stock Exchange, Inc. Medallion Program, (NYSE MSP). Contact your local financial adviser for further assistance. REDEMPTION FEE For Funds other than the Money Market Funds, a redemption fee of 2% of the value of the shares sold will be imposed on shares redeemed within 7 days or less after their date of purchase unless the redemption is excluded under the Redemption Fee Policy. The redemption fee is intended to limit short-term trading and to help offset costs to the Funds' remaining shareholders of that type of activity. (See "Redemption Fee Policy.") RECEIVING YOUR MONEY Normally, the Funds will send your sales proceeds within five Business Days after a Fund receives your request, but a Fund may take up to seven days to pay the sale proceeds if making immediate payment would adversely affect the Fund (for example, to allow the Fund to raise capital in the case of a large redemption). MARKET TIMING POLICIES AND PROCEDURES PROSPECTUS 89 REDEMPTIONS IN KIND The Funds generally pay redemption proceeds in cash. However, under unusual conditions that make the payment of cash unwise (and for the protection of the Fund's remaining shareholders), a Fund might pay all or part of your redemption proceeds in liquid securities with a market value equal to the redemption price (redemption in kind). It is highly unlikely that your shares would ever be redeemed in kind, but if they were you would probably have to pay transaction costs to sell the securities distributed to you, as well as taxes on any capital gains from the sale as with any redemption. SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES A Fund may suspend your right to sell your shares if the NYSE restricts trading, the SEC declares an emergency or for other reasons approved by the SEC. More information about this is in the Statement of Additional Information. TELEPHONE TRANSACTIONS Purchasing and selling Fund shares over the telephone is extremely convenient, but not without risk. Although the Funds have certain safeguards and procedures to confirm the identity of callers and the authenticity of instructions, the Funds are not responsible for any losses or costs incurred by following telephone instructions the Funds reasonably believe to be genuine. If you or your financial institution or intermediary transact with the Funds over the telephone, you will generally bear the risk of any loss. The Funds reserve the right to modify, suspend or terminate telephone transaction privileges at any time. To redeem shares by telephone: - - redemption checks must be made payable to the registered shareholder; and - - redemption checks must be mailed to an address or wired to a bank account of record that has been associated with the shareholder account for at least 15 calendar days. MARKET TIMING POLICIES AND PROCEDURES FOR ALL FUNDS EXCEPT THE MONEY MARKET FUNDS The Funds are intended for long-term investment purposes only and discourage shareholders from engaging in "market timing" or other types of excessive short-term trading. This frequent trading into and out of the Funds may present risks to the Funds' long-term shareholders, all of which could adversely affect shareholder returns. The risks posed by frequent trading include interfering with the efficient implementation of the Funds' investment strategies, triggering the recognition of taxable gains and losses on the sale of Fund investments, requiring the Funds to maintain higher cash balances to meet redemption requests, and experiencing increased transaction costs. A Fund that invests a significant amount of its assets in overseas markets is particularly susceptible to the risk of certain investors using a strategy known as time-zone arbitrage. Investors using this strategy attempt to take advantage of the differences in value of foreign securities that might result from events that occur between the close of the foreign securities market on which a foreign security is traded and the time at which the Fund calculates its NAV. The Funds and/or their service providers will take steps reasonably designed to detect and deter frequent trading by shareholders pursuant to the Funds' policies and procedures described in this prospectus and approved by the Funds' Board of Trustees. For purposes of applying these policies, the Funds' service providers may consider the trading history of accounts under common ownership or control. The Funds' policies and procedures include: - - Shareholders are restricted from making more than one (1) "round trip" into or out of a Fund within 14 days or more than two (2) "round trips" within any continuous 90 day period. If a shareholder exceeds either "round trip" restriction, he or she may be deemed a "Market Timer," and the Funds and/or their service providers may, at their discretion, reject any additional purchase orders. The Funds define a round trip as a purchase into a Fund by a shareholder, followed by a subsequent redemption out of the Fund. Anyone considered to be a Market Timer by the Funds, their manager(s) or a shareholder servicing agent may be notified in writing of their designation as a Market Timer. - - The Funds reserve the right to reject any purchase request by any investor or group of investors for any reason without prior notice, including, in particular, if the Funds or their Adviser reasonably believes that the trading activity would be harmful or disruptive to the Funds. REDEMPTION FEE POLICY 90 PROSPECTUS - - A redemption fee of 2% of the value of the shares sold will be imposed on shares redeemed within 7 days or less after their date of purchase. The redemption fee proceeds will be paid to the applicable Fund to help offset costs to the Fund's remaining shareholders. The Funds will use the first-in, first-out ("FIFO") method to determine the holding period. Under this method, the date of the redemption will be compared to the earliest purchase date of shares of a particular Fund held in a shareholder's account. If this holding period is less than the required holding period, the redemption fee will be assessed. The Funds and/or their service providers seek to apply these policies to the best of their abilities uniformly and in a manner they believe is consistent with the interests of the Funds' long-term shareholders. Although these policies are designed to deter frequent trading, none of these measures alone nor all of them taken together eliminate the possibility that frequent trading in the Funds will occur, particularly with respect to trades placed by shareholders that invest in the Funds through omnibus arrangements maintained by brokers, retirement plan accounts and other financial intermediaries. The Funds' and their service providers' access to information about individual shareholder transactions made through such omnibus arrangements is often unavailable or severely limited. The Funds rely in large part on the policies, ability and willingness of brokers, retirement plan accounts and other financial intermediaries who maintain omnibus arrangements to detect and deter short-term trading. Despite this reliance, the Funds cannot assure that their policies will be enforced with regard to those Fund shares held through such omnibus arrangements (which may represent a majority of Fund shares), and as a result frequent trading could adversely affect the Funds and their long-term shareholders as discussed above. In addition to the previously mentioned initiatives to discourage market timing, the Funds intend to continually evaluate and, if practical, implement other measures to deter market timing. REDEMPTION FEE POLICY FOR ALL FUNDS EXCEPT THE MONEY MARKET FUNDS A redemption fee of 2% of the value of the shares sold will be imposed on shares redeemed within 7 days or less after their date of purchase. The redemption fee proceeds will be paid to the applicable Fund to help offset costs to the Fund's remaining shareholders. The Funds will use the first-in, first-out ("FIFO") method to determine the holding period. Under this method, the date of the redemption will be compared to the earliest purchase date of shares of a particular Fund held in a shareholder's account. If this holding period is less than the required holding period, the redemption fee will be assessed. The redemption fee is applicable to Fund shares purchased either directly or through a financial intermediary, such as a broker-dealer. Transactions through financial intermediaries typically are placed with the Fund on an omnibus basis and include both purchase and sale transactions placed on behalf of multiple investors. For this reason, the Funds request the support from financial intermediaries of their obligation to assess the redemption fee on customer accounts and to collect and remit the proceeds to the Funds. However, due to operational requirements, the intermediaries' methods for tracking and calculating the fee may be inadequate or differ in some respects from the Funds' methods. The redemption fee may not apply to certain categories of redemptions, such as those that the Funds reasonably believe may not raise frequent trading or market timing concerns. These categories include, but are not limited to, the following: (i) accounts held through an omnibus arrangement, such as participants in certain group retirement plans (e.g., 401(k)/403(b) type participant accounts) or automatic asset allocation accounts, because information may not be available regarding beneficial owners or whose processing systems are incapable of properly applying the redemption fee to underlying shareholders; (ii) redemptions resulting from certain transfers upon the death of a shareholder; (iii) redemptions by certain pension plans as required by law or by regulatory authorities; (iv) retirement loans and withdrawals; and (v) shares purchased through reinvestment of dividends or capital gains distributions. Further, the Fund reserves the right to refuse any purchase request by any investor at any time. The Fund also reserves the right to modify or eliminate the redemption fee for certain categories of investors or waivers at any time. Such changes will be approved prior to implementation by the Fund's Board of Trustees. FOR THE MONEY MARKET FUNDS The Funds are money market funds and seek to provide a high degree of liquidity, current income and a stable net asset value of $1.00 per share. The Funds are designed to serve as short-term cash equivalent DIVIDENDS, DISTRIBUTIONS AND TAXES PROSPECTUS 91 investments for shareholders and, therefore, expect shareholders to engage in frequent purchases and redemptions. Because of the inherently liquid nature of the Funds' investments, and money market instruments in general, and the Funds' intended purpose to serve as short-term investment vehicles for shareholders, the Adviser has informed the Board of Trustees that it believes that it would not be in shareholders' best interests to place any limitations on the frequency of shareholder purchases and redemptions into and out of the Funds. As a result, the Board has not adopted a Fund policy or procedures with respect to frequent purchases and redemptions. DISTRIBUTION OF FUND SHARES The distributor may provide financial assistance in connection with pre-approved seminars, conferences and advertising to the extent permitted by applicable state or self-regulatory agencies, such as the National Association of Securities Dealers. From its own assets, the Adviser or its affiliates may make payments based on gross sales and current assets to selected brokerage firms or institutions. The amount of these payments may be substantial. The minimum aggregate sales required for eligibility for such payments, and the factors in selecting the brokerage firms and institutions to which they will be made, are determined from time to time by the Adviser. Furthermore, in addition to the fees that may be paid by the Funds, the Adviser or its affiliates may pay fees from its own capital resources to brokers, banks, financial advisers, retirement plan service providers and other financial intermediaries, including affiliates, for providing distribution-related or shareholder services. DIVIDENDS AND DISTRIBUTIONS Each Fund declares dividends daily and pays these dividends monthly. Each Fund makes distributions of its net realized capital gains, if any, at least annually. If you own Fund shares on a Fund's record date, you will be entitled to receive the distribution. You will receive dividends and distributions in the form of additional Fund shares unless you elect to receive payment in cash. To elect cash payment, you must notify the Funds in writing prior to the date of the distribution. Your election will be effective for dividends and distributions paid after the Funds receive your written notice. To cancel your election, simply send the Funds written notice. TAXES PLEASE CONSULT YOUR TAX ADVISOR REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL, STATE AND LOCAL INCOME TAXES. Below the Funds have summarized some important tax issues that affect the Funds and their shareholders. This summary is based on current tax laws, which may change. Each Fund will distribute substantially all of its net investment income and its net realized capital gains, if any, at least annually. The dividends and distributions you receive may be subject to federal, state and local taxation, depending upon your tax situation. Distributions you receive from a Fund may be taxable whether or not you reinvest them. Income distributions are generally taxable as ordinary income and will not qualify for the reduced tax rates applicable to qualified dividend income. Capital gains distributions are generally taxable at the rates applicable to long-term capital gains. Long-term capital gains are currently taxed at a maximum rate of 15%. Absent further legislation, the maximum 15% tax rate on long-term capital gains will cease to apply to taxable years beginning after December 31, 2010. EACH SALE OR EXCHANGE OF FUND SHARES MAY BE A TAXABLE EVENT. FOR TAX PURPOSES, AN EXCHANGE OF YOUR FUND SHARES FOR SHARES OF ANOTHER STI CLASSIC FUND IS TREATED THE SAME AS A SALE. A TRANSFER FROM ONE SHARE CLASS TO ANOTHER SHARE CLASS IN THE SAME STI CLASSIC FUND SHOULD NOT BE A TAXABLE EVENT. Each Fund will inform you of the amount of your ordinary income dividends and capital gain distributions shortly after the close of each calendar year. Shareholders of the Money Market Funds should be aware that because the Funds each expect to maintain a stable $1.00 net asset value per share, they should not expect to realize any gain or loss on the sale or exchange of Money Market Fund shares. The Florida Tax-Exempt Bond Fund, Georgia Tax-Exempt Bond Fund, Investment Grade Tax-Exempt Bond Fund, Maryland Municipal Bond Fund, North Carolina Tax-Exempt Bond Fund, Tax-Exempt Money Market Fund, Virginia Intermediate Municipal Bond Fund and Virginia Tax-Free Money Market Fund intend DIVIDENDS, DISTRIBUTIONS AND TAXES 92 PROSPECTUS to distribute federally tax-exempt income. Each Fund may invest a portion of its assets in securities that generate taxable income for federal or state income taxes. Income exempt from federal tax may be subject to state and local taxes. Any capital gains distributed by these Funds may be taxable. While shareholders of state specific Funds may receive distributions that are exempt from that particular state's income tax, such distributions may be taxable in other states where the shareholder files tax returns. If you have a tax-advantaged or other retirement account you will generally not be subject to federal taxation on income and capital gain distributions until you begin receiving your distributions from your retirement account. You should consult your tax advisor regarding the rules governing your own retirement plan. Except for those certain Funds that expect to distribute federally tax-exempt income (described above), the Funds expect to distribute primarily ordinary income dividends currently taxable at a maximum rate of 35%. The Short-Term U.S. Treasury Securities Fund, the U.S. Government Securities Fund, the U.S. Government Securities Money Market Fund and the U.S. Treasury Money Market Fund each expect that a substantial portion of Fund distributions will represent interest earned on U.S. obligations, while the Investment Grade Bond Fund, the Short-Term Bond Fund, the Prime Quality Money Market Fund, the Ultra-Short Bond Fund and the U.S. Government Securities Ultra-Short Bond Fund expect that some portion of each Fund's distribution will be so derived. Many states grant tax-free status to dividends paid from interest earned on direct obligations of the U.S. Government, subject to certain limitations. MORE INFORMATION ABOUT TAXES IS IN THE STATEMENT OF ADDITIONAL INFORMATION. PROSPECTUS 93 (This page intentionally left blank) FINANCIAL HIGHLIGHTS 94 PROSPECTUS FINANCIAL HIGHLIGHTS The financial highlights table is intended to help you understand a Fund's financial performance for the period of the Fund's (and its predecessor's) operations. There was no financial information for the Seix Floating Rate High Income Fund because that Fund did not begin operations until after March 31, 2006. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This financial information has been audited by PricewaterhouseCoopers LLP, except the information for the period ended May 31, 2004 for the North Carolina Tax-Exempt Bond Fund, the information for each of the three years (or periods) ended October 31, 2003 for the Core Bond Fund, Intermediate Bond Fund, Limited Duration Fund and Seix High Yield Fund and the information for the year ended May 31, 2001 for all other Funds, which has been audited by predecessor independent accounting firms, one of which has ceased operations. The Report of the Independent Registered Public Accounting Firm for each period shown along with the Funds' financial statements and related notes, are included in the Annual Reports to Shareholders for each such period. The 2006 Annual Report is available upon request and without charge by calling 1-888-STI-FUND or on the Funds' website at www.sticlassicfunds.com.
NET ASSET NET REALIZED DIVIDENDS DISTRIBUTIONS VALUE, NET AND UNREALIZED FROM FROM BEGINNING OF INVESTMENT GAINS (LOSSES) TOTAL FROM NET INVESTMENT REALIZED PERIOD INCOME ON INVESTMENTS OPERATIONS INCOME CAPITAL GAINS ------------ ---------- -------------- ---------- -------------- ------------- CORE BOND FUND I SHARES Year Ended March 31, 2006.......... $10.12 0.41 (0.24) 0.17 (0.42) (0.01) Period Ended March 31, 2005........ $10.30 0.15 (0.14) 0.01 (0.14) (0.05) Year Ended October 31, 2004*....... $10.31 0.31 0.23 0.54 (0.32) (0.23) Year Ended October 31, 2003........ $10.00 0.30 0.35 0.65 (0.34) -- Year Ended October 31, 2002........ $10.34 0.42 (0.29) 0.13 (0.42) (0.05) Year Ended October 31, 2001........ $ 9.66 0.59 0.70 1.29 (0.61) -- FLORIDA TAX-EXEMPT BOND FUND I SHARES Year Ended March 31, 2006.......... $10.90 0.34 (0.03) 0.31 (0.34) (0.05) Period Ended March 31, 2005**...... $10.93 0.26 0.10 0.36 (0.26) (0.13) Year Ended May 31, 2004............ $11.69 0.32(a) (0.56)(a) (0.24) (0.32) (0.20) Year Ended May 31, 2003............ $10.95 0.40 0.79 1.19 (0.40) (0.05) Year Ended May 31, 2002............ $10.79 0.40 0.22 0.62 (0.40) (0.06) Year Ended May 31, 2001............ $10.06 0.44 0.73 1.17 (0.44) -- GEORGIA TAX-EXEMPT BOND FUND I SHARES Year Ended March 31, 2006.......... $10.21 0.36(a) (0.04)(a) 0.32 (0.36) (0.01) Period Ended March 31, 2005**...... $10.24 0.28 0.20 0.48 (0.27) (0.24) Year Ended May 31, 2004............ $10.89 0.34(a) (0.58)(a) (0.24) (0.34) (0.07) Year Ended May 31, 2003............ $10.29 0.38 0.60 0.98 (0.38) -- Year Ended May 31, 2002............ $10.10 0.39 0.19 0.58 (0.39) -- Year Ended May 31, 2001............ $ 9.50 0.40 0.60 1.00 (0.40) -- HIGH INCOME FUND I SHARES Year Ended March 31, 2006.......... $ 7.38 0.55 (0.03) 0.52 (0.55) (0.38) Period Ended March 31, 2005**...... $ 7.38 0.46 0.21 0.67 (0.46) (0.21) Year Ended May 31, 2004............ $ 7.16 0.62(a) 0.22(a) 0.84 (0.62) -- Year Ended May 31, 2003............ $ 7.25 0.61 (0.09) 0.52 (0.61) -- Period Ended May 31, 2002(b)....... $ 7.37 0.39 (0.12) 0.27 (0.39) -- TOTAL DIVIDENDS AND DISTRIBUTIONS ------------- CORE BOND FUND I SHARES Year Ended March 31, 2006.......... (0.43) Period Ended March 31, 2005........ (0.19) Year Ended October 31, 2004*....... (0.55) Year Ended October 31, 2003........ (0.34) Year Ended October 31, 2002........ (0.47) Year Ended October 31, 2001........ (0.61) FLORIDA TAX-EXEMPT BOND FUND I SHARES Year Ended March 31, 2006.......... (0.39) Period Ended March 31, 2005**...... (0.39) Year Ended May 31, 2004............ (0.52) Year Ended May 31, 2003............ (0.45) Year Ended May 31, 2002............ (0.46) Year Ended May 31, 2001............ (0.44) GEORGIA TAX-EXEMPT BOND FUND I SHARES Year Ended March 31, 2006.......... (0.37) Period Ended March 31, 2005**...... (0.51) Year Ended May 31, 2004............ (0.41) Year Ended May 31, 2003............ (0.38) Year Ended May 31, 2002............ (0.39) Year Ended May 31, 2001............ (0.40) HIGH INCOME FUND I SHARES Year Ended March 31, 2006.......... (0.93) Period Ended March 31, 2005**...... (0.67) Year Ended May 31, 2004............ (0.62) Year Ended May 31, 2003............ (0.61) Period Ended May 31, 2002(b)....... (0.39)
+ Not annualized for periods less than one year. ++ Annualized for periods less than one year. (a) Per share data calculated using average shares method. (b) Commenced operations on October 3, 2001. * Effective November 1, 2003, this Fund adopted a change in the amortization and accretion methodology on fixed income securities. The cumulative effect of this change in methodology was immaterial. ** Effective June 1, 2004, these Funds adopted a change in the amortization and accretion methodology on fixed income securities. The cumulative effect of this change in methodology was immaterial to all Funds except for the Fund noted below:
CHANGE TO RATIO OF NET INVESTMENT CHANGE TO NET INCOME TO AVERAGE CHANGE TO REALIZED AND NET ASSETS NET INVESTMENT UNREALIZED GAINS ------------------ INCOME PER SHARE (LOSSES) PER SHARE I SHARES ---------------- ------------------ ------------------ Georgia Tax-Exempt Bond Fund................................ $ 0.01 $(0.01) 0.16%
FINANCIAL HIGHLIGHTS PROSPECTUS 95
RATIO OF EXPENSES RATIO OF NET TO AVERAGE NET NET ASSETS, RATIO OF NET INVESTMENT INCOME ASSETS (EXCLUDING NET ASSET VALUE, TOTAL END OF EXPENSES TO TO AVERAGE WAIVERS AND END OF PERIOD RETURN+ PERIOD (000) AVERAGE NET ASSETS++ NET ASSETS++ EXPENSE OFFSET)++ ------------- ------- ------------ -------------------- ------------ ----------------- $ 9.86 1.68% $497,730 0.29% 4.01% 0.29% $10.12 0.09% $176,537 0.37% 3.12% 0.37% $10.30 5.49% $ 56,019 0.45% 3.03% 0.59% $10.31 6.58% $ 33,662 0.45% 3.10% 0.51% $10.00 1.38% $ 80,727 0.45% 4.08% 0.70% $10.34 13.82% $ 52,034 0.45% 5.85% 0.70% $10.82 2.90% $165,341 0.63% 3.13% 0.65% $10.90 3.31% $157,500 0.67% 2.84% 0.71% $10.93 (2.07)% $165,065 0.71% 2.82% 0.75% $11.69 11.13% $147,423 0.71% 3.54% 0.75% $10.95 5.88% $120,885 0.71% 3.65% 0.76% $10.79 11.84% $107,867 0.71% 4.19% 0.76% $10.16 3.19% $115,929 0.64% 3.53% 0.66% $10.21 4.73% $ 96,503 0.67% 3.31% 0.71% $10.24 (2.18)% $ 98,113 0.71% 3.26% 0.76% $10.89 9.64% $ 98,866 0.71% 3.55% 0.76% $10.29 5.81% $ 91,356 0.71% 3.79% 0.76% $10.10 10.67% $ 85,880 0.71% 4.03% 0.77% $ 6.97 7.53% $ 36,764 0.72% 7.64% 0.82% $ 7.38 9.31% $ 51,318 0.73% 7.47% 0.87% $ 7.38 11.94% $ 71,314 0.76% 8.27% 0.91% $ 7.16 8.19% $100,852 0.78% 8.95% 0.93% $ 7.25 3.70% $ 28,767 0.82% 8.27% 0.97% PORTFOLIO TURNOVER RATE+ -------------- 236% 150% 330% 463% 502% 492% 90% 66% 56% 62% 91% 59% 43% 52% 100% 17% 23% 21% 208% 191% 49% 20% 59%
FINANCIAL HIGHLIGHTS 96 PROSPECTUS
NET ASSET NET REALIZED DIVIDENDS DISTRIBUTIONS VALUE, NET AND UNREALIZED FROM FROM BEGINNING OF INVESTMENT GAINS (LOSSES) TOTAL FROM NET INVESTMENT REALIZED PERIOD INCOME ON INVESTMENTS OPERATIONS INCOME CAPITAL GAINS ------------ ---------- -------------- ---------- -------------- ------------- HIGH QUALITY BOND FUND I SHARES Year Ended March 31, 2006.......... $ 9.85 0.37 (0.22) 0.15 (0.35) -- Period Ended March 31, 2005*....... $ 9.84 0.21 0.02 0.23 (0.21) (0.01) Period Ended May 31, 2004 (b)...... $10.00 0.12(a) (0.16)(a) (0.04) (0.12) -- INTERMEDIATE BOND FUND I SHARES Year Ended March 31, 2006.......... $10.08 0.38 (0.21) 0.17 (0.39) (0.01) Period Ended March 31, 2005........ $10.37 0.14 (0.21) (0.07) (0.14) (0.08) Year Ended October 31, 2004**...... $10.23 0.34 0.14 0.48 (0.34) -- Year Ended October 31, 2003........ $10.12 0.37 0.15 0.52 (0.41) -- Year Ended October 31, 2002........ $10.63 0.47 (0.23) 0.24 (0.50) (0.25) Year Ended October 31, 2001........ $ 9.96 0.57 0.68 1.25 (0.58) -- INVESTMENT GRADE BOND FUND I SHARES Year Ended March 31, 2006.......... $10.51 0.42 (0.11) 0.31 (0.42) -- Period Ended March 31, 2005*....... $10.31 0.29 0.19 0.48 (0.28) -- Year Ended May 31, 2004............ $10.94 0.35(a) (0.60)(a) (0.25) (0.38) -- Year Ended May 31, 2003............ $10.24 0.40 0.76 1.16 (0.46) -- Year Ended May 31, 2002............ $10.23 0.51 0.01 0.52 (0.51) -- Year Ended May 31, 2001............ $ 9.58 0.61 0.65 1.26 (0.61) -- INVESTMENT GRADE TAX-EXEMPT BOND FUND I SHARES Year Ended March 31, 2006.......... $11.45 0.33 0.01 0.34 (0.33) (0.08) Period Ended March 31, 2005*....... $11.44 0.23 0.20 0.43 (0.24) (0.18) Year Ended May 31, 2004............ $12.01 0.27(a) (0.32)(a) (0.05) (0.27) (0.25) Year Ended May 31, 2003............ $11.57 0.30 0.90 1.20 (0.30) (0.46) Year Ended May 31, 2002............ $11.38 0.34 0.46 0.80 (0.34) (0.27) Year Ended May 31, 2001............ $10.67 0.44 0.71 1.15 (0.44) -- TOTAL DIVIDENDS AND DISTRIBUTIONS ------------- HIGH QUALITY BOND FUND I SHARES Year Ended March 31, 2006.......... (0.35) Period Ended March 31, 2005*....... (0.22) Period Ended May 31, 2004 (b)...... (0.12) INTERMEDIATE BOND FUND I SHARES Year Ended March 31, 2006.......... (0.40) Period Ended March 31, 2005........ (0.22) Year Ended October 31, 2004**...... (0.34) Year Ended October 31, 2003........ (0.41) Year Ended October 31, 2002........ (0.75) Year Ended October 31, 2001........ (0.58) INVESTMENT GRADE BOND FUND I SHARES Year Ended March 31, 2006.......... (0.42) Period Ended March 31, 2005*....... (0.28) Year Ended May 31, 2004............ (0.38) Year Ended May 31, 2003............ (0.46) Year Ended May 31, 2002............ (0.51) Year Ended May 31, 2001............ (0.61) INVESTMENT GRADE TAX-EXEMPT BOND FUND I SHARES Year Ended March 31, 2006.......... (0.41) Period Ended March 31, 2005*....... (0.42) Year Ended May 31, 2004............ (0.52) Year Ended May 31, 2003............ (0.76) Year Ended May 31, 2002............ (0.61) Year Ended May 31, 2001............ (0.44)
+ Not annualized for periods less than one year. ++ Annualized for periods less than one year. (a) Per share data calculated using average shares method. (b) Commenced operations on October 27, 2003. * Effective June 1, 2004, these Funds adopted a change in the amortization and accretion methodology on fixed income securities. The cumulative effect of this change in methodology is noted below:
CHANGE TO RATIO OF NET INVESTMENT CHANGE TO NET INCOME TO CHANGE TO REALIZED AND AVERAGE NET ASSETS NET INVESTMENT UNREALIZED GAINS ------------------ INCOME PER SHARE (LOSSES) PER SHARE I SHARES ---------------- ------------------ ------------------ High Quality Bond Fund..................................... $ 0.01 $(0.01) 0.11% Investment Grade Bond Fund................................. 0.01 (0.01) 0.18 Investment Grade Tax-Exempt Bond Fund...................... (0.01) 0.01 (0.08)
** Effective November 1, 2003, this Fund adopted a change in the amortization and accretion methodology on fixed income securities. The cumulative effect of this change in methodology was immaterial. FINANCIAL HIGHLIGHTS PROSPECTUS 97
RATIO OF EXPENSES RATIO OF NET TO AVERAGE NET NET ASSETS, RATIO OF NET INVESTMENT INCOME ASSETS (EXCLUDING NET ASSET VALUE, TOTAL END OF EXPENSES TO TO AVERAGE WAIVERS AND PORTFOLIO END OF PERIOD RETURN+ PERIOD (000) AVERAGE NET ASSETS++ NET ASSETS++ EXPENSE OFFSET)++ TURNOVER RATE+ ------------- ------- ------------ -------------------- ------------ ----------------- -------------- $ 9.65 1.52% $ 48,908 0.40% 3.69% 0.47% 91% $ 9.85 2.30% $ 38,535 0.66% 2.51% 0.90% 290% $ 9.84 (0.37)% $ 25,506 0.65% 2.09% 0.92% 31% $ 9.85 1.76% $ 78,187 0.31% 3.88% 0.31% 154% $10.08 (0.75)% $ 47,981 0.29% 3.25% 0.29% 94% $10.37 4.73% $ 35,848 0.45% 3.25% 0.59% 130% $10.23 5.16% $ 28,689 0.45% 3.42% 0.56% 277% $10.12 2.47% $ 40,284 0.45% 4.63% 0.73% 237% $10.63 12.87% $ 26,192 0.45% 5.50% 0.76% 431% $10.40 2.94% $480,024 0.65% 3.91% 0.65% 171% $10.51 4.71% $602,995 0.78% 3.31% 0.80% 268% $10.31 (2.31)% $578,345 0.82% 3.29% 0.84% 119% $10.94 11.61% $821,342 0.81% 3.92% 0.83% 137% $10.24 5.18% $886,471 0.81% 4.81% 0.83% 123% $10.23 13.55% $860,073 0.81% 6.17% 0.84% 131% $11.38 2.92% $300,986 0.64% 2.84% 0.64% 237% $11.45 3.74% $259,542 0.77% 2.36% 0.80% 178% $11.44 (0.45)% $205,266 0.81% 2.33% 0.84% 242% $12.01 10.80% $185,485 0.81% 2.57% 0.84% 329% $11.57 7.15% $149,200 0.81% 2.93% 0.84% 311% $11.38 10.93% $134,139 0.81% 3.93% 0.85% 285%
FINANCIAL HIGHLIGHTS 98 PROSPECTUS
NET ASSET NET REALIZED DIVIDENDS DISTRIBUTIONS VALUE, NET AND UNREALIZED FROM FROM BEGINNING OF INVESTMENT GAINS (LOSSES) TOTAL FROM NET INVESTMENT REALIZED PERIOD INCOME ON INVESTMENTS OPERATIONS INCOME CAPITAL GAINS ------------ ---------- -------------- ---------- -------------- ------------- LIMITED DURATION FUND I SHARES Year Ended March 31, 2006.......... $ 9.98 0.35 0.02 0.37 (0.36) -- Period Ended March 31, 2005........ $ 9.98 0.08 -- 0.08 (0.08) --* Year Ended October 31, 2004**...... $ 9.98 0.11 -- 0.11 (0.11) -- Year Ended October 31, 2003........ $10.00 0.11 (0.02) 0.09 (0.11) -- Period Ended October 31, 2002(b)... $10.00 --* -- --* --* -- LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND I SHARES Year Ended March 31, 2006.......... $10.09 0.35 (0.15) 0.20 (0.41) -- Period Ended March 31, 2005***..... $10.18 0.31 (0.08) 0.23 (0.32) -- Year Ended May 31, 2004............ $10.59 0.24(a) (0.36)(a) (0.12) (0.29) -- Year Ended May 31, 2003............ $10.31 0.29(a) 0.42(a) 0.71 (0.42) (0.01) Year Ended May 31, 2002............ $10.01 0.43 0.32 0.75 (0.43) (0.02) Year Ended May 31, 2001............ $ 9.62 0.55 0.39 0.94 (0.55) -- MARYLAND MUNICIPAL BOND FUND I SHARES Year Ended March 31, 2006.......... $10.27 0.38 (0.04) 0.34 (0.38) (0.09) Period Ended March 31, 2005***..... $10.27 0.30 0.10 0.40 (0.31) (0.09) Year Ended May 31, 2004............ $10.94 0.36(a) (0.47)(a) (0.11) (0.36) (0.20) Year Ended May 31, 2003............ $10.32 0.37 0.63 1.00 (0.37) (0.01) Year Ended May 31, 2002............ $10.12 0.38 0.20 0.58 (0.38) -- Year Ended May 31, 2001............ $ 9.46 0.42 0.66 1.08 (0.42) -- NORTH CAROLINA TAX-EXEMPT BOND FUND I SHARES Year Ended March 31, 2006.......... $ 9.87 0.31 0.03 0.34 (0.31) -- Period Ended March 31, 2005***..... $ 9.76 0.25 0.14 0.39 (0.25) (0.03) Period Ended May 31, 2004(c)....... $10.00 0.09 (0.24) (0.15) (0.09) -- SEIX FLOATING RATE HIGH INCOME FUND I SHARES Period Ended March 31, 2006(d)..... $10.00 0.04 (0.04) -- (0.04) -- TOTAL DIVIDENDS AND DISTRIBUTIONS ------------- LIMITED DURATION FUND I SHARES Year Ended March 31, 2006.......... (0.36) Period Ended March 31, 2005........ (0.08) Year Ended October 31, 2004**...... (0.11) Year Ended October 31, 2003........ (0.11) Period Ended October 31, 2002(b)... --* LIMITED-TERM FEDERAL MORTGAGE SECURITIE I SHARES Year Ended March 31, 2006.......... (0.41) Period Ended March 31, 2005***..... (0.32) Year Ended May 31, 2004............ (0.29) Year Ended May 31, 2003............ (0.43) Year Ended May 31, 2002............ (0.45) Year Ended May 31, 2001............ (0.55) MARYLAND MUNICIPAL BOND FUND I SHARES Year Ended March 31, 2006.......... (0.47) Period Ended March 31, 2005***..... (0.40) Year Ended May 31, 2004............ (0.56) Year Ended May 31, 2003............ (0.38) Year Ended May 31, 2002............ (0.38) Year Ended May 31, 2001............ (0.42) NORTH CAROLINA TAX-EXEMPT BOND FUND I SHARES Year Ended March 31, 2006.......... (0.31) Period Ended March 31, 2005***..... (0.28) Period Ended May 31, 2004(c)....... (0.09) SEIX FLOATING RATE HIGH INCOME FUND I SHARES Period Ended March 31, 2006(d)..... (0.04)
+ Not annualized for periods less than one year. ++ Annualized for periods less than one year. (a) Per share data calculated using average shares method. (b) Commenced operations on October 25, 2002. (c) Commenced operations on January 8, 2004. (d) Commenced operations on March 2, 2006. (e) Amounts are not meaningful due to the short period of operations. * Amount less than $0.005. ** Effective November 1, 2003, this Fund adopted a change in the amortization and accretion methodology on fixed income securities. The cumulative effect of this change in methodology was immaterial. *** Effective June 1, 2004, these Funds adopted a change in the amortization and accretion methodology on fixed income securities. The cumulative effect of this change in methodology is noted below:
CHANGE TO RATIO OF NET INVESTMENT CHANGE TO NET INCOME TO CHANGE TO REALIZED AND AVERAGE NET ASSETS NET INVESTMENT UNREALIZED GAINS ------------------ INCOME PER SHARE (LOSSES) PER SHARE I SHARES ---------------- ------------------ ------------------ Limited-Term Federal Mortgage Securities Fund............... $ 0.04 $(0.04) 0.47% Maryland Municipal Bond Fund................................ (0.01) 0.01 (0.07) North Carolina Tax-Exempt Bond Fund......................... (0.02) 0.02 (0.20)
FINANCIAL HIGHLIGHTS PROSPECTUS 99
RATIO OF EXPENSES RATIO OF NET TO AVERAGE NET NET ASSETS, RATIO OF NET INVESTMENT INCOME ASSETS (EXCLUDING NET ASSET VALUE, TOTAL END OF EXPENSES TO TO AVERAGE WAIVERS AND PORTFOLIO END OF PERIOD RETURN+ PERIOD (000) AVERAGE NET ASSETS++ NET ASSETS++ EXPENSE OFFSET)++ TURNOVER RATE+ ------------- ------- ------------ -------------------- ------------ ----------------- -------------- $ 9.99 3.73% $ 58,887 0.15% 3.39% 0.15% 94% $ 9.98 0.84% $ 83,315 0.16% 2.12% 0.16% 12% $ 9.98 1.09% $129,259 0.20% 1.04% 0.26% 101% $ 9.98 0.92% $146,513 0.20% 1.10% 0.26% 244% $10.00 --(e) $ 12,298 --(e) --(e) --(e) --(e) $ 9.88 2.04% $369,991 0.61% 3.41% 0.63% 81% $10.09 2.26% $407,543 0.66% 3.60% 0.71% 41% $10.18 (1.10)% $435,446 0.70% 2.32% 0.75% 146% $10.59 6.99% $320,718 0.70% 2.79% 0.75% 117% $10.31 7.53% $164,624 0.70% 3.72% 0.75% 410% $10.01 10.02% $107,674 0.70% 5.62% 0.76% 532% $10.14 3.34% $ 32,699 0.66% 3.68% 0.68% 55% $10.27 3.87% $ 31,046 0.64% 3.49% 0.72% 30% $10.27 (1.06)% $ 29,735 0.72% 3.39% 0.80% 15% $10.94 9.85% $ 30,501 0.70% 3.47% 0.78% 31% $10.32 5.80% $ 33,668 0.71% 3.69% 0.79% 45% $10.12 11.59% $ 26,526 0.72% 4.16% 0.82% 42% $ 9.90 3.51% $ 41,276 0.68% 3.14% 0.70% 85% $ 9.87 3.97% $ 40,798 0.75% 2.78% 0.82% 32% $ 9.76 (1.52)% $ 32,757 0.75% 2.45% 2.30% 20% $ 9.96 0.02% $106,405 0.56% 5.24% 0.80% 9%
FINANCIAL HIGHLIGHTS 100 PROSPECTUS
NET ASSET NET REALIZED DIVIDENDS DISTRIBUTIONS VALUE, NET AND UNREALIZED FROM FROM BEGINNING OF INVESTMENT GAINS (LOSSES) TOTAL FROM NET INVESTMENT REALIZED PERIOD INCOME ON INVESTMENTS OPERATIONS INCOME CAPITAL GAINS ------------ ---------- -------------- ---------- -------------- ------------- SEIX HIGH YIELD FUND I SHARES Year Ended March 31, 2006.......... $10.94 0.68 (0.10) 0.58 (0.68) (0.15) Period Ended March 31, 2005........ $11.42 0.29 (0.35) (0.06) (0.29) (0.13) Year Ended October 31, 2004*....... $11.09 0.72 0.35 1.07 (0.72) (0.02) Year Ended October 31, 2003........ $10.17 0.68 0.92 1.60 (0.68) -- Year Ended October 31, 2002........ $10.40 0.63 (0.20) 0.43 (0.63) (0.03) Period Ended October 31, 2001(b)... $10.00 0.64 0.36 1.00 (0.60) -- SHORT-TERM BOND FUND I SHARES Year Ended March 31, 2006.......... $ 9.73 0.32 (0.01) 0.31 (0.33) -- Period Ended March 31, 2005**...... $ 9.84 0.20 (0.11) 0.09 (0.20) -- Year Ended May 31, 2004............ $10.04 0.24(a) (0.19)(a) 0.05 (0.25) -- Year Ended May 31, 2003............ $10.01 0.33 0.03 0.36 (0.33) -- Year Ended May 31, 2002............ $10.04 0.46 (0.03) 0.43 (0.46) -- Year Ended May 31, 2001............ $ 9.65 0.56 0.39 0.95 (0.56) -- SHORT-TERM U.S. TREASURY SECURITIES FUND I SHARES Year Ended March 31, 2006.......... $ 9.91 0.28 (0.11) 0.17 (0.28) -- Period Ended March 31, 2005**...... $10.11 0.14 (0.11) 0.03 (0.14) (0.09) Year Ended May 31, 2004............ $10.36 0.14(a) (0.13)(a) 0.01 (0.14) (0.12) Year Ended May 31, 2003............ $10.20 0.22 0.22 0.44 (0.22) (0.06) Year Ended May 31, 2002............ $10.13 0.37 0.10 0.47 (0.37) (0.03) Year Ended May 31, 2001............ $ 9.85 0.49 0.28 0.77 (0.49) -- STRATEGIC INCOME FUND I SHARES Year Ended March 31, 2006.......... $10.24 0.43(a) (0.41)(a) 0.02 (0.44) (0.18) Period Ended March 31, 2005**...... $ 9.81 0.39(a) 0.49(a) 0.88 (0.39) (0.06) Year Ended May 31, 2004............ $ 9.99 0.55(a) (0.14)(a) 0.41 (0.53) (0.06) Year Ended May 31, 2003............ $ 9.80 0.61 0.20 0.81 (0.62) -- Period Ended May 31, 2002(c)....... $10.00 0.27 (0.20) 0.07 (0.27) -- TOTAL RETURN BOND FUND I SHARES Year Ended March 31, 2006.......... $ 9.97 0.38 (0.25) 0.13 (0.40) -- Period Ended March 31, 2005**...... $ 9.81 0.31 0.16 0.47 (0.31) -- Period Ended May 31, 2004(d)....... $10.00 0.19(a) (0.18)(a) 0.01 (0.20) -- TOTAL DIVIDENDS AND DISTRIBUTIONS ------------- SEIX HIGH YIELD FUND I SHARES Year Ended March 31, 2006.......... (0.83) Period Ended March 31, 2005........ (0.42) Year Ended October 31, 2004*....... (0.74) Year Ended October 31, 2003........ (0.68) Year Ended October 31, 2002........ (0.66) Period Ended October 31, 2001(b)... (0.60) SHORT-TERM BOND FUND I SHARES Year Ended March 31, 2006.......... (0.33) Period Ended March 31, 2005**...... (0.20) Year Ended May 31, 2004............ (0.25) Year Ended May 31, 2003............ (0.33) Year Ended May 31, 2002............ (0.46) Year Ended May 31, 2001............ (0.56) SHORT-TERM U.S. TREASURY SECURITIES FUN I SHARES Year Ended March 31, 2006.......... (0.28) Period Ended March 31, 2005**...... (0.23) Year Ended May 31, 2004............ (0.26) Year Ended May 31, 2003............ (0.28) Year Ended May 31, 2002............ (0.40) Year Ended May 31, 2001............ (0.49) STRATEGIC INCOME FUND I SHARES Year Ended March 31, 2006.......... (0.62) Period Ended March 31, 2005**...... (0.45) Year Ended May 31, 2004............ (0.59) Year Ended May 31, 2003............ (0.62) Period Ended May 31, 2002(c)....... (0.27) TOTAL RETURN BOND FUND I SHARES Year Ended March 31, 2006.......... (0.40) Period Ended March 31, 2005**...... (0.31) Period Ended May 31, 2004(d)....... (0.20)
+ Not annualized for periods less than one year. ++ Annualized for periods less than one year. (a) Per share data calculated using average shares method. (b) Commenced operations on December 29, 2000. (c) Commenced operations on November 30, 2001. (d) Commenced operations on October 15, 2003. * Effective November 1, 2003, this Fund adopted a change in the amortization and accretion methodology on fixed income securities. The cumulative effect of this change in methodology is noted below:
CHANGE TO RATIO OF NET INVESTMENT CHANGE TO NET INCOME TO CHANGE TO REALIZED AND AVERAGE NET ASSETS NET INVESTMENT UNREALIZED GAINS ------------------ INCOME PER SHARE (LOSSES) PER SHARE I SHARES ---------------- ------------------ ------------------ Seix High Yield Fund....................................... $0.01 $(0.01) 0.06%
** Effective June 1, 2004, these Funds adopted a change in the amortization and accretion methodology on fixed income securities. The cumulative effect of this change in methodology was immaterial to all Funds except for the Funds noted below:
CHANGE TO RATIO OF NET INVESTMENT CHANGE TO NET INCOME TO CHANGE TO REALIZED AND AVERAGE NET ASSETS NET INVESTMENT UNREALIZED GAINS ------------------ INCOME PER SHARE (LOSSES) PER SHARE I SHARES ---------------- ------------------ ------------------ Short-Term Bond Fund........................................ $ 0.01 $(0.01) 0.08% Strategic Income Fund....................................... 0.01 (0.01) 0.22 Total Return Bond Fund...................................... 0.01 (0.01) 0.20
FINANCIAL HIGHLIGHTS PROSPECTUS 101
RATIO OF EXPENSES RATIO OF NET TO AVERAGE NET NET ASSETS, RATIO OF NET INVESTMENT INCOME ASSETS (EXCLUDING NET ASSET VALUE, TOTAL END OF EXPENSES TO TO AVERAGE WAIVERS AND PORTFOLIO END OF PERIOD RETURN+ PERIOD (000) AVERAGE NET ASSETS++ NET ASSETS++ EXPENSE OFFSET)++ TURNOVER RATE+ ------------- ------- ------------ -------------------- ------------ ----------------- -------------- $10.69 5.37% $1,217,679 0.49% 6.20% 0.50% 95% $10.94 (0.53)% $1,391,879 0.51% 6.22% 0.57% 42% $11.42 9.97% $1,689,327 0.55% 6.48% 0.64% 73% $11.09 16.10% $1,057,993 0.55% 6.67% 0.67% 108% $10.17 4.21% $ 82,017 0.55% 6.80% 1.07% 97% $10.40 10.14% $ 4,641 0.55% 7.33% 3.98% 466% $ 9.71 3.24% $ 281,282 0.55% 3.32% 0.57% 94% $ 9.73 0.96% $ 288,502 0.66% 2.48% 0.71% 64% $ 9.84 0.45% $ 282,188 0.70% 2.42% 0.75% 66% $10.04 3.70% $ 302,708 0.70% 3.34% 0.75% 89% $10.01 4.29% $ 305,884 0.70% 4.48% 0.75% 142% $10.04 10.13% $ 215,458 0.70% 5.71% 0.76% 87% $ 9.80 1.70% $ 54,991 0.58% 2.79% 0.63% 151% $ 9.91 0.35% $ 69,935 0.65% 1.68% 0.71% 82% $10.11 0.11% $ 92,371 0.70% 1.36% 0.76% 131% $10.36 4.31% $ 121,617 0.69% 2.07% 0.75% 140% $10.20 4.69% $ 107,169 0.70% 3.57% 0.76% 117% $10.13 8.02% $ 88,398 0.71% 4.95% 0.78% 87% $ 9.64 0.19% $ 243,102 0.76% 4.35% 0.79% 317% $10.24 9.10% $ 196,921 0.86% 4.55% 0.96% 305% $ 9.81 4.15% $ 98,570 0.90% 5.53% 1.00% 95% $ 9.99 8.73% $ 61,906 0.91% 6.39% 1.01% 52% $ 9.80 0.74% $ 43,717 0.94% 6.07% 1.04% 43% $ 9.70 1.31% $ 61,966 0.52% 3.88% 0.55% 231% $ 9.97 4.86% $ 57,761 0.58% 3.42% 0.74% 308% $ 9.81 0.03% $ 15,553 0.56% 3.05% 0.90% 121%
FINANCIAL HIGHLIGHTS 102 PROSPECTUS
NET ASSET NET REALIZED DIVIDENDS DISTRIBUTIONS VALUE, NET AND UNREALIZED FROM FROM BEGINNING OF INVESTMENT GAINS (LOSSES) TOTAL FROM NET INVESTMENT REALIZED PERIOD INCOME ON INVESTMENTS OPERATIONS INCOME CAPITAL GAINS ------------ ---------- -------------- ---------- -------------- ------------- ULTRA-SHORT BOND FUND(1) I SHARES Year Ended March 31, 2006........ $10.00 0.36 (0.04) 0.32 (0.36) -- Period Ended March 31, 2005**.... $10.05 0.15 (0.05) 0.10 (0.15) -- Year Ended May 31, 2004.......... $10.10 0.15(a) (0.05)(a) 0.10 (0.15) -- Year Ended May 31, 2003.......... $10.00 0.20 0.10 0.30 (0.20) --* Period Ended May 31, 2002(b)..... $10.00 0.05 -- 0.05 (0.05) -- U.S. GOVERNMENT SECURITIES FUND I SHARES Year Ended March 31, 2006........ $10.42 0.37 (0.20) 0.17 (0.40) -- Period Ended March 31, 2005**.... $10.35 0.29 0.09 0.38 (0.31) -- Year Ended May 31, 2004.......... $10.93 0.31(a) (0.50)(a) (0.19) (0.35) (0.04) Year Ended May 31, 2003.......... $10.47 0.44 0.51 0.95 (0.46) (0.03) Year Ended May 31, 2002.......... $10.38 0.54 0.26 0.80 (0.54) (0.17) Year Ended May 31, 2001.......... $ 9.86 0.58 0.52 1.10 (0.58) -- U.S. GOVERNMENT SECURITIES ULTRA-SHORT BOND FUND(1) I SHARES Year Ended March 31, 2006........ $ 9.90 0.36 (0.06) 0.30 (0.35) -- Period Ended March 31, 2005**.... $ 9.95 0.20 (0.05) 0.15 (0.20) -- Year Ended May 31, 2004.......... $10.00 0.15(a) (0.05)(a) 0.10 (0.15) -- Year Ended May 31, 2003.......... $ 9.95 0.20 0.06 0.26 (0.20) (0.01) Period Ended May 31, 2002(c)..... $ 9.95 0.05 -- 0.05 (0.05) -- VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND I SHARES Year Ended March 31, 2006........ $10.11 0.34 (0.03) 0.31 (0.34) (0.07) Period Ended March 31, 2005**.... $10.15 0.28 0.05 0.33 (0.28) (0.09) Year Ended May 31, 2004.......... $10.68 0.34(a) (0.44)(a) (0.10) (0.34) (0.09) Year Ended May 31, 2003.......... $10.29 0.36 0.49 0.85 (0.36) (0.10) Year Ended May 31, 2002.......... $10.14 0.40 0.15 0.55 (0.40) -- Year Ended May 31, 2001.......... $ 9.58 0.42 0.56 0.98 (0.42) -- TOTAL DIVIDENDS AND DISTRIBUTIONS ------------- ULTRA-SHORT BOND FUND(1) I SHARES Year Ended March 31, 2006........ (0.36) Period Ended March 31, 2005**.... (0.15) Year Ended May 31, 2004.......... (0.15) Year Ended May 31, 2003.......... (0.20) Period Ended May 31, 2002(b)..... (0.05) U.S. GOVERNMENT SECURITIES FUND I SHARES Year Ended March 31, 2006........ (0.40) Period Ended March 31, 2005**.... (0.31) Year Ended May 31, 2004.......... (0.39) Year Ended May 31, 2003.......... (0.49) Year Ended May 31, 2002.......... (0.71) Year Ended May 31, 2001.......... (0.58) U.S. GOVERNMENT SECURITIES ULTRA-SHOR I SHARES Year Ended March 31, 2006........ (0.35) Period Ended March 31, 2005**.... (0.20) Year Ended May 31, 2004.......... (0.15) Year Ended May 31, 2003.......... (0.21) Period Ended May 31, 2002(c)..... (0.05) VIRGINIA INTERMEDIATE MUNICIPAL BOND I SHARES Year Ended March 31, 2006........ (0.41) Period Ended March 31, 2005**.... (0.37) Year Ended May 31, 2004.......... (0.43) Year Ended May 31, 2003.......... (0.46) Year Ended May 31, 2002.......... (0.40) Year Ended May 31, 2001.......... (0.42)
+ Not annualized for periods less than one year. ++ Annualized for periods less than one year. (1) Financial Highlights per share amounts for the U.S. Government Securities Ultra-Short Bond Fund and the Ultra-Short Bond Fund have been restated for a 4.974874:1 reverse stock split and 5:1 reverse stock split, respectively, which occurred on April 1, 2005, for the periods ended March 31, 2005, May 31, 2004, May 31, 2003 and May 31, 2002. (a) Per share data calculated using average shares method. (b) Commenced operations on April 15, 2002. (c) Commenced operations on April 11, 2002. * Amount less than $0.005. ** Effective June 1, 2004, these Funds adopted a change in the amortization and accretion methodology on fixed income securities. The cumulative effect of this change in methodology was immaterial to all Funds except for the Funds noted below:
CHANGE TO RATIO OF NET INVESTMENT CHANGE TO NET INCOME TO CHANGE TO REALIZED AND AVERAGE NET ASSETS NET INVESTMENT UNREALIZED GAINS ------------------ INCOME PER SHARE (LOSSES) PER SHARE I SHARES ---------------- ------------------ ------------------ U.S. Government Securities Fund............................ $0.02 $(0.02) 0.23% U.S. Government Securities Ultra-Short Bond Fund(1)........ 0.05 (0.05) 0.24
FINANCIAL HIGHLIGHTS PROSPECTUS 103
RATIO OF EXPENSES RATIO OF NET TO AVERAGE NET NET ASSETS, RATIO OF NET INVESTMENT INCOME ASSETS (EXCLUDING NET ASSET VALUE, TOTAL END OF EXPENSES TO TO AVERAGE WAIVERS AND PORTFOLIO END OF PERIOD RETURN+ PERIOD (000) AVERAGE NET ASSETS++ NET ASSETS++ EXPENSE OFFSET)++ TURNOVER RATE+ ------------- ------- ------------ -------------------- ------------ ----------------- -------------- $ 9.96 3.23% $245,257 0.30% 3.61% 0.37% 114% $10.00 1.22% $ 74,259 0.31% 1.89% 0.81% 44% $10.05 1.01% $112,453 0.31% 1.50% 0.86% 83% $10.10 3.16% $146,590 0.31% 1.84% 0.86% 56% $10.00 0.30% $ 33,730 0.36% 2.44% 0.91% 30% $10.19 1.66% $316,475 0.65% 3.63% 0.65% 118% $10.42 3.74% $319,058 0.77% 3.41% 0.80% 64% $10.35 (1.77)% $298,997 0.81% 2.95% 0.84% 240% $10.93 9.25% $258,585 0.81% 4.00% 0.84% 150% $10.47 7.90% $168,609 0.82% 5.09% 0.85% 262% $10.38 11.41% $148,666 0.81% 5.66% 0.85% 207% $ 9.85 3.12% $ 42,616 0.29% 3.41% 0.47% 126% $ 9.90 1.36% $ 49,623 0.18% 2.02% 0.71% 42% $ 9.95 1.01% $ 77,360 0.24% 1.25% 0.77% 109% $10.00 2.80% $ 95,277 0.23% 1.76% 0.76% 87% $ 9.95 0.32% $ 28,138 0.30% 2.42% 0.83% 34% $10.01 3.05% $169,743 0.65% 3.33% 0.66% 54% $10.11 3.21% $176,959 0.71% 3.23% 0.71% 46% $10.15 (1.00)% $181,558 0.75% 3.23% 0.75% 26% $10.68 8.43% $206,432 0.75% 3.45% 0.75% 30% $10.29 5.52% $191,406 0.75% 3.86% 0.75% 33% $10.14 10.39% $194,849 0.73% 4.23% 0.75% 32%
FINANCIAL HIGHLIGHTS 104 PROSPECTUS
NET ASSET NET REALIZED DIVIDENDS DISTRIBUTIONS VALUE, NET AND UNREALIZED FROM FROM BEGINNING OF INVESTMENT GAINS (LOSSES) TOTAL FROM NET INVESTMENT REALIZED PERIOD INCOME ON INVESTMENTS OPERATIONS INCOME CAPITAL GAINS ------------ ---------- -------------- ---------- -------------- ------------- PRIME QUALITY MONEY MARKET FUND I SHARES Year Ended March 31, 2006.......... $1.00 0.03 -- 0.03 (0.03) -- Period Ended March 31, 2005**...... $1.00 0.01 -- 0.01 (0.01) -- Year Ended May 31, 2004............ $1.00 0.01 -- 0.01 (0.01) --* Year Ended May 31, 2003............ $1.00 0.01 -- 0.01 (0.01) --* Year Ended May 31, 2002............ $1.00 0.02 -- 0.02 (0.02) -- Year Ended May 31, 2001............ $1.00 0.06 -- 0.06 (0.06) -- TAX-EXEMPT MONEY MARKET FUND I SHARES Year Ended March 31, 2006.......... $1.00 0.02 -- 0.02 (0.02) --* Period Ended March 31, 2005**...... $1.00 0.01 -- 0.01 (0.01) --* Year Ended May 31, 2004............ $1.00 --* -- --* --* --* Year Ended May 31, 2003............ $1.00 0.01 -- 0.01 (0.01) --* Year Ended May 31, 2002............ $1.00 0.01 -- 0.01 (0.01) --* Year Ended May 31, 2001............ $1.00 0.03 -- 0.03 (0.03) -- U.S. GOVERNMENT SECURITIES MONEY MARKET FUND I SHARES Year Ended March 31, 2006.......... $1.00 0.03 -- 0.03 (0.03) -- Period Ended March 31, 2005**...... $1.00 0.01 -- 0.01 (0.01) -- Year Ended May 31, 2004............ $1.00 --* -- --* --* -- Year Ended May 31, 2003............ $1.00 0.01 -- 0.01 (0.01) -- Year Ended May 31, 2002............ $1.00 0.02 -- 0.02 (0.02) -- Year Ended May 31, 2001............ $1.00 0.05 -- 0.05 (0.05) -- U.S. TREASURY MONEY MARKET FUND I SHARES Year Ended March 31, 2006.......... $1.00 0.03 -- 0.03 (0.03) -- Period Ended March 31, 2005**...... $1.00 0.01 -- 0.01 (0.01) -- Year Ended May 31, 2004............ $1.00 --* -- --* --* --* Year Ended May 31, 2003............ $1.00 0.01 -- 0.01 (0.01) --* Year Ended May 31, 2002............ $1.00 0.02 -- 0.02 (0.02) -- Year Ended May 31, 2001............ $1.00 0.05 -- 0.05 (0.05) -- VIRGINIA TAX-FREE MONEY MARKET FUND I SHARES Year Ended March 31, 2006.......... $1.00 0.02 -- 0.02 (0.02) --* Period Ended March 31, 2005**...... $1.00 0.01 -- 0.01 (0.01) --* Year Ended May 31, 2004............ $1.00 0.01 -- 0.01 (0.01) --* Year Ended May 31, 2003............ $1.00 0.01 -- 0.01 (0.01) --* Year Ended May 31, 2002............ $1.00 0.01 -- 0.01 (0.01) --* Year Ended May 31, 2001............ $1.00 0.03 -- 0.03 (0.03) -- TOTAL DIVIDENDS AND DISTRIBUTIONS ------------- PRIME QUALITY MONEY MARKET FUND I SHARES Year Ended March 31, 2006.......... (0.03) Period Ended March 31, 2005**...... (0.01) Year Ended May 31, 2004............ (0.01) Year Ended May 31, 2003............ (0.01) Year Ended May 31, 2002............ (0.02) Year Ended May 31, 2001............ (0.06) TAX-EXEMPT MONEY MARKET FUND I SHARES Year Ended March 31, 2006.......... (0.02) Period Ended March 31, 2005**...... (0.01) Year Ended May 31, 2004............ --* Year Ended May 31, 2003............ (0.01) Year Ended May 31, 2002............ (0.01) Year Ended May 31, 2001............ (0.03) U.S. GOVERNMENT SECURITIES MONEY MARKET I SHARES Year Ended March 31, 2006.......... (0.03) Period Ended March 31, 2005**...... (0.01) Year Ended May 31, 2004............ --* Year Ended May 31, 2003............ (0.01) Year Ended May 31, 2002............ (0.02) Year Ended May 31, 2001............ (0.05) U.S. TREASURY MONEY MARKET FUND I SHARES Year Ended March 31, 2006.......... (0.03) Period Ended March 31, 2005**...... (0.01) Year Ended May 31, 2004............ --* Year Ended May 31, 2003............ (0.01) Year Ended May 31, 2002............ (0.02) Year Ended May 31, 2001............ (0.05) VIRGINIA TAX-FREE MONEY MARKET FUND I SHARES Year Ended March 31, 2006.......... (0.02) Period Ended March 31, 2005**...... (0.01) Year Ended May 31, 2004............ (0.01) Year Ended May 31, 2003............ (0.01) Year Ended May 31, 2002............ (0.01) Year Ended May 31, 2001............ (0.03)
+ Not annualized for periods less than one year. ++ Annualized for periods less than one year. * Amount less than $0.005 per share. ** Effective June 1, 2004, these Funds adopted a change in the amortization and accretion methodology on fixed income securities. The cumulative effect of this change in methodology was immaterial to all Funds. FINANCIAL HIGHLIGHTS PROSPECTUS 105
RATIO OF EXPENSES RATIO OF NET TO AVERAGE NET NET ASSETS, RATIO OF NET INVESTMENT INCOME ASSETS (EXCLUDING NET ASSET VALUE, TOTAL END OF EXPENSES TO TO AVERAGE WAIVERS AND END OF PERIOD RETURN+ PERIOD (000) AVERAGE NET ASSETS++ NET ASSETS++ EXPENSE OFFSET)++ ------------- ------- ------------ -------------------- ------------ ----------------- $1.00 3.25% $2,976,881 0.58% 3.19% 0.61% $1.00 1.13% $3,173,794 0.60% 1.34% 0.71% $1.00 0.52% $3,477,598 0.63% 0.52% 0.74% $1.00 1.17% $4,284,266 0.63% 1.14% 0.74% $1.00 2.29% $3,907,203 0.63% 2.22% 0.74% $1.00 5.75% $3,728,371 0.63% 5.57% 0.75% $1.00 2.27% $1,172,717 0.50% 2.25% 0.53% $1.00 0.90% $ 936,272 0.51% 1.04% 0.61% $1.00 0.48% $ 978,548 0.55% 0.46% 0.64% $1.00 0.81% $1,088,415 0.54% 0.79% 0.64% $1.00 1.38% $ 907,827 0.55% 1.39% 0.65% $1.00 3.47% $1,080,362 0.54% 3.40% 0.65% $1.00 3.07% $ 413,893 0.62% 2.99% 0.65% $1.00 1.03% $ 517,253 0.62% 1.24% 0.71% $1.00 0.43% $ 615,324 0.66% 0.43% 0.75% $1.00 1.01% $ 992,560 0.65% 1.00% 0.74% $1.00 2.25% $ 997,759 0.66% 2.17% 0.75% $1.00 5.56% $ 805,285 0.65% 5.29% 0.75% $1.00 2.99% $1,650,172 0.60% 2.98% 0.63% $1.00 0.99% $1,407,783 0.62% 1.19% 0.71% $1.00 0.37% $1,233,565 0.66% 0.32% 0.75% $1.00 0.88% $1,080,779 0.65% 0.81% 0.74% $1.00 1.96% $ 871,946 0.65% 1.90% 0.74% $1.00 5.36% $ 733,768 0.66% 5.23% 0.76% $1.00 2.33% $ 226,319 0.46% 2.28% 0.46% $1.00 0.94% $ 177,377 0.46% 1.07% 0.46% $1.00 0.56% $ 173,959 0.50% 0.51% 0.50% $1.00 0.85% $ 219,701 0.49% 0.84% 0.49% $1.00 1.44% $ 240,681 0.50% 1.45% 0.50% $1.00 3.51% $ 226,188 0.50% 3.45% 0.50%
[THIS PAGE INTENTIONALLY LEFT BLANK] [THIS PAGE INTENTIONALLY LEFT BLANK] INVESTMENT ADVISER: Trusco Capital Management, Inc. 50 Hurt Plaza, Suite 1400 Atlanta, Georgia 30303 More information about the STI Classic Funds is available without charge through the following: STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI includes detailed information about the STI Classic Funds. The SAI is on file with the SEC and is incorporated by reference into this prospectus. This means that the SAI, for legal purposes, is a part of this prospectus. ANNUAL AND SEMI-ANNUAL REPORTS: These reports list each Fund's holdings and contain information from the Funds' managers about strategies and recent market conditions and trends and their impact on Fund performance. The reports also contain detailed financial information about the Funds. TO OBTAIN AN SAI, ANNUAL OR SEMI-ANNUAL REPORT, OR MORE INFORMATION: TELEPHONE: 1-888-STI-FUND MAIL: STI Classic Funds BISYS Fund Services Limited Partnership 3435 Stelzer Road Columbus, Ohio 43219 WEBSITE: www.sticlassicfunds.com SEC: You can also obtain the SAI or the Annual and Semi-Annual reports, as well as other information about the STI Classic Funds, from the EDGAR Database on the SEC's website at http://www.sec.gov. You may review and copy documents at the SEC Public Reference Room in Washington, DC (for information on the operation of the Public Reference Room, call 202-942-8090). You may request documents by mail from the SEC, upon payment of a duplicating fee, by writing to: Securities and Exchange Commission, Public Reference Section, Washington, DC 20549-0102. You may also obtain this information, upon payment of a duplicating fee, by e-mailing the SEC at publicinfo@sec.gov. The STI Classic Funds' Investment Company Act registration number is 811-06557. STI CLASSIC FUNDS STI CLASSIC FUNDS I Shares PROSPECTUS STI CLASSIC EQUITY FUNDS EQUITY FUNDS Aggressive Growth Stock Fund Capital Appreciation Fund Emerging Growth Stock Fund International Equity Fund International Equity Index Fund Large Cap Quantitative Equity Fund (formerly Strategic Quantitative Equity Fund) Large Cap Relative Value Fund Large Cap Value Equity Fund Mid-Cap Equity Fund Mid-Cap Value Equity Fund Quality Growth Stock Fund Small Cap Growth Stock Fund Small Cap Quantitative Equity Fund Small Cap Value Equity Fund ASSET ALLOCATION FUNDS Balanced Fund Life Vision Aggressive Growth Fund Life Vision Conservative Fund Life Vision Growth and Income Fund Life Vision Moderate Growth Fund Life Vision Target Date 2015 Fund Life Vision Target Date 2025 Fund Life Vision Target Date 2035 Fund Investment Adviser: Trusco Capital Management, Inc. (the "Adviser") Investment Subadviser: Zevenbergen Capital Investments LLC (the "Subadviser") (Aggressive Growth Stock Fund and Emerging Growth Stock Fund) August 1, 2006 The Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense. PROSPECTUS ABOUT THIS PROSPECTUS The STI Classic Funds is a mutual fund family that offers shares in separate investment portfolios that have individual investment goals and strategies. This prospectus gives you important information about the I Shares of the Equity Funds ("Funds") that you should know before investing. Please read this prospectus and keep it for future reference. This prospectus has been arranged into different sections so that you can easily review this important information. On the next page, there is some general information you should know about risk and return that is common to each of the Funds. For more detailed information about each Fund, please see: 2 AGGRESSIVE GROWTH STOCK FUND 5 CAPITAL APPRECIATION FUND 8 EMERGING GROWTH STOCK FUND 11 INTERNATIONAL EQUITY FUND 14 INTERNATIONAL EQUITY INDEX FUND 17 LARGE CAP QUANTITATIVE EQUITY FUND 20 LARGE CAP RELATIVE VALUE FUND 23 LARGE CAP VALUE EQUITY FUND 26 MID-CAP EQUITY FUND 29 MID-CAP VALUE EQUITY FUND 32 QUALITY GROWTH STOCK FUND 35 SMALL CAP GROWTH STOCK FUND 38 SMALL CAP QUANTITATIVE EQUITY FUND 40 SMALL CAP VALUE EQUITY FUND 43 BALANCED FUND 47 LIFE VISION AGGRESSIVE GROWTH FUND 50 LIFE VISION CONSERVATIVE FUND 54 LIFE VISION GROWTH AND INCOME FUND 58 LIFE VISION MODERATE GROWTH FUND 62 LIFE VISION TARGET DATE 2015 FUND 65 LIFE VISION TARGET DATE 2025 FUND 68 LIFE VISION TARGET DATE 2035 FUND 71 MORE INFORMATION ABOUT RISK 75 MORE INFORMATION ABOUT FUND INVESTMENTS 75 INFORMATION ABOUT PORTFOLIO HOLDINGS 75 INVESTMENT ADVISER 76 INVESTMENT SUBADVISER 76 PORTFOLIO MANAGERS 78 PURCHASING AND SELLING FUND SHARES 81 MARKET TIMING POLICIES AND PROCEDURES 82 REDEMPTION FEE POLICY 83 DIVIDENDS AND DISTRIBUTIONS 84 TAXES 86 FINANCIAL HIGHLIGHTS INSIDE PRIVACY POLICY BACK COVER BACK HOW TO OBTAIN MORE INFORMATION COVER ABOUT THE STI CLASSIC FUNDS
- -------------------------------------------------------------------------------- (SUITCASE FUND SUMMARY ICON) (TELESCOPE INVESTMENT STRATEGY ICON) (LIFE WHAT ARE THE PRINCIPAL RISKS OF INVESTING? PRESERVER ICON) (TARGET PERFORMANCE INFORMATION ICON) (LINE WHAT IS AN INDEX? GRAPH ICON) (COIN FUND FEES AND EXPENSES ICON) (MOUNTAIN MORE INFORMATION ABOUT FUND INVESTMENTS ICON) (MAGNIFYING INVESTMENT ADVISER GLASS ICON) (HAND PURCHASING AND SELLING FUND SHARES SHAKE ICON)
- -------------------------------------------------------------------------------- AUGUST 1, 2006 PROSPECTUS 1 CUSIP/TICKER SYMBOLS
FUND NAME CLASS INCEPTION* TICKER CUSIP EQUITY FUNDS Aggressive Growth Stock Fund I Shares 2/23/04 SCATX 784767188 Capital Appreciation Fund I Shares 7/1/92 STCAX 784766867 Emerging Growth Stock Fund I Shares 2/23/04 SEGTX 784767238 International Equity Fund I Shares 12/1/95 STITX 784766388 International Equity Index Fund I Shares 6/6/94 SIEIX 784766594 Large Cap Quantitative Equity Fund I Shares 8/7/03 SQETX 784767527 Large Cap Relative Value Fund I Shares 9/26/92 CRVAX 784766198 Large Cap Value Equity Fund I Shares 2/12/93 STVTX 784766834 Mid-Cap Equity Fund I Shares 2/2/94 SAGTX 784766750 Mid-Cap Value Equity Fund I Shares 11/30/01 SMVTX 784767725 Quality Growth Stock Fund I Shares 12/11/98 STTAX 784766230 Small Cap Growth Stock Fund I Shares 10/8/98 SSCTX 784766263 Small Cap Quantitative Equity Fund I Shares 4/3/06 SCQIX 78476A553 Small Cap Value Equity Fund I Shares 1/31/97 SCETX 784766370 ASSET ALLOCATION FUNDS Balanced Fund I Shares 1/3/94 SBATX 784766735 Life Vision Aggressive Growth Fund I Shares 6/30/97 CVMGX 784767881 Life Vision Conservative Fund I Shares 11/6/03 SCCTX 784767485 Life Vision Growth and Income Fund I Shares 6/30/97 CLVGX 784767873 Life Vision Moderate Growth Fund I Shares 6/30/97 CLVBX 784767865 Life Vision Target Date 2015 Fund I Shares 10/12/05 LVFIX 78476A728 Life Vision Target Date 2025 Fund I Shares 10/21/05 LVTIX 78476A686 Life Vision Target Date 2035 Fund I Shares 11/2/05 LVRIX 78476A652
* The performance included under "Performance Information" may include the performance of other classes of the Fund and/or predecessors of the Fund. RISK/RETURN INFORMATION COMMON TO THE STI CLASSIC FUNDS Each Fund is a mutual fund. A mutual fund pools shareholders' money and, using professional investment managers, invests it in securities. Each Fund has its own investment goal and strategies for reaching that goal. The Adviser (or the Subadviser) is responsible for investing Fund assets in a way that it believes will help a Fund achieve its goal. Still, investing in each Fund involves risk and there is no guarantee that a Fund will achieve its goal. The Adviser's (or the Subadviser's) judgments about the markets, the economy or companies may not anticipate actual market movements, economic conditions or company performance, and these judgments may affect the return on your investment. In fact, no matter how good a job the Adviser (or the Subadviser) does, you could lose money on your investment in a Fund, just as you could with other investments. A FUND SHARE IS NOT A BANK DEPOSIT AND IT IS NOT INSURED OR GUARANTEED BY THE FDIC OR ANY GOVERNMENT AGENCY. The value of your investment in a Fund is based on the market prices of the securities the Fund holds. These prices change daily due to economic and other events that affect particular companies and other issuers. These price movements, sometimes called volatility, may be greater or lesser depending on the types of securities a Fund owns and the markets in which they trade. The effect on a Fund of a change in the value of a single security will depend on how widely the Fund diversifies its holdings. Each Fund's investment goal may be changed without shareholder approval. Before investing, make sure that the Fund's goal matches your own. AGGRESSIVE GROWTH STOCK FUND 2 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Long-term capital appreciation INVESTMENT FOCUS Common stocks of U.S. multi-cap growth companies SHARE PRICE VOLATILITY High PRINCIPAL INVESTMENT STRATEGY Attempts to identify securities of companies with favorable prospects for future revenue, earnings and/or cash flow growth INVESTOR PROFILE Investors who want to increase the value of their investment, but do not need income, and who are willing to accept more volatility for the possibility of higher returns
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Aggressive Growth Stock Fund invests at least 80% of its net assets in common stocks and other U.S. traded equity securities. U.S. traded equity securities may include listed American Depositary Receipts ("ADRs"). The Fund may invest in companies of any size. The Fund invests primarily in common stocks of U.S. companies that exhibit strong growth characteristics. Using a "bottom-up" approach, the Subadviser identifies companies with favorable prospects for future revenue, earnings, and/or cash flow growth. Growth "drivers" are identified for each company and become critical to the ongoing evaluation process. Industry growth dynamics, company competitive positioning, pricing flexibility, and diversified product offerings are evaluated, providing the foundation for further fundamental research to determine the weighting of the Fund's investments. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. Small and mid-cap stocks can perform differently from other segments of the equity market or the equity market as a whole and can be more volatile than stocks of larger companies. Because the Fund may invest in ADRs, it is subject to some of the same risks as direct investments in foreign companies. These include the risk that political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. For information about the risks involved when investing in derivatives, see "More Information About Risk." AGGRESSIVE GROWTH STOCK FUND PROSPECTUS 3 (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows performance of the Fund's I Shares from last year.* (BAR CHART) 2005 7.11%
BEST QUARTER WORST QUARTER 6.60% -7.57% (12/31/05) (3/31/05)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was -0.35%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Russell 3000(R) Growth Index. These returns assume shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
SINCE I SHARES 1 YEAR INCEPTION* Fund Returns Before Taxes 7.11% 7.63% Fund Returns After Taxes on Distributions 7.11% 7.63% Fund Returns After Taxes on Distributions and Sale of Fund Shares 4.62% 6.51% Russell 3000(R) Growth Index (reflects no deduction for fees, expenses or taxes) 5.17% 4.98%
* Since inception of the I Shares on February 23, 2004. Benchmark returns since February 29, 2004 (benchmark returns available only on a month end basis. (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Russell 3000(R) Growth Index measures the performance of those companies found in the Russell universe with higher price-to-book ratios and higher forecasted growth values. The stocks in this Index are also members of either the Russell 1000(R) Growth or the Russell 2000(R) Growth indices. AGGRESSIVE GROWTH STOCK FUND 4 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
I SHARES Redemption Fee (as a percentage of net asset value)* 2.00%
* This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 1.10% Other Expenses 0.11% ------------------- Total Annual Operating Expenses(2) 1.21%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $123 $384 $665 $1,466
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." CAPITAL APPRECIATION FUND PROSPECTUS 5 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Capital appreciation INVESTMENT FOCUS U.S. common stocks SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Attempts to identify companies with above average growth potential INVESTOR PROFILE Investors who want the value of their investment to grow, but do not need to receive income on their investment
(TELESCOPE ICON) INVESTMENT STRATEGY The Capital Appreciation Fund invests primarily in U.S. common stocks and other equity securities that the Adviser believes have strong business fundamentals, such as revenue growth, cash flows and earnings trends. The Adviser's strategy focuses primarily on large cap stocks but will also utilize mid-cap stocks. In selecting investments for the Fund, the Adviser chooses companies that it believes have above average growth potential. The Adviser applies proprietary models to rank stocks based on earnings trends and valuations. It then performs in-depth fundamental analysis to determine the quality and sustainability of earnings, as well as the quality of management. Risk controls are in place to assist in maintaining a portfolio that is diversified by security type and industry sector. The Adviser uses a "bottom-up" process based on individual company earnings trends and fundamentals to determine the weighting of the Fund's investments in various equity market sectors. Because companies tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. Mid-cap stocks can perform differently from other segments of the equity market or the equity market as a whole and can be more volatile than stocks of larger companies. Large cap stocks can perform differently from other segments of the equity market or the equity market as a whole. Large capitalization companies may be less flexible in evolving markets or unable to implement change as quickly as smaller capitalization companies. Accordingly, the value of large cap stocks may not rise to the same extent as the value of small or mid-cap stocks. For information about the risks involved when investing in derivatives, see "More Information About Risk." CAPITAL APPRECIATION FUND 6 PROSPECTUS (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1996 20.31% 1997 31.13% 1998 28.06% 1999 9.71% 2000 1.62% 2001 -6.49% 2002 -21.98% 2003 18.52% 2004 6.37% 2005 -1.27%
BEST QUARTER WORST QUARTER 22.93% -14.98% (12/31/98) (9/30/01)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 0.29%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the S&P 500 (R) Index. These returns assume shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
I SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes -1.27% -1.91% 7.42% Fund Returns After Taxes on Distributions -1.61% -2.26% 4.99% Fund Returns After Taxes on Distributions and Sale of Fund Shares -0.37% -1.66% 5.21% S&P 500(R) Index (reflects no deduction for fees, expenses or taxes) 4.91% 0.54% 9.07%
(LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The S&P 500(R) Index is a widely-recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index of 500 stocks designed to mimic the overall U.S. equity market's industry weightings. CAPITAL APPRECIATION FUND PROSPECTUS 7 (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
I SHARES Redemption Fee (as a percentage of net asset value)* 2.00%
* This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.92% Other Expenses 0.07% ------------------- Total Annual Operating Expenses(2) 0.99%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $101 $315 $547 $1,213
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." EMERGING GROWTH STOCK FUND 8 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Long-term capital appreciation INVESTMENT FOCUS Common stocks of U.S. small and mid-cap growth companies SHARE PRICE VOLATILITY High PRINCIPAL INVESTMENT STRATEGY Attempts to identify securities of small and mid-cap companies with favorable prospects for future revenue, earnings and/or cash flow growth INVESTOR PROFILE Investors who want to increase the value of their investment, but do not need income, and who are willing to accept more volatility for the possibility of higher returns
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Emerging Growth Stock Fund invests at least 80% of its net assets in common stocks and other U.S. traded equity securities. U.S. traded equity securities may include listed American Depositary Receipts ("ADRs"). The Fund invests primarily in stocks of U.S. companies with market capitalizations below $10 billion, and the Subadviser emphasizes companies with market capitalizations of $5 billion or less. In selecting investments for the Fund, the Subadviser looks for companies that exhibit strong growth characteristics. Using a "bottom-up" approach, the Subadviser identifies companies with favorable prospects for future revenue, earnings, and/or cash flow growth. Growth "drivers" are identified for each company and become critical to the ongoing evaluation process. Industry growth dynamics, company competitive positioning, pricing flexibility, and diversified product offerings are evaluated, providing the foundation for further fundamental research to determine the weighting of the Fund's investments. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. Small and mid-cap stocks can perform differently from other segments of the equity market or the equity market as a whole and can be more volatile than stocks of larger companies. Because the Fund may invest in ADRs, it is subject to some of the same risks as direct investments in foreign companies. These include the risk that political and economic events unique to a county or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. For information about the risks involved when investing in derivatives, see "More Information About Risk." EMERGING GROWTH STOCK FUND PROSPECTUS 9 (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows performance of the Fund's I Shares for the last year.* (BAR CHART) 2005 15.20%
BEST QUARTER WORST QUARTER 8.42% -4.96% (6/30/05) (3/31/05)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 5.19%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Russell Midcap(R) Growth Index. These returns assume shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
SINCE I SHARES 1 YEAR INCEPTION* Fund Returns Before Taxes 15.20% 7.17% Fund Returns After Taxes on Distributions 15.20% 7.17% Fund Returns After Taxes on Distributions and Sale of Fund Shares 9.88% 6.12% Russell Midcap(R) Growth Index (reflects no deduction for fees, expenses or taxes) 12.10% 12.95%
* Since inception of the I Shares on February 23, 2004. (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Russell Midcap(R) Growth Index measures the performance of those companies in the Russell universe with higher price-to-book ratios and higher forecasted growth values. EMERGING GROWTH STOCK FUND 10 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
I SHARES Redemption Fee (as a percentage of net asset value)* 2.00%
* This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 1.10% Other Expenses 0.11% ------------------- Total Annual Operating Expenses(2) 1.21%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $123 $384 $665 $1,466
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." INTERNATIONAL EQUITY FUND PROSPECTUS 11 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Long-term capital appreciation INVESTMENT FOCUS Foreign common stocks SHARE PRICE VOLATILITY High PRINCIPAL INVESTMENT STRATEGY Attempts to identify companies with good fundamentals or a history of consistent growth INVESTOR PROFILE Investors who want an increase in the value of their investment without regard to income, are willing to accept the increased risks of international investing for the possibility of higher returns, and want exposure to a diversified portfolio of international stocks
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the International Equity Fund invests at least 80% of its net assets in common stocks and other equity securities of foreign companies. The Fund invests primarily in developed countries, but may invest in countries with emerging markets. The Adviser applies a multi-factor model to identify stocks with positive earnings trends and attractive valuations. Fundamental analysis is used to determine those companies that are projected to have sustainability of earnings and global industry positioning. The Adviser's goal is to find companies with top management, quality products and sound financial positions, or a history of consistent growth in cash flows, sales, operating profits, returns on equity and returns on invested capital. Risk controls are in place to assist in maintaining a portfolio that is diversified by security type and industry sector and invested across multiple countries. In selecting investments for the Fund, the Adviser diversifies the Fund's investments among at least three foreign countries. Because companies tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The Fund is also subject to the risk that foreign common stocks may underperform other segments of the equity market or the equity market as a whole. Foreign securities involve special risks such as currency fluctuations, economic or financial instability, lack of timely or reliable financial information and unfavorable political or legal developments. These risks are increased for investments in emerging markets. For information about the risks involved when investing in derivatives, see "More Information About Risk." INTERNATIONAL EQUITY FUND 12 PROSPECTUS (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1996 22.08% 1997 13.35% 1998 11.22% 1999 9.47% 2000 -3.46% 2001 -17.71% 2002 -17.02% 2003 36.86% 2004 19.02% 2005 13.11%
BEST QUARTER WORST QUARTER 18.75% -19.71% (6/30/03) (9/30/02)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 10.17%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Morgan Stanley Capital International Europe, Australasia and Far East (MSCI (R) EAFE (R)) Index. These returns assume shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
I SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes 13.11% 4.70% 7.42% Fund Returns After Taxes on Distributions 12.89% 4.51% 5.91% Fund Returns After Taxes on Distributions and Sale of Fund Shares 8.76% 3.97% 5.62% MSCI(R) EAFE(R) Index (reflects no deduction for fees, expenses or taxes) 13.54% 4.55% 5.84%
(LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The MSCI(R) EAFE(R) Index is a widely-recognized, market capitalization index that measures market equity performance based upon indices from 21 foreign and developed countries. INTERNATIONAL EQUITY FUND PROSPECTUS 13 (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
I SHARES Redemption Fee (as a percentage of net asset value)* 2.00%
* This redemption fee will be imposed on shares redeemed within 60 days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 1.13% Other Expenses 0.16% ------------------- Total Annual Operating Expenses(2) 1.29%
(1)Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2)The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $131 $409 $708 $1,556
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." INTERNATIONAL EQUITY INDEX FUND 14 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Investment results that correspond to the performance of the MSCI(R) EAFE(R) GDP Weighted Index (Price Return) INVESTMENT FOCUS Foreign equity securities in the MSCI(R) EAFE(R) GDP Weighted Index (Price Return) SHARE PRICE VOLATILITY High PRINCIPAL INVESTMENT STRATEGY Statistical analysis to track the MSCI(R) EAFE(R) GDP Weighted Index (Price Return) INVESTOR PROFILE Aggressive investors who want exposure to foreign markets and are willing to accept the increased risks of foreign investing for the possibility of higher returns
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the International Equity Index Fund invests at least 80% of its net assets in equity securities of foreign companies. In selecting investments for the Fund, the Adviser chooses companies included in the MSCI(R) EAFE(R)-GDP Weighted Index (Price Return), an index of equity securities of companies located in Europe, Australasia and the Far East. While the Fund is structured to have overall investment characteristics similar to those of the Index, it selects a sample of securities within the Index using a statistical process. Therefore, the Fund will not hold all securities included in the Index. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The Fund is also subject to the risk that foreign equity securities may underperform other segments of the equity market or the equity market as a whole. Foreign securities involve special risks such as currency fluctuations, economic or financial instability, lack of timely or reliable financial information and unfavorable political or legal developments. These risks are increased for investments in emerging markets. In addition to the above mentioned risks, the Adviser may not be able to match the performance of the Fund's benchmark. For information about the risks involved when investing in derivatives, see "More Information About Risk." INTERNATIONAL EQUITY INDEX FUND PROSPECTUS 15 (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1996 6.04% 1997 8.99% 1998 30.02% 1999 30.66% 2000 -17.06% 2001 -23.47% 2002 -16.52% 2003 40.54% 2004 21.06% 2005 12.76%
BEST QUARTER WORST QUARTER 21.26% -20.53% (12/31/98) (9/30/02)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 9.79%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Morgan Stanley Capital International Europe, Australasia and Far East - Gross Domestic Product (MSCI(R) EAFE(R)-GDP) Weighted Index (Price Return). These returns assume shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
I SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes 12.76% 4.15% 7.16% Fund Returns After Taxes on Distributions 12.40% 3.94% 6.20% Fund Returns After Taxes on Distributions and Sale of Fund Shares 8.51% 3.50% 5.80% MSCI(R) EAFE(R)-GDP Weighted Index (Price Return) (reflects no deduction for fees, expenses or taxes) 11.15% 3.48% 5.92%
(LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The MSCI(R) EAFE(R)-GDP Weighted Index (Price Return) is a widely-recognized, market capitalization index that measures market equity performance based upon indices from 21 foreign and developed countries. The country weighting of the Index is calculated using the gross domestic product of each of the various countries and then with respect to the market capitalization of the various companies operating in each country. INTERNATIONAL EQUITY INDEX FUND 16 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
I SHARES Redemption Fee (as a percentage of net asset value)* 2.00%
* This redemption fee will be imposed on shares redeemed within 60 days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.50% Other Expenses 0.17% ------------------- Total Annual Operating Expenses(2) 0.67%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $68 $214 $373 $835
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." LARGE CAP QUANTITATIVE EQUITY FUND PROSPECTUS 17 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Long-term capital appreciation INVESTMENT FOCUS U.S. common stocks of companies with positive earnings characteristics purchased at reasonable value SHARE PRICE VOLATILITY High PRINCIPAL INVESTMENT STRATEGY Attempts to identify companies with superior earnings/valuation cycle characteristics within specific market sectors INVESTOR PROFILE Investors who want to increase the value of their investment and are willing to accept more volatility for the possibility of higher returns
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Large Cap Quantitative Equity Fund invests at least 80% of its net assets in common stocks and other U.S. traded equity securities of large cap companies. U.S. traded equity securities may include listed American Depositary Receipts ("ADRs"). The Adviser considers large cap companies to be companies with market capitalizations of at least $3 billion. The Fund may also invest in small and mid-cap companies so long as the Adviser determines they have growth potential. The Fund attempts, through the use of disciplined quantitative modeling, to objectively and consistently identify those companies with the most attractive earnings growth prospects and valuation characteristics within each sector. Those characteristics vary by sector. In some sectors, attractive stocks are selected based solely upon growth characteristics. In other sectors, a combination of growth and valuation characteristics are used to identify attractive stocks. The Adviser believes that companies with higher earnings growth prospects will have more highly valued stocks. Companies producing sustained accelerating rates of earnings growth will generate increasing stock valuations. Companies producing sustained decelerating rates of earnings growth will generate decreasing stock valuations. This cycle of accelerating earnings growth with increasing stock valuation and decelerating earnings growth with decreasing stock valuation is called the earnings-valuation cycle. The Adviser uses quantitative modeling to evaluate and select the common stock of companies based on the philosophy that earnings/valuation cycles dictate stock performance, earnings/valuation cycles differ among market sectors, and diversification controls risk. Because companies tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. Large cap stocks can perform differently from other segments of the equity market or the equity market as a whole. Large capitalization companies may be less flexible in evolving markets or unable to implement change as quickly as smaller capitalization companies. Accordingly, the value of large cap stocks may not rise to the same extent as the value of small or mid-cap stocks. Small and mid-cap stocks can perform differently from other segments of the equity market or the equity market as a whole and can be more volatile than stocks of larger companies. Because the Fund may invest in ADRs, it is subject to some of the same risks as direct investments in foreign companies. These include the risk that political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. For information about the risks involved when investing in derivatives, see "More Information About Risk." LARGE CAP QUANTITATIVE EQUITY FUND 18 PROSPECTUS (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year. (BAR CHART) 2004 16.43% 2005 8.40%
BEST QUARTER WORST QUARTER 11.52% -3.07% (12/31/04) (9/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 3.48%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005 to those of the S&P 500(R) Index. These returns assume shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
SINCE I SHARES 1 YEAR INCEPTION* Fund Returns Before Taxes 8.40% 19.16% Fund Returns After Taxes on Distributions 5.73% 16.80% Fund Returns After Taxes on Distributions and Sale of Fund Shares 5.64% 15.23% S&P 500(R) Index (reflects no deduction for fees, expenses or taxes) 4.91% 12.90%
* Since inception of the I Shares on August 7, 2003. Benchmark return since July 31, 2003 (benchmark returns available only on a month end basis). (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The S&P 500(R) Index is a widely-recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index of 500 stocks designed to mimic the overall U.S. equity market's industry weightings. LARGE CAP QUANTITATIVE EQUITY FUND PROSPECTUS 19 (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
I SHARES Redemption Fee (as a percentage of net asset value)* 2.00%
* This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.85% Other Expenses 0.11% ------------------- Total Annual Operating Expenses(2) 0.96%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time.
- ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $98 $306 $531 $1,178
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." LARGE CAP RELATIVE VALUE FUND 20 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOALS PRIMARY Long-term capital appreciation SECONDARY Current income INVESTMENT FOCUS Equity securities SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Attempts to identify securities of companies with attractive valuation and/or above average earnings potential relative either to their sectors or the market as a whole INVESTOR PROFILE Investors who are looking for capital appreciation potential and some income with less volatility than the equity market as a whole
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Large Cap Relative Value Fund invests at least 80% of its net assets in large cap companies. The Adviser considers large cap companies to be companies with market capitalizations of at least $3 billion. The Fund invests primarily in common stocks and other U.S. traded equity securities, which may include listed American Depositary Receipts ("ADRs"). The Adviser uses sector-specific factors to highlight companies whose characteristics are currently undervalued versus market peers. The Adviser performs fundamental research to evaluate securities for the portfolio. The Adviser's approach attempts to identify a well-defined "investment thesis" (what it believes a company's prospects may be over the next 12 to 18 months) based on competitive positioning, business model, and potential catalysts and risks. The Adviser seeks securities with a positive risk/return profile, improving fundamentals and earnings outlook, and relative financial strength and flexibility. The Adviser may sell a security when the investment thesis is realized, the investment thesis breaks down, or a more attractive alternative presents itself. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The Adviser's value investing style may be out of favor in the marketplace for various periods of time. Value investing involves purchasing securities that are undervalued in comparison to their prospects for growth or to their peers or that have historically traded below their historical value. These securities are subject to the risk that their potential values as perceived by the Adviser are never realized by the market. Large cap stocks can perform differently from other segments of the equity market or the equity market as a whole. Large capitalization companies may be less flexible in evolving markets or unable to implement change as quickly as smaller capitalization companies. Accordingly, the value of large cap stocks may not rise to the same extent as the value of small or mid-cap stocks. Because the Fund may invest in ADRs, it is subject to some of the same risks as direct investments in foreign companies. These include the risk that political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. For information about the risks involved when investing in derivatives, see "More Information About Risk." LARGE CAP RELATIVE VALUE FUND PROSPECTUS 21 (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1996 19.06% 1997 27.69% 1998 18.20% 1999 14.17% 2000 1.43% 2001 -6.60% 2002 -19.64% 2003 28.14% 2004 14.23% 2005 9.59%
BEST QUARTER WORST QUARTER 17.38% -18.44% (6/30/97) (9/30/02)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 3.88%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Russell 1000(R) Value Index, the S&P 500(R)/BARRA Value Index and the S&P 500 Index. These returns assume shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
I SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes 9.59% 3.78% 9.62% Fund Returns After Taxes on Distributions 8.34% 3.31% 7.97% Fund Returns After Taxes on Distributions and Sale of Fund Shares 7.76% 3.10% 7.59% Russell 1000(R) Value Index* (reflects no reductions for fees, taxes or expenses) 7.05% 5.28% 10.94% S&P 500(R)/BARRA Value Index (reflects no deduction for fees, expenses or taxes) 6.33% 2.53% 9.44% S&P 500(R) Index (reflects no deduction for fees, expenses or taxes) 4.91% 0.54% 9.07%
* Effective May 1, 2006 the Fund transitioned its benchmark from the S&P 500(R)/Barra Value Index to the Russell 1000(R) Value Index as a result of the discontinuation of the S&P/Barra Indices. (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Russell 1000(R) Value Index is a widely-recognized, capitalization weighted (companies with larger market capitalizations have more influence than those with smaller market capitalizations) index of companies in the Russell 1000(R) Index. The Russell 1000(R) Index is a widely-recognized, comprehensive large-cap index that measures the performance of the largest 1,000 companies in the Russell 3000(R) Index. The Russell 3000(R) Index is a widely-recognized, capitalization-weighted index that measures the performance of the 3,000 largest U.S. companies based on total market capitalization. The S&P 500(R)/BARRA Value Index is a widely-recognized index comprised of securities in the S&P 500(R) Index that have lower price-to-book ratios. The S&P 500(R) Index is a widely-recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index of 500 stocks designed to mimic the overall U.S. equity market's industry weightings. LARGE CAP RELATIVE VALUE FUND 22 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
I SHARES Redemption Fee (as a percentage of net asset value)* 2.00%
* This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.81% Other Expenses 0.06% ------------------- Total Annual Operating Expenses(2) 0.87%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $89 $278 $482 $1,073
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." LARGE CAP VALUE EQUITY FUND PROSPECTUS 23 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOALS PRIMARY Capital appreciation SECONDARY Current income INVESTMENT FOCUS Equity securities SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Attempts to identify high dividend-paying, undervalued stocks INVESTOR PROFILE Investors who are looking for current income and capital appreciation with less volatility than the average stock fund
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Large Cap Value Equity Fund invests at least 80% of its net assets in common stocks and other U.S. traded equity securities of large cap companies. U.S. traded equity securities may include listed American Depositary Receipts ("ADRs"). The Adviser considers large cap companies to be companies with market capitalizations of at least $3 billion. In selecting investments for the Fund, the Adviser primarily chooses companies that have a history of paying regular dividends. The Adviser focuses on dividend-paying stocks that trade below their historical value. The Adviser's "bottom-up" approach to stock selection emphasizes individual stocks over economic trends using fundamental research to identify positive catalysts for change. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. Large cap stocks can perform differently from other segments of the equity market or the equity market as a whole. Large capitalization companies may be less flexible in evolving markets or unable to implement change as quickly as smaller capitalization companies. Accordingly, the value of large cap stocks may not rise to the same extent as the value of small or mid-cap stocks. The Adviser's value investing style may be out of favor in the marketplace for various periods of time. Value investing involves purchasing securities that are undervalued in comparison to their prospects for growth or to their peers or that have historically traded below their historical value. These securities are subject to the risk that their potential values as perceived by the Adviser are never realized by the market. Because the Fund may invest in ADRs, it is subject to some of the same risks as direct investments in foreign companies. These include the risk that political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. For information about the risks involved when investing in derivatives, see "More Information About Risk." LARGE CAP VALUE EQUITY FUND 24 PROSPECTUS (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. The bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1996 19.46% 1997 27.08% 1998 10.58% 1999 -2.93% 2000 10.85% 2001 -0.95% 2002 -15.47% 2003 23.64% 2004 15.08% 2005 3.70%
BEST QUARTER WORST QUARTER 15.35% -19.89% (6/30/99) (9/30/02)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 8.18%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005 to those of the Russell 1000(R) Value Index and the S&P 500(R)/BARRA Value Index. These returns assume shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
I SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes 3.70% 4.32% 8.36% Fund Returns After Taxes on Distributions 3.44% 3.89% 5.84% Fund Returns After Taxes on Distributions and Sale of Fund Shares 2.74% 3.48% 5.73% Russell 1000(R) Value Index 7.05% 5.28% 10.94% S&P 500(R)/BARRA Value Index (reflects no deduction for fees, expenses or taxes) 6.33% 2.53% 9.44%
* Effective May 1, 2006 the Fund transitioned its benchmark from the S&P 500(R)/Barra Value Index to the Russell 1000(R) Value Index as a result of the discontinuation of the S&P/Barra Indices. (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Russell 1000(R) Value Index is a widely-recognized, capitalization weighted (companies with larger market capitalizations have more influence than those with smaller market capitalizations) index of companies in the Russell 1000(R) Index. The Russell 1000(R) Index is a widely-recognized, comprehensive large-cap index that measures the performance of the largest 1,000 companies in the Russell 3000(R) Index. The Russell 3000(R) Index is a widely-recognized, capitalization-weighted index that measures the performance of the 3,000 largest U.S. companies based on total market capitalization. The S&P 500(R)/BARRA Value Index is a widely-recognized index comprised of securities in the S&P 500(R) Index that have lower price-to-book ratios. The S&P 500(R) Index is a widely-recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index of 500 stocks designed to mimic the overall U.S. equity market's industry weightings. LARGE CAP VALUE EQUITY FUND PROSPECTUS 25 (COIN ICON) FUND FEES AND EXPENSES THIS TABLE DESCRIBES THE FUND'S FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND HOLD FUND SHARES. THE ANNUAL FUND OPERATING EXPENSES SHOWN IN THE TABLE BELOW ARE BASED ON AMOUNTS INCURRED DURING THE FUND'S MOST RECENT FISCAL YEAR, UNLESS OTHERWISE INDICATED. - ------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - -------------------------------------------------------------
I SHARES Redemption Fee (as a percentage of net asset value)* 2.00%
* This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.78% Other Expenses 0.07% ------------------- Total Annual Operating Expenses(2) 0.85%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $87 $271 $471 $1,049
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." MID-CAP EQUITY FUND 26 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Capital appreciation INVESTMENT FOCUS U.S. mid-cap common stocks SHARE PRICE VOLATILITY Moderate to high PRINCIPAL INVESTMENT STRATEGY Attempts to identify companies with above average growth potential at an attractive price INVESTOR PROFILE Investors who want the value of their investment to grow and who are willing to accept more volatility for the possibility of higher returns
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Mid-Cap Equity Fund invests at least 80% of its net assets in common stocks and other U.S. traded equity securities of mid-cap companies. U.S. traded equity securities may include listed American Depositary Receipts ("ADRs"). The Adviser considers mid-cap companies to be companies with market capitalizations similar to those of companies in the Russell Midcap(R) Index. As of July 3, 2006, the market capitalization range of companies in the Russell Midcap Index was between approximately $1.59 billion and $16.44 billion. The Adviser believes that a portfolio of stocks with positive earnings characteristics purchased at a reasonable valuation will provide above average returns over time. In selecting investments for the Fund, the Adviser chooses companies that, in its opinion, offer above average stock price appreciation relative to other companies in the same economic sector. The Adviser utilizes proprietary, sector based models to rank stocks in each sector of the small and mid-cap markets. These models utilize fundamental stock characteristics such as growth rates and cash flows. The Adviser utilizes fundamental research in the creation, maintenance, and enhancement of the sector based models to reflect change in the underlying small and mid-cap markets. Risk management is utilized extensively and a critical component of the overall investment process. The strategy is diversified with generally 100 to 140 stocks in the portfolio. Each stock is generally limited to no more than two percent of the portfolio. The portfolio is managed to reduce tracking error and overall volatility to the benchmark. Because companies tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. Mid-cap stocks can perform differently from other segments of the equity market or the equity market as a whole and can be more volatile than stocks of larger companies. Because the Fund may invest in ADRs, it is subject to some of the same risks as direct investments in foreign companies. These include the risk that political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. For information about the risks involved when investing in derivatives, see "More Information About Risk." MID-CAP EQUITY FUND PROSPECTUS 27 (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1996 15.42% 1997 21.23% 1998 6.48% 1999 16.14% 2000 -2.97% 2001 2.38% 2002 -28.78% 2003 28.99% 2004 17.06% 2005 13.94%
BEST QUARTER WORST QUARTER 24.73% -19.96% (12/31/98) (9/30/98)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 3.67%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Russell Midcap(R) Index. These returns assume shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
I SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes 13.94% 4.64% 7.74% Fund Returns After Taxes on Distributions 13.08% 4.43% 5.70% Fund Returns After Taxes on Distributions and Sale of Fund Shares 10.21% 3.97% 5.59% Russell Midcap(R) Index (reflects no deduction for fees, expenses or taxes) 12.65% 8.45% 12.49%
(LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Russell Midcap(R) Index is a widely-recognized index that measures the performance of the 800 smallest companies in the Russell 1000(R) Index, which represent approximately 26% of the total market capitalization of the Russell 1000(R) Index. The Russell 1000(R) Index is a widely-recognized comprehensive large-cap index measuring the performance of the largest 1,000 U.S. incorporated companies. Each security in the Russell 1000(R) Index is float-adjusted market capitalization-weighted to ensure investable positions. MID-CAP EQUITY FUND 28 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
I SHARES Redemption Fee (as a percentage of net asset value)* 2.00%
* This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 1.00% Other Expenses 0.09% ------------------- Total Annual Operating Expenses(2) 1.09%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $111 $347 $601 $1,329
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." MID-CAP VALUE EQUITY FUND PROSPECTUS 29 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOALS PRIMARY Capital appreciation SECONDARY Current income INVESTMENT FOCUS U.S. mid-cap equity securities SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Attempts to identify undervalued mid-cap securities INVESTOR PROFILE Investors who primarily want the value of their investment to grow, but want to receive some income from their investment
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Mid-Cap Value Equity Fund invests at least 80% of its net assets in U.S. traded equity securities of mid-cap companies. U.S. traded equity securities may include listed American Depositary Receipts ("ADRs"). The Adviser considers mid-cap companies to be companies with market capitalizations similar to those of companies in the Russell Midcap(R) Value Index. As of July 3, 2006, the market capitalization range of companies in the Russell Midcap Value Index was between approximately $1.59 billion and $15.76 billion. In selecting investments for the Fund, the Adviser chooses common stocks that it believes are undervalued relative to their historical valuations. The Adviser buys stocks that pay a cash dividend and have a positive catalyst for change, such as management changes or new product introductions. The Adviser may sell a security when it achieves a designated target price, a company's growth prospects change, or the opportunity for a better investment arises. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. Mid-cap stocks can perform differently from other segments of the equity market or the equity market as a whole and can be more volatile than stocks of larger companies. The Adviser's value investing style may be out of favor in the marketplace for various periods of time. Value investing involves purchasing securities that are undervalued in comparison to their prospects for growth or to their peers or that have historically traded below their historical value. These securities are subject to the risk that their potential values as perceived by the Adviser are never realized by the market. Because the Fund may invest in ADRs, it is subject to some of the same risks as direct investments in foreign companies. These include the risk that political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. For information about the risks involved when investing in derivatives, see "More Information About Risk." MID-CAP VALUE EQUITY FUND 30 PROSPECTUS (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 2002 -21.26% 2003 29.51% 2004 20.21% 2005 9.46%
BEST QUARTER WORST QUARTER 17.79% -23.08% (6/30/03) (9/30/02)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 8.14%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Russell Midcap(R) Value Index. These returns assume shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
SINCE I SHARES 1 YEAR INCEPTION* Fund Returns Before Taxes 9.46% 8.79% Fund Returns After Taxes on Distributions 7.34% 7.90% Fund Returns After Taxes on Distributions and Sale of Fund Shares 8.06% 7.26% Russell Midcap(R) Value Index (reflects no deduction for fees, expenses or taxes) 12.65% 15.65%
* Since inception of the I Shares on November 30, 2001. (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Russell Midcap(R) Value Index is a widely-recognized index that measures the performance of those Russell Midcap companies with lower price-to-book ratios and lower forecasted growth values. The stocks are also members of the Russell 1000(R) Value index. The Russell 1000(R) Value Index is a widely-recognized index that measures the performance of those Russell 1000(R) companies with lower price-to-book ratios and lower forecasted growth values. The Russell 1000(R) Index is a widely-recognized comprehensive large-cap index measuring the performance of the largest 1,000 U.S. incorporated companies. Each security in the Russell 1000(R) Index is float-adjusted market capitalization-weighted to ensure investable positions. MID-CAP VALUE EQUITY FUND PROSPECTUS 31 (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
I SHARES Redemption Fee (as a percentage of net asset value)* 2.00%
* This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 1.00% Other Expenses 0.08% ------------------- Total Annual Operating Expenses(2) 1.08%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $110 $343 $595 $1,317
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." QUALITY GROWTH STOCK FUND 32 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Long-term capital growth with nominal dividend income INVESTMENT FOCUS U.S. common stocks of financially strong companies which the Adviser believes have excellent growth prospects SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Attempts to identify companies that have above average growth potential within a universe of financially strong companies INVESTOR PROFILE Investors who want to increase the value of their investment while minimizing taxable capital gains distributions
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Quality Growth Stock Fund invests at least 80% of its net assets in common stocks and other U.S. traded equity securities. U.S. traded equity securities may include listed American Depositary Receipts ("ADRs"). The Fund invests primarily in a diversified portfolio of common stocks of financially strong U.S. growth companies. The Adviser generally invests in companies with high and stable earnings growth and/or companies with improving earnings growth. Emphasis is placed on financially strong companies (large and mid-sized) which are market leaders in their respective industry segments as demonstrated by revenue growth, market shares and levels of profitability. Many of these companies have a history of stable or rising dividend payout policies. The key elements of the Fund's philosophy are that stocks of quality companies do well over time, good fundamental analysis identifies the sustainability of a company's earnings growth rate, risk control is an active process, and a sell discipline is essential. The Fund's approach for controlling risk is to: (1) have a significant exposure to companies with stable earnings growth as well as companies whose earnings growth is more exposed to the growth of the economy as a whole; (2) to be diversified among the major industry sectors; (3) to have representation in very large, large and medium sized companies and (4) to have a diversified portfolio of stocks so as to reduce the stock market risk associated with the misfortunes of specific companies. In addition, the Adviser employs an active sell discipline to identify companies whose earnings growth rate has deteriorated or has become significantly more uncertain; and also to reduce holdings which have been so successful that they have become a major holding in the Fund. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Since it purchases common stocks, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the stock markets have moved in cycles, and the value of the Fund's common stocks may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of stocks issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. Common stocks of U.S. growth companies may underperform other segments of the equity market or the equity market as a whole. Large cap stocks can perform differently from other segments of the equity market or the equity market as a whole. Large capitalization companies may be less flexible in evolving markets or unable to implement change as quickly as smaller capitalization companies. Accordingly, the value of large cap stocks may not rise to the same extent as the value of small or mid-cap stocks. Mid-cap stocks can perform differently from other segments of the equity market or the equity market as a whole and can be more volatile than stocks of larger companies. Because the Fund may invest in ADRs, it is subject to some of the same risks as direct investments in foreign companies. These include the risk that political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. For information about the risks involved when investing in derivatives, see "More Information About Risk." QUALITY GROWTH STOCK FUND PROSPECTUS 33 (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. The Fund began operating as a registered mutual fund on December 11, 1998. Performance prior to December 11, 1998 is that of the Adviser's similarly managed collective investment fund, which began operations on December 31, 1995. The collective investment fund's performance has been adjusted to reflect the current fees and expenses for I Shares of the Fund. As a collective investment fund, rather than a registered mutual fund, it was not subject to the same investment and tax restrictions. If it had been, the collective investment fund's performance would have been lower. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1996 21.00% 1997 28.79% 1998 31.73% 1999 24.74% 2000 -12.15% 2001 -18.21% 2002 -22.02% 2003 21.16% 2004 6.84% 2005 2.46%
BEST QUARTER WORST QUARTER 27.73% -16.20% (12/31/98) (9/30/02)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was -2.10%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of S&P 500 (R) Index. These returns assume shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
SINCE INCEPTION AS A REGISTERED I SHARES 1 YEAR 5 YEARS MUTUAL FUND* 10 YEARS** Fund Returns Before Taxes 2.46% -3.29% -0.08% 6.65% Fund Returns After Taxes on Distributions 2.36% -3.31% -0.10% N/A+ Fund Returns After Taxes on Distributions and Sale of Fund Shares 1.73% -2.77% -0.07% N/A+ S&P 500(R) Index (reflects no deduction for fees, expenses or taxes) 4.91% 0.54% 2.55% 9.07%
* Fund Returns since inception of the I Shares on December 11, 1998, when the Fund began operating as a registered mutual fund. Benchmark returns since November 30, 1998 (benchmark returns available only on a month end basis). **Includes performance of the Adviser's collective investment fund. + It is not possible to reflect the impact of taxes on the collective investment fund's performance. (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The S&P 500(R) Index is a widely-recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index of 500 stocks designed to mimic the overall U.S. equity market's industry weightings. QUALITY GROWTH STOCK FUND 34 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
I SHARES Redemption Fee (as a percentage of net asset value)* 2.00%
* This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.85% Other Expenses 0.15% ------------------- Total Annual Operating Expenses(2) 1.00%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your share at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $102 $318 $552 $1,225
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." SMALL CAP GROWTH STOCK FUND PROSPECTUS 35 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Long-term capital appreciation INVESTMENT FOCUS U.S. small cap common stocks of growth companies SHARE PRICE VOLATILITY High PRINCIPAL INVESTMENT STRATEGY Identifies small cap companies with above average growth potential INVESTOR PROFILE Investors who want the value of their investment to grow, but do not need current income
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Small Cap Growth Stock Fund invests at least 80% of its net assets in U.S. traded equity securities of small cap companies. U.S. traded equity securities may include listed American Depositary Receipts ("ADRs"). The Adviser considers small cap companies to be companies with market capitalizations below $3 billion. The Fund's investment philosophy is based on the premise that a portfolio of small cap stocks with positive earnings trends, reasonable valuation, and strong fundamentals will provide superior returns over time. The Adviser applies a multi-factor proprietary model to identify companies with strong current earnings growth, improving profitability, a strong balance sheet, strong current and projected business fundamentals, and priced at reasonable valuations. The Adviser then uses fundamental research to select the portfolio of stocks it believes has the best current risk/return relationship. The Adviser believes in executing a very disciplined and objective investment process and in controlling risk through a broadly diversified portfolio. Because companies tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Since it purchases common stocks, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the stock markets have moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. Small cap stocks can perform differently from other segments of the equity market or the equity market as a whole and can be more volatile than stocks of larger companies. Because the Fund may invest in ADRs, it is subject to some of the same risks as direct investments in foreign companies. These include the risk that political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. For information about the risks involved when investing in derivatives, see "More Information About Risk." SMALL CAP GROWTH STOCK FUND 36 PROSPECTUS (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1999 20.55% 2000 11.76% 2001 -0.82% 2002 -22.71% 2003 45.64% 2004 19.21% 2005 7.92%
BEST QUARTER WORST QUARTER 24.19% -22.83% (6/30/03) (9/30/01)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 2.67%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Russell 2000(R) Growth Index. These returns assume shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
SINCE I SHARES 1 YEAR 5 YEARS INCEPTION* Fund Returns Before Taxes 7.92% 7.51% 15.48% Fund Returns After Taxes on Distributions 6.59% 6.66% 14.48% Fund Returns After Taxes on Distributions and Sale of Fund Shares 6.59% 6.26% 13.44% Russell 2000(R) Growth Index (reflects no deduction for fees, expenses or taxes) 4.15% 2.28% 9.16%
* Since inception of the I Shares on October 8, 1998. Benchmark returns since September 30, 1998 (benchmark returns available only on a month end basis). (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Russell 2000(R) Growth Index is a widely recognized, capitalization-weighted index that measures the performance of those Russell 2000 companies with higher price-to-book ratios and higher forecasted growth values. The Russell 2000(R) Index is a widely recognized, capitalization-weighted index that measures the performance of the 2,000 smallest companies in the Russell 3000(R) Index. The Russell 3000(R) Index is a widely recognized, capitalization-weighted index that measures the performance of the 3,000 largest U.S. companies based on total market capitalization. SMALL CAP GROWTH STOCK FUND PROSPECTUS 37 (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
I SHARES Redemption Fee (as a percentage of net asset value)* 2.00%
* This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 1.10% Other Expenses 0.07% ------------------- Total Annual Operating Expenses(2) 1.17%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $119 $372 $644 $1,420
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." SMALL CAP QUANTITATIVE EQUITY FUND 38 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Long-term capital appreciation INVESTMENT FOCUS U.S. common stocks of small cap companies with positive earnings characteristics purchased at reasonable value SHARE PRICE VOLATILITY High PRINCIPAL INVESTMENT STRATEGY Attempts to identify small cap companies with superior earnings/valuation cycle characteristics within their specific market sectors INVESTOR PROFILE Investors who want to increase the value of their investment and are willing to accept more volatility for the possibility of higher returns
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Small Cap Quantitative Equity Fund invests at least 80% of its net assets in U.S. traded equity securities of small cap companies. U.S. traded equity securities may include listed American Depositary Receipts ("ADRs"). The Adviser considers small cap companies to be companies with market capitalizations below $3 billion. The Fund attempts, through the use of disciplined quantitative modeling, to objectively and consistently identify those companies with the most attractive earnings growth prospects and valuation characteristics within each sector. Those characteristics vary by sector. The Adviser believes that companies with higher earnings growth prospects will have more highly valued stocks. Companies producing sustained accelerating rates of earnings growth will generate increasing stock valuations. Companies producing sustained decelerating rates of earnings growth will generate decreasing stock valuations. This cycle of accelerating earnings growth with increasing stock valuation and decelerating earnings growth with decreasing stock valuation is called the earnings-valuation cycle. The Adviser uses quantitative modeling to evaluate and select the common stock of companies based on the philosophy that earnings/valuation cycles dictate stock performance, earnings/valuation cycles differ among market sectors, and diversification controls risk. Because companies tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and may lower performance. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. Small cap stocks can perform differently from other segments of the equity market or the equity market as a whole and can be more volatile than stocks of larger companies. Because the Fund may invest in ADRs, it is subject to some of the same risks as direct investments in foreign companies. These include the risk that political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. For information about the risks involved when investing in derivatives, see "More Information About Risk." (TARGET ICON) PERFORMANCE INFORMATION No performance information is included because the Fund does not have performance history for a full calendar year. SMALL CAP QUANTITATIVE EQUITY FUND PROSPECTUS 39 (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
I SHARES Redemption Fee (as a percentage of net asset value)* 2.00%
* This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees 1.05% Other Expenses(1) 0.10% -------- Total Annual Fund Operating Expenses(2) 1.15%
(1) Other Expenses are based on estimated amounts for the current fiscal year. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS $117 $365
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." SMALL CAP VALUE EQUITY FUND* 40 PROSPECTUS * Shares of the Small Cap Value Equity Fund are no longer available for purchase by new investors. Please refer to the Statement of Additional Information for the definition of "new investor." (SUITCASE ICON) FUND SUMMARY INVESTMENT GOALS PRIMARY Capital appreciation SECONDARY Current income INVESTMENT FOCUS U.S. small cap equity securities SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Attempts to identify undervalued small cap securities INVESTOR PROFILE Investors who primarily want the value of their investment to grow, but want to receive some income from their investment
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Small Cap Value Equity Fund invests at least 80% of its net assets in U.S. traded equity securities of small cap companies. U.S. traded equity securities may include listed American Depositary Receipts ("ADRs"). The Adviser considers small cap companies to be companies with market capitalizations below $3 billion. In selecting investments for the Fund, the Adviser chooses companies that it believes are undervalued in the market, relative to the industry sector and the company's own valuation history. The Adviser evaluates potential catalysts that may increase a stock's value to such an extent that the stock no longer meets the Fund's investment criteria. Additionally, all common stocks purchased for the Fund are required to pay cash dividends. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. Small cap stocks can perform differently from other segments of the equity market or the equity market as a whole and can be more volatile than stocks of larger companies. The Adviser's value investing style may be out of favor in the marketplace for various periods of time. Value investing involves purchasing securities that are undervalued in comparison to their prospects for growth or to their peers or that have historically traded below their historical value. These securities are subject to the risk that their potential values as perceived by the Adviser are never realized by the market. Because the Fund may invest in ADRs, it is subject to some of the same risks as direct investments in foreign companies. These include the risk that political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. For information about the risks involved when investing in derivatives, see "More Information About Risk." SMALL CAP VALUE EQUITY FUND* PROSPECTUS 41 (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. The Fund began operating as a registered mutual fund on January 31, 1997. Performance prior to January 31, 1997 is that of the Adviser's similarly managed collective investment fund. The collective investment fund's performance has been adjusted to reflect the current fees and expenses for I Shares of the Fund. As a collective investment fund, rather than a registered mutual fund, it was not subject to the same investment and tax restrictions. If it had been, the collective investment fund's performance would have been lower. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1996 34.25% 1997 32.59% 1998 -13.45% 1999 -2.72% 2000 17.96% 2001 21.21% 2002 -1.74% 2003 37.05% 2004 25.47% 2005 12.46%
BEST QUARTER WORST QUARTER 19.82% -21.99% (6/30/99) (9/30/98)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 10.27%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Russell 2000(R) Value Index. These returns assume shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
SINCE INCEPTION AS A REGISTERED MUTUAL I SHARES 1 YEAR 5 YEARS FUND* 10 YEARS** Fund Returns Before Taxes 12.46% 18.16% 12.94% 15.07% Fund Returns After Taxes on Distributions 9.12% 16.99% 11.54% N/A+ Fund Returns After Taxes on Distributions and Sale of Fund Shares 12.44% 15.88% 10.87% N/A+ Russell 2000(R) Value Index (reflects no deduction for fees, expenses or taxes) 4.71% 13.55% 12.12% 13.08%
* Since inception of the I Shares on January 31, 1997, when the Fund began operating as a registered mutual fund. ** Includes performance of the Adviser's collective investment fund. + It is not possible to reflect the impact of taxes on the collective investment fund's performance. (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Russell 2000(R) Value Index is a widely-recognized, capitalization weighted (companies with larger market capitalizations have more influence than those with smaller market capitalizations) index of companies in the Russell 2000(R) Index with lower growth rates and price-to-book ratios. The Russell 2000(R) Index is a widely-recognized, capitalization-weighted index that consists of a subset of the 3,000 largest U.S. companies. SMALL CAP VALUE EQUITY FUND 42 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
I SHARES Redemption Fee (as a percentage of net asset value)* 2.00%
* This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 1.13% Other Expenses 0.07% ------------------- Total Annual Operating Expenses(2) 1.20%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time.
- ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $122 $381 $660 $1,455
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." BALANCED FUND PROSPECTUS 43 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Capital appreciation and current income INVESTMENT FOCUS PRIMARY U.S. common stocks SECONDARY Bonds SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Attempts to identify companies with improving earnings growth and bonds with moderate risk INVESTOR PROFILE Investors who want income from their investment, as well as an increase in its value
(TELESCOPE ICON) INVESTMENT STRATEGY The Balanced Fund invests in common and preferred stocks, convertible securities, government obligations, corporate bonds, and U.S. traded equity securities, including listed American Depositary Receipts ("ADRs") among other types of securities. The Fund may invest in securities of U.S. and non-U.S. issuers. The Fund may invest in floating rate loans and emerging market debt, which are generally below investment grade, high yield obligations. The Fund may also invest a portion of its assets in securities that are restricted as to resale. In selecting stocks for the Fund, the Adviser focuses on generally large cap stocks which have improving earnings and fundamentals. In selecting bonds, the Adviser seeks to minimize risk while striving to outperform selected market indices. Because companies and securities tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell derivative instruments (such as futures, options and swaps, including credit default swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk, interest rate risk and credit risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. Foreign securities involve special risks such as currency fluctuations, economic or financial instability, lack of timely or reliable financial information and unfavorable political or legal developments. These risks are increased for investments in emerging markets. Below investment grade securities (sometimes referred to as "junk bonds") involve greater risk of default or downgrade and are more volatile than investment grade securities. Below investment grade securities may also be less liquid than higher quality securities. The risks associated with floating rate loans are similar to the risks of below investment grade securities. In addition, the value of the collateral securing the loan may decline, causing a loan to be substantially unsecured. Difficulty in selling a floating rate loan may result in a loss. Borrowers may pay back principal before BALANCED FUND 44 PROSPECTUS the scheduled due date when interest rates decline, which may require the Fund to replace a particular loan with a lower-yielding security. There may be less extensive public information available with respect to loans than for rated, registered or exchange listed securities. The Fund may assume the credit risk of the primary lender in addition to the borrower, and investments in loan assignments may involve the risks of being a lender. U.S. government securities can exhibit price movements resulting from changes in interest rates. Treasury inflation protected securities ("TIPS") can also exhibit price movements as a result of changing inflation expectations and seasonal inflation patterns. Certain U.S. government securities are backed by the full faith and credit of the U.S. Government, while others are backed by the ability of the issuing entity to borrow from the U.S. Treasury or by the issuing entity's own resources. Restricted securities may increase the level of illiquidity in the Fund during any period that qualified institutional buyers become uninterested in purchasing these restricted securities. The Adviser intends to invest only in restricted securities that it believes present minimal liquidity risk. Because the Fund invests in derivatives, it is exposed to additional volatility and potential losses. Credit default swaps can increase the Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. The use of derivatives may cause the Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1996 12.13% 1997 21.14% 1998 19.55% 1999 4.66% 2000 4.79% 2001 0.23% 2002 -8.53% 2003 10.05% 2004 5.59% 2005 0.88%
BEST QUARTER WORST QUARTER 12.57% -5.97% (12/31/98) (6/30/02)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was -0.57%. BALANCED FUND PROSPECTUS 45 - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of a Hybrid 60/40 Blend of the S&P 500 (R) Index and the Lehman Brothers U.S. Government/Credit Index. These returns assume shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
I SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes 0.88% 1.45% 6.71% Fund Returns After Taxes on Distributions -0.53% 0.53% 4.75% Fund Returns After Taxes on Distributions and Sale of Fund Shares 1.95% 0.87% 4.73% Hybrid 60/40 Blend of the Following Market Benchmarks 3.97% 3.10% 8.27% S&P 500(R) Index (reflects no deduction for fees, expenses or taxes) 4.91% 0.54% 9.07% Lehman Brothers U.S. Government/Credit Index (reflects no deduction for fees, expenses or taxes) 2.37% 6.11% 6.17%
(LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The S&P 500(R) Index is a widely-recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index of 500 stocks designed to mimic the overall U.S. equity market's industry weightings. The Lehman Brothers U.S. Government/Credit Index is a widely-recognized composite made up of the Lehman Brothers U.S. Government Index and the Lehman Brothers U.S. Credit Index, which include U.S. government, Treasury and agency securities, as well as high grade corporate bonds. BALANCED FUND 46 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
I SHARES Redemption Fee (as a percentage of net asset value)* 2.00%
* This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.85% Other Expenses 0.10% --------- Total Annual Operating Expenses(2) 0.95%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2)The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $97 $303 $525 $1,166
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." LIFE VISION AGGRESSIVE GROWTH FUND PROSPECTUS 47 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL High capital appreciation INVESTMENT FOCUS Equity and money market funds SHARE PRICE VOLATILITY High PRINCIPAL INVESTMENT STRATEGY Investing at least 80% of the Fund's assets in STI Classic Equity Funds INVESTOR PROFILE Investors who want the value of their investment to grow, but do not need to receive income on their investment, and are willing to be subject to the risks of equity securities
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Life Vision Aggressive Growth Fund invests at least 80% of its assets in STI Classic Funds that invest primarily in equity securities. The Fund's remaining assets may be invested in STI Classic Money Market Funds, securities issued by the U.S. Government, its agencies or instrumentalities, repurchase agreements and short-term paper. In selecting a diversified portfolio of underlying STI Classic Funds, the Adviser analyzes many factors, including the underlying STI Classic Funds' investment objectives, total return, volatility and expenses. The Fund currently plans to invest in shares of the following underlying STI Classic Funds within the percentage ranges indicated:
INVESTMENT RANGE (PERCENTAGE OF THE LIFE VISION AGGRESSIVE GROWTH ASSET CLASS FUND'S ASSETS) - ------------------------------------------------------ Equity Funds 80-100% Aggressive Growth Stock Fund Capital Appreciation Fund Emerging Growth Stock Fund International Equity Fund International Equity Index Fund Large Cap Quantitative Equity Fund Large Cap Relative Value Fund Large Cap Value Equity Fund Mid-Cap Equity Fund Mid-Cap Value Equity Fund Small Cap Growth Stock Fund Small Cap Quantitative Equity Fund Small Cap Value Equity Fund Money Market Fund 0-20% Prime Quality Money Market Fund - ------------------------------------------------------
Other STI Classic Funds may be utilized. Because companies tend to shift in relative attractiveness, the Fund holds STI Classic Funds that buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. You can obtain information about the underlying STI Classic Funds in which the Fund invests by calling 1-888-STI-FUND, or from the STI Classic Funds' website at www.sticlassicfunds.com. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? The value of an investment in the Fund is based primarily on the performance of the underlying STI Classic Funds and the allocation of the Fund's assets among them. Since it purchases equity funds, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the STI Classic Funds' securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The Fund is also subject to the risk that the Adviser's asset allocation decisions will not anticipate market trends successfully. For example, weighting common stocks too heavily during a stock market decline may result in a failure to preserve capital. Conversely, investing too heavily in fixed income securities during a period of stock market appreciation may result in lower total return. The risks associated with investing in the LIFE VISION AGGRESSIVE GROWTH FUND 48 PROSPECTUS Fund will vary depending upon how the assets are allocated among the underlying STI Classic Funds. For information about the risks involved when investing in derivatives, see "More Information About Risk." (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. The Fund began operating as a registered mutual fund on June 30, 1997. Performance prior to June 30, 1997 is that of the Adviser's similarly managed asset allocation program. The asset allocation program's performance has been adjusted to reflect the fees and expenses for I Shares of the Fund. As an asset allocation program, rather than a registered mutual fund, it was not subject to the same investment and tax restrictions. If it had been, the asset allocation program's performance would have been lower. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1996 16.62% 1997 22.53% 1998 12.31% 1999 10.31% 2000 6.30% 2001 -6.52% 2002 -18.11% 2003 26.69% 2004 13.01% 2005 5.79%
BEST QUARTER WORST QUARTER 18.72% -16.74% (12/31/98) (9/30/02)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 3.91%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the average annual total returns of the Fund for the periods ended December 31, 2005, to those of a Hybrid 90/10 Blend of the S&P 500(R) Index and the Citigroup 3-Month Treasury Bill Index. These returns assume shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
SINCE INCEPTION OF THE REGISTERED I SHARES 1 YEAR 5 YEARS MUTUAL FUND* 10 YEARS** Fund Returns Before Taxes 5.79% 3.00% 6.00% 8.12% Fund Returns After Taxes on Distributions 5.27% 2.81% 4.87% N/A+ Fund Returns After Taxes on Distributions and Sale of Fund Shares 4.12% 2.50% 4.63% N/A+ Hybrid 90/10 Blend of the Following Market Benchmarks++ 4.74% 0.81% 5.64% 8.66% S&P 500(R) Index 4.91% 0.54% 5.74% 9.07% Citigroup 3-Month Treasury Bill Index 3.00% 2.21% 3.46% 3.72%
* Since inception of the I Shares on June 30, 1997, when the Fund began operating as a registered mutual fund. **Includes performance of the Adviser's asset allocation program. + It is not possible to reflect the impact of taxes on the asset allocation program's performance. ++Benchmarks reflect no deductions for fees, expenses or taxes. (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The S&P 500(R) Index is a widely-recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index of 500 stocks designed to mimic the overall U.S. equity market's industry weightings. The Citigroup 3-Month Treasury Bill Index is a widely-recognized index of the 3 month U.S. Treasury bills. LIFE VISION AGGRESSIVE GROWTH FUND PROSPECTUS 49 (COIN ICON) FUND FEES AND EXPENSES This table describes the fees and expenses that you may pay if you buy and hold Fund shares. The table does not reflect any of the operating costs and investment advisory fees of the underlying STI Classic Funds. The Fund and its shareholders will indirectly bear a pro rata share of the expenses of the underlying STI Classic Funds. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
I SHARES Redemption Fee (as a percentage of net asset value)* 2.00%
* This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.10% Other Expenses 0.11% ------ Total Annual Operating Expenses 0.21% Fee Waivers and Expense Reimbursements(2) (0.01)% ------ Net Operating Expenses 0.20%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser has contractually agreed to waive fees and reimburse expenses until at least August 1, 2007 in order to keep Total Annual Operating Expenses from exceeding 0.20%. If at any point before August 1, 2009, Total Annual Operating Expenses are less than the applicable expense cap, the Adviser may retain the difference to recapture any of the prior waivers or reimbursements. In addition, the Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These voluntary waivers may be discontinued at any time. In addition to the Fund's direct expenses shown in the table above, the Fund indirectly bears a pro-rata share of the expenses of the underlying STI Classic Funds. Based on adjusted expenses of the underlying STI Classic Funds, the indirect costs on investments in underlying STI Classic Funds were 0.92%. Therefore, total annualized expenses would be 1.13% before waivers and reimbursements and 1.12% after waivers and reimbursements. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, the Fund's operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR* 3 YEARS 5 YEARS 10 YEARS $20 $67 $117 $267
* Without waivers and reimbursements, Year 1 costs would be $22. The costs including both direct Fund expenses after waivers and reimbursements and indirect expenses associated with investments in underlying STI Classic Funds would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $114 $356 $617 $1,363
* Without waivers and reimbursements, Year 1 costs would be $115. - ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." LIFE VISION CONSERVATIVE FUND 50 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Capital appreciation and current income INVESTMENT FOCUS PRIMARY Bond funds SECONDARY Equity funds SHARE PRICE VOLATILITY Low PRINCIPAL INVESTMENT STRATEGY Investing pursuant to an asset allocation strategy in a combination of STI Classic Bond Funds, and to a lesser extent, STI Classic Equity Funds INVESTOR PROFILE Investors who want income from their investment, as well as an increase in its value, but want to reduce risk by limiting exposure to equity securities
(TELESCOPE ICON) INVESTMENT STRATEGY The Life Vision Conservative Fund invests in STI Classic Funds that invest primarily in fixed income securities, but may invest up to 35% of the Fund's assets in STI Classic Funds that invest primarily in equity securities. The Fund's remaining assets may be invested in STI Classic Money Market Funds, securities issued by the U.S. Government, its agencies or instrumentalities, repurchase agreements and short-term paper. In selecting a diversified portfolio of underlying STI Classic Funds, the Adviser analyzes many factors, including the underlying STI Classic Funds' investment objectives, total return, volatility and expenses. The Fund currently plans to invest in shares of the following underlying STI Classic Funds within the percentage ranges indicated:
INVESTMENT RANGE (PERCENTAGE OF THE LIFE VISION CONSERVATIVE ASSET CLASS FUND'S ASSETS) - ------------------------------------------------------- Bond Funds 65-100% Core Bond Fund High Income Fund High Quality Bond Fund Investment Grade Bond Fund Limited-Term Federal Mortgage Securities Fund Seix Floating Rate High Income Fund Seix High Yield Fund Short-Term Bond Fund Short-Term U.S. Treasury Securities Fund Strategic Income Fund Total Return Bond Fund U.S. Government Securities Fund
INVESTMENT RANGE (PERCENTAGE OF THE LIFE VISION CONSERVATIVE ASSET CLASS FUND'S ASSETS) - ------------------------------------------------------- Equity Funds 0-35% Aggressive Growth Stock Fund Capital Appreciation Fund Emerging Growth Stock Fund International Equity Fund International Equity Index Fund Large Cap Quantitative Equity Fund Large Cap Relative Value Fund Large Cap Value Equity Fund Mid-Cap Equity Fund Mid-Cap Value Equity Fund Small Cap Growth Stock Fund Small Cap Quantitative Equity Fund Small Cap Value Equity Fund Money Market Fund 0-20% Prime Quality Money Market Fund - -------------------------------------------------------
Other STI Classic Funds may be utilized. Because securities tend to shift in relative attractiveness, the Fund holds STI Classic Funds that buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps, including credit default and total return swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk, interest rate risk and credit risk. You can obtain information about the underlying STI Classic Funds in which the Fund invests by calling 1-888-STI-FUND, or from the STI Classic Funds' website at www.sticlassicfunds.com. LIFE VISION CONSERVATIVE FUND PROSPECTUS 51 (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? The value of an investment in the Fund is based primarily on the performance of the underlying STI Classic Funds and the allocation of the Fund's assets among them. The prices of an underlying STI Classic Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, an underlying STI Classic Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower rated securities is even greater than that of higher rated securities. Also, longer-term securities generally are more volatile, so the average maturity or duration of these securities affects risk. Since it purchases equity funds, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of an underlying STI Classic Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The Fund is also subject to the risk that the Adviser's asset allocation decisions will not anticipate market trends successfully. For example, weighting common stocks too heavily during a stock market decline may result in a failure to preserve capital. Conversely, investing too heavily in fixed income securities during a period of stock market appreciation may result in lower total return. The risks associated with investing in the Fund will vary depending upon how the assets are allocated among the underlying STI Classic Funds. Because the underlying STI Classic Funds invest in derivatives, the Fund is exposed to additional volatility and potential losses. Credit default swaps can increase the Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. Total return swaps could result in losses if the reference index, security, or investments do not perform as anticipated. The use of derivatives may cause the Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. I Shares were offered beginning on November 6, 2003. Performance between March 11, 2003 and November 6, 2003 is that of the B Shares of the Fund, and has not been adjusted to reflect I Share expenses. If it had been, performance would have been lower. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 2004 6.09% 2005 3.19%
BEST QUARTER WORST QUARTER 3.51% -1.17% (12/31/04) (6/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 0.51%. LIFE VISION CONSERVATIVE FUND 52 PROSPECTUS - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of a Hybrid 70/20/10 Blend of the Lehman Brothers U.S. Aggregate Index, S&P 500 (R) Index and the Citigroup 3-month Treasury Bill Index. These returns assume shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
SINCE I SHARES 1 YEAR INCEPTION* Fund Returns Before Taxes 3.19% 6.86% Fund Returns After Taxes on Distributions 1.95% 5.91% Fund Returns After Taxes on Distributions and Sale of Fund Shares 2.11% 5.34% Hybrid 70/20/10 Blend of the Following Market Benchmarks++ 3.04% 5.85% Lehman Brothers U.S. Aggregate Index 2.43% 3.31% S&P 500(R) Index 4.91% 17.01% Citigroup 3-Month Treasury Bill Index 3.00% 1.80%
* Since inception of B Shares on March 11, 2003. Benchmark return since February 28, 2003 (benchmark returns available only on a month end basis). ++ Benchmarks reflect no deductions for fees, expenses or taxes. (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Lehman Brothers U.S. Aggregate Index is a widely-recognized index of securities that are SEC-registered, taxable, and dollar denominated. The Index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. The S&P(R) 500 Index is a widely-recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index of 500 stocks designed to mimic the overall U.S. equity market's industry weightings. The Citigroup 3-Month Treasury Bill Index is a widely-recognized index of the 3 month U.S. Treasury bills. LIFE VISION CONSERVATIVE FUND PROSPECTUS 53 (COIN ICON) FUND FEES AND EXPENSES This table describes the fees and expenses that you may pay if you buy and hold Fund shares. The table does not reflect any of the operating costs and investment advisory fees of the underlying STI Classic Funds. The Fund and its shareholders will indirectly bear a pro rata share of the expenses of the underlying STI Classic Funds. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
I SHARES Redemption Fee (as a percentage of net asset value)* 2.00%
* This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.10% Other Expenses 0.45% ------------------- Total Annual Operating Expenses 0.55% Fee Waivers and Expense Reimbursements(2) (0.35)% ------------------- Net Operating Expenses 0.20%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser has contractually agreed to waive fees and reimburse expenses until at least August 1, 2007 in order to keep Total Annual Operating Expenses from exceeding 0.20%. If at any point before August 1, 2009, Total Annual Operating Expenses are less than the applicable expense cap, the Adviser may retain the difference to recapture any of the prior waivers or reimbursements. In addition, the Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These voluntary waivers may be discontinued at any time. In addition to the Fund's direct expenses shown in the table above, the Fund indirectly bears a pro-rata share of the expenses of the underlying STI Classic Funds. Based on adjusted expenses of the underlying STI Classic Funds, the indirect costs on investments in underlying STI Classic Funds were 0.45%. Therefore, total annualized expenses would be 1.00% before waivers and reimbursements and 0.65% after waivers and reimbursements. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, the Fund's operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR* 3 YEARS 5 YEARS 10 YEARS $20 $141 $273 $658
* Without waivers and reimbursements, Year 1 costs would be $56. The costs including both direct Fund expenses after waivers and reimbursements and indirect expenses associated with investments in underlying STI Classic Funds would be:
1 YEAR* 3 YEARS 5 YEARS 10 YEARS $66 $284 $518 $1,193
* Without waivers and reimbursements, Year 1 costs would be $102. - ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's estimated expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." LIFE VISION GROWTH AND INCOME FUND 54 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Long-term capital appreciation INVESTMENT FOCUS Equity and bond funds SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Investing pursuant to an asset allocation strategy in a combination of STI Classic Equity Funds and, to a lesser extent, STI Classic Bond Funds INVESTOR PROFILE Investors who want their assets to grow, but want to moderate the risks of equity securities through investment of a portion of their assets in bonds
(TELESCOPE ICON) INVESTMENT STRATEGY The Life Vision Growth and Income Fund invests at least 70% to 80% of its assets in STI Classic Funds that invest primarily in either equity securities or fixed income securities. The Fund's remaining assets may be invested in shares of underlying STI Classic Money Market Funds, securities issued by the U.S. Government, its agencies or instrumentalities, repurchase agreements and short-term paper. In selecting a diversified portfolio of underlying STI Classic Funds, the Adviser analyzes many factors, including the underlying STI Classic Funds' investment objectives, total returns, volatility and expenses. The Fund currently plans to invest in shares of the following underlying STI Classic Funds within the percentage ranges indicated:
INVESTMENT RANGE (PERCENTAGE OF THE LIFE VISION GROWTH AND INCOME ASSET CLASS FUND'S ASSETS) - ----------------------------------------------------- Equity Funds 50-80% Aggressive Growth Stock Fund Capital Appreciation Fund Emerging Growth Stock Fund International Equity Fund International Equity Index Fund Large Cap Quantitative Equity Fund Large Cap Relative Value Fund Large Cap Value Equity Fund Mid-Cap Equity Fund Mid-Cap Value Equity Fund Small Cap Growth Stock Fund Small Cap Quantitative Equity Fund Small Cap Value Equity Fund
INVESTMENT RANGE (PERCENTAGE OF THE LIFE VISION GROWTH AND INCOME ASSET CLASS FUND'S ASSETS) - ----------------------------------------------------- Bond Funds 20-50% Core Bond Fund High Income Fund High Quality Bond Fund Investment Grade Bond Fund Limited-Term Federal Mortgage Securities Fund Seix Floating Rate High Income Fund Seix High Yield Fund Short-Term Bond Fund Short-Term U.S. Treasury Securities Fund Strategic Income Fund Total Return Bond Fund U.S. Government Securities Fund Money Market Fund 0-20% Prime Quality Money Market Fund - -----------------------------------------------------
Other STI Classic Funds may be utilized. Because securities tend to shift in relative attractiveness, the Fund holds STI Classic Funds that buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps, including credit default and total return swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. You can obtain information about the underlying STI Classic Funds in which the Fund invests by calling 1-888-STI-FUND, or from the STI Classic Funds' website at www.sticlassicfunds.com. LIFE VISION GROWTH AND INCOME FUND PROSPECTUS 55 (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? The value of an investment in the Fund is based primarily on the performance of the underlying STI Classic Funds and the allocation of the Fund's assets among them. Since it purchases equity funds, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of an underlying STI Classic Funds' securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The prices of an underlying STI Classic Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, an underlying STI Classic Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities generally are more volatile, so the average maturity or duration of these securities affects risk. The Fund is also subject to the risk that the Adviser's asset allocation decisions will not anticipate market trends successfully. For example, weighting common stocks too heavily during a stock market decline may result in a failure to preserve capital. Conversely, investing too heavily in fixed income securities during a period of stock market appreciation may result in lower total return. The risks associated with investing in the Fund will vary depending upon how the assets are allocated among the underlying STI Classic Funds. Because the underlying STI Classic Funds invest in derivatives, the Fund is exposed to additional volatility and potential losses. Credit default swaps can increase the Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. Total return swaps could result in losses if the reference index, security, or investments do not perform as anticipated. The use of derivatives may cause the Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in this Life Vision Fund. The Fund's past performance does not indicate how the Fund will perform in the future. The Fund began operating as a registered mutual fund on June 30, 1997. Performance prior to June 30, 1997 is that of the Adviser's similarly managed asset allocation program. The asset allocation program's performance has been adjusted to reflect the fees and expenses for I Shares of the Fund. As an asset allocation program, rather than a registered mutual fund, it was not subject to the same investment and tax restrictions. If it had been, the asset allocation program's performance would have been lower. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1996 12.16% 1997 18.08% 1998 11.16% 1999 7.95% 2000 7.08% 2001 -2.55% 2002 -11.99% 2003 23.99% 2004 10.53% 2005 5.10
BEST QUARTER WORST QUARTER 13.65% -12.87% (12/31/98) (9/30/02)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 2.88%. LIFE VISION GROWTH AND INCOME FUND 56 PROSPECTUS - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the average annual total returns of the Fund for the periods ended December 31, 2005, to those of a Hybrid 65/25/10 Blend of the S&P 500 (R) Index, Lehman Brothers U.S. Aggregate Index and the Citigroup 3-Month Treasury Bill Index. These returns assume shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
SINCE INCEPTION OF THE REGISTERED I SHARES 1 YEAR 5 YEARS MUTUAL FUND* 10 YEARS** Fund Returns Before Taxes 5.10% 4.32% 6.40% 7.71% Fund Returns After Taxes on Distributions 4.52% 3.83% 5.05% N/A+ Fund Returns After Taxes on Distributions and Sale of Fund Shares 3.42% 3.44% 4.75% N/A+ Hybrid 65/25/10 Blend of the Following Market Benchmarks++ 4.13% 1.77% 5.60% 7.62% S&P 500(R) Index 4.91% 0.54% 5.74% 9.07% Lehman Brothers U.S. Aggregate Index 2.43% 5.87% 6.46% 6.16% Citigroup 3-Month Treasury Bill Index 3.00% 2.21% 3.46% 3.72%
* Since inception of the I Shares on June 30, 1997, when the Fund began operating as a registered mutual fund. **Includes performance of the Adviser's asset allocation program. + It is not possible to reflect the impact of taxes on the asset allocation program's performance. ++Benchmarks reflect no deductions for fees, expenses or taxes. (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The S&P 500(R) Index is a widely-recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index of 500 stocks designed to mimic the overall U.S. equity market's industry weightings. The Lehman Brothers U.S. Aggregate Index is a widely-recognized index of securities that are SEC-registered, taxable, and dollar denominated. The Index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. The Citigroup 3-Month Treasury Bill Index is a widely-recognized index of the 3 month U.S. Treasury bills. LIFE VISION GROWTH AND INCOME FUND PROSPECTUS 57 (COIN ICON) FUND FEES AND EXPENSES This table describes the fees and expenses that you may pay if you buy and hold Fund shares. The table does not reflect any of the operating costs and investment advisory fees of the underlying STI Classic Funds. The Fund and its shareholders will indirectly bear a pro rata share of the expenses of the underlying STI Classic Funds. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
I SHARES Redemption Fee (as a percentage of net asset value)* 2.00%
* This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.10% Other Expenses 0.09% ------------------- Total Annual Operating Expenses(2) 0.19%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser has contractually agreed to waive fees and reimburse expenses until at least August 1, 2007 in order to keep Total Annual Operating Expenses from exceeding 0.20%. If at any point before August 1, 2009, Total Annual Operating Expenses are less than the applicable expense cap, the Adviser may retain the difference to recapture any of the prior waivers or reimbursements. In addition, the Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These voluntary waivers may be discontinued at any time. In addition to the Fund's direct expenses shown in the table above, the Fund indirectly bears a pro-rata share of the costs of the underlying STI Classic Funds. Based on adjusted expenses of the underlying STI Classic Funds, the indirect costs on investments in underlying STI Classic Funds were 0.77%. Therefore, total annualized expenses would be 0.96%. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, the Fund's operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $19 $61 $107 $243
The costs including both direct Fund expenses and indirect expenses associated with investments in underlying STI Classic Funds would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $98 $306 $531 $1,178
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." LIFE VISION MODERATE GROWTH FUND 58 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Capital appreciation and current income INVESTMENT FOCUS Equity and bond funds SHARE PRICE VOLATILITY Low PRINCIPAL INVESTMENT STRATEGY Investing pursuant to an asset allocation strategy in a combination of STI Classic Equity and Bond Funds INVESTOR PROFILE Investors who want income from their investment, as well as an increase in its value, and are willing to be subject to the risks of equity securities
(TELESCOPE ICON) INVESTMENT STRATEGY The Life Vision Moderate Growth Fund principally invests in STI Classic Funds that invest primarily in equity securities and fixed income securities. The Fund's remaining assets may be invested in shares of underlying STI Classic Money Market Funds, securities issued by the U.S. Government, its agencies or instrumentalities, repurchase agreements and short-term paper. In selecting a diversified portfolio of underlying STI Classic Funds, the Adviser analyzes many factors, including the underlying STI Classic Funds' investment objectives, total returns, volatility and expenses. The Fund currently plans to invest in shares of the following underlying STI Classic Funds within the percentage ranges indicated:
INVESTMENT RANGE (PERCENTAGE OF THE LIFE VISION MODERATE GROWTH ASSET CLASS FUND'S ASSETS) - ------------------------------------------------------ Equity Funds 35-65% Aggressive Growth Stock Fund Capital Appreciation Fund Emerging Growth Stock Fund International Equity Fund International Equity Index Fund Large Cap Quantitative Equity Fund Large Cap Relative Value Fund Large Cap Value Equity Fund Mid-Cap Equity Fund Mid-Cap Value Equity Fund Small Cap Growth Stock Fund Small Cap Quantitative Equity Fund Small Cap Value Equity Fund
INVESTMENT RANGE (PERCENTAGE OF THE LIFE VISION MODERATE GROWTH ASSET CLASS FUND'S ASSETS) - ------------------------------------------------------ Bond Funds 35-65% Core Bond Fund High Income Fund High Quality Bond Fund Investment Grade Bond Fund Limited-Term Federal Mortgage Securities Fund Seix Floating Rate High Income Fund Seix High Yield Fund Short-Term Bond Fund Short-Term U.S. Treasury Securities Fund Strategic Income Fund Total Return Bond Fund U.S. Government Securities Fund Money Market Fund 0-20% Prime Quality Money Market Fund - ------------------------------------------------------
Other STI Classic Funds may be utilized. Because securities tend to shift in relative attractiveness, the Fund holds STI Classic Funds that buy and sell securities frequently, which may result in higher transaction costs, additional capital gains taxes and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps, including credit default and total return swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. You can obtain information about the STI Classic Funds in which the Fund invests by calling 1-888-STI-FUND, or from the STI Classic Funds' website at www.sticlassicfunds.com. LIFE VISION MODERATE GROWTH FUND PROSPECTUS 59 (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? The value of an investment in the Fund is based primarily on the performance of the underlying STI Classic Funds and the allocation of the Fund's assets among them. Since it purchases equity funds, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of an underlying STI Classic Funds' securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The prices of an underlying STI Classic Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, an underlying STI Classic Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities generally are more volatile, so the average maturity or duration of these securities affects risk. The Fund is also subject to the risk that the Adviser's asset allocation decisions will not anticipate market trends successfully. For example, weighting common stocks too heavily during a stock market decline may result in a failure to preserve capital. Conversely, investing too heavily in fixed income securities during a period of stock market appreciation may result in lower total return. The risks associated with investing in the Fund will vary depending upon how the assets are allocated among the underlying STI Classic Funds. Because the underlying STI Classic Funds invest in derivatives, the Fund is exposed to additional volatility and potential losses. Credit default swaps can increase the Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. Total return swaps could result in losses if the reference index, security, or investments do not perform as anticipated. The use of derivatives may cause the Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. The Fund began operating as a registered mutual fund on June 30, 1997. Performance prior to June 30, 1997 is that of the Adviser's similarly managed asset allocation program. The asset allocation program's performance has been adjusted to reflect the fees and expenses for I Shares of the Fund. As an asset allocation program, rather than a registered mutual fund, it was not subject to the same investment and tax restrictions. If it had been, the asset allocation program's performance would have been lower. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1996 10.51% 1997 16.41% 1998 11.15% 1999 6.19% 2000 5.46% 2001 -1.10% 2002 -8.28% 2003 19.98% 2004 8.92% 2005 4.30%
BEST QUARTER WORST QUARTER 11.24% -9.20% (12/31/98) (9/30/02)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 1.83%. LIFE VISION MODERATE GROWTH FUND 60 PROSPECTUS - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the average annual total returns of the Fund for the periods ended December 31, 2005, to those of a Hybrid 50/40/10 Blend of the S&P 500(R) Index, Lehman Brothers U.S. Aggregate Index and the Citigroup 3-Month Treasury Bill Index. These returns assume shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
SINCE INCEPTION OF THE REGISTERED I SHARES 1 YEAR 5 YEARS MUTUAL FUND* 10 YEARS** Fund Returns Before Taxes 4.30% 4.34% 5.98% 7.07% Fund Returns After Taxes on Distributions 2.98% 3.51% 4.36% N/A+ Fund Returns After Taxes on Distributions and Sale of Fund Shares 3.16% 3.26% 4.26% N/A+ Hybrid 50/40/10 Blend of the Following Market Benchmarks++ 3.81% 3.16% 6.18% 7.72% S&P 500 (R) Index 4.91% 0.54% 5.74% 9.07% Lehman Brothers U.S. Aggregate Index 2.43% 5.87% 6.46% 6.16% Citigroup 3-Month Treasury Bill Index 3.00% 2.21% 3.46% 3.72%
* Since inception of the I Shares on June 30, 1997, when the Fund began operating as a registered mutual fund. ** Includes performance of the Adviser's asset allocation program. + It is not possible to reflect the impact of taxes on the asset allocation program's performance. ++ Benchmarks reflect no deductions for fees, expenses or taxes. (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The S&P 500(R) Index is a widely-recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index of 500 stocks designed to mimic the overall U.S. equity market's industry weightings. The Lehman Brothers U.S. Aggregate Index is a widely-recognized index of securities that are SEC-registered, taxable, and dollar denominated. The Index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. The Citigroup 3-Month Treasury Bill Index is a widely-recognized index of the 3 month U.S. Treasury bills. LIFE VISION MODERATE GROWTH FUND PROSPECTUS 61 (COIN ICON) FUND FEES AND EXPENSES This table describes the fees and expenses that you may pay if you buy and hold Fund shares. The table does not reflect any of the operating costs and investment advisory fees of the underlying STI Classic Funds. The Fund and its shareholders will indirectly bear a pro rata share of the expenses of the underlying STI Classic Funds. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
I SHARES Redemption Fee (as a percentage of net asset value)* 2.00%
* This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.10% Other Expenses 0.08% ------------------- Total Annual Operating Expenses(2) 0.18%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser has contractually agreed to waive fees and reimburse expenses until at least August 1, 2007 in order to keep Total Annual Operating Expenses from exceeding 0.20%. If at any point before August 1, 2009, Total Annual Operating Expenses are less than the applicable expense cap, the Adviser may retain the difference to recapture any of the prior waivers or reimbursements. In addition, the Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These voluntary waivers may be discontinued at any time. In addition to the Fund's direct expenses shown in the table above, the Fund indirectly bears a pro-rata share of the costs of the underlying STI Classic Funds. Based on adjusted expenses of the underlying STI Classic Funds, the indirect costs on investments in underlying STI Classic Funds were 0.64%. Therefore, total annualized expenses would be 0.82%. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, the Fund's operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $18 $58 $101 $230
The costs including both direct Fund expenses and indirect expenses associated with investments in underlying STI Classic Funds would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $84 $262 $455 $1,014
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." LIFE VISION TARGET DATE 2015 FUND 62 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL High total return INVESTMENT FOCUS Equity funds, fixed income funds, money market funds SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Investing pursuant to an asset allocation strategy in a combination of STI Classic equity, fixed income and money market funds INVESTOR PROFILE Investors who expect to retire or require income around the year 2015
(TELESCOPE ICON) INVESTMENT STRATEGY The Life Vision Target Date 2015 Fund invests in a mix of underlying STI Classic Funds representing various asset classes and sectors using an asset allocation strategy designed for investors expecting to retire or require income around the year 2015. The Adviser allocates assets among underlying STI Classic Funds using an asset allocation strategy that becomes increasingly more conservative over time. That is, the percentage of assets allocated to equity securities will tend to decrease periodically as the target date approaches, while the percentage of assets allocated to fixed income and money market securities will tend to increase. When the target asset allocation of the Fund is similar to the asset allocation of the STI Classic Life Vision Conservative Fund (within two years after the target date, i.e., 2017), it is expected that the Fund will seek to be combined with the STI Classic Life Vision Conservative Fund, and shareholders of the Fund would then become shareholders of the STI Classic Life Vision Conservative Fund. In addition to investing in underlying STI Classic Funds, the Adviser may also invest a portion of the Fund's assets in one or more ETFs to gain exposure to an asset class not represented by an underlying STI Classic Fund. The table below shows how the Adviser expects to allocate the Fund among asset classes. The table also shows the sectors within those asset classes to which the Fund will have exposure and the underlying STI Classic Funds (and ETFs, if applicable) that will be used to represent those sectors. The information represents the currently expected investment ranges of the Fund but will vary over time.
INVESTMENT RANGE (PERCENTAGE OF THE ASSET CLASS FUND'S ASSETS) - ------------------------------------------------------------ Equity Funds 70-100% Aggressive Growth Stock Fund Capital Appreciation Fund Emerging Growth Stock Fund International Equity Fund International Equity Index Fund Large Cap Quantitative Equity Fund Large Cap Relative Value Fund Large Cap Value Equity Fund Mid-Cap Equity Fund Mid-Cap Value Equity Fund Small Cap Growth Stock Fund Small Cap Quantitative Equity Fund iShares Russell 2000 Value Index Fund* - ------------------------------------------------------------ Bond Funds 0-30% Core Bond Fund High Income Fund High Quality Bond Fund Investment Grade Bond Fund Limited-Term Federal Mortgage Securities Fund Seix Floating Rate High Income Fund Seix High Yield Fund Short-Term Bond Fund Short-Term U.S. Treasury Securities Fund Strategic Income Fund Total Return Bond Fund U.S. Government Securities Fund - ------------------------------------------------------------ Money Market Fund Prime Quality Money Market Fund 0-20% - ------------------------------------------------------------
* iShares(R) is a registered trademark of Barclays Global Investors, N.A. ("BGI"). Neither BGI nor the iShares Russell 2000 Value Index Fund makes any representations regarding the advisability of investing in the Fund. Other STI Classic Funds may be utilized. LIFE VISION TARGET DATE 2015 FUND PROSPECTUS 63 Due to its investment strategy, the Fund holds underlying STI Classic Funds that buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities for taxable investors and lower performance. In addition, to implement its strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps)to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. You can obtain information about the underlying STI Classic Funds in which the Fund invests that are not offered in this prospectus by calling 1-888-STI-FUND or from the STI Classic Funds' website at www.sticlassicfunds.com. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? The value of an investment in the Fund is based primarily on the performance of the underlying STI Classic Funds and the allocation of the Fund's assets among them. Since it purchases equity funds, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of an underlying STI Classic Funds' securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The prices of an underlying STI Classic Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, an underlying STI Classic Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities generally are more volatile, so the average maturity or duration of these securities affects risk. The Fund is also subject to the risk that the Adviser's asset allocation decisions will not anticipate market trends successfully. For example, weighting common stocks too heavily during a stock market decline may result in a failure to preserve capital. Conversely, investing too heavily in fixed income securities during a period of stock market appreciation may result in lower total return. The risks associated with investing in the Fund will vary depending upon how the assets are allocated among the underlying STI Classic Funds. Because the underlying STI Classic Funds invest in derivatives, the Fund is exposed to additional volatility and potential losses. Credit default swaps can increase the Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. Total return swaps could result in losses if the reference index, security, or investments do not perform as anticipated. The use of derivatives may cause the Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. (TARGET ICON) PERFORMANCE INFORMATION No performance information is included because the Fund does not have performance history for a full calendar year. LIFE VISION TARGET DATE 2015 FUND 64 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The table does not reflect any of the operating costs and investment advisory fees of the underlying STI Classic Funds. The Fund and its shareholders will indirectly bear a pro rata share of the expenses of the underlying STI Classic Funds. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
I SHARES Redemption Fee (as a percentage of net asset value)* 2.00%
* This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees 0.10% Other Expenses(1) 0.43% ------------------- Total Annual Operating Expenses 0.53% Fee Waivers and Expense Reimbursements(2) (0.33)% ------------------- Net Operating Expenses 0.20%
(1)Other Expenses are based on estimated amounts for the current fiscal year. (2)The Adviser has contractually agreed to waive fees and reimburse expenses until at least August 1, 2007 in order to keep Total Annual Operating Expenses from exceeding 0.20%. If at any point before August 1, 2009, Total Annual Operating Expenses are less than the applicable expense cap, the Adviser may retain the difference to recapture any of the prior waivers or reimbursements. In addition, the Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These voluntary waivers may be discontinued at any time. In addition to the Fund's direct expenses shown in the table above, the Fund indirectly bears a pro-rata share of the expenses of the underlying STI Classic Funds. Based on adjusted expenses of the underlying STI Classic Funds, the indirect costs on investments in underlying STI Classic Funds were 0.76%. Therefore, total annualized expenses would be 1.29% before waivers and reimbursements and 0.96% after waivers and reimbursements. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR* 3 YEARS $20 $137
* Without waivers and reimbursements, Year 1 costs would be $54. The costs including both direct Fund expenses after waivers and reimbursements and indirect expenses associated with investments in underlying STI Classic Funds would be:
1 YEAR* 3 YEARS $98 $377
* Without waivers and reimbursements, Year 1 costs would be $131. - ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." LIFE VISION TARGET DATE 2025 FUND PROSPECTUS 65 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL High total return INVESTMENT FOCUS Equity funds, fixed income funds, money market funds SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Investing pursuant to an asset allocation strategy in a combination of STI Classic equity, fixed income and money market funds INVESTOR PROFILE Investors who expect to retire or require income around the year 2025
(TELESCOPE ICON) INVESTMENT STRATEGY The Life Vision Target Date 2025 Fund invests in a mix of underlying STI Classic Funds representing various asset classes and sectors using an asset allocation strategy designed for investors expecting to retire or require income around the year 2025. The Adviser allocates assets among underlying STI Classic Funds using an asset allocation strategy that becomes increasingly more conservative over time. That is, the percentage of assets allocated to equity securities will tend to decrease periodically as the target date approaches, while the percentage of assets allocated to fixed income and money market securities will tend to increase. When the target asset allocation of the Fund is similar to the asset allocation of the STI Classic Life Vision Conservative Fund (within two years after the target date, i.e., 2027), it is expected that the Fund will seek to be combined with the STI Classic Life Vision Conservative Fund, and shareholders of the Fund would then become shareholders of the STI Classic Life Vision Conservative Fund. In addition to investing in underlying STI Classic Funds, the Adviser may also invest a portion of the Fund's assets in one or more ETFs to gain exposure to an asset class not represented by an underlying STI Classic Fund. The table below shows how the Adviser expects to allocate the Fund among asset classes. The table also shows the sectors within those asset classes to which the Fund will have exposure and the underlying STI Classic Funds (and ETFs, if applicable) that will be used to represent those sectors. The information represents the currently expected investment ranges of the Fund but will vary over time.
INVESTMENT RANGE (PERCENTAGE OF THE ASSET CLASS FUND'S ASSETS) - ------------------------------------------------------------ Equity Funds 80-100% Aggressive Growth Stock Fund Capital Appreciation Fund Emerging Growth Stock Fund International Equity Fund International Equity Index Fund Large Cap Quantitative Equity Fund Large Cap Relative Value Fund Large Cap Value Equity Fund Mid-Cap Equity Fund Mid-Cap Value Equity Fund Small Cap Growth Stock Fund Small Cap Quantitative Equity Fund iShares Russell 2000 Value Index Fund* - ------------------------------------------------------------ Bond Funds 0-20% Core Bond Fund High Income Fund High Quality Bond Fund Investment Grade Bond Fund Limited-Term Federal Mortgage Securities Fund Seix Floating Rate High Income Fund Seix High Yield Fund Short-Term Bond Fund Short-Term U.S. Treasury Securities Fund Strategic Income Fund Total Return Bond Fund U.S. Government Securities Fund - ------------------------------------------------------------ Money Market Fund Prime Quality Money Market Fund 0-20% - ------------------------------------------------------------
* iShares(R) is a registered trademark of Barclays Global Investors, N.A. ("BGI"). Neither BGI nor the iShares Russell 2000 Value Index Fund makes any representations regarding the advisability of investing in the Fund. Other STI Classic Funds may be utilized. LIFE VISION TARGET DATE 2025 FUND 66 PROSPECTUS Due to its investment strategy, the Fund holds underlying STI Classic Funds that buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities for taxable investors and lower performance. In addition, to implement its strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. You can obtain information about the underlying STI Classic Funds in which the Fund invests that are not offered in this prospectus by calling 1-888-STI-FUND or from the STI Classic Funds' website at www.sticlassicfunds.com. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? The value of an investment in the Fund is based primarily on the performance of the underlying STI Classic Funds and the allocation of the Fund's assets among them. Since it purchases equity funds, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of an underlying STI Classic Funds' securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The prices of an underlying STI Classic Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, an underlying STI Classic Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities generally are more volatile, so the average maturity or duration of these securities affects risk. The Fund is also subject to the risk that the Adviser's asset allocation decisions will not anticipate market trends successfully. For example, weighting common stocks too heavily during a stock market decline may result in a failure to preserve capital. Conversely, investing too heavily in fixed income securities during a period of stock market appreciation may result in lower total return. The risks associated with investing in the Fund will vary depending upon how the assets are allocated among the underlying STI Classic Funds. Because the underlying STI Classic Funds invest in derivatives, the Fund is exposed to additional volatility and potential losses. Credit default swaps can increase the Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. Total return swaps could result in losses if the reference index, security, or investments do not perform as anticipated. The use of derivatives may cause the Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. (TARGET ICON) PERFORMANCE INFORMATION No performance information is included because the Fund does not have performance history for a full calendar year. LIFE VISION TARGET DATE 2025 FUND PROSPECTUS 67 (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The table does not reflect any of the operating costs and investment advisory fees of the underlying STI Classic Funds. The Fund and its shareholders will indirectly bear a pro rata share of the expenses of the underlying STI Classic Funds. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
I SHARES Redemption Fee (as a percentage of net asset value)* 2.00%
* This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees 0.10% Other Expenses(1) 0.47% ------------------- Total Annual Operating Expenses 0.57% Fee Waivers and Expense Reimbursements(2) (0.37)% ------------------- Net Operating Expenses 0.20%
(1) Other Expenses are based on estimated amounts for the current fiscal year. (2)The Adviser has contractually agreed to waive fees and reimburse expenses until at least August 1, 2007 in order to keep Total Annual Operating Expenses from exceeding 0.20%. If at any point before August 1, 2009, Total Annual Operating Expenses are less than the applicable expense cap, the Adviser may retain the difference to recapture any of the prior waivers or reimbursements. In addition, the Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These voluntary waivers may be discontinued at any time. In addition to the Fund's direct expenses shown in the table above, the Fund indirectly bears a pro-rata share of the expenses of the underlying STI Classic Funds. Based on adjusted expenses of the underlying STI Classic Funds, the indirect costs on investments in underlying STI Classic Funds were 0.89%. Therefore, total annualized expenses would be 1.46% before waivers and reimbursements and 1.09% after waivers and reimbursements. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR* 3 YEARS $20 $146
* Without waivers and reimbursements, Year 1 costs would be $58. The costs including both direct Fund expenses after waivers and indirect expenses associated with investments in underlying STI Classic Funds would be:
1 YEAR* 3 YEARS $111 $426
* Without waivers and reimbursements, Year 1 costs would be $149. - ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." LIFE VISION TARGET DATE 2035 FUND 68 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL High total return INVESTMENT FOCUS Equity funds, fixed income funds, and money market funds SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Investing pursuant to an asset allocation strategy in a combination of STI Classic equity, fixed income and money market funds INVESTOR PROFILE Investors who expect to retire or require income around the year 2035
(TELESCOPE ICON) INVESTMENT STRATEGY The Life Vision Target Date 2035 Fund invests in a mix of underlying STI Classic Funds representing various asset classes and sectors using an asset allocation strategy designed for investors expecting to retire or require income around the year 2035. The Adviser allocates assets among underlying STI Classic Funds using an asset allocation strategy that becomes increasingly more conservative over time. That is, the percentage of assets allocated to equity securities will tend to decrease periodically as the target date approaches, while the percentage of assets allocated to fixed income and money market securities will tend to increase. When the target asset allocation of the Fund is similar to the asset allocation of the STI Classic Life Vision Conservative Fund (within two years after the target date, i.e., 2037), it is expected that the Fund will seek to be combined with the STI Classic Life Vision Conservative Fund, and shareholders of the Fund would then become shareholders of the STI Classic Life Vision Conservative Fund. In addition to investing in underlying STI Classic Funds, the Adviser may also invest a portion of the Fund's assets in one or more ETFs to gain exposure to an asset class not represented by an underlying STI Classic Fund. The table below shows how the Adviser expects to allocate the Fund among asset classes. The table also shows the sectors within those asset classes to which the Fund will have exposure and the underlying STI Classic Funds (and ETFs, if applicable) that will be used to represent those sectors. The information represents the currently expected investment ranges of the Fund but will vary over time.
INVESTMENT RANGE (PERCENTAGE OF THE ASSET CLASS FUND'S ASSETS) - ------------------------------------------------------- Equity Funds 80-100% Aggressive Growth Stock Fund Capital Appreciation Fund Emerging Growth Stock Fund International Equity Fund International Equity Index Fund Large Cap Quantitative Equity Fund Large Cap Relative Value Fund Large Cap Value Equity Fund Mid-Cap Equity Fund Mid-Cap Value Equity Fund Small Cap Growth Stock Fund Small Cap Quantitative Equity Fund iShares Russell 2000 Value Index Fund* - ------------------------------------------------------- Bond Funds 0-10% Core Bond Fund High Income Fund High Quality Bond Fund Investment Grade Bond Fund Limited-Term Federal Mortgage Securities Fund Seix Floating Rate High Income Fund Seix High Yield Fund Short-Term Bond Fund Short-Term U.S. Treasury Securities Fund Strategic Income Fund Total Return Bond Fund U.S. Government Securities Fund - ------------------------------------------------------- Money Market Fund Prime Quality Money Market Fund 0-10% - -------------------------------------------------------
* iShares(R) is a registered trademark of Barclays Global Investors, N.A. ("BGI"). Neither BGI nor the iShares Russell 2000 Value Index Fund makes any representations regarding the advisability of investing in the Fund. Other STI Classic Funds may be utilized. LIFE VISION TARGET DATE 2035 FUND PROSPECTUS 69 Due to its investment strategy, the Fund holds underlying STI Classic Funds that buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities for taxable investors and lower performance. In addition, to implement its strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps)to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. You can obtain information about the underlying STI Classic Funds in which the Fund invests that are not offered in this prospectus by calling 1-888-STI-FUND or from the STI Classic Funds' website at www.sticlassicfunds.com. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? The risks of the Fund will directly correspond to the risks of the underlying funds in which it invests. These risks will vary depending upon how the assets are allocated among the underlying STI Classic Funds. The value of an investment in the Fund is based primarily on the performance of the underlying STI Classic Funds and the allocation of the Fund's assets among them. Since it purchases equity funds, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of an underlying STI Classic Funds' securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The prices of an underlying STI Classic Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, an underlying STI Classic Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities generally are more volatile, so the average maturity or duration of these securities affects risk. The Fund is also subject to the risk that the Adviser's asset allocation decisions will not anticipate market trends successfully. For example, weighting common stocks too heavily during a stock market decline may result in a failure to preserve capital. Conversely, investing too heavily in fixed income securities during a period of stock market appreciation may result in lower total return. The risks associated with investing in the Fund will vary depending upon how the assets are allocated among the underlying STI Classic Funds. Because the underlying STI Classic Funds invest in derivatives, the Fund is exposed to additional volatility and potential losses. Credit default swaps can increase the Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. Total return swaps could result in losses if the reference index, security, or investments do not perform as anticipated. The use of derivatives may cause the Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. (TARGET ICON) PERFORMANCE INFORMATION No performance information is included because the Fund does not have performance history for a full calendar year. LIFE VISION TARGET DATE 2035 FUND 70 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The table does not reflect any of the operating costs and investment advisory fees of the underlying STI Classic Funds. The Fund and its shareholders will indirectly bear a pro rata share of the expenses of the underlying STI Classic Funds. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
I SHARES Redemption Fee (as a percentage of net asset value)* 2.00%
* This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees 0.10% Other Expenses(1) 0.44% ------ Total Annual Operating Expenses 0.54% Fee Waivers and Expense Reimbursements(2) (0.34)% ------ Net Operating Expenses 0.20%
(1) Other Expenses are based on estimated amounts for the current fiscal year. (2) The Adviser has contractually agreed to waive fees and reimburse expenses until at least August 1, 2007 in order to keep Total Annual Operating Expenses from exceeding 0.20%. If at any point before August 1, 2009, Total Annual Operating Expenses are less than the applicable expense cap, the Adviser may retain the difference to recapture any of the prior waivers or reimbursements. In addition, the Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These voluntary waivers may be discontinued at any time. In addition to the Fund's direct expenses shown in the table above, the Fund indirectly bears a pro-rata share of the expenses of the underlying STI Classic Funds. Based on adjusted expenses of the underlying STI Classic Funds, the indirect costs on investments in underlying STI Classic Funds were 0.91%. Therefore, total annualized expenses would be 1.45% before waivers and reimbursements and 1.11% after waivers and reimbursements. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR* 3 YEARS $20 $139
* Without waivers and reimbursements, Year 1 costs would be $55. The costs including both direct 2035 Fund expenses after waivers and indirect expenses associated with investments in underlying STI Classic Funds would be:
1 YEAR* 3 YEARS $113 $426
* Without waivers and reimbursements, Year 1 costs would be $148. - ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." MORE INFORMATION ABOUT RISK PROSPECTUS 71 (LIFE PRESERVER ICON) MORE INFORMATION ABOUT RISK BELOW INVESTMENT GRADE RISK Balanced Fund Life Vision Conservative Fund Life Vision Growth and Income Fund Life Vision Moderate Growth Fund Life Vision Target Date 2015 Fund Life Vision Target Date 2025 Fund Life Vision Target Date 2035 Fund High yield securities, which are also known as "junk bonds," involve greater risks of default or downgrade and are more volatile than investment grade securities. High yield securities involve greater risk of default or price declines than investment grade securities due to actual or perceived changes in an issuer's credit-worthiness. In addition, issuers of high yield securities may be more susceptible than other issuers to economic downturns. High yield securities are subject to the risk that the issuer may not be able to pay interest or dividends and ultimately to repay principal upon maturity. Discontinuation of these payments could substantially adversely affect the market value of the security. High yield securities may be less liquid than higher quality investments. A security whose credit rating has been lowered may be particularly difficult to sell. DERIVATIVES RISK All Funds Derivatives may involve risks different from, and possibly greater than, those of traditional investments. A Fund may use derivatives (such as futures, options, and swaps) to attempt to achieve its investment objective and offset certain investment risks, while at the same time maintaining liquidity. These positions may be established for hedging or non-hedging purposes. Risks associated with the use of derivatives include those associated with hedging and leveraging activities: - - 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. - - A Fund experiencing losses over certain ranges in the market that exceed losses experienced by a fund that does not use derivatives. - - There may be an imperfect or no correlation between the changes in market value of the securities held by a Fund and the prices of derivatives. - - There may not be a liquid secondary market for derivatives. - - Trading restrictions or limitations may be imposed by an exchange. - - Government regulations may restrict trading in derivatives. - - The other party to an agreement (e.g., options or swaps) may default; however, in certain circumstances, such counterparty risk may be reduced by having an organization with very good credit act as intermediary. Because options premiums paid or received by the Funds are small in relation to the market value of the investments underlying the options, buying and selling put and call options can be more speculative than investing directly in securities. Credit default swaps can increase a Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. The use of derivatives may cause a Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. Total return swaps could result in losses if their reference index, security or investments do not perform as anticipated. EMERGING MARKETS RISK Balanced Fund International Equity Fund International Equity Index Fund Life Vision Aggressive Growth Fund Life Vision Conservative Fund Life Vision Growth and Income Fund Life Vision Moderate Growth Fund Life Vision Target Date 2015 Fund Life Vision Target Date 2025 Fund Life Vision Target Date 2035 Fund Emerging market countries are countries that the World Bank or the United Nations considers to be emerging or developing. Most countries or regions are included in this category, except for Australia, Canada, Hong Kong, Japan, New Zealand, Singapore, the United Kingdom, MORE INFORMATION ABOUT RISK 72 PROSPECTUS the United States and most of the countries located in Western Europe. Emerging markets may be more likely to experience political turmoil or rapid changes in market or economic conditions than more developed countries. In addition, the financial stability of issuers (including governments) in emerging market countries may be more precarious than in other countries. As a result, there will tend to be an increased risk of price volatility associated with a Fund's investments in emerging market countries, which may be magnified by currency fluctuations relative to the U.S. dollar. Governments of some emerging market countries have defaulted on their bonds and may do so in the future. EQUITY RISK All Funds Equity securities include public and privately issued equity securities, common and preferred stocks, warrants, rights to subscribe to common stock and convertible securities, as well as instruments that attempt to track the price movement of equity indices. Investments in equity securities and equity derivatives in general are subject to market risks that may cause their prices to fluctuate over time. The value of securities convertible into equity securities, such as warrants or convertible debt, is also affected by prevailing interest rates, the credit quality of the issuer and any call provision. Fluctuations in the value of equity securities in which a mutual fund invests will cause a fund's net asset value to fluctuate. An investment in a portfolio of equity securities may be more suitable for long-term investors who can bear the risk of these share price fluctuations. EXCHANGE TRADED FUND RISK All Funds The Funds may purchase shares of exchange-traded funds ("ETFs") to temporarily gain exposure to a particular portion of the market while awaiting an opportunity to purchase securities directly. ETFs are investment companies that are bought and sold on a securities exchange. An ETF holds a portfolio of securities designed to track a particular market segment or index. ETFs, like mutual funds, have expenses associated with their operation, including advisory fees. When the Fund invests in an ETF, in addition to directly bearing expenses associated with its own operations, it will bear a pro rata portion of the ETF's expense. The risks of owning shares of an ETF generally reflect the risks of owning the underlying securities the ETF is designed to track, although lack of liquidity in an ETF could result in being more volatile than the underlying portfolio of securities. In addition, because of ETF expenses, compared to owning the underlying securities directly, it may be more costly to own an ETF. FIXED INCOME RISK Balanced Fund Life Vision Conservative Fund Life Vision Growth and Income Fund Life Vision Moderate Growth Fund Life Vision Target Date 2015 Fund Life Vision Target Date 2025 Fund Life Vision Target Date 2035 Fund The prices of a Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, a Fund's fixed income securities will decrease in value if interest rates rise and vice versa. Long-term debt securities generally are more sensitive to changes in interest rates, usually making them more volatile than short-term debt securities and thereby increasing risk. Debt securities are also subject to credit risk, which is the possibility than an issuer will fail to make timely payments of interest or principal, or go bankrupt. The lower the ratings of such debt securities, the greater their risks. In addition, lower rated securities have higher risk characteristics, and changes in economic conditions are likely to cause issuers of these securities to be unable to meet their obligations. Debt securities are also subject to income risk, which is the possibility that falling interest rates will cause a Fund's income to decline. Income risk is generally higher for short-term bonds. FLOATING RATE LOAN RISK Balanced Fund Life Vision Conservative Fund Life Vision Growth and Income Fund Life Vision Moderate Growth Fund Life Vision Target Date 2015 Fund Life Vision Target Date 2025 Fund Life Vision Target Date 2035 Fund MORE INFORMATION ABOUT RISK PROSPECTUS 73 As fixed income securities, investments in floating rate loans are subject to interest rate risk, but that risk is less because the interest rate of the loan adjusts periodically. As debt securities, investments in floating rate loans are subject to credit risk. Many floating rate loans are in unrated or lower credit rated securities. When a security is unrated, a Fund must rely more heavily on the analytical ability of the Adviser. Many floating rate loan investments share the same risks as high yield securities, although these risks are reduced when the floating rate loans are senior and secured as opposed to many high yield securities that are junior and unsecured. Floating rate securities are often subject to restrictions on resale which can result in reduced liquidity. A floating rate loan also may not be fully collateralized, although one lending institution will often be required to monitor collateral. Borrowers may repay principal faster than the scheduled due date which may result in a Fund replacing that loan with a lower-yielding security. Investment in loan participation interests may result in increased exposure to financial services sector risk. A loan may not be fully collateralized which may cause the loan to decline significantly in value, although one lending institution acting as agent for all of the lenders will generally be required to administer and manage the loan and, with respect to collateralized loans, to service or monitor the collateral. Certain portfolio managers and other personnel of the Adviser may also manage similar investment portfolios of floating rate loans for another non-investment adviser contracted affiliated business, Seix Structured Products, LLC ("SSP"). SSP is a subsidiary of SunTrust Bank and an affiliate of the Adviser, but not a client of the Adviser. In that role, this group purchases bank loans on behalf of SSP, for purposes of subsequent collateralized loan obligation ("CLO") transactions where the Adviser and its affiliate, SunTrust Capital Markets, Inc., will serve as collateral manager and as structuring agent/placement agent, respectively. The trustee and custodian of the CLO transactions are not affiliated entities of the Adviser or SunTrust Capital Markets. In addition, the Adviser serves as adviser to an account established with its affiliate, SunTrust Equity Funding, LLC for the purpose of purchasing high yield securities for subsequent sale to these same CLO transactions. Each of these transactions is subject to the approval of the independent trustee of the CLO transaction. In addition to disclosure to the trustee, all such transactions are fully disclosed to potential investors in the CLO's Offering and Disclosure documents. As a result of these multiple investment-oriented and associated relationships, there exists a potential risk that the portfolio managers may favor other adviser and non-adviser contracted businesses over a Fund, especially when allocating certain types of transactions. The Adviser has created and implemented additional policies and procedures designed to protect shareholders against such conflicts; however, there can be no absolute guarantee that a Fund will always participate in the same or similar investments or receive equal or better individual investment allocations at any given time. FOREIGN SECURITY RISK Aggressive Growth Stock Fund Balanced Fund Emerging Growth Stock Fund International Equity Fund International Equity Index Fund Large Cap Quantitative Equity Fund Large Cap Relative Value Fund Large Cap Value Equity Fund Life Vision Aggressive Growth Fund Life Vision Conservative Fund Life Vision Growth and Income Fund Life Vision Moderate Growth Fund Life Vision Target Date 2015 Fund Life Vision Target Date 2025 Fund Life Vision Target Date 2035 Fund Mid-Cap Equity Fund Mid-Cap Value Equity Fund Quality Growth Stock Fund Small Cap Growth Stock Fund Small Cap Quantitative Equity Fund Small Cap Value Equity Fund Investments in securities of foreign companies or governments can be more volatile than investments in U.S. companies or governments. Political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. Diplomatic, political, or economic developments, including nationalization or appropriation, could affect investments in foreign countries. Foreign securities markets generally have less trading volume and less liquidity than U.S. markets. MORE INFORMATION ABOUT RISK 74 PROSPECTUS The value of securities denominated in foreign currencies, and of dividends from such securities, can change significantly when foreign currencies strengthen or weaken relative to the U.S. dollar. As a result, changes in the value of those currencies compared to the U.S. dollar may affect (positively or negatively) the value of a Fund's investment. Certain foreign currencies may be particularly volatile, and foreign governments may intervene in the currency markets, causing a decline in value or liquidity in a Fund's foreign currency holdings. These currency movements may happen separately from and in response to events that do not otherwise affect the value of the security in the issuer's home country. Foreign companies or governments generally are not subject to uniform accounting, auditing, and financial reporting standards comparable to those applicable to domestic U.S. companies or governments. Transaction costs are generally higher than those in the U.S. and expenses for custodial arrangements of foreign securities may be somewhat greater than typical expenses for custodial arrangements of similar U.S. securities. Some foreign governments levy withholding taxes against dividend and interest income. Although in some countries a portion of these taxes are recoverable, the non-recovered portion will reduce the income received from the securities comprising the portfolio. LARGE COMPANY RISK Aggressive Growth Stock Fund Balanced Fund Capital Appreciation Fund Emerging Growth Fund International Equity Fund International Equity Index Fund Large Cap Quantitative Equity Fund Large Cap Relative Value Fund Large Cap Value Equity Fund Life Vision Aggressive Growth Fund Life Vision Conservative Fund Life Vision Growth and Income Fund Life Vision Moderate Growth Fund Life Vision Target Date 2015 Fund Life Vision Target Date 2025 Fund Life Vision Target Date 2035 Fund Mid-Cap Equity Fund Mid-Cap Value Equity Fund Quality Growth Stock Fund Large cap stocks can perform differently from other segments of the equity market or the equity market as a whole. Companies with large capitalization tend to go in and out of favor based on market and economic conditions and, while they can be less volatile than companies with smaller market capitalizations, they may also be less flexible in evolving markets or unable to implement change as quickly as their smaller counterparts. Accordingly, the value of large cap stocks may not rise to the same extent as the value of small or mid-cap companies. MORTGAGE-BACKED SECURITY RISK Balanced Fund Life Vision Conservative Fund Life Vision Growth and Income Fund Life Vision Moderate Growth Fund Life Vision Target Date 2015 Fund Life Vision Target Date 2025 Fund Life Vision Target Date 2035 Fund Mortgage-backed securities are fixed income securities representing an interest in a pool of underlying mortgage loans. Mortgage-backed securities are sensitive to changes in interest rates, but may respond to these changes differently from other fixed income securities due to the likelihood that a change in the general level of interest rates will impact the magnitude and timing of any prepayments of the underlying mortgage loans. As a result, it may not be possible to accurately determine in advance the actual maturity date or average life of a mortgage-backed security. The uncertainty inherent in assessing prepayment risk makes it difficult to calculate the average maturity of a portfolio including mortgage-backed securities, and therefore, to assess the volatility risk of a Fund. SMALLER COMPANY RISK All Funds Small and mid-capitalization stocks can perform differently from other segments of the equity market or the equity market as a whole. The small and mid- capitalization companies the Fund invests in may be more vulnerable to adverse business or economic events than larger, more established companies. In particular, these companies may have limited product lines, markets and financial resources, and may depend upon a relatively small management group. Therefore, small and mid-cap stocks can be more volatile than those of larger MORE INFORMATION ABOUT FUND INVESTMENTS PROSPECTUS 75 companies. These securities may be traded over-the-counter or listed on an exchange. TRACKING ERROR RISK International Equity Index Fund Life Vision Aggressive Growth Fund Life Vision Conservative Fund Life Vision Growth and Income Fund Life Vision Moderate Growth Fund Life Vision Target Date 2015 Fund Life Vision Target Date 2025 Fund Life Vision Target Date 2035 Fund Factors such as Fund expenses, imperfect correlation between the Fund's investments and those of its benchmarks, rounding of share prices, changes to the benchmark, regulatory policies, and leverage, may affect their ability to achieve perfect correlation. The magnitude of any tracking error may be affected by a higher portfolio turnover rate. Because an index is just a composite of the prices of the securities it represents rather than an actual portfolio of those securities, an index will have no expenses. As a result, the Fund, which will have expenses such as taxes, custody, management fees and other operational costs, and brokerage, may not achieve its investment objective of accurately correlating to an index. (MOUNTAIN ICON) MORE INFORMATION ABOUT FUND INVESTMENTS This prospectus describes the Funds' primary strategies, and the Funds will normally invest in the types of securities described in this prospectus. However, in addition to the investments and strategies described in this prospectus, each Fund also may invest in other securities, use other strategies and engage in other investment practices. These investments and strategies, as well as those described in this prospectus, are described in detail in the Statement of Additional Information. The investments and strategies described in this prospectus are those that the Funds use under normal conditions. During unusual economic or market conditions, or for temporary defensive or liquidity purposes, each Fund may invest up to 100% of its assets in cash, money market instruments, repurchase agreements and short-term obligations. The Small Cap Value Equity Fund also may invest in investment grade fixed income securities and mid- to large-cap common stocks that would not ordinarily be consistent with the Fund's objective. A Fund will do so only if the Adviser believes that the risk of loss outweighs the opportunity for capital gains or higher income. Of course, a Fund cannot guarantee that it will achieve its investment goal. INFORMATION ABOUT PORTFOLIO HOLDINGS A description of the Funds' policies and procedures with respect to the circumstances under which the Funds disclose their portfolio securities is available in the Statement of Additional Information. (MAGNIFIYING GLASS ICON) INVESTMENT ADVISER Trusco Capital Management, Inc., 50 Hurt Plaza, Suite 1400, Atlanta, Georgia 30303 ("Trusco" or the "Adviser"), serves as the investment adviser to the Funds. As of June 30, 2006, the Adviser had approximately $71 billion in assets under management. For the fiscal year ended March 31, 2006, the Funds paid the Adviser advisory fees (after waivers) based on the respective Fund's average daily net assets of: Aggressive Growth Stock Fund 1.09% Balanced Fund 0.88% Capital Appreciation Fund 1.00% Emerging Growth Stock Fund 1.10% International Equity Fund 1.16% International Equity Index Fund 0.59% Large Cap Quantitative Equity Fund 0.88% Large Cap Relative Value Fund 0.84% Large Cap Value Equity Fund 0.79% Life Vision Aggressive Growth Fund 0.11% Life Vision Conservative Fund 0.00% Life Vision Growth and Income Fund 0.11% Life Vision Moderate Growth Fund 0.11% Mid-Cap Equity Fund 1.04% Mid-Cap Value Equity Fund 1.06% Quality Growth Stock Fund 0.97% Small Cap Growth Stock Fund 1.11% Small Cap Value Equity Fund 1.14%
For its advisory services to the Small Cap Quantitative Equity Fund, the Adviser is entitled to receive an annual advisory fee of 1.05% based on the Fund's average daily net assets. For its advisory services to each of the Life Vision Target Date 2015 Fund, the Life Vision Target Date 2025 Fund and the Life Vision Target Date 2035 Fund, INVESTMENT SUBADVISER 76 PROSPECTUS the Adviser is entitled to receive an annual advisory fee of 0.10% based on each Fund's average daily net assets. The Adviser has contractually agreed to waive fees and reimburse expenses until at least August 1, 2007 in order to keep total operating expenses of each Life Vision Fund from exceeding the applicable expense cap. If at any point before August 1, 2009, total annual operating expenses are less than the expense cap, the Adviser may retain the difference to recapture any of the prior waivers or reimbursements. Since August 1, 2005, the following breakpoints have been used in computing the advisory fee:
AVERAGE DAILY NET ASSETS DISCOUNT FROM FULL FEE - ------------------------ ---------------------- First $500 million None-Full Fee Next $500 million 5% Over $1 billion 10%
Based on average daily net assets for the fiscal year ended March 31, 2006, the asset levels of the following Funds had reached a breakpoint in the advisory fee.* Had the Funds' asset levels been lower, the Adviser may have been entitled to receive maximum advisory fees as follows: Capital Appreciation Fund 0.97% International Equity Fund 1.15% Large Cap Relative Value Fund 0.85% Large Cap Value Equity Fund 0.80% Small Cap Growth Stock Fund 1.15% Small Cap Value Equity Fund 1.15%
* Fund expenses in the "Annual Fund Operating Expenses" tables shown earlier in this prospectus reflect the advisory breakpoints. A discussion regarding the basis for the Board of Trustees' approval of the investment advisory contracts with the Adviser appears in the Funds' semi-annual report to shareholders for the period ended September 30, 2005. The Adviser is responsible for making investment decisions for the Funds and continuously reviews, supervises and administers each Fund's respective investment program. With respect to the Aggressive Growth Stock Fund and the Emerging Growth Stock Fund, the Adviser oversees the Subadviser to ensure compliance with each Fund's investment policies and guidelines and monitors the Subadviser's adherence to its investment style. The Adviser pays the Subadviser out of the fees it receives from the Aggressive Growth Stock Fund and Emerging Growth Stock Fund. The Board of Trustees supervises the Adviser and Subadviser and establishes policies that the Adviser and Subadviser must follow in their management activities. The Adviser may use its affiliates as brokers for Fund transactions. An investment adviser has a fiduciary obligation to its clients when the adviser has authority to vote their proxies. Under the current contractual agreement, the Adviser is authorized to vote proxies on behalf of each Fund. Information regarding the Adviser's, and thus each Fund's, Proxy Voting Policies and Procedures is provided in the Statement of Additional Information. A copy of the Adviser's Proxy Voting Policies and Procedures may be obtained by contacting the STI Classic Funds at 1-888-STI-FUND, or by visiting www.sticlassicfunds.com. INVESTMENT SUBADVISER Zevenbergen Capital Investments LLC, 601 Union Street, Seattle, Washington 98101, serves as the Subadviser to the Aggressive Growth Stock Fund and Emerging Growth Stock Fund and manages the portfolios of the Aggressive Growth Stock Fund and Emerging Growth Stock Fund on a day-to-day basis. The Subadviser was founded in 1987 and manages domestic growth equity assets. The firm's client base is comprised of a blend of institutional tax-exempt and taxable separately managed accounts. As a domestic growth equity manager, the Subadviser manages assets for a variety of entities, including public funds, foundations, endowments, corporations, pooled accounts, and private individuals. As of June 30, 2006, the Subadviser had approximately $1.2 billion in assets under management. The Subadviser selects, buys, and sells securities for the Aggressive Growth Stock Fund and Emerging Growth Stock Fund under the supervision of the Adviser and the Board of Trustees. The Subadviser is entitled to receive from the Adviser 0.625% of each of the Aggressive Growth Stock Fund's and Emerging Growth Stock Fund's daily net assets. PORTFOLIO MANAGERS The following individuals are primarily responsible for the day-to-day management of the Funds. Mr. Andrew Atkins has served as an Equity Portfolio Analyst at Trusco since August 2000. He has PORTFOLIO MANAGERS PROSPECTUS 77 co-managed the INTERNATIONAL EQUITY INDEX FUND since March 31, 2005. He has more than 6 years of investment experience. Mr. Brett Barner, CFA, has served as Managing Director of Trusco since July 2000. He has managed the SMALL CAP VALUE EQUITY FUND since its inception. He has more than 21 years of investment experience. Mr. Edward E. Best, CFA, has served as Managing Director of Trusco since June 2000. Mr. Best also serves as the senior quantitative equity analyst for Trusco. He has managed both the LARGE CAP QUANTITATIVE EQUITY FUND and the SMALL CAP QUANTITATIVE EQUITY FUND since their inception. He has more than 13 years of investment experience. Ms. Brooke de Boutray, CFA, has served as Managing Director, Principal, Portfolio Manager and Analyst for the Subadviser since 1992. She has co-managed the AGGRESSIVE GROWTH STOCK FUND and the EMERGING GROWTH STOCK FUND since their inception. She has more than 23 years of investment experience. Mr. Chad Deakins, CFA, has served as Managing Director of Trusco since May 2000. He has co-managed the INTERNATIONAL EQUITY INDEX FUND since March 2005, after managing the Fund since February 1999. He has managed the INTERNATIONAL EQUITY FUND since May 2000. In addition, he has co-managed the MID-CAP EQUITY FUND since February 2006, after managing the Fund from September 2004 to January 2006 and co-managing the Fund from February 2003 to September 2004. He has more than 12 years of investment experience. Mr. James P. Foster has served as Managing Director of Trusco since May 2004 and has been with Trusco since 1988. He has co-managed the SMALL CAP GROWTH STOCK FUND since June 2006. He has more than 37 years of investment experience. Mr. Alan Gayle has served as Managing Director of Trusco since July 2000 and Director of Asset Allocation since March 2006. He serves as lead manager of the LIFE VISION AGGRESSIVE GROWTH FUND, LIFE VISION CONSERVATIVE FUND, LIFE VISION GROWTH AND INCOME FUND, LIFE VISION MODERATE GROWTH FUND, LIFE VISION 2015 TARGET DATE FUND, LIFE VISION 2025 TARGET DATE FUND and the LIFE VISION 2035 TARGET DATE FUND since each Fund's inception. He has more than 29 years of investment experience. Mr. Jeffrey E. Markunas, CFA, has served as Managing Director of Trusco since July 2000. Mr. Markunas has managed the LARGE CAP RELATIVE VALUE FUND since its inception. He has more than 22 years of investment experience. Ms. Elizabeth G. Pola, CFA, joined Trusco in 1983 and has served as Executive Vice President and Director of Equity Research of Trusco since 2000. She has co-managed the CAPITAL APPRECIATION FUND and the BALANCED FUND (equity portion only) since December 2005. She has more than 24 years of investment experience. Mr. Robert J. Rhodes, CFA, joined Trusco in 1973 and has served as Executive Vice President and head of the equity funds group at Trusco since February 2000. He managed the BALANCED FUND (equity portion only) and the CAPITAL APPRECIATION FUND from June 2000 to November 2005 and has co-managed those Funds since December 2005. He has more than 33 years of investment experience. Mr. Mills Riddick, CFA, has served as Managing Director of Trusco since July 2000. He has managed the LARGE CAP VALUE EQUITY FUND since April 1995. He has more than 24 years of investment experience. Mr. John Talty, CFA, has served as Executive Vice President since joining Trusco in May 2004. He has co-managed the BALANCED FUND (fixed income portion only) since July 2004. Prior to joining Trusco, Mr. Talty served as President and Senior Portfolio Manager of Seix Investment Advisors, Inc. from January 1993 to May 2004. He has more than 25 years of investment experience. Mr. Parker W. Thomas, Jr. has served as Vice President since joining Trusco in April 2004. He has managed the QUALITY GROWTH STOCK FUND since April 2004. Prior to joining Trusco, Mr. Thomas served as Senior Vice President, SunTrust Bank, Nashville from January 1988 to September 2002. From September 2002 to March 2004 he served as Managing Director and Portfolio Manager of Personal Asset Management, for SunTrust Banks Inc. He has more than 33 years of investment experience. PURCHASING AND SELLING FUND SHARES 78 PROSPECTUS Mr. Perry Troisi has served as Managing Director since joining Trusco in May 2004. He has co-managed the BALANCED FUND (fixed income portion only), since July 2004. Prior to joining Trusco, Mr. Troisi served as Senior Portfolio Manager of Seix Investment Advisors, Inc. from November 1999 to May 2004. He has more than 20 years of investment experience. Ms. Leslie Tubbs, CFA, has served as Managing Director, Principal, Portfolio Manager and Analyst for the Subadviser since 1995. She has co-managed the AGGRESSIVE GROWTH STOCK FUND and the EMERGING GROWTH STOCK FUND since their inception. She has more than 11 years of investment experience. Mr. Stuart F. Van Arsdale, CFA, has served as Managing Director of Trusco since May 2002. He has co-managed the SMALL CAP GROWTH STOCK FUND since June 2006. Prior to joining Trusco, Mr. Van Arsdale served as Director of Growth Investments for Deprince, Race & Zollo, Inc. from October 1998 to April 2002. He has more than 26 years of investment experience. Mr. Don Wordell, CFA, has served as Director of Trusco since December 2005. He has managed the MID-CAP VALUE EQUITY FUND since December 2003, after co-managing it since its inception. He has more than 10 years of investment experience. Mr. Scott Yuschak, CFA, has served as Vice President and Research Analyst of Trusco since February 2005. He has co-managed the MID-CAP EQUITY FUND since February 2006. Prior to joining Trusco, Mr. Yuschak served as Sector Manager and Equity Analyst at Banc One from July 2000 to February 2005. He has more than 9 years of investment experience. Ms. Nancy Zevenbergen, CFA, has served as President and Chief Investment Officer for the Subadviser since January 1987. She has co-managed the AGGRESSIVE GROWTH STOCK FUND and EMERGING GROWTH STOCK FUND since their inception. She has more than 24 years of investment experience. The Statement of Additional Information provides additional information regarding the portfolio managers' compensation, other accounts managed by the portfolio managers, potential conflicts of interest and the portfolio managers' ownership of securities in the Funds. (HAND SHAKE ICON) PURCHASING AND SELLING FUND SHARES This section tells you how to purchase and sell (sometimes called "redeem") I Shares of the Funds. HOW TO PURCHASE FUND SHARES The Funds offer I Shares exclusively to financial institutions and intermediaries for their own accounts or for the accounts of customers for which they act as fiduciary agent, investment adviser, or custodian and which consist of: - - assets of a bona fide trust, or - - assets of a business entity possessing a tax identification number. As a result, you, as a customer of a financial institution or intermediary may purchase I Shares through accounts made with financial institutions or intermediaries. I Shares will be held of record by (in the name of) your financial institution or intermediary. Depending upon the terms of your account, however, you may have, or be given, the right to vote your I Shares. Shares of the SMALL CAP VALUE EQUITY FUND are no longer available for purchase by new investors. Please refer to the Statement of Additional Information for the definition of "new investor." WHEN CAN YOU PURCHASE SHARES? You may purchase shares on any day that the New York Stock Exchange ("NYSE") is open for business (a "Business Day"). The price per share (the offering price) will be the net asset value per share ("NAV") next determined after the Funds receive your purchase order in proper form. Each Fund calculates its NAV once each Business Day at the regularly-scheduled close of normal trading on the NYSE (normally, 4:00 p.m., Eastern Time). So, for you to receive the current Business Day's NAV, a Fund or its authorized agent must receive your purchase order in proper form before 4:00 p.m., Eastern Time. If the NYSE closes early - such as on days in advance of certain holidays - the Funds will calculate NAV as of the earlier closing time. The Funds will not accept orders that request a particular day or price for the transaction or any other special conditions. YOU MAY HAVE TO TRANSMIT YOUR PURCHASE AND SALE REQUESTS TO YOUR FINANCIAL INSTITUTION OR INTERMEDIARY PURCHASING AND SELLING FUND SHARES PROSPECTUS 79 AT AN EARLIER TIME FOR YOUR TRANSACTION TO BECOME EFFECTIVE THAT DAY. THIS ALLOWS THE FINANCIAL INSTITUTION OR INTERMEDIARY TIME TO PROCESS YOUR REQUEST AND TRANSMIT IT TO THE TRANSFER AGENT IN TIME TO MEET THE ABOVE STATED FUND CUT-OFF TIMES. FOR MORE INFORMATION ABOUT HOW TO PURCHASE OR SELL FUND SHARES, INCLUDING A SPECIFIC FINANCIAL INSTITUTION'S OR INTERMEDIARY'S INTERNAL ORDER ENTRY CUT-OFF TIME, PLEASE CONTACT YOUR FINANCIAL INSTITUTION OR INTERMEDIARY DIRECTLY. A Fund may reject any purchase order. HOW THE FUNDS CALCULATE NAV NAV is calculated by adding the total value of a Fund's investments and other assets, subtracting its liabilities, and then dividing that figure by the number of outstanding shares of the Fund. In calculating NAV, each Fund generally values its investment portfolio at market price. If market prices are not readily available or the Fund reasonably believes that they are unreliable, such as in the case of a security value that has been materially affected by events occurring after the relevant market closes, a Fund is required to price those securities at fair value as determined in good faith using methods approved by the Board of Trustees. A Fund's determination of a security's fair value price often involves the consideration of a number of subjective factors, and is therefore subject to the unavoidable risk that the value that a Fund assigns to a security may be higher or lower than the security's value would be if a reliable market quotation for the security was readily available. When valuing fixed income securities with remaining maturities of more than 60 days, the Funds use the value of the security provided by pricing services. The values provided by a pricing service may be based upon market quotations for the same security, securities expected to trade in a similar manner, or a pricing matrix. When valuing fixed income securities with remaining maturities of 60 days or less, the Funds use the security's amortized cost. Amortized cost and the use of a pricing matrix in valuing fixed income securities are forms of fair value pricing. Although the Funds, except the International Equity Fund and International Equity Index Fund, invest primarily in the stocks of companies that are traded on U.S. exchanges, there may be limited circumstances in which a Fund would price securities at fair value - for example, if the exchange on which a portfolio security is principally traded closed early or if trading in a particular security was halted during the day and did not resume prior to the time a Fund calculated its NAV. With respect to non-U.S. securities held by a Fund, the Fund may take factors influencing specific markets or issues into consideration in determining the fair value of a non-U.S. security. International securities markets may be open on days when the U.S. markets are closed. In such cases, the value of any international securities owned by a Fund may be significantly affected on days when investors cannot buy or sell shares. In addition, due to the difference in times between the close of the international markets and the time a Fund prices its shares, the value the Fund assigns to securities generally will not be the same as the primary markets or exchanges. In determining fair value prices, a Fund may consider the performance of securities on their primary exchanges, foreign currency appreciation/depreciation, securities market movements in the U.S., or other relevant information as related to the securities. IN-KIND PURCHASES Payment for shares of a Fund may, in the discretion of the Adviser, be made in the form of securities that are permissible investments for such Fund. In connection with an in-kind securities payment, a Fund will require, among other things, that the securities (a) meet the investment objectives and policies of the Fund; (b) are acquired for investment and not for resale; (c) are liquid securities that are not restricted as to transfer either by law or liquidity of markets; (d) have a value that is readily ascertainable (e.g., by a listing on a nationally recognized securities exchange); and (e) are valued on the day of purchase in accordance with the pricing methods used by the Fund. For further information about this form of payment, please call 1-888-STI-FUND. CUSTOMER IDENTIFICATION FOREIGN INVESTORS The Funds do not generally accept investments in I Shares by non-U.S. citizens or entities. CUSTOMER IDENTIFICATION AND VERIFICATION To help the government fight the funding of terrorism and money laundering activities, federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account. PURCHASING AND SELLING FUND SHARES 80 PROSPECTUS When you open an account, you will be asked to provide your name, residential street address, date of birth, Social Security number or tax identification number. You may also be asked for other information that will allow us to identify you. Entities are also required to provide additional documentation. This information will be verified to ensure the identity of all persons opening a mutual fund account. In certain instances, the Funds are required to collect documents to fulfill their legal obligation. Documents provided in connection with your application will be used solely to establish and verify a customer's identity. The Funds are required by law to reject your new account application if the required identifying information is not provided. Attempts to collect the missing information required on the application will be performed by either contacting you or, if applicable, your broker. If this information is unable to be obtained within a timeframe established in the sole discretion of the Funds, your application will be rejected. Upon receipt of your application in proper form (or upon receipt of all identifying information required on the application), your investment will be accepted and your order will be processed at the NAV next determined. However, the Funds reserve the right to close your account at the then-current day's price if the Funds are unable to verify your identity. Attempts to verify your identity will be performed within a timeframe established in the sole discretion of the Funds. If the Funds are unable to verify your identity, the Funds reserve the right to liquidate your account at the then-current day's price and remit proceeds to you via check. The Funds reserve the further right to hold your proceeds until your original check clears the bank. In such an instance, you may be subject to a gain or loss on Fund shares and will be subject to corresponding tax implications. ANTI-MONEY LAUNDERING PROGRAM Customer identification and verification is part of the Funds' overall obligation to deter money laundering under federal law. The Funds have adopted an anti-money laundering compliance program designed to prevent the Funds from being used for money laundering or the financing of terrorist activities. In this regard, the Funds reserve the right to (i) refuse, cancel or rescind any purchase or exchange order, (ii) freeze any account and/or suspend account services, or (iii) involuntarily redeem your account in cases of threatening conduct or suspected fraudulent or illegal activity. These actions will be taken when, in the sole discretion of Fund management, they are deemed to be in the best interest of the Funds or in cases when the Funds are requested or compelled to do so by governmental or law enforcement authority. HOW TO SELL YOUR FUND SHARES You may sell your shares on any Business Day by contacting your financial institution or intermediary. Your financial institution or intermediary will give you information about how to sell your shares including any specific cut-off times required. Holders of I Shares may sell shares by following the procedures established when they opened their account or accounts with the Funds or with their financial institution or intermediary. The sale price of each share will be the NAV next determined after the Funds receive your request in proper form. A MEDALLION SIGNATURE GUARANTEE] by a bank or other financial institution (a notarized signature is not sufficient) is required to redeem shares: - - made payable to someone other than the registered shareholder; - - sent to an address or bank account other than the address or bank account of record; or - - sent to an address or bank account of record that has been changed within the last 15 calendar days. MARKET TIMING POLICIES AND PROCEDURES PROSPECTUS 81 Other documentation may be required depending on the registration of the account. ] MEDALLION SIGNATURE GUARANTEE: A Medallion Signature Guarantee verifies the authenticity of your signature and helps ensure that changes to your account are in fact authorized by you. A Medallion Signature Guarantee may be obtained from a domestic bank or trust company, broker, dealer, clearing agency, savings association or other financial institution participating in a Medallion Program recognized by the Securities Trading Association. Signature guarantees from financial institutions that do not reflect one of the following are not part of the program and will not be accepted. The acceptable Medallion programs are Securities Transfer Agents Medallion Program, (STAMP), Stock Exchange Medallion Program, (SEMP), or the New York Stock Exchange, Inc. Medallion Program, (NYSE MSP). Contact your local financial adviser for further assistance. REDEMPTION FEE A redemption fee of 2% of the value of the shares sold will be imposed on shares redeemed within 7 days (60 days in the case of the International Equity Fund and the International Equity Index Fund) or less after their date of purchase unless the redemption is excluded under the Redemption Fee Policy. The redemption fee is intended to limit short-term trading and to help offset costs to the Funds' remaining shareholders of that type of activity. (See "Redemption Fee Policy.") RECEIVING YOUR MONEY Normally, the Funds will send your sale proceeds within five Business Days after the Funds receive your request, but a fund may take up to seven days to pay the sale proceeds if making immediate payment would adversely affect the Fund (for example, to allow the Fund to raise capital in the case of a large redemption). REDEMPTIONS IN KIND The Funds generally pay redemption proceeds in cash. However, under unusual conditions that make the payment of cash unwise (and for the protection of the Fund's remaining shareholders), the Funds might pay all or part of your redemption proceeds in liquid securities with a market value equal to the redemption price (redemption in kind). It is highly unlikely that your shares would ever be redeemed in kind, but if they were you would probably have to pay transaction costs to sell the securities distributed to you, as well as taxes on any capital gains from the sale as with any redemption. SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES A Fund may suspend your right to sell your shares if the NYSE restricts trading, the SEC declares an emergency or for other reasons approved by the SEC. More information about this is in the Statement of Additional Information. TELEPHONE TRANSACTIONS Purchasing and selling Fund shares over the telephone is extremely convenient, but not without risk. Although the Funds have certain safeguards and procedures to confirm the identity of callers and the authenticity of instructions, the Funds are not responsible for any losses or costs incurred by following telephone instructions the Funds reasonably believe to be genuine. If you or your financial institution or intermediary transact with the Funds over the telephone, you will generally bear the risk of any loss. The Funds reserve the right to modify, suspend or terminate telephone transaction privileges at any time. To redeem shares by telephone: - - redemption checks must be made payable to the registered shareholder; and - - redemption checks must be mailed to an address or wired to a bank account of record that has been associated with the shareholder account for at least 15 calendar days. MARKET TIMING POLICIES AND PROCEDURES The Funds are intended for long-term investment purposes only and discourage shareholders from engaging in "market timing" or other types of excessive short-term trading. This frequent trading into and out of the Funds may present risks to the Funds' long-term shareholders, all of which could adversely affect shareholder returns. The risks posed by frequent trading include interfering with the efficient implementation of the Funds' investment strategies, triggering the recognition of taxable gains and losses on the sale of Fund investments, requiring the Funds to maintain higher cash balances to meet redemption requests, and experiencing increased transaction costs. A Fund that invests a significant amount of its assets in overseas REDEMPTION FEE POLICY 82 PROSPECTUS markets is particularly susceptible to the risk of certain investors using a strategy known as time-zone arbitrage. Investors using this strategy attempt to take advantage of the differences in value of foreign securities that might result from events that occur between the close of the foreign securities market on which a foreign security is traded and the time at which the Fund calculates its NAV. The Funds and/or their service providers will take steps reasonably designed to detect and deter frequent trading by shareholders pursuant to the Funds' policies and procedures described in this prospectus and approved by the Funds' Board of Trustees. For purposes of applying these policies, the Funds' service providers may consider the trading history of accounts under common ownership or control. The Funds' policies and procedures include: - - Shareholders are restricted from making more than one (1) "round trip" into or out of a Fund within 14 days or more than two (2) "round trips" within any continuous 90 day period. If a shareholder exceeds either "round trip" restriction, he or she may be deemed a "Market Timer," and the Funds and/or their service providers may, at their discretion, reject any additional purchase orders. The Funds define a round trip as a purchase into a Fund by a shareholder, followed by a subsequent redemption out of the Fund. Anyone considered to be a Market Timer by the Funds, their manager(s) or a shareholder servicing agent may be notified in writing of their designation as a Market Timer. - - The Funds reserve the right to reject any purchase request by any investor or group of investors for any reason without prior notice, including, in particular, if the Funds or their Adviser reasonably believes that the trading activity would be harmful or disruptive to the Funds. - - A redemption fee of 2% of the value of the shares sold will be imposed on shares redeemed within 7 days or less (60 days or less for the International Equity Fund and the International Equity Index Fund) after their date of purchase. The redemption fee proceeds will be paid to the applicable Fund to help offset costs to the Fund's remaining shareholders. The Funds will use the first-in, first-out ("FIFO") method to determine the holding period. Under this method, the date of the redemption will be compared to the earliest purchase date of shares of a particular Fund held in a shareholder's account. If this holding period is less than the required holding period, the redemption fee will be assessed. The Funds and/or their service providers seek to apply these policies to the best of their abilities uniformly and in a manner they believe is consistent with the interests of the Funds' long-term shareholders. Although these policies are designed to deter frequent trading, none of these measures alone nor all of them taken together eliminate the possibility that frequent trading in the Funds will occur, particularly with respect to trades placed by shareholders that invest in the Funds through omnibus arrangements maintained by brokers, retirement plan accounts and other financial intermediaries. The Funds' and their service providers' access to information about individual shareholder transactions made through such omnibus arrangements is often unavailable or severely limited. The Funds rely in large part on the policies, ability and willingness of brokers, retirement plan accounts and other financial intermediaries who maintain omnibus arrangements to detect and deter short-term trading. Despite this reliance, the Funds cannot assure that their policies will be enforced with regard to those Fund shares held through such omnibus arrangements (which may represent a majority of Fund shares), and as a result frequent trading could adversely affect the Funds and their long-term shareholders as discussed above. In addition to the previously mentioned initiatives to discourage market timing, the Funds intend to continually evaluate and, if practical, implement other measures to deter market timing. REDEMPTION FEE POLICY A redemption fee of 2% of the value of the shares sold will be imposed on shares redeemed within 7 days or less (60 days or less for the International Equity Fund and the International Equity Index Fund) after their date of purchase. The redemption fee proceeds will be paid to the applicable Fund to help offset costs to the Fund's remaining shareholders. The Funds will use the FIFO method to determine the holding period. Under this method, the date of the redemption will be compared to the earliest purchase date of shares of a particular Fund held in a shareholder's account. If this holding period is less than the required holding period, the redemption fee will be assessed. The redemption fee is applicable to Fund shares purchased either directly or through a financial DIVIDENDS AND DISTRIBUTIONS PROSPECTUS 83 intermediary, such as a broker-dealer. Transactions through financial intermediaries typically are placed with the Funds on an omnibus basis and include both purchase and sale transactions placed on behalf of multiple investors. For this reason, the Funds request the support from financial intermediaries of their obligation to assess the redemption fee on customer accounts and to collect and remit the proceeds to the Funds. However, due to operational requirements, the intermediaries' methods for tracking and calculating the fee may be inadequate or differ in some respects from the Funds' methods. The redemption fee may not apply to certain categories of redemptions, such as those that the Funds reasonably believe may not raise frequent trading or market timing concerns. These categories include, but are not limited to, the following: (i) accounts held through an omnibus arrangement, such as participants in certain group retirement plans (e.g., 401(k)/403(b) type participant accounts) or automatic asset allocation accounts, because information may not be available regarding beneficial owners or whose processing systems are incapable of properly applying the redemption fee to underlying shareholders; (ii) redemptions resulting from certain transfers upon the death of a shareholder; (iii) redemptions by certain pension plans as required by law or by regulatory authorities; (iv) retirement loans and withdrawals; and (v) shares purchased through reinvestment of dividends or capital gains distributions. Further, the Funds reserve the right to refuse any purchase request by any investor at any time. The Funds also reserve the right to modify or eliminate the redemption fee for certain categories of investors or waivers at any time. Such changes will be approved prior to implementation by the Funds' Board of Trustees. DISTRIBUTION OF FUND SHARES The distributor may provide financial assistance in connection with pre-approved seminars, conferences and advertising to the extent permitted by applicable state or self-regulatory agencies, such as the National Association of Securities Dealers. From its own assets, the Adviser or its affiliates may make payments based on gross sales and current assets to selected brokerage firms or institutions. The amount of these payments may be substantial. The minimum aggregate sales required for eligibility for such payments, and the factors in selecting the brokerage firms and institutions to which they will be made, are determined from time to time by the Adviser. Furthermore, in addition to the fees that may be paid by the Funds, the Adviser or its affiliates may pay fees from its own capital resources to brokers, banks, financial advisers, retirement plan service providers and other financial intermediaries, including affiliates, for providing distribution-related or shareholder services. DIVIDENDS AND DISTRIBUTIONS Each Fund distributes its net investment income as follows: QUARTERLY - ------------------------------------------------------------- Aggressive Growth Stock Fund Balanced Fund Capital Appreciation Fund Emerging Growth Stock Fund Large Cap Quantitative Equity Fund Large Cap Relative Value Fund Large Cap Value Equity Fund Life Vision Aggressive Growth Fund Life Vision Conservative Fund Life Vision Growth and Income Fund Life Vision Moderate Growth Fund Life Vision Target Date 2015 Fund Life Vision Target Date 2025 Fund Life Vision Target Date 2035 Fund Mid-Cap Equity Fund Mid-Cap Value Equity Fund Quality Growth Stock Fund Small Cap Growth Stock Fund Small Cap Quantitative Equity Fund Small Cap Value Equity Fund ANNUALLY - ------------------------------------------------------------- International Equity Fund International Equity Index Fund Each Fund makes distributions of its net realized capital gains, if any, at least annually. If you own Fund shares on a Fund's record date, you will be entitled to receive the distribution. You will receive dividends and distributions in the form of additional Fund shares unless you elect to receive payment in cash. To elect cash payment, you must notify the Fund in writing prior to the date of the distribution. Your election will be effective for dividends and distributions paid after the Fund receives your written notice. To cancel your election, simply send the Fund written notice. TAXES 84 PROSPECTUS TAXES PLEASE CONSULT YOUR TAX ADVISOR REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL, STATE AND LOCAL INCOME TAXES. Below the Funds have summarized some important tax issues that affect the Funds and their shareholders. This summary is based on current tax laws, which may change. Each Fund will distribute substantially all of its net investment income and its net realized capital gains, if any, at least annually. The dividends and distributions you receive may be subject to federal, state and local taxation, depending upon your tax situation. Distributions you receive from a Fund may be taxable whether or not you reinvest them. Income distributions are generally taxable either as ordinary income or as qualified dividend income. Dividends that are qualified dividend income are eligible for the reduced maximum rate to individuals of 15% (5% for individuals in lower tax brackets) to the extent that the Fund receives qualified dividend income. Capital gains distributions are generally taxable at the rates applicable to long-term capital gains. Long-term capital gains are currently taxed at a maximum rate of 15%. Absent further legislation, the maximum 15% tax rate on qualified dividend income and long-term capital gains will cease to apply to taxable years beginning after December 31, 2010. EACH SALE OF FUND SHARES MAY BE A TAXABLE EVENT. FOR TAX PURPOSES, AN EXCHANGE OF FUND SHARES FOR SHARES OF A DIFFERENT STI CLASSIC FUND IS TREATED THE SAME AS A SALE. A TRANSFER FROM ONE SHARE CLASS TO ANOTHER SHARE CLASS IN THE SAME STI CLASSIC FUND SHOULD NOT BE A TAXABLE EVENT. The Fund will inform you of the amount of your ordinary income dividends, qualified dividend income, and capital gains distributions shortly after the close of each calendar year. If you have a tax-advantaged or other retirement account you will generally not be subject to federal taxation on income and capital gain distributions until you begin receiving your distributions from your retirement account. You should consult your tax advisor regarding the rules governing your own retirement plan. The International Equity Fund and International Equity Index Fund may be able to pass along a tax credit for foreign income taxes they pay. In such event, each Fund will provide you with the information necessary to reflect such foreign taxes on your federal income tax return. MORE INFORMATION ABOUT TAXES IS IN THE STATEMENT OF ADDITIONAL INFORMATION. PROSPECTUS 85 [THIS PAGE INTENTIONALLY LEFT BLANK] FINANCIAL HIGHLIGHTS 86 PROSPECTUS FINANCIAL HIGHLIGHTS The financial highlights table is intended to help you understand a Fund's financial performance for the period of the Fund's (and its predecessor's) operations. There is no financial information for the Small Cap Quantitative Equity Fund because that Fund did not begin operations until after March 31, 2006. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This financial information has been audited by PricewaterhouseCoopers LLP except the information for the year ended May 31, 2001, which has been audited by a predecessor independent accounting firm that has ceased operations. The Report of Independent Registered Public Accounting Firm for each period shown, along with the Funds' financial statements and related notes, are included in the Annual Reports to Shareholders for such periods. The 2006 Annual Report is available upon request and without charge by calling 1-888-STI-FUND or on the Funds' website at www.sticlassicfunds.com.
NET ASSET NET REALIZED DIVIDENDS DISTRIBUTIONS VALUE, NET AND UNREALIZED FROM NET FROM BEGINNING INVESTMENT GAINS (LOSSES) TOTAL FROM INVESTMENT REALIZED OF PERIOD INCOME (LOSS) ON INVESTMENTS OPERATIONS INCOME CAPITAL GAINS --------- ------------- -------------- ---------- ------ ------------- AGGRESSIVE GROWTH STOCK FUND I SHARES Year Ended March 31, 2006... $ 9.89 (0.07)(a) 2.42(a) 2.35 --* -- Period Ended March 31, 2005...................... $10.00 (0.06)(a) (0.05)(a) (0.11) -- -- Period Ended May 31, 2004(b)................... $10.00 (0.02)(a) 0.02(a) -- -- -- CAPITAL APPRECIATION FUND I SHARES Year Ended March 31, 2006... $12.22 0.03(a) 0.86(a) 0.89 (0.02) (0.26) Period Ended March 31, 2005...................... $12.33 0.03(a) 0.07(a) 0.10 (0.03) (0.18) Year Ended May 31, 2004..... $11.02 (0.03)(a) 1.34(a) 1.31 -- -- Year Ended May 31, 2003..... $12.24 (0.03)(a) (1.19)(a) (1.22) -- -- Year Ended May 31, 2002..... $13.89 -- (1.53) (1.53) -- (0.12) Year Ended May 31, 2001..... $17.12 (0.05) (0.38) (0.43) -- (2.80) EMERGING GROWTH STOCK FUND I SHARES Year Ended March 31, 2006... $ 9.38 (0.09)(a) 3.54(a) 3.45 -- -- Period Ended March 31, 2005...................... $ 9.60 (0.08)(a) (0.14)(a) (0.22) -- -- Period Ended May 31, 2004(b)................... $10.00 (0.03)(a) (0.37)(a) (0.40) -- -- INTERNATIONAL EQUITY FUND I SHARES Year Ended March 31, 2006... $11.77 0.16 2.72 2.88 (0.16) -- Period Ended March 31, 2005...................... $10.15 0.06 1.67 1.73 (0.11) -- Year Ended May 31, 2004..... $ 8.00 0.10(a) 2.19(a) 2.29 (0.14) -- Year Ended May 31, 2003..... $ 9.31 0.07 (1.32) (1.25) (0.06) -- Year Ended May 31, 2002..... $10.19 0.19 (1.07) (0.88) -- -- Year Ended May 31, 2001..... $12.56 -- (1.22) (1.22) (0.04) (1.11) TOTAL DIVIDENDS AND DISTRIBUTIONS ------------- AGGRESSIVE GROWTH STOCK FUND I SHARES Year Ended March 31, 2006... --* Period Ended March 31, 2005...................... -- Period Ended May 31, 2004(b)................... -- CAPITAL APPRECIATION FUND I SHARES Year Ended March 31, 2006... (0.28) Period Ended March 31, 2005...................... (0.21) Year Ended May 31, 2004..... -- Year Ended May 31, 2003..... -- Year Ended May 31, 2002..... (0.12) Year Ended May 31, 2001..... (2.80) EMERGING GROWTH STOCK FUND I SHARES Year Ended March 31, 2006... -- Period Ended March 31, 2005...................... -- Period Ended May 31, 2004(b)................... -- INTERNATIONAL EQUITY FUND I SHARES Year Ended March 31, 2006... (0.16) Period Ended March 31, 2005...................... (0.11) Year Ended May 31, 2004..... (0.14) Year Ended May 31, 2003..... (0.06) Year Ended May 31, 2002..... -- Year Ended May 31, 2001..... (1.15)
+ Not annualized for periods less than one year. ++ Annualized for periods less than one year. * Amount less than $0.005. # The Fund had a voluntary reimbursement by the Investment Adviser and affiliates that had no effect on total returns for the period. (a) Per share data calculated using average shares outstanding method. (b) Commenced operations on February 23, 2004. FINANCIAL HIGHLIGHTS PROSPECTUS 87
RATIO OF NET ASSET NET ASSETS, NET EXPENSES VALUE, END TOTAL END OF TO AVERAGE OF PERIOD RETURN+ PERIOD (000) NET ASSETS++ --------- ------- ------------ ------------ $12.24 23.77% $ 254,412 1.19% $ 9.89 (1.10)% $ 58,988 1.22% $10.00 --% $ 20,501 1.22% $12.83 7.33% $1,296,236 1.06% $12.22 0.76% $1,493,213 1.19% $12.33 11.89% $1,248,636 1.23% $11.02 (9.97)% $1,090,549 1.22% $12.24 (11.06)% $1,204,445 1.22% $13.89 (3.74)% $1,177,933 1.21% $12.83 36.78% $ 48,369 1.20% $ 9.38 (2.29)% $ 20,494 1.23% $ 9.60 (4.00)% $ 12,891 1.22% $14.49 24.47%# $ 926,845 1.31% $11.77 17.09% $ 480,731 1.38% $10.15 28.64% $ 332,180 1.41% $ 8.00 (13.40)% $ 191,041 1.46% $ 9.31 (8.64)% $ 252,991 1.48% $10.19 (10.79)% $ 208,120 1.45% RATIO OF EXPENSES TO RATIO OF AVERAGE NET ASSETS NET INVESTMENT (EXCLUDING WAIVERS, PORTFOLIO INCOME (LOSS) TO REIMBURSEMENTS TURNOVER AVERAGE NET ASSETS++ AND EXPENSE OFFSET)++ RATE+ -------------------- --------------------- ----- (0.61)% 1.23% 30% (0.79)% 1.45% 42% (0.74)% 1.61% 2% 0.22% 1.07% 74% 0.31% 1.21% 72% (0.25)% 1.24% 106% (0.32)% 1.24% 69% (0.54)% 1.24% 75% (0.29)% 1.24% 75% (0.84)% 1.24% 107% (1.03)% 1.51% 64% (1.04)% 1.69% 11% 1.40% 1.32% 59% 0.85% 1.38% 39% 1.08% 1.41% 58% 0.83% 1.46% 89% 0.48% 1.48% 102% 0.50% 1.45% 68%
FINANCIAL HIGHLIGHTS 88 PROSPECTUS
NET ASSET NET REALIZED DIVIDENDS DISTRIBUTIONS VALUE, NET AND UNREALIZED FROM NET FROM BEGINNING INVESTMENT GAINS (LOSSES) TOTAL FROM INVESTMENT REALIZED OF PERIOD INCOME (LOSS) ON INVESTMENTS OPERATIONS INCOME CAPITAL GAINS --------- ------------- -------------- ---------- ------ ------------- INTERNATIONAL EQUITY INDEX FUND I SHARES Year Ended March 31, 2006... $12.83 0.25 2.94 3.19 (0.21) -- Period Ended March 31, 2005...................... $11.11 0.08(a) 1.88(a) 1.96 (0.24) -- Year Ended May 31, 2004..... $ 8.39 0.14(a) 2.71(a) 2.85 (0.13) -- Year Ended May 31, 2003..... $ 9.76 0.10(a) (1.43)(a) (1.33) (0.04) -- Year Ended May 31, 2002..... $11.18 0.04 (1.43) (1.39) (0.03) -- Year Ended May 31, 2001..... $13.97 0.06 (2.69) (2.63) (0.07) (0.09) LARGE CAP QUANTITATIVE EQUITY FUND I SHARES Year Ended March 31, 2006... $13.25 0.01(a) 1.55(a) 1.56 --** (1.06) Period Ended March 31, 2005...................... $12.08 (0.02)(a) 1.91(a) 1.89 -- (0.72) Period Ended May 31, 2004(b)................... $10.00 (0.02)(a) 2.35(a) 2.33 -- (0.25) LARGE CAP RELATIVE VALUE FUND I SHARES Year Ended March 31, 2006... $16.07 0.18 1.83 2.01 (0.18) (0.70) Period Ended March 31, 2005...................... $14.72 0.17 1.74 1.91 (0.18) (0.38) Year Ended May 31, 2004..... $12.21 0.14(a) 2.50(a) 2.64 (0.13) -- Year Ended May 31, 2003..... $13.80 0.13 (1.60) (1.47) (0.12) -- Year Ended May 31, 2002..... $15.05 0.09 (1.26) (1.17) (0.08) -- Year Ended May 31, 2001..... $15.53 0.07 (0.04) 0.03 (0.08) (0.43) LARGE CAP VALUE EQUITY FUND I SHARES Year Ended March 31, 2006... $12.59 0.23 1.26 1.49 (0.23) -- Period Ended March 31, 2005...................... $11.47 0.15 1.15 1.30 (0.18) -- Year Ended May 31, 2004..... $ 9.73 0.15(a) 1.74(a) 1.89 (0.15) -- Year Ended May 31, 2003..... $11.05 0.15 (1.33) (1.18) (0.14) -- Year Ended May 31, 2002..... $11.61 0.12 (0.56) (0.44) (0.12) -- Year Ended May 31, 2001..... $10.38 0.19 1.24 1.43 (0.20) -- MID-CAP EQUITY FUND I SHARES Year Ended March 31, 2006... $12.03 0.07 2.26 2.33 (0.07) (0.62) Period Ended March 31, 2005...................... $10.32 0.07 1.70 1.77 (0.06) -- Year Ended May 31, 2004..... $ 8.74 0.06(a) 1.57(a) 1.63 (0.05) -- Year Ended May 31, 2003..... $ 9.79 (0.03)(a) (1.02)(a)* (1.05)* -- -- Year Ended May 31, 2002..... $10.95 0.01 (1.17) (1.16) -- -- Year Ended May 31, 2001..... $14.10 (0.03) (0.61) (0.64) -- (2.51) MID-CAP VALUE EQUITY FUND I SHARES Year Ended March 31, 2006... $12.27 0.13 2.15 2.28 (0.13) (1.28) Period Ended March 31, 2005...................... $10.95 0.11 1.33 1.44 (0.12) -- Year Ended May 31, 2004..... $ 8.62 0.05(a) 2.33(a) 2.38 (0.05) -- Year Ended May 31, 2003..... $10.95 0.05 (2.16) (2.11) (0.04) (0.18) Period Ended May 31, 2002(c)................... $10.00 0.02 0.94 0.96 (0.01) -- TOTAL DIVIDENDS AND DISTRIBUTIONS ------------- INTERNATIONAL EQUITY INDEX FUND I SHARES Year Ended March 31, 2006... (0.21) Period Ended March 31, 2005...................... (0.24) Year Ended May 31, 2004..... (0.13) Year Ended May 31, 2003..... (0.04) Year Ended May 31, 2002..... (0.03) Year Ended May 31, 2001..... (0.16) LARGE CAP QUANTITATIVE EQUITY FUND I SHARES Year Ended March 31, 2006... (1.06) Period Ended March 31, 2005...................... (0.72) Period Ended May 31, 2004(b)................... (0.25) LARGE CAP RELATIVE VALUE FUND I SHARES Year Ended March 31, 2006... (0.88) Period Ended March 31, 2005...................... (0.56) Year Ended May 31, 2004..... (0.13) Year Ended May 31, 2003..... (0.12) Year Ended May 31, 2002..... (0.08) Year Ended May 31, 2001..... (0.51) LARGE CAP VALUE EQUITY FUND I SHARES Year Ended March 31, 2006... (0.23) Period Ended March 31, 2005...................... (0.18) Year Ended May 31, 2004..... (0.15) Year Ended May 31, 2003..... (0.14) Year Ended May 31, 2002..... (0.12) Year Ended May 31, 2001..... (0.20) MID-CAP EQUITY FUND I SHARES Year Ended March 31, 2006... (0.69) Period Ended March 31, 2005...................... (0.06) Year Ended May 31, 2004..... (0.05) Year Ended May 31, 2003..... -- Year Ended May 31, 2002..... -- Year Ended May 31, 2001..... (2.51) MID-CAP VALUE EQUITY FUND I SHARES Year Ended March 31, 2006... (1.41) Period Ended March 31, 2005...................... (0.12) Year Ended May 31, 2004..... (0.05) Year Ended May 31, 2003..... (0.22) Period Ended May 31, 2002(c)................... (0.01)
* Includes redemption fees of $0.01. ** Amount less than $0.005. + Not annualized for periods less than one year. ++ Annualized for periods less than one year. # The Fund had a voluntary reimbursement by the Investment Adviser and affiliates that had no effect on total returns for the period. (a) Per share data calculated using average shares outstanding method. (b) Commenced operations on August 7, 2003. (c) Commenced operations on November 30, 2001. FINANCIAL HIGHLIGHTS PROSPECTUS 89
RATIO OF NET ASSET NET ASSETS, NET EXPENSES VALUE, END TOTAL END OF TO AVERAGE OF PERIOD RETURN+ PERIOD (000) NET ASSETS++ --------- ------- ------------ ------------ $15.81 25.06%# $ 774,008 0.76% $12.83 17.68% $ 517,993 0.97% $11.11 34.07% $ 351,163 0.98% $ 8.39 (13.63)% $ 248,770 1.03% $ 9.76 (12.43)% $ 287,944 1.04% $11.18 (18.90)% $ 236,862 1.06% $13.75 12.17% $ 284,727 0.99% $13.25 15.84% $ 93,204 1.11% $12.08 23.43% $ 66,812 1.13% $17.20 12.76% $1,396,362 0.90% $16.07 12.98% $1,010,717 0.96% $14.72 21.76% $ 782,665 1.00% $12.21 (10.58)% $ 598,862 0.99% $13.80 (7.80)% $ 792,557 0.99% $15.05 0.11% $ 867,664 0.99% $13.85 11.93% $ 766,547 0.85% $12.59 11.42% $ 792,677 0.86% $11.47 19.58% $ 715,928 0.90% $ 9.73 (10.54)% $ 681,899 0.89% $11.05 (3.68)% $ 686,014 0.90% $11.61 14.09% $ 704,842 0.90% $13.67 19.68% $ 410,459 1.12% $12.03 17.17% $ 214,660 1.20% $10.32 18.70% $ 177,128 1.23% $ 8.74 (10.73)% $ 118,092 1.22% $ 9.79 (10.59)% $ 171,813 1.22% $10.95 (6.92)% $ 156,111 1.21% $13.14 19.49% $ 243,534 1.13% $12.27 13.25% $ 209,088 1.22% $10.95 27.71% $ 147,185 1.26% $ 8.62 (19.05)% $ 99,854 1.25% $10.95 9.65% $ 174,859 1.27% RATIO OF EXPENSES TO RATIO OF AVERAGE NET ASSETS NET INVESTMENT (EXCLUDING WAIVERS, PORTFOLIO INCOME (LOSS) TO REIMBURSEMENTS TURNOVER AVERAGE NET ASSETS++ AND EXPENSE OFFSET)++ RATE+ -------------------- --------------------- ----- 1.84% 0.78% 7% 0.81% 1.06% 21% 1.38% 1.07% 10% 1.26% 1.12% 25% 0.63% 1.12% 35% 0.40% 1.09% 13% 0.07% 1.02% 432% (0.19)% 1.26% 346% (0.22)% 1.33% 344% 1.15% 0.90% 55% 1.23% 0.96% 44% 1.03% 1.00% 51% 1.05% 0.99% 52% 0.63% 0.99% 68% 0.49% 0.99% 73% 1.74% 0.86% 104% 1.52% 0.86% 87% 1.40% 0.90% 67% 1.68% 0.89% 46% 1.13% 0.90% 60% 1.70% 0.90% 77% 0.63% 1.13% 138% 0.64% 1.22% 68% 0.64% 1.26% 126% (0.31)% 1.25% 144% (0.18)% 1.24% 87% (0.24)% 1.25% 100% 1.03% 1.16% 169% 1.19% 1.32% 117% 0.53% 1.36% 95% 0.63% 1.35% 71% 0.29% 1.37% 30%
FINANCIAL HIGHLIGHTS 90 PROSPECTUS
NET ASSET NET REALIZED DIVIDENDS DISTRIBUTIONS VALUE, NET AND UNREALIZED FROM NET FROM BEGINNING INVESTMENT GAINS (LOSSES) TOTAL FROM INVESTMENT REALIZED OF PERIOD INCOME (LOSS) ON INVESTMENTS OPERATIONS INCOME CAPITAL GAINS --------- ------------- -------------- ---------- ------ ------------- QUALITY GROWTH STOCK FUND I SHARES Year Ended March 31, 2006... $24.14 -- 1.82 1.82 (0.13) -- Period Ended March 31, 2005...................... $23.31 0.10(a) 0.77(a) 0.87 (0.04) -- Year Ended May 31, 2004..... $20.78 (0.06)(a) 2.59(a) 2.53 -- -- Year Ended May 31, 2003..... $23.25 --(a) (2.47)(a) (2.47) -- -- Year Ended May 31, 2002..... $26.74 (0.02) (3.47) (3.49) -- -- Year Ended May 31, 2001..... $33.10 (0.03) (6.33) (6.36) -- -- SMALL CAP GROWTH STOCK FUND I SHARES Year Ended March 31, 2006... $19.99 (0.14)(a) 5.46(a) 5.32 -- (1.66) Period Ended March 31, 2005...................... $20.25 (0.08)(a) 2.27(a) 2.19 -- (2.45) Year Ended May 31, 2004..... $15.19 (0.16)(a) 5.22(a) 5.06 -- -- Year Ended May 31, 2003..... $17.28 (0.12)(a) (1.72)(a) (1.84) -- (0.25) Year Ended May 31, 2002..... $18.37 -- (1.02) (1.02) -- (0.07) Year Ended May 31, 2001..... $18.30 (0.18) 1.71 1.53 -- (1.46) SMALL CAP VALUE EQUITY FUND I SHARES Year Ended March 31, 2006... $19.86 0.10 5.39 5.49 (0.10) (4.32) Period Ended March 31, 2005...................... $18.26 0.04(a) 3.15(a) 3.19 (0.06) (1.53) Year Ended May 31, 2004..... $13.73 0.06(a) 4.53(a) 4.59 (0.06) -- Year Ended May 31, 2003..... $14.54 0.08 (0.82) (0.74) (0.07) -- Year Ended May 31, 2002..... $12.21 0.08 2.35 2.43 (0.10) -- Year Ended May 31, 2001..... $ 9.13 0.17 3.07 3.24 (0.16) -- TOTAL DIVIDENDS AND DISTRIBUTIONS ------------- QUALITY GROWTH STOCK FUND I SHARES Year Ended March 31, 2006... (0.13) Period Ended March 31, 2005...................... (0.04) Year Ended May 31, 2004..... -- Year Ended May 31, 2003..... -- Year Ended May 31, 2002..... -- Year Ended May 31, 2001..... -- SMALL CAP GROWTH STOCK FUND I SHARES Year Ended March 31, 2006... (1.66) Period Ended March 31, 2005...................... (2.45) Year Ended May 31, 2004..... -- Year Ended May 31, 2003..... (0.25) Year Ended May 31, 2002..... (0.07) Year Ended May 31, 2001..... (1.46) SMALL CAP VALUE EQUITY FUND I SHARES Year Ended March 31, 2006... (4.42) Period Ended March 31, 2005...................... (1.59) Year Ended May 31, 2004..... (0.06) Year Ended May 31, 2003..... (0.07) Year Ended May 31, 2002..... (0.10) Year Ended May 31, 2001..... (0.16)
+ Not annualized for periods less than one year. ++ Annualized for periods less than one year. (a) Per share data calculated using average shares outstanding method. FINANCIAL HIGHLIGHTS PROSPECTUS 91
RATIO OF NET ASSET NET ASSETS, NET EXPENSES VALUE, END TOTAL END OF TO AVERAGE OF PERIOD RETURN+ PERIOD (000) NET ASSETS++ --------- ------- ------------ ------------ $25.83 7.54% $ 74,481 1.07% $24.14 3.74% $ 98,982 1.22% $23.31 12.18% $ 144,732 1.25% $20.78 (10.62)% $ 198,429 1.24% $23.25 (13.05)% $ 244,707 1.24% $26.74 (19.21)% $ 460,311 1.24% $23.65 27.55% $1,641,681 1.17% $19.99 10.60% $ 940,775 1.22% $20.25 33.31% $ 789,650 1.25% $15.19 (10.50)% $ 567,714 1.24% $17.28 (5.55)% $ 593,211 1.25% $18.37 8.33% $ 508,857 1.24% $20.93 30.70% $ 762,709 1.20% $19.86 17.57% $ 726,904 1.21% $18.26 33.56% $ 682,567 1.25% $13.73 (5.09)% $ 518,468 1.24% $14.54 20.06% $ 614,199 1.25% $12.21 35.90% $ 401,900 1.25% RATIO OF EXPENSES TO RATIO OF AVERAGE NET ASSETS NET INVESTMENT (EXCLUDING WAIVERS, PORTFOLIO INCOME (LOSS) TO REIMBURSEMENTS TURNOVER AVERAGE NET ASSETS++ AND EXPENSE OFFSET)++ RATE -------------------- --------------------- ---- 0.21% 1.08% 82% 0.52% 1.25% 51% (0.28)% 1.25% 49% (0.01)% 1.24% 58% (0.10)% 1.24% 69% (0.10)% 1.25% 103% (0.66)% 1.18% 98% (0.46)% 1.22% 70% (0.83)% 1.25% 107% (0.87)% 1.24% 96% (1.01)% 1.25% 100% (0.95)% 1.25% 112% 0.48% 1.20% 58% 0.22% 1.21% 17% 0.38% 1.25% 44% 0.64% 1.24% 29% 0.67% 1.25% 29% 1.72% 1.25% 86%
FINANCIAL HIGHLIGHTS 92 PROSPECTUS
NET ASSET NET REALIZED DIVIDENDS DISTRIBUTIONS VALUE, NET AND UNREALIZED FROM NET FROM BEGINNING INVESTMENT GAINS (LOSSES) TOTAL FROM INVESTMENT REALIZED OF PERIOD INCOME (LOSS) ON INVESTMENTS OPERATIONS INCOME CAPITAL GAINS --------- ------------- -------------- ---------- ------ ------------- BALANCED FUND I SHARES Year Ended March 31, 2006... $12.29 0.24 0.37 0.61 (0.23) (0.79) Period Ended March 31, 2005**.................... $12.23 0.18 0.21 0.39 (0.21) (0.12) Year Ended May 31, 2004..... $11.92 0.18(a) 0.32(a) 0.50 (0.19) -- Year Ended May 31, 2003..... $12.18 0.20 (0.23) (0.03) (0.23) -- Year Ended May 31, 2002..... $13.18 0.23 (0.65) (0.42) (0.24) (0.34) Year Ended May 31, 2001..... $13.37 0.30 0.12 0.42 (0.31) (0.30) LIFE VISION AGGRESSIVE GROWTH FUND(B) I SHARES Year Ended March 31, 2006... $11.07 0.14 1.38 1.52 (0.14) (0.13) Period Ended March 31, 2005...................... $10.25 0.12 0.82 0.94 (0.12) -- Year Ended May 31, 2004..... $ 8.55 0.04(a) 1.70(a) 1.74 (0.04)* -- Year Ended May 31, 2003..... $ 9.57 0.03 (1.02) (0.99) (0.03) -- Year Ended May 31, 2002..... $10.31 0.02 (0.74) (0.72) (0.02) -- Year Ended May 31, 2001..... $11.61 0.11 0.23 0.34 (0.12) (1.52) LIFE VISION CONSERVATIVE FUND(B) I SHARES Year Ended March 31, 2006... $11.09 0.37 0.17 0.54 (0.36) (0.06) Period Ended March 31, 2005...................... $10.87 0.28 0.28 0.56 (0.30) (0.04) Period Ended May 31, 2004(c)................... $10.71 0.15(a) 0.14(a) 0.29 (0.13) -- LIFE VISION GROWTH AND INCOME FUND(B) I SHARES Year Ended March 31, 2006... $11.41 0.23 1.02 1.25 (0.23) -- Period Ended March 31, 2005...................... $10.76 0.16 0.67 0.83 (0.18) -- Year Ended May 31, 2004..... $ 9.33 0.14(a) 1.43(a) 1.57 (0.14) -- Year Ended May 31, 2003..... $ 9.98 0.13 (0.65) (0.52) (0.13) -- Year Ended May 31, 2002..... $10.42 0.12 (0.43) (0.31) (0.13) -- Year Ended May 31, 2001..... $10.50 0.24 0.40 0.64 (0.25) (0.47) LIFE VISION MODERATE GROWTH FUND(B) I SHARES Year Ended March 31, 2006... $10.49 0.29 0.59 0.88 (0.28) (0.24) Period Ended March 31, 2005...................... $10.06 0.20 0.50 0.70 (0.22) (0.05) Year Ended May 31, 2004..... $ 9.02 0.16(a) 1.04(a) 1.20 (0.16) -- Year Ended May 31, 2003..... $ 9.40 0.16 (0.38) (0.22) (0.16) -- Year Ended May 31, 2002..... $ 9.73 0.17 (0.32) (0.15) (0.18) -- Year Ended May 31, 2001..... $10.61 0.32 0.20 0.52 (0.34) (1.06) LIFE VISION TARGET DATE 2015 FUND(B) I SHARES Period Ended March 31, 2006(d)................... $10.00 0.17 0.82 0.99 (0.13) -- LIFE VISION TARGET DATE 2025 FUND(B) I SHARES Period Ended March 31, 2006(e)................... $10.00 0.13 1.10 1.23 (0.12) -- LIFE VISION TARGET DATE 2035 FUND(B) I SHARES Period Ended March 31, 2006(f)................... $10.00 0.13 0.88 1.01 (0.12) -- TOTAL DIVIDENDS AND DISTRIBUTIONS ------------- BALANCED FUND I SHARES Year Ended March 31, 2006... (1.02) Period Ended March 31, 2005**.................... (0.33) Year Ended May 31, 2004..... (0.19) Year Ended May 31, 2003..... (0.23) Year Ended May 31, 2002..... (0.58) Year Ended May 31, 2001..... (0.61) LIFE VISION AGGRESSIVE GROWTH FUND(B) I SHARES Year Ended March 31, 2006... (0.27) Period Ended March 31, 2005...................... (0.12) Year Ended May 31, 2004..... (0.04)* Year Ended May 31, 2003..... (0.03) Year Ended May 31, 2002..... (0.02) Year Ended May 31, 2001..... (1.64) LIFE VISION CONSERVATIVE FUND(B) I SHARES Year Ended March 31, 2006... (0.42) Period Ended March 31, 2005...................... (0.34) Period Ended May 31, 2004(c)................... (0.13) LIFE VISION GROWTH AND INCOME FUND(B) I SHARES Year Ended March 31, 2006... (0.23) Period Ended March 31, 2005...................... (0.18) Year Ended May 31, 2004..... (0.14) Year Ended May 31, 2003..... (0.13) Year Ended May 31, 2002..... (0.13) Year Ended May 31, 2001..... (0.72) LIFE VISION MODERATE GROWTH FUND(B) I SHARES Year Ended March 31, 2006... (0.52) Period Ended March 31, 2005...................... (0.27) Year Ended May 31, 2004..... (0.16) Year Ended May 31, 2003..... (0.16) Year Ended May 31, 2002..... (0.18) Year Ended May 31, 2001..... (1.40) LIFE VISION TARGET DATE 2015 FUND(B) I SHARES Period Ended March 31, 2006(d)................... (0.13) LIFE VISION TARGET DATE 2025 FUND(B) I SHARES Period Ended March 31, 2006(e)................... (0.12) LIFE VISION TARGET DATE 2035 FUND(B) I SHARES Period Ended March 31, 2006(f)................... (0.12)
* Includes return of capital of $0.003. ** Effective June 1, 2004, the Balanced Fund adopted a change in the amortization and accretion methodology on fixed income securities. The cumulative effect of this change in methodology was immaterial. + Not annualized for periods less than one year. ++ Annualized for periods less than one year. +++ Ratio reflects the impact of the initial low level of average net assets associated with commencement of operations. # The Fund's total return consists of a voluntary reimbursement by the Investment Adviser and affiliates of 0.09% for a realized investment loss. Excluding this reimbursement, total return would have been 5.01%. (a) Per share data calculated using average shares outstanding method. (b) The Life Vision Funds and its shareholders indirectly bear a pro rata share of the expenses of the underlying STI Classic Funds. The expense ratios do not include such expenses. (c) Commenced operations on November 6, 2003. (d) Commenced operations on October 12, 2005. (e) Commenced operations on October 21, 2005. (f) Commenced operations on November 2, 2005. FINANCIAL HIGHLIGHTS PROSPECTUS 93
RATIO OF NET ASSET NET ASSETS, NET EXPENSES VALUE, END TOTAL END OF TO AVERAGE OF PERIOD RETURN+ PERIOD (000) NET ASSETS++ --------- ------- ------------ ------------ $11.88 5.10%# $ 69,616 0.97% $12.29 3.14% $195,680 0.99% $12.23 4.24% $244,042 1.02% $11.92 (0.14)% $228,475 1.02% $12.18 (3.29)% $241,604 1.02% $13.18 3.24% $209,316 1.01% $12.32 13.90% $ 52,765 0.21% $11.07 9.15% $ 43,283 0.21% $10.25 20.34% $ 38,468 0.25% $ 8.55 (10.36)% $ 28,681 0.25% $ 9.57 (6.96)% $ 34,398 0.25% $10.31 3.07% $ 23,936 0.25% $11.21 4.96% $ 3,066 0.20% $11.09 5.18% $ 414 0.17% $10.87 2.68% $ 30 0.25% $12.43 11.05% $ 97,964 0.19% $11.41 7.77% $ 87,520 0.22% $10.76 16.92% $ 75,083 0.25% $ 9.33 (5.16)% $ 59,449 0.25% $ 9.98 (2.97)% $ 77,395 0.25% $10.42 6.31% $ 37,550 0.25% $10.85 8.48% $158,301 0.18% $10.49 6.98% $132,522 0.21% $10.06 13.35% $121,659 0.25% $ 9.02 (2.21)% $ 93,722 0.25% $ 9.40 (1.52)% $ 88,592 0.25% $ 9.73 5.28% $ 73,429 0.25% $10.86 9.94% $ 270 0.20% $11.11 12.33% $ 1,110 0.20% $10.89 10.14% $ 590 0.20% RATIO OF EXPENSES TO RATIO OF AVERAGE NET ASSETS NET INVESTMENT (EXCLUDING WAIVERS, PORTFOLIO INCOME (LOSS) TO REIMBURSEMENTS TURNOVER AVERAGE NET ASSETS++ AND EXPENSE OFFSET)++ RATE+ -------------------- --------------------- ----- 1.73% 0.99% 133% 1.68% 1.02% 140% 1.50% 1.05% 116% 1.74% 1.05% 102% 1.78% 1.05% 95% 2.24% 1.05% 99% 1.30% 0.26% 31% 1.32% 0.34% 29% 0.39% 0.39% 44% 0.33% 0.40% 50% 0.17% 0.41% 101% 1.05% 0.43% 202% 3.58% 0.56% 29% 3.29% 1.52% 121% 2.41% 85.33%+++ 138% 1.96% 0.24% 34% 1.82% 0.33% 59% 1.38% 0.36% 97% 1.46% 0.37% 139% 1.25% 0.39% 166% 2.41% 0.39% 286% 2.63% 0.22% 34% 2.32% 0.32% 83% 1.65% 0.36% 109% 1.87% 0.36% 101% 1.81% 0.36% 202% 3.04% 0.37% 247% 2.71% 13.92%+++ 25% 2.28% 11.64%+++ 17% 2.45% 10.98%+++ 40%
[THIS PAGE INTENTIONALLY LEFT BLANK] [THIS PAGE INTENTIONALLY LEFT BLANK] [THIS PAGE INTENTIONALLY LEFT BLANK] INVESTMENT ADVISER: Trusco Capital Management, Inc. 50 Hurt Plaza, Suite 1400 Atlanta, Georgia 30303 INVESTMENT SUBADVISER: Zevenbergen Capital Investments LLC 601 Union Street, Suite 4600 Seattle, Washington 98101 (Aggressive Growth Stock Fund and Emerging Growth Stock Fund) More information about the STI Classic Funds is available without charge through the following: STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI includes detailed information about the STI Classic Funds. The SAI is on file with the SEC and is incorporated by reference into this prospectus. This means that the SAI, for legal purposes, is a part of this prospectus. ANNUAL AND SEMI-ANNUAL REPORTS: These reports list each Fund's holdings and contain information from the Funds' managers about strategies and recent market conditions and trends and their impact on Fund performance. The reports also contain detailed financial information about the Funds. TO OBTAIN AN SAI, ANNUAL OR SEMI-ANNUAL REPORT, OR MORE INFORMATION: TELEPHONE: 1-888-STI-FUND MAIL: STI Classic Funds BISYS Fund Services Limited Partnership 3435 Stelzer Road Columbus, Ohio 43219 WEBSITE: www.sticlassicfunds.com SEC: You can also obtain the SAI or the Annual and Semi-Annual reports, as well as other information about the STI Classic Funds, from the EDGAR Database on the SEC's website at http://www.sec.gov. You may review and copy documents at the SEC Public Reference Room in Washington, DC (for information on the operation of the Public Reference Room, call 202-942-8090). You may request documents by mail from the SEC, upon payment of a duplicating fee, by writing to: Securities and Exchange Commission, Public Reference Section, Washington, DC 20549-0102. You may also obtain this information, upon payment of a duplicating fee, by e-mailing the SEC at publicinfo@sec.gov. The STI Classic Funds' Investment Company Act registration number is 811-06557. STI CLASSIC FUNDS 100093/08-06 PU-IE-0806 401(k) Plan Prospectus (SUNTRUST LOGO) STI Classic Funds for the SunTrust 401(k) Plan August 1, 2006 The Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this Prospectus. Any representation to the contrary is a criminal offense. PROSPECTUS ABOUT THIS PROSPECTUS The STI Classic Funds is a mutual fund family that offers shares in separate investment portfolios that have individual investment goals and strategies. This prospectus gives you important information about the I Shares of each Fund ("Funds") that you should know before investing. Please read this prospectus and keep it for future reference. This prospectus has been arranged into different sections so that you can easily review this important information. On the next page, there is some general information you should know about risk and return that is common to each of the Funds. For more detailed information about each Fund, please see: 2 AGGRESSIVE GROWTH STOCK FUND 5 CAPITAL APPRECIATION FUND 8 INTERNATIONAL EQUITY INDEX FUND 11 LARGE CAP RELATIVE VALUE FUND 14 LARGE CAP VALUE EQUITY FUND 17 MID-CAP EQUITY FUND 20 SMALL CAP GROWTH STOCK FUND 23 INVESTMENT GRADE BOND FUND 26 SEIX HIGH YIELD FUND 29 SHORT-TERM BOND FUND 32 PRIME QUALITY MONEY MARKET FUND 35 MORE INFORMATION ABOUT RISK 39 MORE INFORMATION ABOUT FUND INVESTMENTS 39 INFORMATION ABOUT PORTFOLIO HOLDINGS 39 INVESTMENT ADVISER 40 INVESTMENT SUBADVISER 40 PORTFOLIO MANAGERS 42 PURCHASING AND SELLING FUND SHARES 45 MARKET TIMING POLICIES AND PROCEDURES 47 DIVIDENDS AND DISTRIBUTIONS 47 TAXES 48 FINANCIAL HIGHLIGHTS 52 PRIVACY POLICY INSIDE HOW TO OBTAIN MORE INFORMATION ABOUT BACK THE STI CLASSIC FUNDS COVER
- -------------------------------------------------------------------------------- (SUITCASE FUND SUMMARY ICON) (TELESCOPE INVESTMENT STRATEGY ICON) (LIFE WHAT ARE THE PRINCIPAL RISKS OF INVESTING? PRESERVER ICON) (TARGET PERFORMANCE INFORMATION ICON) (LINE WHAT IS AN INDEX/AVERAGE/OBJECTIVE? GRAPH ICON) (COIN FUND FEES AND EXPENSES ICON) (MOUNTAIN MORE INFORMATION ABOUT FUND INVESTMENTS ICON) (MAGNIFYING INVESTMENT ADVISER GLASS ICON) (HAND PURCHASING AND SELLING FUND SHARES SHAKE ICON)
- -------------------------------------------------------------------------------- AUGUST 1, 2006 PROSPECTUS 1 CUSIP/TICKER SYMBOLS
FUND NAME CLASS INCEPTION* TICKER CUSIP EQUITY FUNDS Aggressive Growth Stock Fund I Shares 2/23/04 SCATX 784767188 Capital Appreciation Fund I Shares 7/1/92 STCAX 784766867 International Equity Index Fund I Shares 6/6/94 SIEIX 784766594 Large Cap Relative Value Fund I Shares 9/26/92 CRVAX 784766198 Large Cap Value Equity Fund I Shares 2/12/93 STVTX 784766834 Mid-Cap Equity Fund I Shares 2/2/94 SAGTX 784766750 Small Cap Growth Stock Fund I Shares 10/8/98 SSCTX 784766263 FIXED INCOME FUNDS Investment Grade Bond Fund I Shares 7/16/92 STIGX 784766701 Seix High Yield Fund I Shares 10/11/04 SAMHX 78476A843 Short-Term Bond Fund I Shares 3/15/93 SSBTX 784766826 MONEY MARKET FUND Prime Quality Money Market Fund I Shares 6/8/92 SQTXX 784766107
* The performance included under "Performance Information" may include the performance of other classes of the Fund and/or predecessors of the Fund. RISK/RETURN INFORMATION COMMON TO THE STI CLASSIC FUNDS Each Fund is a mutual fund. A mutual fund pools shareholders' money and, using professional investment managers, invests it in securities. Each Fund has its own investment goal and strategies for reaching that goal. The Adviser (or the Subadviser) invests Fund assets in a way that it believes will help a Fund achieve its goal. Still, investing in each Fund involves risk and there is no guarantee that a Fund will achieve its goal. The Adviser's (or the Subadviser's) judgments about the markets, the economy or companies may not anticipate actual market movements, economic conditions or company performance, and these judgments may affect the return on your investment. In fact, no matter how good a job the Adviser (or the Subadviser) does, you could lose money on your investment in a Fund, just as you could with other investments. A FUND SHARE IS NOT A BANK DEPOSIT AND IT IS NOT INSURED OR GUARANTEED BY THE FDIC OR ANY GOVERNMENT AGENCY. The value of your investment in a Fund (other than a money market fund) is based on the market prices of the securities a Fund holds. These prices change daily due to economic and other events that affect particular companies and other issuers. These price movements, sometimes called volatility, may be greater or lesser depending on the types of securities a Fund owns and the markets in which they trade. The effect on a Fund of a change in the value of a single security will depend on how widely the Fund diversifies its holdings. Each Fund's investment goal may be changed without shareholder approval. Before investing, make sure that the Fund's goal matches your own. AGGRESSIVE GROWTH STOCK FUND 2 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Long-term capital appreciation INVESTMENT FOCUS Common stocks of U.S. multi-cap growth companies SHARE PRICE VOLATILITY High PRINCIPAL INVESTMENT STRATEGY Attempts to identify securities of companies with favorable prospects for future revenue, earnings and/or cash flow growth INVESTOR PROFILE Investors who want to increase the value of their investment, but do not need income, and who are willing to accept more volatility for the possibility of higher returns
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Aggressive Growth Stock Fund invests at least 80% of its net assets in common stocks and other U.S. traded equity securities. U.S. traded equity securities may include listed American Depositary Receipts ("ADRs"). The Fund may invest in companies of any size. The Fund invests primarily in common stocks of U.S. companies that exhibit strong growth characteristics. Using a "bottom-up" approach, the Subadviser identifies companies with favorable prospects for future revenue, earnings, and/or cash flow growth. Growth "drivers" are identified for each company and become critical to the ongoing evaluation process. Industry growth dynamics, company competitive positioning, pricing flexibility, and diversified product offerings are evaluated, providing the foundation for further fundamental research to determine the weighting of the Fund's investments. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day-to-day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. Small and mid-cap stocks can perform differently from other segments of the equity market or the equity market as a whole and can be more volatile than stocks of larger companies. Because the Fund may invest in ADRs, it is subject to some of the same risks as direct investments in foreign companies. These include the risk that political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. For information about the risks involved when investing in derivatives, see "More Information About Risk." AGGRESSIVE GROWTH STOCK FUND PROSPECTUS 3 (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows performance of the Fund's I Shares for the last year.* (BAR CHART) 2005 7.11%
BEST QUARTER WORST QUARTER 6.60% -7.57% (12/31/05) (3/31/05)
* The performance information above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was -0.35%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005 to those of the Russell 3000(R) Growth Index. These returns assume shareholders redeem all of their shares at the end of the period indicated.
I SHARES 1 YEAR SINCE INCEPTION* Aggressive Growth Stock Fund 7.11% 7.63% Russell 3000(R) Growth Index 5.17% 4.98%
(*) Since inception of the I Shares on February 23, 2004. Benchmark returns since February 29, 2004 (benchmark returns available only on a month end basis). (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Russell 3000(R) Growth Index measures the performance of those companies found in the Russell universe with higher price-to-book ratios and higher forecasted growth values. The stocks in this Index are also members of either the Russell 1000(R) Growth or the Russell 2000(R) Growth indices. AGGRESSIVE GROWTH STOCK FUND 4 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 1.10% Other Expenses 0.11% ------------------- Total Annual Operating Expenses(2) 1.21%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $123 $384 $665 $1,466
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." CAPITAL APPRECIATION FUND PROSPECTUS 5 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Capital appreciation - --------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS U.S. common stocks - --------------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Moderate - --------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify companies with above average growth potential - --------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Investors who want the value of their investment to grow, but do not need to receive income on their investment - ---------------------------------------------------------------------------------------------------------
(TELESCOPE ICON) INVESTMENT STRATEGY The Capital Appreciation Fund invests primarily in U.S. common stocks and other equity securities that the Adviser believes have strong business fundamentals, such as revenue growth, cash flows and earnings trends. The Adviser's strategy focuses primarily on large cap stocks but will also utilize mid-cap stocks. In selecting investments for the Fund, the Adviser chooses companies that it believes have above average growth potential. The Adviser applies proprietary models to rank stocks based on earnings trends and valuations. It then performs in-depth fundamental analysis to determine the quality and sustainability of earnings, as well as the quality of management. Risk controls are in place to assist in maintaining a portfolio that is diversified by security type and industry sector. The Adviser uses a "bottom-up" process based on individual company earnings trends and fundamentals to determine the weighting of the Fund's investments in various equity market sectors. Because companies tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. Mid-cap stocks can perform differently from other segments of the equity market or the equity market as a whole and can be more volatile than stocks of larger companies. Large cap stocks can perform differently from other segments of the equity market or the equity market as a whole. Large capitalization companies may be less flexible in evolving markets or unable to implement change as quickly as smaller capitalization companies. Accordingly, the value of large cap stocks may not rise to the same extent as the value of small or mid-cap stocks. For information about the risks involved when investing in derivatives, see "More Information About Risk." CAPITAL APPRECIATION FUND 6 PROSPECTUS (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1996 20.31% 1997 31.13% 1998 28.06% 1999 9.71% 2000 1.62% 2001 -6.49% 2002 -21.98% 2003 18.52% 2004 6.37% 2005 -1.27%
BEST QUARTER WORST QUARTER 22.93% -14.98% (12/31/98) (9/30/01)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 0.29%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the S&P 500(R) Index. These returns assume shareholders redeem all of their shares at the end of the period indicated.
I SHARES 1 YEAR 5 YEARS 10 YEARS Capital Appreciation Fund -1.27% -1.91% 7.42% S&P 500(R) Index 4.91% 0.54% 9.07%
(LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The S&P 500(R) Index is a widely-recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index of 500 stocks designed to mimic the overall U.S. equity market's industry weightings. CAPITAL APPRECIATION FUND PROSPECTUS 7 (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.92% Other Expenses 0.07% ----------------- Total Annual Operating Expenses(2) 0.99%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $101 $315 $547 $1,213
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." INTERNATIONAL EQUITY INDEX FUND 8 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Investment results that correspond to the performance of the MSCI(R) EAFE(R)-GDP Weighted Index (Price Return) INVESTMENT FOCUS Foreign equity securities in the MSCI(R) EAFE(R)-GDP Weighted Index (Price Return) SHARE PRICE VOLATILITY High PRINCIPAL INVESTMENT STRATEGY Statistical analysis to track the MSCI(R) EAFE(R)-GDP Weighted Index (Price Return) INVESTOR PROFILE Aggressive investors who want exposure to foreign markets and are willing to accept the increased risks of foreign investing for the possibility of higher returns
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the International Equity Index Fund invests at least 80% of its net assets in equity securities of foreign companies. In selecting investments for the Fund, the Adviser chooses companies included in the MSCI(R) EAFE(R)-GDP Weighted Index (Price Return), an index of equity securities of companies located in Europe, Australasia and the Far East. While the Fund is structured to have overall investment characteristics similar to those of the Index, it selects a sample of securities within the Index using a statistical process. Therefore, the Fund will not hold all securities included in the Index. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The Fund is also subject to the risk that foreign equity securities may underperform other segments of the equity market or the equity market as a whole. Foreign securities involve special risks such as currency fluctuations, economic or financial instability, lack of timely or reliable financial information and unfavorable political or legal developments. These risks are increased for investments in emerging markets. In addition to the above mentioned risks, the Adviser may not be able to match the performance of the Fund's benchmark. For information about the risks involved when investing in derivatives, see "More Information About Risk." INTERNATIONAL EQUITY INDEX FUND PROSPECTUS 9 (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1996 6.04% 1997 8.99% 1998 30.02% 1999 30.66% 2000 -17.06% 2001 -23.47% 2002 -16.52% 2003 40.54% 2004 21.06% 2005 12.76%
BEST QUARTER WORST QUARTER 21.26% -20.53% (12/31/98) (9/30/02)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 9.79%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Morgan Stanley Capital International Europe, Australasia and Far East - Gross Domestic Product (MSCI (R) EAFE (R)-GDP) Weighted Index (Price Return).
I SHARES 1 YEAR 5 YEARS 10 YEARS International Equity Index Fund 12.76% 4.15% 7.16% MSCI(R) EAFE(R)-GDP Weighted Index (Price Return) 11.15% 3.48% 5.92%
(LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The MSCI(R) EAFE(R)-GDP Weighted Index (Price Return) is a widely-recognized, market capitalization index that measures market equity performance based upon indices from 21 foreign and developed countries. The country weighting of the Index is calculated using the gross domestic product of each of the various countries and then with respect to the market capitalization of the various companies operating in each country. INTERNATIONAL EQUITY INDEX FUND 10 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.50% Other Expenses 0.17% ----------------- Total Annual Operating Expenses(2) 0.67%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $68 $214 $373 $835
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." LARGE CAP RELATIVE VALUE FUND PROSPECTUS 11 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOALS PRIMARY Long-term capital appreciation SECONDARY Current income INVESTMENT FOCUS Equity securities SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Attempts to identify securities of companies with attractive valuation and/or above average earnings potential relative either to their sectors or the market as a whole INVESTOR PROFILE Investors who are looking for capital appreciation potential and some income with less volatility than the equity market as a whole
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Large Cap Relative Value Fund invests at least 80% of its net assets in large cap companies. The Adviser considers large cap companies to be companies with market capitalizations of at least $3 billion. The Fund invests primarily in common stocks and other U.S. traded equity securities, which may include listed American Depositary Receipts ("ADRs"). The Adviser uses sector-specific factors to highlight companies whose characteristics are currently undervalued versus market peers. The Adviser performs fundamental research to evaluate securities for the portfolio. The Adviser's approach attempts to identify a well-defined "investment thesis" (what it believes a company's prospects may be over the next 12 to 18 months) based on competitive positioning, business model, and potential catalysts and risks. The Adviser seeks securities with a positive risk/return profile, improving fundamentals and earnings outlook, and relative financial strength and flexibility. The Adviser may sell a security when the investment thesis is realized, the investment thesis breaks down, or a more attractive alternative presents itself. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The Adviser's value investing style may be out of favor in the marketplace for various periods of time. Value investing involves purchasing securities that are undervalued in comparison to their prospects for growth or to their peers or that have historically traded below their historical value. These securities are subject to the risk that their potential values as perceived by the Adviser are never realized by the market. Large cap stocks can perform differently from other segments of the equity market or the equity market as a whole. Large capitalization companies may be less flexible in evolving markets or unable to implement change as quickly as smaller capitalization companies. Accordingly, the value of large cap stocks may not rise to the same extent as the value of small or mid-cap stocks. Because the Fund may invest in ADRs, it is subject to some of the same risks as direct investments in foreign companies. These include the risk that political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. For information about the risks involved when investing in derivatives, see "More Information About Risk." LARGE CAP RELATIVE VALUE FUND 12 PROSPECTUS (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1996 19.06 1997 27.69 1998 18.20 1999 14.17 2000 1.43 2001 -6.60 2002 -19.64 2003 28.14 2004 14.23 2005 9.59
BEST QUARTER WORST QUARTER 17.38% -18.44% (6/30/97) (9/30/02)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 3.88%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Russell 1000(R) Value Index, the S&P 500(R)/ BARRA Value Index and the S&P 500 Index. These returns assume shareholders redeem all of their shares at the end of the period indicated.
I SHARES 1 YEAR 5 YEARS 10 YEARS Large Cap Relative Value Fund 9.59% 3.78% 9.62% Russell 1000(R) Value Index* 7.05% 5.28% 10.94% S&P 500(R)/BARRA Value Index 6.33% 2.53% 9.44% S&P 500 Index 4.91% 0.54% 9.07%
* Effective May 1, 2006 the Fund transitioned its benchmark from the S&P 500(R)/Barra Value Index to the Russell 1000(R) Value Index as a result of the discontinuation of the S&P/Barra Indices. (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Russell 1000(R) Value Index is a widely-recognized, capitalization weighted (companies with larger market capitalizations have more influence than those with smaller market capitalizations) index of companies in the Russell 1000(R) Index. The Russell 1000(R) Index is a widely-recognized, comprehensive large-cap index that measures the performance of the largest 1,000 companies in the Russell 3000(R) Index. The Russell 3000(R) Index is a widely-recognized, capitalization- weighted index that measures the performance of the 3,000 largest U.S. companies based on total market capitalization. The S&P 500(R)/BARRA Value Index is a widely-recognized index comprised of securities in the S&P 500(R) Index that have lower price-to-book ratios. The S&P 500(R) Index is a widely-recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index of 500 stocks designed to mimic the overall U.S. equity market's industry weightings. LARGE CAP RELATIVE VALUE FUND PROSPECTUS 13 (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.81% Other Expenses 0.06% ----------------- Total Annual Operating Expenses(2) 0.87%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $89 $278 $482 $1,073
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." LARGE CAP VALUE EQUITY FUND 14 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOALS PRIMARY Capital appreciation SECONDARY Current income INVESTMENT FOCUS Equity securities SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Attempts to identify high dividend-paying, undervalued stocks INVESTOR PROFILE Investors who are looking for current income and capital appreciation with less volatility than the average stock fund
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Large Cap Value Equity Fund invests at least 80% of its net assets in common stocks and other U.S. traded equity securities of large cap companies. U.S. traded equity securities may include listed American Depositary Receipts ("ADRs"). The Adviser considers large cap companies to be companies with market capitalizations of at least $3 billion. In selecting investments for the Fund, the Adviser primarily chooses companies that have a history of paying regular dividends. The Adviser focuses on dividend-paying stocks that trade below their historical value. The Adviser's "bottom-up" approach to stock selection emphasizes individual stocks over economic trends using fundamental research to identify positive catalysts for change. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. Large cap stocks can perform differently from other segments of the equity market or the equity market as a whole. Large capitalization companies may be less flexible in evolving markets or unable to implement change as quickly as smaller capitalization companies. Accordingly, the value of large cap stocks may not rise to the same extent as the value of small or mid-cap stocks. The Adviser's value investing style may be out of favor in the marketplace for various periods of time. Value investing involves purchasing securities that are undervalued in comparison to their prospects for growth or to their peers or that have historically traded below their historical value. These securities are subject to the risk that their potential values as perceived by the Adviser are never realized by the market. Because the Fund may invest in ADRs, it is subject to some of the same risks as direct investments in foreign companies. These include the risk that political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. For information about the risks involved when investing in derivatives, see "More Information About Risk." LARGE CAP VALUE EQUITY FUND PROSPECTUS 15 (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. The bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1996 19.46 1997 27.08 1998 10.58 1999 -2.93 2000 10.85 2001 -0.95 2002 -15.47 2003 23.64 2004 15.08 2005 3.70
BEST QUARTER WORST QUARTER 15.35% -19.89% (6/30/99) (9/30/02)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 8.18%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Russell 1000(R) Value Index and the S&P 500(R)/BARRA Value Index. These returns assume shareholders redeem all of their shares at the end of the period indicated.
I SHARES 1 YEAR 5 YEARS 10 YEARS Large Cap Value Equity Fund 3.70% 4.32% 8.36% Russell 1000(R) Value Index* 7.05% 5.28% 10.94% S&P 500(R)/BARRA Value Index 6.33% 2.53% 9.44%
* Effective May 1, 2006 the Fund transitioned its benchmark from the S&P 500(R)/Barra Value Index to the Russell 1000(R) Value Index as a result of the discontinuation of the S&P/Barra Indices. (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Russell 1000(R) Value Index is a widely-recognized, capitalization weighted (companies with larger market capitalizations have more influence than those with smaller market capitalizations) index of companies in the Russell 1000(R) Index. The Russell 1000(R) Index is a widely-recognized, comprehensive large-cap index that measures the performance of the largest 1,000 companies in the Russell 3000(R) Index. The Russell 3000(R) Index is a widely-recognized, capitalization- weighted index that measures the performance of the 3,000 largest U.S. companies based on total market capitalization. The S&P 500(R)/BARRA Value Index is a widely-recognized index comprised of securities in the S&P 500(R) Index that have lower price-to-book ratios. The S&P 500(R) Index is a widely-recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index of 500 stocks designed to mimic the overall U.S. equity market's industry weightings. LARGE CAP VALUE EQUITY FUND 16 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.78% Other Expenses 0.07% ----------------- Total Annual Operating Expenses(2) 0.85%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $87 $271 $471 $1,049
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." MID-CAP EQUITY FUND PROSPECTUS 17 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Capital appreciation INVESTMENT FOCUS U.S. mid-cap common stocks SHARE PRICE VOLATILITY Moderate to high PRINCIPAL INVESTMENT STRATEGY Attempts to identify companies with above average growth potential at an attractive price INVESTOR PROFILE Investors who want the value of their investment to grow and who are willing to accept more volatility for the possibility of higher returns
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Mid-Cap Equity Fund invests at least 80% of its net assets in common stocks and other U.S. traded equity securities of mid-cap companies. U.S. traded equity securities may include listed American Depositary Receipts ("ADRs"). The Adviser considers mid-cap companies to be companies with market capitalizations similar to those of companies in the Russel Midcap(R) Index. As of July 3, 2006, the market capitalization range of companies in the Russell Midcap Index was between approximately $1.59 billion and $16.44 billion. The Adviser believes that a portfolio of stocks with positive earnings characteristics purchased at a reasonable valuation will provide above average returns over time. In selecting investments for the Fund, the Adviser chooses companies that, in its opinion, offer above average stock price appreciation relative to other companies in the same economic sector. The Adviser utilizes proprietary, sector based models to rank stocks in each sector of the small and mid-cap markets. These models utilize fundamental stock characteristics such as growth rates and cash flows. The Adviser utilizes fundamental research in the creation, maintenance, and enhancement of the sector based models to reflect change in the underlying small and mid-cap markets. Risk management is utilized extensively and a critical component of the overall investment process. The strategy is diversified with generally 100 to 140 stocks in the portfolio. Each stock is generally limited to no more than two percent of the portfolio. The portfolio is managed to reduce tracking error and overall volatility to the benchmark. Because companies tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. Mid-cap stocks can perform differently from other segments of the equity market or the equity market as a whole and can be more volatile than stocks of larger companies. Because the Fund may invest in ADRs, it is subject to some of the same risks as direct investments in foreign companies. These include the risk that political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. For information about the risks involved when investing in derivatives, see "More Information About Risk." MID-CAP EQUITY FUND 18 PROSPECTUS (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1996 15.42 1997 21.23 1998 6.48 1999 16.14 2000 -2.97 2001 2.38 2002 -28.78 2003 28.99 2004 17.06 2005 13.94
BEST QUARTER WORST QUARTER 24.73% -19.96% (12/31/98) (9/30/98)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 3.67%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Russell Midcap(R) Index. These returns assume shareholders redeem all of their shares at the end of the period indicated.
1 YEAR 5 YEARS 10 YEARS I SHARES Mid-Cap Equity Fund 13.94% 4.64% 7.74% Russell Midcap(R) Index 12.65% 8.45% 12.49%
(LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Russell Midcap(R) Index is a widely-recognized index that measures the performance of the 800 smallest companies in the Russell 1000(R) Index, which represent approximately 26% of the total market capitalization of the Russell 1000(R) Index. The Russell 1000(R) Index is widely-recognized comprehensive large-cap index measuring the performance of the largest 1,000 U.S. incorporated companies. Each security in the Russell 1000(R) Index is float-adjusted market capitalization-weighted to ensure investable positions. MID-CAP EQUITY FUND PROSPECTUS 19 (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 1.00% Other Expenses 0.09% ----------------- Total Annual Operating Expenses(2) 1.09%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $111 $347 $601 $1,329
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." SMALL CAP GROWTH STOCK FUND 20 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Long-term capital appreciation INVESTMENT FOCUS U.S. small cap common stocks of growth companies SHARE PRICE VOLATILITY High PRINCIPAL INVESTMENT STRATEGY Identifies small cap companies with above average growth potential INVESTOR PROFILE Investors who want the value of their investment to grow, but do not need current income
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Small Cap Growth Stock Fund invests at least 80% of its net assets in U.S. traded equity securities of small cap companies. U.S. traded equity securities may include listed American Depositary Receipts ("ADRs"). The Adviser considers small cap companies to be companies with market capitalizations below $3 billion. The Fund's investment philosophy is based on the premise that a portfolio of small cap stocks with positive earnings trends, reasonable valuation, and strong fundamentals will provide superior returns over time. The Adviser applies a multi-factor proprietary model to identify companies with strong current earnings growth, improving profitability, a strong balance sheet, strong current and projected business fundamentals, and priced at reasonable valuations. The Adviser then uses fundamental research to select the portfolio of stocks it believes has the best current risk/return relationship. The Adviser believes in executing a very disciplined and objective investment process and in controlling risk through a broadly diversified portfolio. Because companies tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Since it purchases common stocks, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the stock markets have moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. Small cap stocks can perform differently from other segments of the equity market or the equity market as a whole and can be more volatile than stocks of larger companies. Because the Fund may invest in ADRs, it is subject to some of the same risks as direct investments in foreign companies. These include the risk that political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. For information about the risks involved when investing in derivatives, see "More Information About Risk." SMALL CAP GROWTH STOCK FUND PROSPECTUS 21 (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1999 20.55 2000 11.76 2001 -0.82 2002 -22.71 2003 45.64 2004 19.21 2005 7.92
BEST QUARTER WORST QUARTER 24.19% -22.83% (6/30/03) (9/30/01)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 2.67%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Russell 2000 (R) Growth Index. These returns assume shareholders redeem all of their shares at the end of the period indicated.
I SHARES 1 YEAR 5 YEARS SINCE INCEPTION* Small Cap Growth Stock Fund 7.92% 7.51% 15.48% Russell 2000(R) Growth Index 4.15% 2.28% 9.16%
* Since the inception of the I shares on October 8, 1998. Benchmark returns since September 30, 1998 (benchmark returns available only on a month end basis). (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Russell 2000(R) Growth Index is a widely recognized, capitalization-weighted index that measures the performance of those Russell 2000 companies with higher price-to-book ratios and higher forecasted growth values. The Russell 2000(R) Index is a widely recognized, capitalization-weighted index that measures the performance of the 2,000 smallest companies in the Russell 3000(R) Index. The Russell 3000(R) Index is a widely recognized, capitalization-weighted index that measures the performance of the 3,000 largest U.S. companies based on total market capitalization. SMALL CAP GROWTH STOCK FUND 22 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 1.10% Other Expenses 0.07% ----------------- Total Annual Operating Expenses(2) 1.17%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $119 $372 $644 $1,420
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." INVESTMENT GRADE BOND FUND PROSPECTUS 23 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL High total return through current income and capital appreciation, while preserving the principal amount invested INVESTMENT FOCUS Investment grade U.S. government and corporate debt securities SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Attempts to identify relatively inexpensive securities in a selected market index INVESTOR PROFILE Investors who want to receive income from their investment, as well as an increase in the value of the investment
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Investment Grade Bond Fund invests at least 80% of its net assets in fixed income securities rated investment grade by at least one national securities rating agency or unrated securities that the Adviser believes are of comparable quality. The Adviser focuses on corporate debt securities, U.S. Treasury obligations, and mortgage-backed securities. The Fund may invest in debt obligations of U.S. and non-U.S. issuers. The Fund may invest up to 20% of its net assets in below investment grade, high yield debt obligations, including emerging market debt and floating rate loans. The Fund may also invest a portion of its assets in securities that are restricted as to resale. In selecting investments for the Fund, the Adviser tries to minimize risk while attempting to outperform selected market indices. Currently, the Adviser's selected index is the Lehman Brothers U.S. Government/Credit Index, a widely-recognized, unmanaged index of investment grade government and corporate debt securities. The Adviser seeks to invest more in portions of the Index that seem relatively inexpensive, and less in those that seem expensive. The Adviser allocates the Fund's investments among various market sectors based on the Adviser's analysis of historical data, yield information and credit ratings. Because securities tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell derivative instruments (such as futures, options and swaps, including credit default swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate or credit risks. The Fund may count the value of certain derivatives with investment grade fixed income characteristics towards its policy to invest, under normal circumstances, at least 80% of its net assets in investment grade fixed income securities. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. Mortgage-backed investments involve risk of loss due to prepayments and, like any bond, due to default. Because of the sensitivity of mortgage-related securities to changes in interest rates, the Fund's performance may be more volatile than if it did not hold these securities. U.S. government securities can exhibit price movements resulting from changes in interest rates. Treasury inflation protected securities ("TIPS") can also exhibit price movements as a result of changing inflation expectations and seasonal inflation patterns. Certain U.S. government securities are backed by the full faith and credit of the U.S. Government, while others are backed by the ability of the issuing entity to borrow from the U.S. Treasury or by the issuing entity's own resources. Foreign securities involve special risks such as currency fluctuations, economic or financial instability, lack of timely or reliable financial information and unfavorable political or legal developments. These risks are increased for investments in emerging markets. Below investment grade securities (sometimes referred to as "junk bonds") involve greater risk of default or downgrade and are more volatile than investment grade securities. Below investment grade securities may also be less liquid than higher quality securities. The risks associated with floating rate loans are similar to the risks of below investment grade securities. In addition, the value of the collateral securing the loan may decline, causing a loan to be substantially unsecured. Difficulty in selling a floating rate loan may INVESTMENT GRADE BOND FUND 24 PROSPECTUS result in a loss. Borrowers may pay back principal before the scheduled due date when interest rates decline, which may require the Fund to replace a particular loan with a lower-yielding security. There may be less extensive public information available with respect to loans than for rated, registered or exchange listed securities. The Fund may assume the credit risk of the primary lender in addition to the borrower, and investments in loan assignments may involve the risks of being a lender. Restricted securities may increase the level of illiquidity in the Fund during any period that qualified institutional buyers become uninterested in purchasing these restricted securities. The Adviser intends to invest only in restricted securities that it believes present minimal liquidity risk. Because the Fund invests in derivatives, it is exposed to additional volatility and potential losses. Credit default swaps can increase the Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. The use of derivatives may cause the Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1996 2.34 1997 9.08 1998 9.19 1999 -1.53 2000 6.57 2001 9.06 2002 7.42 2003 3.70 2004 4.09 2005 2.16
BEST QUARTER WORST QUARTER 5.39% -3.47% (9/30/98) (6/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was -0.25%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Lehman Brothers U.S. Government/Credit Index, Lehman Brothers U.S. Aggregate Index and the Lipper Intermediate Investment-Grade Debt Funds Objective. These returns assume shareholders redeem all of their shares at the end of the period indicated.
I SHARES 1 YEAR 5 YEARS 10 YEARS Investment Grade Bond Fund 2.16% 5.26% 5.15% Lehman Brothers U.S. Government/Credit Index 2.37% 6.11% 6.17% Lehman Brothers U.S. Aggregate Index 2.43% 5.87% 6.16% Lipper Intermediate Investment-Grade Debt Funds Objective 1.77% 5.27% 5.35%
(LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX/OBJECTIVE? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Lehman Brothers U.S. Government/Credit Index is a widely-recognized composite made up of the Lehman Brothers U.S. Government Index and the Lehman Brothers U.S. Credit Index, which include U.S. government, Treasury and agency securities, as well as high grade corporate bonds. The Lehman Brothers U.S. Aggregate Index is a widely-recognized index of securities that are SEC-registered, taxable, and dollar denominated. The Index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. The Lipper Intermediate Investment-Grade Debt Funds Objective is a widely-recognized, equally weighted average that invests primarily in investment grade debt issues (rated in the top four grades) with dollar-weighted average maturities of five to ten years. The number of funds in the Objective varies. INVESTMENT GRADE BOND FUND PROSPECTUS 25 (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.50% Other Expenses 0.06% ----------------- Total Annual Operating Expenses(2) 0.56%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $57 $179 $313 $701
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." SEIX HIGH YIELD FUND 26 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL PRIMARY High income SECONDARY Capital appreciation INVESTMENT FOCUS High yield corporate and other debt instruments of U.S. and non-U.S. entities SHARE PRICE VOLATILITY High PRINCIPAL INVESTMENT STRATEGY Attempts to identify lower rated, higher yielding bonds offering above average total return INVESTOR PROFILE Investors who seek above average total return
(TELESCOPE ICON) INVESTMENT STRATEGY The Seix High Yield Fund invests in various types of lower rated, higher yielding debt instruments, including corporate obligations, floating rate loans and other debt obligations. The Fund may invest in debt obligations of U.S. and non-U.S. issuers, including emerging market debt. Under normal circumstances, the Fund invests at least 80% of its net assets in high yield securities. These securities will be chosen from the broad universe of available U.S. dollar-denominated, high yield securities rated below investment grade by either Moody's Investor Services, Inc. or Standard & Poor's Rating Services or unrated securities that the Adviser believes are of comparable quality. Such securities are commonly known as "junk bonds" and offer greater risks than investment grade bonds. Although the Fund seeks to achieve its investment objective primarily through investment in high yield securities, the Fund may invest up to 20% of its net assets in investment grade securities. The Fund will be managed with a duration that is close to the Fund's comparative benchmark, the Merrill Lynch High Yield Master Index, which is generally between 3 and 6 years. The Fund may also invest a portion of its assets in securities that are restricted as to resale. In selecting securities for the Fund, the Adviser employs a research driven process designed to identify value areas within the high yield market. In deciding which securities to buy and sell, the portfolio managers will emphasize securities which are within the segment of the high yield market it has targeted for emphasis, which are "BB" and "B" rated issuers. The Adviser seeks to identify securities which meet the following criteria: (1) industries that have strong fundamentals; (2) companies that have good business prospects and increasing credit strength; and (3) issuers with stable or growing cash flows and effective management. Because securities tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell derivative instruments (such as futures, options and swaps, including credit default swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate or credit risks. The Fund may count the value of certain derivatives with below investment grade fixed income characteristics towards its policy to invest, under normal circumstances, at least 80% of its net assets in high yield corporate securities rated as non- investment grade. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. Below investment grade securities (sometimes referred to as "junk bonds") involve greater risk of default or downgrade and are more volatile than investment grade securities. Below investment grade securities may also be less liquid than higher quality securities. The risks associated with floating rate loans are similar to the risks of below investment grade securities. In addition, the value of the collateral securing the loan may decline, causing a loan to be substantially unsecured. Difficulty in selling a floating rate loan may result in a loss. Borrowers may pay back principal before the scheduled due date when interest rates decline, which may require the Fund to replace a particular loan with a lower-yielding security. There may be less extensive public information available with respect to loans than for rated, registered or exchange listed securities. The Fund may assume the credit risk of the primary lender in addition to the borrower, and SEIX HIGH YIELD FUND PROSPECTUS 27 investments in loan assignments may involve the risks of being a lender. Foreign securities involve special risks such as currency fluctuations, economic or financial instability, lack of timely or reliable financial information and unfavorable political or legal developments. These risks are increased for investments in emerging markets. Restricted securities may increase the level of illiquidity in the Fund during any period that qualified institutional buyers become uninterested in purchasing these restricted securities. The Adviser intends to invest only in restricted securities that it believes present minimal liquidity risk. Because the Fund invests in derivatives, it is exposed to additional volatility and potential losses. Credit default swaps can increase the Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. The use of derivatives may cause the Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. The Fund began operating on October 11, 2004. Performance prior to October 11, 2004 is that of the Class I Shares of the Seix High Yield Fund, the Fund's predecessor, which began operations on December 29, 2000. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 2001 11.33% 2002 6.34% 2003 15.56% 2004 8.34% 2005 2.62%
BEST QUARTER WORST QUARTER 5.78% -1.66% (3/31/01) (3/31/05)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 0.24%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Merrill Lynch High Yield Master Index. These returns assume shareholders redeem all of their shares at the end of the period indicated.
SINCE I SHARES* 1 YEAR 5 YEARS INCEPTION** Seix High Yield Fund 2.62% 8.75% 8.74% Merrill Lynch High Yield Master Index 2.83% 8.76% 9.07%
* Performance prior to October 11, 2004 is that of the predecessor fund's Class I Shares. ** Since inception of the predecessor fund on December 29, 2000. Benchmark returns since November 30, 2000 (benchmark returns available only on a month end basis). (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Merrill Lynch High Yield Master Index is a widely-recognized index of U.S. high yield corporate bond issues having maturities of at least one year. SEIX HIGH YIELD FUND 28 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.43% Other Expenses(2) 0.06% ----------------- Total Annual Operating Expenses(3) 0.49%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) Adjusted to reflect an expected change in Other Expenses for the current fiscal year. (3) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $50 $157 $274 $616
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." SHORT-TERM BOND FUND PROSPECTUS 29 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL High current income, while preserving capital INVESTMENT FOCUS Investment grade U.S. government and corporate debt securities SHARE PRICE VOLATILITY Low PRINCIPAL INVESTMENT STRATEGY Attempts to identify securities that offer a comparably better return than similar securities for a given level of credit risk INVESTOR PROFILE Income oriented investors who are willing to accept increased risk for the possibility of returns greater than money market investing
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Short-Term Bond Fund invests at least 80% of its net assets in a diversified portfolio of short- to medium-term investment grade U.S. Treasury, corporate debt, mortgage-backed and asset-backed securities. The Fund expects that it will normally maintain an effective maturity of 3 years or less. In selecting investments for the Fund, the Adviser attempts to identify securities that offer a comparably better investment return for a given level of credit risk. For example, short-term bonds generally have better returns than money market instruments, with a fairly modest increase in credit risk and/or volatility. The Adviser manages the Fund from a total return perspective. That is, the Adviser makes day-to-day investment decisions for the Fund with a view towards maximizing returns. The Adviser analyzes yields, market sectors and credit risk in an effort to identify attractive investments with the best risk/reward trade-off. Because securities tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. The Adviser may retain securities if the rating of the security falls below investment grade and the Adviser deems retention of the security to be in the best interests of the Fund. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will lose value because of increases in interest rates. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. Mortgage-backed investments involve risk of loss due to prepayments and, like any bond, due to default. Because of the sensitivity of mortgage-related securities to changes in interest rates, the Fund's performance may be more volatile than if it did not hold these securities. U.S. government securities can exhibit price movements resulting from changes in interest rates. Treasury inflation protected securities ("TIPS") can also exhibit price movements as a result of changing inflation expectations and seasonal inflation patterns. Certain U.S. government securities are backed by the full faith and credit of the U.S. Government, while others are backed by the ability of the issuing entity to borrow from the U.S. Treasury or by the issuing entity's own resources. For information about the risks involved when investing in derivatives, see "More Information About Risk." SHORT-TERM BOND FUND 30 PROSPECTUS (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1996 3.90 1997 6.78 1998 6.84 1999 0.92 2000 7.64 2001 7.54 2002 2.59 2003 2.53 2004 0.98 2005 1.67
BEST QUARTER WORST QUARTER 3.86% -1.04% (9/30/01) (6/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 2.02%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Citigroup 1-3 Year Government/Credit Index. These returns assume shareholders redeem all of their shares at the end of the period indicated.
I SHARES 1 YEAR 5 YEARS 10 YEARS Short-Term Bond Fund 1.67% 3.03% 4.10% Citigroup 1-3 Year Government/Credit Index 1.82% 4.19% 5.11%
(LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Citigroup 1-3 Year Government/ Credit Index is a widely-recognized index of U.S. Treasury securities, government agency obligations, and corporate debt securities rated at least investment grade (BBB). The securities in the Index have maturities of 1 year or greater and less than 3 years. SHORT-TERM BOND FUND PROSPECTUS 31 (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.40% Other Expenses 0.08% ----------------- Total Annual Operating Expenses(2) 0.48%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $49 $154 $269 $604
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." PRIME QUALITY MONEY MARKET FUND 32 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL High current income, while preserving capital and liquidity INVESTMENT FOCUS Money market instruments PRINCIPAL INVESTMENT STRATEGY Attempts to identify money market instruments with the most attractive risk/return trade-off INVESTOR PROFILE Conservative investors who want to receive current income from their investment
(TELESCOPE ICON) INVESTMENT STRATEGY The Prime Quality Money Market Fund invests exclusively in high quality U.S. money market instruments and foreign money market instruments denominated in U.S. dollars. The Fund may invest a portion of its assets in securities that are restricted as to resale. In selecting investments for the Fund, the Adviser tries to increase income without adding undue risk. The Adviser analyzes maturity, yields, market sectors and credit risk. Investments are made in money market instruments with the most attractive risk/return trade-off. As a money market fund, the Fund follows strict rules about credit risk, maturity and diversification of its investments. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? An investment in the Fund is subject to income risk, which is the possibility that the Fund's yield will decline due to falling interest rates. A Fund share is not a bank deposit and is not insured or guaranteed by the FDIC or any government agency. In addition, although a money market fund seeks to keep a constant price per share of $1.00, you may lose money by investing in the Fund. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. Foreign securities involve special risks such as economic or financial instability, lack of timely or reliable financial information and unfavorable political or legal developments. Restricted securities may increase the level of illiquidity in the Fund during any period that qualified institutional buyers become uninterested in purchasing these restricted securities. The Adviser intends to invest only in restricted securities that it believes present minimal liquidity risk. PRIME QUALITY MONEY MARKET FUND PROSPECTUS 33 (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1996 4.99% 1997 5.15% 1998 5.10% 1999 4.74% 2000 6.04% 2001 3.72% 2002 1.44% 2003 0.67% 2004 0.85% 2005 2.74%
BEST QUARTER WORST QUARTER 1.55% 0.12% (9/30/00) (3/31/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 2.10%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the iMoneyNet, Inc. First Tier Retail Average. These returns assume shareholders redeem all of their shares at the end of the period indicated.
I SHARES 1 YEAR 5 YEARS 10 YEARS Prime Quality Money Market Fund 2.74% 1.88% 3.53% iMoneyNet, Inc. First Tier Retail Average 2.46% 1.65% 3.33%
To obtain information about the Fund's current yield, call 1-888-STI-FUND. (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN AVERAGE? ------------------------------------------------------------- An average is a composite of mutual funds with similar investment goals. The iMoneyNet, Inc. First Tier Retail Average is a widely-recognized composite of money market funds that invest in securities rated in the highest category by at least two recognized rating agencies. The number of funds in the Average varies. PRIME QUALITY MONEY MARKET FUND 34 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.50% Other Expenses 0.06% ----------------- Total Annual Operating Expenses(2) 0.56%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $57 $179 $313 $701
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." MORE INFORMATION ABOUT RISK PROSPECTUS 35 (LIFE PRESERVER ICON) MORE INFORMATION ABOUT RISK BELOW INVESTMENT GRADE RISK Investment Grade Bond Fund Seix High Yield Fund Short-Term Bond Fund High yield securities, which are also known as "junk bonds," involve greater risks of default or downgrade and are more volatile than investment grade securities. High yield securities involve greater risk of default or price declines than investment grade securities due to actual or perceived changes in an issuer's credit-worthiness. In addition, issuers of high yield securities may be more susceptible than other issuers to economic downturns. High yield securities are subject to the risk that the issuer may not be able to pay interest or dividends and ultimately to repay principal upon maturity. Discontinuation of these payments could substantially adversely affect the market value of the security. High yield securities may be less liquid than higher quality investments. A security whose credit rating has been lowered may be particularly difficult to sell. DERIVATIVES RISK Aggressive Growth Stock Fund Capital Appreciation Fund International Equity Index Fund Investment Grade Bond Fund Large Cap Relative Value Fund Large Cap Value Equity Fund Mid-Cap Equity Fund Seix High Yield Fund Short-Term Bond Fund Small Cap Growth Stock Fund Derivatives may involve risks different from, and possibly greater than, those of traditional investments. A Fund may use derivatives (such as futures, options, and swaps) to attempt to achieve its investment objective and offset certain investment risks, while at the same time maintaining liquidity. These positions may be established for hedging or non-hedging purposes. Risks associated with the use of derivatives include those associated with hedging and leveraging activities: - - 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. - - A Fund experiencing losses over certain ranges in the market that exceed losses experienced by a fund that does not use derivatives. - - There may be an imperfect or no correlation between the changes in market value of the securities held by a Fund and the prices of derivatives. - - There may not be a liquid secondary market for derivatives. - - Trading restrictions or limitations may be imposed by an exchange. - - Government regulations may restrict trading in derivatives. - - The other party to an agreement (e.g., options or swaps) may default; however, in certain circumstances, such counter-party risk may be reduced by having an organization with very good credit act as intermediary. Because options premiums paid or received by a Fund are small in relation to the market value of the investments underlying the options, buying and selling put and call options can be more speculative than investing directly in securities. Credit default swaps can increase a Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. The use of derivatives may cause a Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. Total return swaps could result in losses if their reference index, security or investments do not perform as anticipated. EMERGING MARKETS RISK International Equity Index Fund Investment Grade Bond Fund Seix High Yield Fund Emerging market countries are countries that the World Bank or the United Nations considers to be emerging or developing. Most countries or regions are included in this category, except for Australia, Canada, Hong Kong, Japan, New Zealand, Singapore, the United Kingdom, the United States and most of the countries located in Western Europe. Emerging markets may be more likely MORE INFORMATION ABOUT RISK 36 PROSPECTUS to experience political turmoil or rapid changes in market or economic conditions than more developed countries. In addition, the financial stability of issuers (including governments) in emerging market countries may be more precarious than in other countries. As a result, there will tend to be an increased risk of price volatility associated with a Fund's investments in emerging market countries, which may be magnified by currency fluctuations relative to the U.S. dollar. Governments of some emerging market countries have defaulted on their bonds and may do so in the future. EQUITY RISK Aggressive Growth Stock Fund Capital Appreciation Fund International Equity Index Fund Large Cap Relative Value Fund Large Cap Value Equity Fund Mid-Cap Equity Fund Small Cap Growth Stock Fund Equity securities include public and privately issued equity securities, common and preferred stocks, warrants, rights to subscribe to common stock and convertible securities, as well as instruments that attempt to track the price movement of equity indices. Investments in equity securities and equity derivatives in general are subject to market risks that may cause their prices to fluctuate over time. The value of securities convertible into equity securities, such as warrants or convertible debt, is also affected by prevailing interest rates, the credit quality of the issuer and any call provision. Fluctuations in the value of equity securities in which a mutual fund invests will cause a fund's net asset value to fluctuate. An investment in a portfolio of equity securities may be more suitable for long-term investors who can bear the risk of these share price fluctuations. EXCHANGE-TRADED FUND RISK Aggressive Growth Stock Fund Capital Appreciation Fund International Equity Index Fund Investment Grade Bond Fund Large Cap Relative Value Fund Large Cap Value Equity Fund Mid-Cap Equity Fund Seix High Yield Fund Short-Term Bond Fund Small Cap Growth Stock Fund The Funds may purchase shares of exchange-traded funds ("ETFs") to temporarily gain exposure to a particular portion of the market while awaiting an opportunity to purchase securities directly. ETFs are investment companies that are bought and sold on a securities exchange. An ETF holds a portfolio of securities designed to track a particular market segment or index. ETFs, like mutual funds, have expenses associated with their operation, including advisory fees. When a Fund invests in an ETF, in addition to directly bearing expenses associated with its own operations, it will bear a pro rata portion of the ETF's expense. The risks of owning shares of an ETF generally reflect the risks of owning the underlying securities the ETF is designed to track, although lack of liquidity in an ETF could result in being more volatile than the underlying portfolio of securities. In addition, because of ETF expenses, compared to owning the underlying securities directly, it may be more costly to own an ETF. FIXED INCOME RISK Investment Grade Bond Fund Prime Quality Money Market Fund Seix High Yield Fund Short-Term Bond Fund The prices of a Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, a Fund's fixed income securities will decrease in value if interest rates rise and vice versa. Long-term debt securities generally are more sensitive to changes in interest rates, usually making them more volatile than short-term debt securities and thereby increasing risk. Debt securities are also subject to credit risk, which is the possibility than an issuer will fail to make timely payments of interest or principal, or go bankrupt. The lower the ratings of such debt securities, the greater their risks. In addition, lower rated securities have higher risk characteristics, and changes in economic conditions are likely to cause issuers of these securities to be unable to meet their obligations. Debt securities are also subject to income risk, which is the possibility that falling interest rates will cause a Fund's income to decline. Income risk is generally higher for short-term bonds. MORE INFORMATION ABOUT RISK PROSPECTUS 37 FLOATING RATE LOAN RISK Investment Grade Bond Fund Seix High Yield Fund As fixed income securities, investments in floating rate loans are subject to interest rate risk, but that risk is less because the interest rate of the loan adjusts periodically. As debt securities, investments in floating rate loans are subject to credit risk. Many floating rate loans are in unrated or lower credit rated securities. When a security is unrated, a Fund must rely more heavily on the analytical ability of the Adviser. Many floating rate loan investments share the same risks as high yield securities, although these risks are reduced when the floating rate loans are senior and secured as opposed to many high yield securities that are junior and unsecured. Floating rate securities are often subject to restrictions on resale which can result in reduced liquidity. A floating rate loan also may not be fully collateralized, although one lending institution will often be required to monitor collateral. Borrowers may repay principal faster than the scheduled due date which may result in a Fund replacing that loan with a lower-yielding security. Investment in loan participation interests may result in increased exposure to financial services sector risk. A loan may not be fully collateralized which may cause the loan to decline significantly in value, although one lending institution acting as agent for all of the lenders will generally be required to administer and manage the loan and, with respect to collateralized loans, to service or monitor the collateral. Certain portfolio managers and other personnel of the Adviser may also manage similar investment portfolios of floating rate loans for another non-investment adviser contracted affiliated business, Seix Structured Products, LLC ("SSP"). SSP is a subsidiary of SunTrust Bank and an affiliate of the Adviser, but not a client of the Adviser. In that role, this group purchases bank loans on behalf of SSP, for purposes of subsequent collateralized loan obligation ("CLO") transactions where the Adviser and its affiliate, SunTrust Capital Markets, Inc., will serve as collateral manager and as structuring agent/placement agent, respectively. The trustee and custodian of the CLO transactions are not affiliated entities of the Adviser or SunTrust Capital Markets. In addition, the Adviser serves as adviser to an account established with its affiliate, SunTrust Equity Funding, LLC for the purpose of purchasing high yield securities for subsequent sale to these same CLO transactions. Each of these transactions is subject to the approval of the independent trustee of the CLO transaction. In addition to disclosure to the trustee, all such transactions are fully disclosed to potential investors in the CLO's Offering and Disclosure documents. As a result of these multiple investment-oriented and associated relationships, there exists a potential risk that the portfolio managers may favor other adviser and non-adviser contracted businesses over a Fund, especially when allocating certain types of transactions. The Adviser has created and implemented additional policies and procedures designed to protect shareholders against such conflicts; however, there can be no absolute guarantee that a Fund will always participate in the same or similar investments or receive equal or better individual investment allocations at any given time. FOREIGN SECURITY RISKS Aggressive Growth Stock Fund International Equity Index Fund Investment Grade Bond Fund Large Cap Relative Value Fund Large Cap Value Equity Fund Mid-Cap Equity Fund Prime Quality Money Market Fund Seix High Yield Fund Small Cap Growth Stock Fund Investments in securities of foreign companies or governments can be more volatile than investments in U.S. companies or governments. Political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. Diplomatic, political, or economic developments, including nationalization or appropriation, could affect investments in foreign countries. Foreign securities markets generally have less trading volume and less liquidity than U.S. markets. The value of securities denominated in foreign currencies, and of dividends from such securities, can change significantly when foreign currencies strengthen or weaken relative to the U.S. dollar. As a result, changes in the value of those currencies compared to the U.S. dollar may affect (positively or negatively) the value of a Fund's investment. Certain foreign currencies may be particularly volatile, and foreign governments MORE INFORMATION ABOUT RISK 38 PROSPECTUS may intervene in the currency markets, causing a decline in value or liquidity in a Fund's foreign currency holdings. These currency movements may happen separately from and in response to events that do not otherwise affect the value of the security in the issuer's home country. Foreign companies or governments generally are not subject to uniform accounting, auditing, and financial reporting standards comparable to those applicable to domestic U.S. companies or governments. Transaction costs are generally higher than those in the U.S. and expenses for custodial arrangements of foreign securities may be somewhat greater than typical expenses for custodial arrangements of similar U.S. securities. Some foreign governments levy withholding taxes against dividend and interest income. Although in some countries a portion of these taxes are recoverable, the non-recovered portion will reduce the income received from the securities comprising the portfolio. LARGE COMPANY RISK Aggressive Growth Stock Fund Capital Appreciation Fund International Equity Index Fund Large Cap Relative Value Fund Large Cap Value Equity Fund Mid-Cap Equity Fund Large cap stocks can perform differently from other segments of the equity market or the equity market as a whole. Companies with large capitalization tend to go in and out of favor based on market and economic conditions and, while they can be less volatile than companies with smaller market capitalizations, they may also be less flexible in evolving markets or unable to implement change as quickly as their smaller counterparts. Accordingly, the value of large cap stocks may not rise to the same extent as the value of small or mid-cap companies. MORTGAGE-BACKED SECURITY RISK Investment Grade Bond Fund Seix High Yield Fund Short-Term Bond Fund Mortgage-backed securities are fixed income securities representing an interest in a pool of underlying mortgage loans. Mortgage-backed securities are sensitive to changes in interest rates, but may respond to these changes differently from other fixed income securities due to the likelihood that a change in the general level of interest rates will impact the magnitude and timing of any prepayments of the underlying mortgage loans. As a result, it may not be possible to accurately determine in advance the actual maturity date or average life of a mortgage-backed security. The uncertainty inherent in assessing prepayment risk makes it difficult to calculate the average maturity of a portfolio including mortgage-backed securities, and therefore, to assess the volatility risk of a Fund. SMALLER COMPANY RISK Aggressive Growth Stock Fund Capital Appreciation Fund International Equity Index Fund Large Cap Relative Value Fund Large Cap Value Equity Fund Mid-Cap Equity Fund Small Cap Growth Stock Fund Small and mid-capitalization stocks can perform differently from other segments of the equity market or the equity market as a whole. The small and mid- capitalization companies the Fund invests in may be more vulnerable to adverse business or economic events than larger, more established companies. In particular, these companies may have limited product lines, markets and financial resources, and may depend upon a relatively small management group. Therefore, small and mid-cap stocks can be more volatile than those of larger companies. These securities may be traded over-the-counter or listed on an exchange. TRACKING ERROR RISK International Equity Index Fund Factors such as Fund expenses, imperfect correlation between the Fund's investments and those of its benchmarks, rounding of share prices, changes to the benchmark, regulatory policies, and leverage, may affect the Fund's ability to achieve perfect correlation. The magnitude of any tracking error may be affected by a higher portfolio turnover rate. Because an index is just a composite of the prices of the securities it represents rather than an actual portfolio of those securities, an index will have no expenses. As a result, the Fund, which will have expenses such as taxes, custody, management fees and other operational costs, and brokerage, may not achieve its investment objective of accurately correlating to an index. MORE INFORMATION ABOUT FUND INVESTMENTS PROSPECTUS 39 (MOUNTAIN ICON) MORE INFORMATION ABOUT FUND INVESTMENTS This prospectus describes the Funds' primary strategies, and the Funds will normally invest in the types of securities described in this prospectus. However, in addition to the investments and strategies described in this prospectus, each Fund also may invest in other securities, use other strategies and engage in other investment practices. These investments and strategies, as well as those described in this prospectus, are described in detail in the Statement of Additional Information. The investments and strategies described in this prospectus are those that the Funds use under normal conditions. During unusual economic or market conditions, or for temporary defensive or liquidity purposes, each Fund (except the Prime Quality Money Market Fund) may invest up to 100% of its assets in cash, money market instruments, repurchase agreements and short-term obligations that would not ordinarily be consistent with a Fund's objectives. In addition, the Investment Grade Bond and Short-Term Bond Funds each may shorten its average weighted maturity to as little as 90 days. A Fund (other than the Prime Quality Money Market Fund) will do so only if the Adviser believes that the risk of loss outweighs the opportunity for higher income. Of course, a Fund cannot guarantee that it will achieve its investment goal. INFORMATION ABOUT PORTFOLIO HOLDINGS A description of the Funds' policies and procedures with respect to the circumstances under which the Funds disclose their portfolio securities is available in the Statement of Additional Information. (MAGNIFYING GLASS ICON) INVESTMENT ADVISER Trusco Capital Management, Inc. ("Trusco" or the "Adviser"), 50 Hurt Plaza, Suite 1400, Atlanta, Georgia 30303, serves as the investment adviser to the Funds. Seix Advisors, a fixed income division of Trusco, located at 10 Mountainview Road, Suite C-200, Upper Saddle River, NJ 07458, manages the Investment Grade Bond Fund and the Seix High Yield Fund. As of June 30, 2006, the Adviser had approximately $71 billion in assets under management. For the fiscal year ended March 31, 2006, the Funds paid the Adviser advisory fees (after waivers) based on the respective Fund's average daily net assets of: Aggressive Growth Stock Fund 1.09% Capital Appreciation Fund 1.00% International Equity Index Fund 0.59% Investment Grade Bond Fund 0.58% Large Cap Relative Value Fund 0.84% Large Cap Value Equity Fund 0.79% Mid-Cap Equity Fund 1.04% Prime Quality Money Market Fund 0.52% Seix High Yield Fund 0.45% Short-Term Bond Fund 0.47% Small Cap Growth Stock Fund 1.11%
Since August 1, 2005, the following breakpoints have been used in computing the advisory fee: EQUITY FUNDS AND BOND FUNDS
AVERAGE DAILY NET ASSETS DISCOUNT FROM FULL FEE ------------------------ ---------------------- First $500 million None - Full Fee Next $500 million 5% Over $1 billion 10%
MONEY MARKET FUND
AVERAGE DAILY NET ASSETS DISCOUNT FROM FULL FEE ------------------------ ---------------------- First $1 billion None - Full Fee Next $1.5 billion 5% Next $2.5 billion 10% Over $5 billion 20%
Based on average daily net assets for the fiscal year ended March 31, 2006, the asset levels of the following Funds had reached a breakpoint in the advisory fee.* Had the Funds' asset levels been lower, the Adviser may have been entitled to receive maximum advisory fees as follows: Capital Appreciation Fund 0.97% Large Cap Relative Value Fund 0.85% Large Cap Value Equity Fund 0.80% Prime Quality Money Market Fund 0.55% Seix High Yield Fund 0.45% Small Cap Growth Stock Fund 1.15%
* Fund expenses in the "Annual Fund Operating Expenses" tables shown earlier in this prospectus reflect the advisory breakpoints. A discussion regarding the basis for the Board of Trustees' approval of the investment advisory contract with the Adviser appears in the Funds' semi-annual report to shareholders for the period ended September 30, 2005. INVESTMENT SUBADVISER 40 PROSPECTUS The Adviser is responsible for making investment decisions for the Funds and continuously reviews, supervises and administers each Fund's respective investment program. With respect to the Aggressive Growth Stock Fund, the Adviser oversees the Subadviser to ensure compliance with the Fund's investment policies and guidelines and monitors the Subadviser's adherence to its investment style. The Adviser pays the Subadviser out of the fees it receives from the Aggressive Growth Stock Fund. The Board of Trustees supervises the Adviser and Subadviser and establishes policies that the Adviser and Subadviser must follow in its management activities. The Adviser may use its affiliates as brokers for Fund transactions. An investment adviser has a fiduciary obligation to its clients when the adviser has authority to vote their proxies. Under the current contractual agreement, the Adviser is authorized to vote proxies on behalf of each Fund. Information regarding the Adviser's, and thus each Fund's, Proxy Voting Policies and Procedures is provided in the Statement of Additional Information. A copy of the Funds' Proxy Voting Policies and Procedures may be obtained by contacting the STI Classic Funds at 1-888-STI-FUND, or by visiting www.sticlassicfunds.com. INVESTMENT SUBADVISER Zevenbergen Capital Investments LLC, 601 Union Street, Seattle, Washington 98101, serves as the Subadviser to the Aggressive Growth Stock Fund and manages the portfolio of the Aggressive Growth Stock Fund on a day-to-day basis. The Subadviser was founded in 1987 and manages domestic growth equity assets. The firm's client base is comprised of a blend of institutional tax-exempt and taxable separately managed accounts. As a domestic growth equity manager, the Subadviser manages assets for a variety of entities, including public funds, foundations, endowments, corporations, pooled accounts, and private individuals. As of June 30, 2006, the Subadviser had approximately $1.2 billion in assets under management. The Subadviser selects, buys, and sells securities for the Aggressive Growth Stock Fund under the supervision of the Adviser and the Board of Trustees. The Subadviser is entitled to receive from the Adviser 0.625% of the Aggressive Growth Stock Fund's daily net assets. PORTFOLIO MANAGERS The following individuals are primarily responsible for the day-to-day management of the Funds. Mr. Andrew Atkins has served as Equity Portfolio Analyst at Trusco since August 2000. He has co-managed the INTERNATIONAL EQUITY INDEX FUND since March 2005. He has more than 6 years of investment experience. Mr. Robert W. Corner has served as Managing Director of Trusco since September 1996. He has co-managed the SHORT-TERM BOND FUND since January 2003. He has more than 19 years of investment experience. Mr. Chad Deakins, CFA, has served as Managing Director of Trusco since May 2000. He has co-managed the INTERNATIONAL EQUITY INDEX FUND since March 2005, after managing the Fund since February 1999. In addition, he has co-managed the MID-CAP EQUITY FUND since February 2006, after managing the Fund from September 2004 to January 2006 and co-managing the Fund from February 2003 to September 2004. He has more than 12 years of investment experience. Ms. Brooke de Boutray, CFA, has served as Managing Director, Principal, Portfolio Manager and Analyst for the Subadviser since 1992. She has co-managed the AGGRESSIVE GROWTH STOCK FUND since its inception. She has more than 23 years of investment experience. Mr. James P. Foster has served as Managing Director of Trusco since May 2004 and has been with Trusco since 1988. He has co-managed the SMALL CAP GROWTH STOCK FUND since June 2006. He has more than 37 years of investment experience. Mr. George Goudelias has served as Managing Director since joining Trusco in May 2004. He has co-managed the SEIX HIGH YIELD FUND since its inception. Prior to joining Trusco, Mr. Goudelias served as Director of High Yield Research of Seix Investment Advisors, Inc. from February 2001 to May 2004. He has more than 20 years of investment experience. Mr. Greg Hallman has served as Vice President of Trusco since February 2006 after serving as Associate PORTFOLIO MANAGERS PROSPECTUS 41 since November 1999. He has co-managed the PRIME QUALITY MONEY MARKET FUND since November 2004. He has more than 7 years of investment experience. Ms. Kimberly C. Maichle, CFA, has served as Director of Trusco since February 2006 after serving as Vice President since July 1995. She has co-managed the PRIME QUALITY MONEY MARKET FUND since November 2004. She has more than 17 years of investment experience. Mr. Jeffrey E. Markunas, CFA, has served as Managing Director of Trusco since July 2000. Mr. Markunas has managed the LARGE CAP RELATIVE VALUE FUND since its inception. He has more than 22 years of investment experience. Mr. Michael McEachern, CFA, has served as Managing Director since joining Trusco in May 2004. He has co-managed the SEIX HIGH YIELD FUND since its inception after serving as the portfolio manager of the Fund's predecessor fund. Prior to joining Trusco, Mr. McEachern served as Senior Portfolio Manager of Seix Investment Advisors, Inc. from June 1997 to May 2004. He has more than 21 years of investment experience. Mr. H. Rick Nelson has served as Managing Director of Trusco since March 2002. He has co-managed the SHORT-TERM BOND FUND since January 2003. Prior to joining Trusco, Mr. Nelson served as Senior Vice President at Wachovia Asset Management from June 1985 to March 2002. He has more than 24 years of investment experience. Ms. Elizabeth G. Pola, CFA, joined Trusco in 1983 and has served as Executive Vice President and Director of Equity Research of Trusco since 2000. She has co- managed the CAPITAL APPRECIATION FUND since December 2005. She has more than 24 years of investment experience. Mr. Robert J. Rhodes, CFA, joined Trusco in 1973 and has served as Executive Vice President and head of the equity funds group at Trusco since February 2000. He has co-managed the CAPITAL APPRECIATION FUND since December 2005, after managing the Fund since June 2000. He has more than 33 years of investment experience. Mr. Mills Riddick, CFA, has served as Managing Director of Trusco since July 2000. He has managed the LARGE CAP VALUE EQUITY FUND since April 1995. He has more than 24 years of investment experience. Mr. E. Dean Speer, CFA, CPA, has served as Director of Trusco since February 2006 after serving as Vice President since June 2001. He has co-managed the PRIME QUALITY MONEY MARKET FUND since January 2005. He has more than 8 years of investment experience. Mr. John Talty, CFA, has served as Executive Vice President since joining Trusco in May 2004. He has co-managed the INVESTMENT GRADE BOND FUND since July 2004. Prior to joining Trusco, Mr. Talty served as President and Senior Portfolio Manager of Seix Investment Advisors, Inc. from January 1993 to May 2004. He has more than 25 years of investment experience. Mr. Perry Troisi has served as Managing Director since joining Trusco in May 2004. He has co-managed the INVESTMENT GRADE BOND FUND since July 2004. Prior to joining Trusco, Mr. Troisi served as Senior Portfolio Manager of Seix Investment Advisors, Inc. from November 1999 to May 2004. He has more than 20 years of investment experience. Ms. Leslie Tubbs, CFA, has served as Managing Director, Principal, Portfolio Manager and Analyst for the Subadviser since 1995. She has co-managed the AGGRESSIVE GROWTH STOCK FUND since its inception. She has more than 11 years of investment experience. Mr. Stuart F. Van Arsdale, CFA, has served as Managing Director of Trusco since May 2002. He has co-managed the SMALL CAP GROWTH STOCK FUND since June 2006. Prior to joining Trusco, Mr. Van Arsdale served as Director of Growth Investments for Deprince, Race & Zollo, Inc. from October 1998 to April 2002. He has more than 26 years of investment experience. Mr. Scott Yuschak, CFA, has served as Vice President and Research Analyst at Trusco since February 2005. He has co-managed the MID-CAP EQUITY FUND since February 2006. Prior to joining Trusco, Mr. Yuschak served as Sector Manager and Equity Analyst at Banc One from July 2000 to February 2005. He has more than 9 years of investment experience. PURCHASING AND SELLING FUND SHARES 42 PROSPECTUS Ms. Nancy Zevenbergen, CFA, has served as President and Chief Investment Officer for the Subadviser since January 1987. She has co-managed the AGGRESSIVE GROWTH STOCK FUND since its inception. She has more than 24 years of investment experience. The Statement of Additional Information provides additional information regarding the Funds' portfolio managers' compensation, other accounts managed by the portfolio managers and the portfolio managers' ownership of securities of the Funds. (HAND SHAKE ICON) PURCHASING AND SELLING FUND SHARES This section tells you how to purchase or sell (sometimes called "redeem") I Shares of the Funds. If your I Shares are held in a retirement plan account, the rules and procedures you must follow as a plan participant regarding the purchase, redemption or exchange of I Shares may be different from those described in this prospectus. Review the information you have about your retirement plan (e.g., the SunTrust 401(k) Summary Plan Description) and contact the SunTrust Benefits Service Center (BENE) at 1-800-818-2363 for specific questions about your account. HOW TO PURCHASE FUND SHARES The Funds offer I Shares exclusively to financial institutions and intermediaries for their own accounts or for the accounts of customers for which they act as fiduciary agent, investment adviser, or custodian and which consist of: - - assets of a bona fide trust, or - - assets of a business entity possessing a tax identification number. As a result, you, as a customer of a financial institution or intermediary may purchase I Shares through accounts made with financial institutions or intermediaries. I Shares will be held of record by (in the name of) your financial institution or intermediary. Depending upon the terms of your account, however, you may have, or be given, the right to vote your I Shares. WHEN CAN YOU PURCHASE SHARES? You may purchase shares on any day that the New York Stock Exchange ("NYSE") is open for business (a "Business Day"). But you may not do so for shares of the Prime Quality Money Market Fund on days when the Federal Reserve is closed. The price per share (the offering price) will be the net asset value per share ("NAV") next determined after the Funds receive your purchase order in proper form. Each Fund calculates its NAV once each Business Day at the regularly-scheduled close of normal trading on the NYSE (normally, 4:00 p.m., Eastern Time). So, for you to receive the current Business Day's NAV for each Fund (except the Prime Quality Money Market Fund), a Fund or its authorized agent must receive your purchase order in proper form before 4:00 p.m., Eastern Time. The Prime Quality Money Market Fund calculates its NAV once each Business Day at the regularly-scheduled close of normal trading on the NYSE (normally, 4:00 p.m., Eastern Time). So, for you to be eligible to receive dividends declared on the day you submit your purchase order, the Prime Quality Money Market Fund or its authorized agent must receive your order in proper form before 3:00 p.m., Eastern Time and federal funds (readily available funds) before 6:00 p.m., Eastern Time. Otherwise, your purchase order will be effective the following Business Day, as long as the Prime Quality Money Market Fund receives federal funds before calculating its NAV the following day. If the NYSE closes early -- such as on days in advance of certain holidays -- the Funds will calculate NAV as of the earlier closing time. The Funds will not accept orders that request a particular day or price for the transaction or any other special conditions. YOU MAY HAVE TO TRANSMIT YOUR PURCHASE AND SALE REQUESTS TO YOUR FINANCIAL INSTITUTION OR INTERMEDIARY AT AN EARLIER TIME FOR YOUR TRANSACTION TO BECOME EFFECTIVE THAT DAY. THIS ALLOWS THE FINANCIAL INSTITUTION OR INTERMEDIARY TIME TO PROCESS YOUR REQUEST AND TRANSMIT IT TO THE TRANSFER AGENT IN TIME TO MEET THE ABOVE STATED FUND CUT-OFF TIMES. FOR MORE INFORMATION ABOUT HOW TO PURCHASE OR SELL FUND SHARES, INCLUDING A SPECIFIC FINANCIAL INSTITUTION'S OR INTERMEDIARY'S INTERNAL ORDER ENTRY CUT-OFF TIME, PLEASE CONTACT YOUR FINANCIAL INSTITUTION OR INTERMEDIARY DIRECTLY. A Fund may reject any purchase order. PURCHASING AND SELLING FUND SHARES PROSPECTUS 43 HOW THE FUNDS CALCULATE NAV NAV is calculated by adding the total value of a Fund's investments and other assets, subtracting its liabilities and then dividing that figure by the number of outstanding shares of the Fund. In calculating NAV, each Fund (except the Prime Quality Money Market Fund) generally values its investment portfolio at market price. In calculating NAV for the Prime Quality Money Market Fund, the Fund generally values its investment portfolio using the amortized cost valuation method, which is described in detail in the Statement of Additional Information. If market prices are not readily available or the Fund reasonably believes that market prices or amortized cost valuation method are unreliable, such as in the case of a security value that has been materially affected by events occurring after the relevant market closes, a Fund is required to price those securities at fair value as determined in good faith using methods approved by the Board of Trustees. A Fund's determination of a security's fair value price often involves the consideration of a number of subjective factors, and is therefore subject to the unavoidable risk that the value that a Fund assigns to a security may be higher or lower than the security's value would be if a reliable market quotation for the security was readily available. The Prime Quality Money Market Fund expects its NAV to remain constant at $1.00 per share, although the Fund cannot guarantee this. Although most Funds invest primarily in the stocks of U.S. companies that are traded on U.S. exchanges, there may be limited circumstances in which a Fund would price securities at fair value - for example, if the exchange on which a portfolio security is principally traded closed early or if a trading in a particular security was halted during the day and did not resume prior to the time a Fund calculated its NAV. When valuing fixed income securities with remaining maturities of more than 60 days, a Fund uses the value of the security provided by pricing services. The values provided by a pricing service may be based upon market quotations for the same security, securities expected to trade in a similar manner, or a pricing matrix. When valuing fixed income securities with remaining maturities of 60 days or less, a Fund uses the security's amortized cost. Amortized cost and the use of a pricing matrix in valuing fixed income securities are forms of fair value pricing. With respect to non-U.S. securities held by a Fund, the Fund may take factors influencing specific markets or issues into consideration in determining the fair value of a non-U.S. security. International securities markets may be open on days when the U.S. markets are closed. In such cases, the value of any international securities owned by a Fund may be significantly affected on days when investors cannot buy or sell shares. In addition, due to the difference in times between the close of the international markets and the time a Fund prices its shares, the value the Fund assigns to securities generally will not be the same as the primary markets or exchanges. In determining fair value prices, a Fund may consider the performance of securities on their primary exchanges, foreign currency appreciation/depreciation, securities market movements in the U.S., or other relevant information as related to the securities. IN-KIND PURCHASES Payment for shares of a Fund may, in the discretion of the Adviser, be made in the form of securities that are permissible investments for such Fund. In connection with an in-kind securities payment, a Fund will require, among other things, that the securities (a) meet the investment objectives and policies of the Fund; (b) are acquired for investment and not for resale; (c) are liquid securities that are not restricted as to transfer either by law or liquidity of markets; (d) have a value that is readily ascertainable (e.g., by a listing on a nationally recognized securities exchange); and (e) are valued on the day of purchase in accordance with the pricing methods used by the Fund. For further information about this form of payment, please call 1-888-STI-FUND. CUSTOMER IDENTIFICATION FOREIGN INVESTORS The Funds do not generally accept investments in I Shares by non-U.S. citizens or entities. CUSTOMER IDENTIFICATION AND VERIFICATION To help the government fight the funding of terrorism and money laundering activities, federal law requires all financial institutions to obtain, verify, and record PURCHASING AND SELLING FUND SHARES 44 PROSPECTUS information that identifies each person who opens an account. When you open an account, you will be asked to provide your name, residential address, date of birth, Social Security number or tax identification number. You may also be asked for other information that will allow us to identify you. Entities are also required to provide additional documentation. This information will be verified to ensure the identity of all persons opening a mutual fund account. In certain instances, the Funds are required to collect documents to fulfill their legal obligation. Documents provided in connection with your application will be used solely to establish and verify a customer's identity. The Funds are required by law to reject your new account application if the required identifying information is not provided. Attempts to collect the missing information required on the application will be performed by either contacting you or, if applicable, your broker. If this information is unable to be obtained within a timeframe established in the sole discretion of the Funds, your application will be rejected. Upon receipt of your application in proper form (or upon receipt of all identifying information required on the application), your investment will be accepted and your order will be processed at the NAV next determined. However, the Funds reserve the right to close your account at the then-current day's price if the Funds are unable to verify your identity. Attempts to verify your identity will be performed within a timeframe established in the sole discretion of the Funds. If the Funds are unable to verify your identity, the Funds reserve the right to liquidate your account at the then-current day's price and remit proceeds to you via check. The Funds reserve the further right to hold your proceeds until your original check clears the bank. In such an instance, you may be subject to a gain or loss on Fund shares and will be subject to corresponding tax implications. ANTI-MONEY LAUNDERING PROGRAM Customer identification and verification is part of the Funds' overall obligation to deter money laundering under federal law. The Funds have adopted an anti-money laundering compliance program designed to prevent the Funds from being used for money laundering or the financing of terrorist activities. In this regard, the Funds reserve the right to (i) refuse, cancel or rescind any purchase or exchange order, (ii) freeze any account and/or suspend account services, or (iii) involuntarily redeem your account in cases of threatening conduct or suspected fraudulent or illegal activity. These actions will be taken when, in the sole discretion of Fund management, they are deemed to be in the best interest of the Funds or in cases when the Funds are requested or compelled to do so by governmental or law enforcement authority. HOW TO SELL YOUR FUND SHARES You may sell your shares on any Business Day by contacting your financial institution or intermediary. Your financial institution or intermediary will give you information about how to sell your shares including any specific cut-off times required. Holders of I Shares may sell shares by following the procedures established when they opened their account or accounts with the Funds or with their financial institution or intermediary. The sale price of each share will be the next NAV determined after the Funds receive your request in proper form. Redemption orders must be received by the Prime Quality Money Market Fund on any Business Day before 3:00 p.m., Eastern Time. Orders received after 3:00 p.m., Eastern Time will be executed the following Business Day. A MEDALLION SIGNATURE GUARANTEE] by a bank or other financial institution (a notarized signature is not sufficient) is required to redeem shares: - - made payable to someone other than the registered shareholder; - - sent to an address or bank account other than the address or bank account of record; or - - sent to an address or bank account of record that has been changed within the last 15 calendar days. Other documentation may be required depending on the registration of the account. MARKET TIMING POLICIES AND PROCEDURES PROSPECTUS 45 ] MEDALLION SIGNATURE GUARANTEE: A Medallion Signature Guarantee verifies the authenticity of your signature and helps ensure that changes to your account are in fact authorized by you. A Medallion Signature Guarantee may be obtained from a domestic bank or trust company, broker, dealer, clearing agency, savings association or other financial institution participating in a Medallion Program recognized by the Securities Trading Association. Signature guarantees from financial institutions that do not reflect one of the following are not part of the program and will not be accepted. The acceptable Medallion programs are Securities Transfer Agents Medallion Program, (STAMP), Stock Exchange Medallion Program, (SEMP), or the New York Stock Exchange, Inc. Medallion Program, (NYSE MSP). Contact your local financial adviser for further assistance. RECEIVING YOUR MONEY Normally, the Funds will send your sale proceeds within five Business Days after the Funds receive your request but a Fund may take up to seven days to pay the sale proceeds if making immediate payments would adversely affect the Fund (for example, to allow the Fund to raise capital in the case of a large redemption). REDEMPTIONS IN KIND The Funds generally pay redemption proceeds in cash. However, under unusual conditions that make the payment of cash unwise (and for the protection of the Funds' remaining shareholders), the Funds might pay all or part of your redemption proceeds in liquid securities with a market value equal to the redemption price (redemption in kind). It is highly unlikely that your shares would ever be redeemed in kind, but if they were you would probably have to pay transaction costs to sell the securities distributed to you, as well as taxes on any capital gains from the sale as with any redemption. SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES A Fund may suspend your right to sell your shares if the NYSE restricts trading, the SEC declares an emergency or for other reasons approved by the SEC. More information about this is in the Statement of Additional Information. TELEPHONE TRANSACTIONS Purchasing and selling Fund shares over the telephone is extremely convenient, but not without risk. Although the Funds have certain safeguards and procedures to confirm the identity of callers and the authenticity of instructions, the Funds are not responsible for any losses or costs incurred by following telephone instructions the Funds reasonably believe to be genuine. If you or your financial institution or intermediary transact with the Funds over the telephone, you will generally bear the risk of any loss. The Funds reserve the right to modify, suspend or terminate telephone transaction privileges at any time. To redeem shares by telephone: - - redemption checks must be made payable to the registered shareholder; and - - redemption checks must be mailed to an address or wired to a bank account of record that has been associated with the shareholder account for at least 15 calendar days. MARKET TIMING POLICIES AND PROCEDURES FOR ALL FUNDS EXCEPT THE PRIME QUALITY MONEY MARKET FUND The Funds are intended for long-term investment purposes only and discourage shareholders from engaging in "market timing" or other types of excessive short-term trading. This frequent trading into and out of the Funds may present risks to the Funds' long-term shareholders, all of which could adversely affect shareholder returns. The risks posed by frequent trading include interfering with the efficient implementation of the Funds' investment strategies, triggering the recognition of taxable gains and losses on the sale of Fund investments, requiring the Funds to maintain higher cash balances to meet redemption requests, and experiencing increased transaction costs. A Fund that invests a significant amount of its assets in overseas markets is particularly susceptible to the risk of certain investors using a strategy known as time-zone arbitrage. Investors using this strategy attempt to take advantage of the differences in value of foreign securities that might result from events that occur between the close of the foreign securities market on which a foreign MARKET TIMING POLICIES AND PROCEDURES 46 PROSPECTUS security is traded and the time at which the Fund calculates its NAV. The Funds and/or their service providers will take steps reasonably designed to detect and deter frequent trading by shareholders pursuant to the Funds' policies and procedures described in this prospectus and approved by the Funds' Board of Trustees. For purposes of applying these policies, the Funds' service providers may consider the trading history of accounts under common ownership or control. The Funds' policies and procedures include: - - Shareholders are restricted from making more than one (1) "round trip" into or out of a Fund within 14 days or more than two (2) "round trips" within any continuous 90 day period. If a shareholder exceeds either "round trip" restriction, he or she may be deemed a "Market Timer," and the Funds and/or their service providers may, at their discretion, reject any additional purchase orders. The Funds define a round trip as a purchase into a Fund by a shareholder, followed by a subsequent redemption out of the Fund. Anyone considered to be a Market Timer by the Funds, their manager(s) or a shareholder servicing agent may be notified in writing of their designation as a Market Timer. - - The Funds reserve the right to reject any purchase request by any investor or group of investors for any reason without prior notice, including, in particular, if the Funds or their Adviser reasonably believes that the trading activity would be harmful or disruptive to the Funds. The Funds and/or their service providers seek to apply these policies to the best of their abilities uniformly and in a manner they believe is consistent with the interests of the Funds' long-term shareholders. Although these policies are designed to deter frequent trading, none of these measures alone nor all of them taken together eliminate the possibility that frequent trading in the Funds will occur, particularly with respect to trades placed by shareholders that invest in the Funds through omnibus arrangements maintained by brokers, retirement plan accounts and other financial intermediaries. The Funds' and their service providers' access to information about individual shareholder transactions made through such omnibus arrangements is often unavailable or severely limited. The Funds rely in large part on the policies, ability and willingness of brokers, retirement plan accounts and other financial intermediaries who maintain omnibus arrangements to detect and deter short-term trading. Despite this reliance, the Funds cannot assure that their policies will be enforced with regard to those Fund shares held through such omnibus arrangements (which may represent a majority of Fund shares), and as a result frequent trading could adversely affect the Funds and their long-term shareholders as discussed above. In addition to the previously mentioned initiatives to discourage market timing, the Funds intend to continually evaluate and, if practical, implement other measures to deter market timing. FOR THE PRIME QUALITY MONEY MARKET FUND The Prime Quality Money Market Fund is a money market fund and seeks to provide a high degree of liquidity, current income and a stable net asset value of $1.00 per share. The Fund is designed to serve as a short-term cash equivalent investment for shareholders and, therefore, expects shareholders to engage in frequent purchases and redemptions. Because of the inherently liquid nature of the Fund's investments, and money market instruments in general, and the Fund's intended purpose to serve as a short-term investment vehicle for shareholders, the Adviser has informed the Board of Trustees that it believes that it would not be in shareholders' best interests to place any limitations on the frequency of shareholder purchases and redemptions into and out of the Fund. As a result, the Board has not adopted a Fund policy or procedures with respect to frequent purchases and redemptions. DISTRIBUTION OF FUND SHARES The distributor may provide financial assistance in connection with pre-approved seminars, conferences and advertising to the extent permitted by applicable state or self-regulatory agencies, such as the National Association of Securities Dealers. From its own assets, the Adviser or its affiliates may make payments based on gross sales and current assets to selected brokerage firms or institutions. The amount of these payments may be substantial. The minimum aggregate sales required for eligibility for such payments, and the factors in selecting the brokerage firms and institutions to which they will be made, are determined from time to time by the Adviser. Furthermore, in addition to the fees that may be paid by the Funds, the Adviser or its affiliates may pay fees DIVIDENDS, DISTRIBUTIONS AND TAXES PROSPECTUS 47 from its own capital resources to brokers, banks, financial advisers, retirement plan service providers and other financial intermediaries, including affiliates, for providing distribution-related or shareholder services. DIVIDENDS AND DISTRIBUTIONS Each Fund distributes its net investment income as follows: DECLARED DAILY AND DISTRIBUTED MONTHLY Investment Grade Bond Fund Prime Quality Money Market Fund Seix High Yield Fund Short-Term Bond Fund QUARTERLY Aggressive Growth Stock Fund Capital Appreciation Fund Large Cap Relative Value Fund Large Cap Value Equity Fund Mid-Cap Equity Fund Small Cap Growth Stock Fund ANNUALLY International Equity Index Fund Each Fund makes distributions of its net realized capital gains, if any, at least annually. If the SunTrust 401(k) Plan owns Fund shares on a Fund's record date, the Plan is entitled to receive the distribution. As Plan participants, you will receive dividends and distributions in the form of additional Fund shares if you own shares of the Fund on the date the dividend or distribution is allocated by the Plan. You will, therefore, not receive a dividend or distribution if you do not own shares of the Fund on the date the dividend or distribution is allocated. TAXES PLEASE CONSULT YOUR TAX ADVISOR REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL, STATE AND LOCAL INCOME TAXES. Below the Funds have summarized some important tax issues that affect the Funds and their shareholders. This summary is based on current tax laws, which may change. Dividends and distributions will accumulate on a tax-deferred basis if you are investing through the SunTrust 401(k) Plan. Generally, you will not owe taxes on these distributions until you begin withdrawals from the Plan. Redemptions of Fund shares resulting in withdrawals from the Plan are subject to numerous complex and special tax rules and may be subject to a penalty in the case of premature withdrawals. If you have questions about the tax consequences of Plan withdrawals, you should consult your tax advisor; the Plan's Summary Plan Description in the SunTrust Employee Handbook; BENE, the SunTrust Benefits Service Center, at 1-800-818-2363; or the Plan Administrator, SunTrust Human Resources, P.O. Box 4418, Center 636, Atlanta, Georgia 30302. MORE INFORMATION ABOUT TAXES IS IN THE STATEMENT OF ADDITIONAL INFORMATION. FINANCIAL HIGHLIGHTS 48 PROSPECTUS FINANCIAL HIGHLIGHTS The financial highlights table is intended to help you understand a Fund's financial performance for the period of the Fund's (and its predecessor's) operations. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This financial information has been audited by PricewaterhouseCoopers LLP, except the information for each of the three years (or periods) ended October 31, 2003 for the Seix High Yield Fund, and the year ended May 31, 2001 for all other Funds, which has been audited by predecessor accounting firms one of which has ceased operations. The Report of Independent Registered Public Accounting Firm for each period shown, along with the Funds' financial statements and related notes, are included in the Annual Reports to Shareholders for such periods. The 2006 Annual Report is available upon request and without charge by calling 1-888-STI-FUND or on the Funds' website at www.sticlassicfunds.com.
NET ASSET NET REALIZED DIVIDENDS VALUE, NET AND UNREALIZED FROM NET DISTRIBUTIONS BEGINNING INVESTMENT GAINS (LOSSES) TOTAL FROM INVESTMENT FROM REALIZED OF PERIOD INCOME (LOSS) ON INVESTMENTS OPERATIONS INCOME CAPITAL GAINS --------- ------------- -------------- ---------- ------ ------------- AGGRESSIVE GROWTH STOCK FUND I SHARES Year Ended March 31, 2006....... $ 9.89 (0.07)(a) 2.42(a) 2.35 --* -- Period Ended March 31, 2005..... $10.00 (0.06)(a) (0.05)(a) (0.11) -- -- Period Ended May 31, 2004(b).... $10.00 (0.02)(a) 0.02(a) -- -- -- CAPITAL APPRECIATION FUND I SHARES Year Ended March 31, 2006....... $12.22 0.03(a) 0.86(a) 0.89 (0.02) (0.26) Period Ended March 31, 2005..... $12.33 0.03(a) 0.07(a) 0.10 (0.03) (0.18) Year Ended May 31, 2004......... $11.02 (0.03)(a) 1.34(a) 1.31 -- -- Year Ended May 31, 2003......... $12.24 (0.03)(a) (1.19)(a) (1.22) -- -- Year Ended May 31, 2002......... $13.89 -- (1.53) (1.53) -- (0.12) Year Ended May 31, 2001......... $17.12 (0.05) (0.38) (0.43) -- (2.80) INTERNATIONAL EQUITY INDEX FUND I SHARES Year Ended March 31, 2006....... $12.83 0.25 2.94 3.19 (0.21) -- Period Ended March 31, 2005..... $11.11 0.08(a) 1.88(a) 1.96 (0.24) -- Year Ended May 31, 2004......... $ 8.39 0.14(a) 2.71(a) 2.85 (0.13) -- Year Ended May 31, 2003......... $ 9.76 0.10(a) (1.43)(a) (1.33) (0.04) -- Year Ended May 31, 2002......... $11.18 0.04 (1.43) (1.39) (0.03) -- Year Ended May 31, 2001......... $13.97 0.06 (2.69) (2.63) (0.07) (0.09) LARGE CAP RELATIVE VALUE FUND I SHARES Year Ended March 31, 2006....... $16.07 0.18 1.83 2.01 (0.18) (0.70) Period Ended March 31, 2005..... $14.72 0.17 1.74 1.91 (0.18) (0.38) Year Ended May 31, 2004......... $12.21 0.14(a) 2.50(a) 2.64 (0.13) -- Year Ended May 31, 2003......... $13.80 0.13 (1.60) (1.47) (0.12) -- Year Ended May 31, 2002......... $15.05 0.09 (1.26) (1.17) (0.08) -- Year Ended May 31, 2001......... $15.53 0.07 (0.04) 0.03 (0.08) (0.43) LARGE CAP VALUE EQUITY FUND I SHARES Year Ended March 31, 2006....... $12.59 0.23 1.26 1.49 (0.23) -- Period Ended March 31, 2005..... $11.47 0.15 1.15 1.30 (0.18) -- Year Ended May 31, 2004......... $ 9.73 0.15(a) 1.74(a) 1.89 (0.15) -- Year Ended May 31, 2003......... $11.05 0.15 (1.33) (1.18) (0.14) -- Year Ended May 31, 2002......... $11.61 0.12 (0.56) (0.44) (0.12) -- Year Ended May 31, 2001......... $10.38 0.19 1.24 1.43 (0.20) -- TOTAL DIVIDENDS AND DISTRIBUTIONS ------------- AGGRESSIVE GROWTH STOCK FUND I SHARES Year Ended March 31, 2006....... --* Period Ended March 31, 2005..... -- Period Ended May 31, 2004(b).... -- CAPITAL APPRECIATION FUND I SHARES Year Ended March 31, 2006....... (0.28) Period Ended March 31, 2005..... (0.21) Year Ended May 31, 2004......... -- Year Ended May 31, 2003......... -- Year Ended May 31, 2002......... (0.12) Year Ended May 31, 2001......... (2.80) INTERNATIONAL EQUITY INDEX FUND I SHARES Year Ended March 31, 2006....... (0.21) Period Ended March 31, 2005..... (0.24) Year Ended May 31, 2004......... (0.13) Year Ended May 31, 2003......... (0.04) Year Ended May 31, 2002......... (0.03) Year Ended May 31, 2001......... (0.16) LARGE CAP RELATIVE VALUE FUND I SHARES Year Ended March 31, 2006....... (0.88) Period Ended March 31, 2005..... (0.56) Year Ended May 31, 2004......... (0.13) Year Ended May 31, 2003......... (0.12) Year Ended May 31, 2002......... (0.08) Year Ended May 31, 2001......... (0.51) LARGE CAP VALUE EQUITY FUND I SHARES Year Ended March 31, 2006....... (0.23) Period Ended March 31, 2005..... (0.18) Year Ended May 31, 2004......... (0.15) Year Ended May 31, 2003......... (0.14) Year Ended May 31, 2002......... (0.12) Year Ended May 31, 2001......... (0.20)
* Amount less than $0.005. + Not annualized for periods less than one year. ++ Annualized for periods less than one year. # The Fund had a voluntary reimbursement by the Investment Adviser and affiliates that had no effect on total return for the period. (a) Per share data was calculated using the average shares method. (b) Commenced operations on February 23, 2004. FINANCIAL HIGHLIGHTS PROSPECTUS 49
NET ASSET NET ASSETS, VALUE, END TOTAL END OF OF PERIOD RETURN+ PERIOD (000) --------- ------- ------------ $12.24 23.77% $ 254,412 $ 9.89 (1.10)% $ 58,988 $10.00 --% $ 20,501 $12.83 7.33% $1,296,236 $12.22 0.76% $1,493,213 $12.33 11.89% $1,248,636 $11.02 (9.97)% $1,090,549 $12.24 (11.06)% $1,204,445 $13.89 (3.74)% $1,177,933 $15.81 25.06%# $ 774,008 $12.83 17.68% $ 517,993 $11.11 34.07% $ 351,163 $ 8.39 (13.63)% $ 248,770 $ 9.76 (12.43)% $ 287,944 $11.18 (18.90)% $ 236,862 $17.20 12.76% $1,396,362 $16.07 12.98% $1,010,717 $14.72 21.76% $ 782,665 $12.21 (10.58)% $ 598,862 $13.80 (7.80)% $ 792,557 $15.05 0.11% $ 867,664 $13.85 11.93% $ 766,547 $12.59 11.42% $ 792,677 $11.47 19.58% $ 715,928 $ 9.73 (10.54)% $ 681,899 $11.05 (3.68)% $ 686,014 $11.61 14.09% $ 704,842 RATIO OF EXPENSES TO RATIO OF RATIO OF AVERAGE NET ASSETS NET EXPENSES NET INVESTMENT (EXCLUDING WAIVERS PORTFOLIO TO AVERAGE INCOME (LOSS) TO AND/OR TURNOVER NET ASSETS++ AVERAGE NET ASSETS++ REIMBURSEMENTS)++ RATE+ ------------ -------------------- ----------------- ----- 1.19% (0.61)% 1.23% 30% 1.22% (0.79)% 1.45% 42% 1.22% (0.74)% 1.61% 2% 1.06% 0.22% 1.07% 74% 1.19% 0.31% 1.21% 72% 1.23% (0.25)% 1.24% 106% 1.22% (0.32)% 1.24% 69% 1.22% (0.54)% 1.24% 75% 1.21% (0.29)% 1.24% 75% 0.76% 1.84% 0.78% 7% 0.97% 0.81% 1.06% 21% 0.98% 1.38% 1.07% 10% 1.03% 1.26% 1.12% 25% 1.04% 0.63% 1.12% 35% 1.06% 0.40% 1.09% 13% 0.90% 1.15% 0.90% 55% 0.96% 1.23% 0.96% 44% 1.00% 1.03% 1.00% 51% 0.99% 1.05% 0.99% 52% 0.99% 0.63% 0.99% 68% 0.99% 0.49% 0.99% 73% 0.85% 1.74% 0.86% 104% 0.86% 1.52% 0.86% 87% 0.90% 1.40% 0.90% 67% 0.89% 1.68% 0.89% 46% 0.90% 1.13% 0.90% 60% 0.90% 1.70% 0.90% 77%
FINANCIAL HIGHLIGHTS 50 PROSPECTUS For a Share Outstanding Throughout the Periods
NET ASSET NET REALIZED DIVIDENDS VALUE, NET AND UNREALIZED FROM NET DISTRIBUTIONS BEGINNING INVESTMENT GAINS (LOSSES) TOTAL FROM INVESTMENT FROM REALIZED OF PERIOD INCOME (LOSS) ON INVESTMENTS OPERATIONS INCOME CAPITAL GAINS --------- ------------- -------------- ---------- ------ ------------- MID-CAP EQUITY FUND I SHARES Year Ended March 31, 2006....... $12.03 0.07 2.26 2.33 (0.07) (0.62) Period Ended March 31, 2005..... $10.32 0.07 1.70 1.77 (0.06) -- Year Ended May 31, 2004......... $ 8.74 0.06(a) 1.57(a) 1.63 (0.05) -- Year Ended May 31, 2003......... $ 9.79 (0.03)(a) (1.02)(a)* (1.05)* -- -- Year Ended May 31, 2002......... $10.95 0.01 (1.17) (1.16) -- -- Year Ended May 31, 2001......... $14.10 (0.03) (0.61) (0.64) -- (2.51) SMALL CAP GROWTH STOCK FUND I SHARES Year Ended March 31, 2006....... $19.99 (0.14)(a) 5.46(a) 5.32 -- (1.66) Period Ended March 31, 2005..... $20.25 (0.08)(a) 2.27(a) 2.19 -- (2.45) Year Ended May 31, 2004......... $15.19 (0.16)(a) 5.22(a) 5.06 -- -- Year Ended May 31, 2003......... $17.28 (0.12)(a) (1.72)(a) (1.84) -- (0.25) Year Ended May 31, 2002......... $18.37 -- (1.02) (1.02) -- (0.07) Year Ended May 31, 2001......... $18.30 (0.18) 1.71 1.53 -- (1.46) INVESTMENT GRADE BOND FUND I SHARES Year Ended March 31, 2006....... $10.51 0.42 (0.11) 0.31 (0.42) -- Period Ended March 31, 2005***.. $10.31 0.29 0.19 0.48 (0.28) -- Year Ended May 31, 2004......... $10.94 0.35(a) (0.60)(a) (0.25) (0.38) -- Year Ended May 31, 2003......... $10.24 0.40 0.76 1.16 (0.46) -- Year Ended May 31, 2002......... $10.23 0.51 0.01 0.52 (0.51) -- Year Ended May 31, 2001......... $ 9.58 0.61 0.65 1.26 (0.61) -- SEIX HIGH YIELD FUND I SHARES Year Ended March 31, 2006....... $10.94 0.68 (0.10) 0.58 (0.68) (0.15) Period Ended March 31, 2005..... $11.42 0.29 (0.35) (0.06) (0.29) (0.13) Year Ended October 31, 2004****...................... $11.09 0.72 0.35 1.07 (0.72) (0.02) Year Ended October 31, 2003..... $10.17 0.68 0.92 1.60 (0.68) -- Year Ended October 31, 2002..... $10.40 0.63 (0.20) 0.43 (0.63) (0.03) Period Ended October 31, 2001(b)....................... $10.00 0.64 0.36 1.00 (0.60) -- SHORT-TERM BOND FUND I SHARES Year Ended March 31, 2006....... $ 9.73 0.32 (0.01) 0.31 (0.33) -- Period Ended March 31, 2005***.. $ 9.84 0.20 (0.11) 0.09 (0.20) -- Year Ended May 31, 2004......... $10.04 0.24(a) (0.19)(a) 0.05 (0.25) -- Year Ended May 31, 2003......... $10.01 0.33 0.03 0.36 (0.33) -- Year Ended May 31, 2002......... $10.04 0.46 (0.03) 0.43 (0.46) -- Year Ended May 31, 2001......... $ 9.65 0.56 0.39 0.95 (0.56) -- PRIME QUALITY MONEY MARKET FUND I SHARES Year Ended March 31, 2006....... $ 1.00 0.03 -- 0.03 (0.03) -- Period Ended March 31, 2005***.. $ 1.00 0.01 -- 0.01 (0.01) -- Year Ended May 31, 2004......... $ 1.00 0.01 -- 0.01 (0.01) --** Year Ended May 31, 2003......... $ 1.00 0.01 -- 0.01 (0.01) --** Year Ended May 31, 2002......... $ 1.00 0.02 -- 0.02 (0.02) -- Year Ended May 31, 2001......... $ 1.00 0.06 -- 0.06 (0.06) -- TOTAL DIVIDENDS AND DISTRIBUTIONS ------------- MID-CAP EQUITY FUND I SHARES Year Ended March 31, 2006....... (0.69) Period Ended March 31, 2005..... (0.06) Year Ended May 31, 2004......... (0.05) Year Ended May 31, 2003......... -- Year Ended May 31, 2002......... -- Year Ended May 31, 2001......... (2.51) SMALL CAP GROWTH STOCK FUND I SHARES Year Ended March 31, 2006....... (1.66) Period Ended March 31, 2005..... (2.45) Year Ended May 31, 2004......... -- Year Ended May 31, 2003......... (0.25) Year Ended May 31, 2002......... (0.07) Year Ended May 31, 2001......... (1.46) INVESTMENT GRADE BOND FUND I SHARES Year Ended March 31, 2006....... (0.42) Period Ended March 31, 2005***.. (0.28) Year Ended May 31, 2004......... (0.38) Year Ended May 31, 2003......... (0.46) Year Ended May 31, 2002......... (0.51) Year Ended May 31, 2001......... (0.61) SEIX HIGH YIELD FUND I SHARES Year Ended March 31, 2006....... (0.83) Period Ended March 31, 2005..... (0.42) Year Ended October 31, 2004****...................... (0.74) Year Ended October 31, 2003..... (0.68) Year Ended October 31, 2002..... (0.66) Period Ended October 31, 2001(b)....................... (0.60) SHORT-TERM BOND FUND I SHARES Year Ended March 31, 2006....... (0.33) Period Ended March 31, 2005***.. (0.20) Year Ended May 31, 2004......... (0.25) Year Ended May 31, 2003......... (0.33) Year Ended May 31, 2002......... (0.46) Year Ended May 31, 2001......... (0.56) PRIME QUALITY MONEY MARKET FUND I SHARES Year Ended March 31, 2006....... (0.03) Period Ended March 31, 2005***.. (0.01) Year Ended May 31, 2004......... (0.01) Year Ended May 31, 2003......... (0.01) Year Ended May 31, 2002......... (0.02) Year Ended May 31, 2001......... (0.06)
+ Not annualized for periods less than one year. ++ Annualized for periods less than one year. (a) Per share data was calculated using the average shares method. (b) Commenced operations on December 29, 2000. * Includes redemption fees of $0.01. ** Amount less than $0.005 per share. *** Effective June 1, 2004, these Funds adopted a change in the amortization and accretion methodology on fixed income securities. The cumulative effect of this change in methodology was immaterial to all Funds except for the Funds noted below:
CHANGE TO RATIO OF NET INVESTMENT CHANGE TO NET INCOME TO AVERAGE CHANGE TO NET REALIZED AND NET ASSETS INVESTMENT UNREALIZED GAINS ----------------- INCOME PER SHARE (LOSSES) PER SHARE I SHARES ---------------- ------------------ ----------------- Investment Grade Bond Fund.................................. 0.01 (0.01) 0.18% Short-Term Bond Fund........................................ 0.01 (0.01) 0.08%
FINANCIAL HIGHLIGHTS PROSPECTUS 51
NET ASSET NET ASSETS, VALUE, END TOTAL END OF OF PERIOD RETURN+ PERIOD (000) --------- ------- ------------ $13.67 19.68% $ 410,459 $12.03 17.17% $ 214,660 $10.32 18.70% $ 177,128 $ 8.74 (10.73)% $ 118,092 $ 9.79 (10.59)% $ 171,813 $10.95 (6.92)% $ 156,111 $23.65 27.55% $1,641,681 $19.99 10.60% $ 940,775 $20.25 33.31% $ 789,650 $15.19 (10.50)% $ 567,714 $17.28 (5.55)% $ 593,211 $18.37 8.33% $ 508,857 $10.40 2.94% $ 480,024 $10.51 4.71% $ 602,995 $10.31 (2.31)% $ 578,345 $10.94 11.61% $ 821,342 $10.24 5.18% $ 886,471 $10.23 13.55% $ 860,073 $10.69 5.37% $1,217,679 $10.94 (0.53)% $1,391,879 $11.42 9.97% $1,689,327 $11.09 16.10% $1,057,993 $10.17 4.21% $ 82,017 $10.40 10.14% $ 4,641 $ 9.71 3.24% $ 281,282 $ 9.73 0.96% $ 288,502 $ 9.84 0.45% $ 282,188 $10.04 3.70% $ 302,708 $10.01 4.29% $ 305,884 $10.04 10.13% $ 215,458 $ 1.00 3.25% $2,976,881 $ 1.00 1.13% $3,173,794 $ 1.00 0.52% $3,477,598 $ 1.00 1.17% $4,284,266 $ 1.00 2.29% $3,907,203 $ 1.00 5.75% $3,728,371 RATIO OF EXPENSES TO RATIO OF RATIO OF AVERAGE NET ASSETS NET EXPENSES NET INVESTMENT (EXCLUDING WAIVERS PORTFOLIO TO AVERAGE INCOME (LOSS) TO AND/OR TURNOVER NET ASSETS++ AVERAGE NET ASSETS++ REIMBURSEMENTS)++ RATE+ ------------ -------------------- ----------------- ----- 1.12% 0.63% 1.13% 138% 1.20% 0.64% 1.22% 68% 1.23% 0.64% 1.26% 126% 1.22% (0.31)% 1.25% 144% 1.22% (0.18)% 1.24% 87% 1.21% (0.24)% 1.25% 100% 1.17% (0.66)% 1.18% 98% 1.22% (0.46)% 1.22% 70% 1.25% (0.83)% 1.25% 107% 1.24% (0.87)% 1.24% 96% 1.25% (1.01)% 1.25% 100% 1.24% (0.95)% 1.25% 112% 0.65% 3.91% 0.65% 171% 0.78% 3.31% 0.80% 268% 0.82% 3.29% 0.84% 119% 0.81% 3.92% 0.83% 137% 0.81% 4.81% 0.83% 123% 0.81% 6.17% 0.84% 131% 0.49% 6.20% 0.50% 95% 0.51% 6.22% 0.57% 42% 0.55% 6.48% 0.64% 73% 0.55% 6.67% 0.67% 108% 0.55% 6.80% 1.07% 97% 0.55% 7.33% 3.98% 466% 0.55% 3.32% 0.57% 94% 0.66% 2.48% 0.71% 64% 0.70% 2.42% 0.75% 66% 0.70% 3.34% 0.75% 89% 0.70% 4.48% 0.75% 142% 0.70% 5.71% 0.76% 87% 0.58% 3.19% 0.61% N/A 0.60% 1.34% 0.71% N/A 0.63% 0.52% 0.74% N/A 0.63% 1.14% 0.74% N/A 0.63% 2.22% 0.74% N/A 0.63% 5.57% 0.75% N/A
****Effective November 1, 2003, these Funds adopted a change in the amortization and accretion methodology on fixed income securities. The cumulative effect of this change in methodology is noted below:
CHANGE TO RATIO OF NET INVESTMENT CHANGE TO NET INCOME TO AVERAGE CHANGE TO NET REALIZED AND NET ASSETS INVESTMENT UNREALIZED GAINS ----------------- INCOME PER SHARE (LOSSES) PER SHARE I SHARES ---------------- ------------------ ----------------- Seix High Yield Fund $ 0.01 $(0.01) 0.06%
HOW TO OBTAIN MORE INFORMATION INVESTMENT ADVISER: Trusco Capital Management, Inc. 50 Hurt Plaza, Suite 1400 Atlanta, Georgia 30303 INVESTMENT SUBADVISER: Zevenbergen Capital Investments LLC 601 Union Street, Suite 4600 Seattle, Washington 98101 (Aggressive Growth Stock Fund) More information about the STI Classic Funds is available without charge through the following: STATEMENT OF ADDITIONAL INFORMATION ("SAI"): The SAI includes detailed information about the STI Classic Funds. The SAI is on file with the SEC and is incorporated by reference into this prospectus. This means that the SAI, for legal purposes, is a part of this prospectus. ANNUAL AND SEMI-ANNUAL REPORTS: These reports list each Fund's holdings and contain information from the Funds' managers about strategies and recent market conditions and trends and their impact on Fund performance. The reports also contain detailed financial information about the Funds. TO OBTAIN AN SAI, ANNUAL OR SEMI-ANNUAL REPORT, OR MORE INFORMATION: TELEPHONE: 1-888-STI-FUND MAIL: STI Classic Funds BISYS Fund Services, Limited Partnership 3435 Stelzer Road Columbus, Ohio 43219 WEBSITE: www.sticlassicfunds.com SEC: You can also obtain the SAI or the Annual and Semi-Annual reports, as well as other information about the STI Classic Funds, from the EDGAR Database on the SEC's website at http://www.sec.gov. You may review and copy documents at the SEC Public Reference Room in Washington, DC (for information on the operation of the Public Reference Room, call 202-942-8090). You may request documents by mail from the SEC, upon payment of a duplicating fee, by writing to: Securities and Exchange Commission, Public Reference Section, Washington, DC 20549-0102. You may also obtain this information, upon payment of a duplicating fee, by e-mailing the SEC at publicinfo@sec.gov. The STI Classic Funds' Investment Company Act registration number is 811-06557. STI Classic Funds (SUNTRUST LOGO) suntrust.com 800.SUNTRUST (C)2006, SunTrust Banks, Inc. SunTrust is a federally registered service mark of SunTrust Banks, Inc. mkt 33626-06 PU-401K-0806 STI CLASSIC FUNDS A Shares C Shares PROSPECTUS STI CLASSIC BOND FUNDS Core Bond Fund Florida Tax-Exempt Bond Fund Georgia Tax-Exempt Bond Fund High Income Fund Intermediate Bond Fund Investment Grade Bond Fund Investment Grade Tax-Exempt Bond Fund Limited-Term Federal Mortgage Securities Fund Maryland Municipal Bond Fund North Carolina Tax-Exempt Bond Fund Seix Floating Rate High Income Fund Seix High Yield Fund Short-Term Bond Fund Short-Term U.S. Treasury Securities Fund Strategic Income Fund U.S. Government Securities Fund Virginia Intermediate Municipal Bond Fund Investment Adviser: Trusco Capital Management, Inc. (the "Adviser") August 1, 2006 The Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense. PROSPECTUS ABOUT THIS PROSPECTUS CHOOSING A SHARES OR C SHARES The STI Classic Funds is a mutual fund family that offers shares in separate investment portfolios that have individual investment goals and strategies. This prospectus gives you important information about the A Shares and C Shares of the Bond Funds ("Funds") that you should know before investing. Please read this prospectus and keep it for future reference. A Shares and C Shares have different expenses and other characteristics, allowing you to choose the class that best suits your needs. You should consider the amount you want to invest, how long you plan to have it invested, and whether you plan to make additional investments. A SHARES - - Front-end sales charge - - 12b-1 fees - - $2,000 minimum initial investment C SHARES - - Contingent deferred sales charge - - Higher 12b-1 fees - - $5,000 minimum initial investment This prospectus has been arranged into different sections so that you can easily review this important information. On page 2, there is some general information you should know about risk and return that is common to each of the Funds. For more detailed information about each Fund, please see: 3 CORE BOND FUND 7 FLORIDA TAX-EXEMPT BOND FUND 11 GEORGIA TAX-EXEMPT BOND FUND 15 HIGH INCOME FUND 20 INTERMEDIATE BOND FUND 25 INVESTMENT GRADE BOND FUND 30 INVESTMENT GRADE TAX-EXEMPT BOND FUND 34 LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND 38 MARYLAND MUNICIPAL BOND FUND 41 NORTH CAROLINA TAX-EXEMPT BOND FUND 45 SEIX FLOATING RATE HIGH INCOME FUND 48 SEIX HIGH YIELD FUND 53 SHORT-TERM BOND FUND 57 SHORT-TERM U.S. TREASURY SECURITIES FUND 61 STRATEGIC INCOME FUND 66 U.S. GOVERNMENT SECURITIES FUND 70 VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND 74 MORE INFORMATION ABOUT RISK 78 MORE INFORMATION ABOUT FUND INVESTMENTS 78 INFORMATION ABOUT PORTFOLIO HOLDINGS 78 INVESTMENT ADVISER 79 PORTFOLIO MANAGERS 80 PURCHASING, SELLING AND EXCHANGING FUND SHARES 88 MARKET TIMING POLICIES AND PROCEDURES 89 REDEMPTION FEE POLICY 90 DIVIDENDS AND DISTRIBUTIONS 90 TAXES 92 FINANCIAL HIGHLIGHTS INSIDE PRIVACY POLICY BACK COVER BACK HOW TO OBTAIN MORE INFORMATION COVER ABOUT THE STI CLASSIC FUNDS
- -------------------------------------------------------------------------------- (SUITCASE FUND SUMMARY ICON) (TELESCOPE INVESTMENT STRATEGY ICON) (LIFE WHAT ARE THE PRINCIPAL RISKS OF INVESTING? PRESERVER ICON) (TARGET PERFORMANCE INFORMATION ICON) (LINE WHAT IS AN INDEX/OBJECTIVE? GRAPH ICON) (COIN FUND FEES AND EXPENSES ICON) (MOUNTAIN MORE INFORMATION ABOUT FUND INVESTMENTS ICON) (MAGNIFYING INVESTMENT ADVISER GLASS ICON) (HAND PURCHASING, SELLING AND EXCHANGING SHAKE FUND SHARES ICON) (DOLLAR SALES CHARGES ICON)
- -------------------------------------------------------------------------------- AUGUST 1, 2006 PROSPECTUS 1 CUSIP/TICKER SYMBOLS
FUND NAME CLASS INCEPTION* TICKER CUSIP Core Bond Fund A Shares 10/11/04 CBPSX 78476A835 Core Bond Fund C Shares 10/11/04 SCBLX 78476A504 Florida Tax-Exempt Bond Fund A Shares 1/18/94 SFLTX 784766693 Florida Tax-Exempt Bond Fund C Shares 6/1/95 SCFEX 784766511 Georgia Tax-Exempt Bond Fund A Shares 1/19/94 SGTEX 784766677 Georgia Tax-Exempt Bond Fund C Shares 6/6/95 SCGTX 784766495 High Income Fund A Shares 10/27/03 SAHIX 784767378 High Income Fund C Shares 5/4/94 STHIX 784767741 Intermediate Bond Fund A Shares 10/11/04 IBASX 78476A801 Intermediate Bond Fund C Shares 10/11/04 IBLSX 78476A819 Investment Grade Bond Fund A Shares 6/11/92 STGIX 784766800 Investment Grade Bond Fund C Shares 6/7/95 SCIGX 784766578 Investment Grade Tax-Exempt Bond Fund A Shares 6/9/92 SISIX 784766875 Investment Grade Tax-Exempt Bond Fund C Shares 6/1/95 SCITX 784766560 Limited-Term Federal Mortgage Securities Fund A Shares 7/18/94 SLTMX 784766610 Limited-Term Federal Mortgage Securities Fund C Shares 6/7/95 SCLFX 784766545 Maryland Municipal Bond Fund A Shares 4/13/05 SMMAX 784767329 Maryland Municipal Bond Fund C Shares 4/25/96 CMDBX 784766115 North Carolina Tax-Exempt Bond Fund A Shares 3/21/05 SNCIX 78476A793 North Carolina Tax-Exempt Bond Fund C Shares 3/21/05 SNCLX 78476A785 Seix Floating Rate High Income Fund A Shares 5/8/2006 SFRAX 78476A611 Seix High Yield Fund A Shares 10/11/04 HYPSX 78476A868 Seix High Yield Fund C Shares 10/11/04 HYLSX 78476A850 Short-Term Bond Fund A Shares 3/22/93 STSBX 784766818 Short-Term Bond Fund C Shares 6/20/95 SCBSX 784766537 Short-Term U.S. Treasury Securities Fund A Shares 3/18/93 STSFX 784766784 Short-Term U.S. Treasury Securities Fund C Shares 6/22/95 SSUSX 784766529 Strategic Income Fund A Shares 10/8/03 SAINX 784767311 Strategic Income Fund C Shares 11/30/01 STIFX 784767683 U.S. Government Securities Fund A Shares 6/6/94 SCUSX 784766636 U.S. Government Securities Fund C Shares 6/7/95 SGUSX 784766552 Virginia Intermediate Municipal Bond Fund A Shares 5/5/93 CVIAX 784767204 Virginia Intermediate Municipal Bond Fund C Shares 9/1/05 SVILX 784767261
* The performance included under "Performance Information" may include the performance of other classes of the Fund and/or predecessors of the Fund. 2 PROSPECTUS RISK/RETURN INFORMATION COMMON TO THE STI CLASSIC FUNDS Each Fund is a mutual fund. A mutual fund pools shareholders' money and, using professional investment managers, invests it in securities. Each Fund has its own investment goal and strategies for reaching that goal. The Adviser invests Fund assets in a way that it believes will help a Fund achieve its goal. Still, investing in each Fund involves risk and there is no guarantee that a Fund will achieve its goal. The Adviser's judgments about the markets, the economy or companies may not anticipate actual market movements, economic conditions or company performance, and these judgments may affect the return on your investment. In fact, no matter how good a job the Adviser does, you could lose money on your investment in the Fund, just as you could with other investments. A FUND SHARE IS NOT A BANK DEPOSIT AND IT IS NOT INSURED OR GUARANTEED BY THE FDIC OR ANY GOVERNMENT AGENCY. The value of your investment in a Fund is based on the market prices of the securities the Fund holds. These prices change daily due to economic and other events that affect particular companies and other issuers. These price movements, sometimes called volatility, may be greater or lesser depending on the types of securities a Fund owns and the markets in which they trade. The effect on a Fund of a change in the value of a single security will depend on how widely the Fund diversifies its holdings. Each Fund's investment goal may be changed without shareholder approval. Before investing, make sure that the Fund's goal matches your own. CORE BOND FUND PROSPECTUS 3 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Total return that consistently exceeds the total return of the broad U.S. investment grade bond market INVESTMENT FOCUS Investment grade debt securities SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Invest in fixed income securities with an emphasis on corporate and mortgage-backed securities INVESTOR PROFILE Investors who want to receive income from their investment, as well as an increase in the value of the investment
(TELESCOPE ICON) INVESTMENT STRATEGY The Core Bond Fund invests in various types of income producing debt securities including mortgage- and asset-backed securities, government and agency obligations, corporate obligations and floating rate loans. The Fund may invest in debt obligations of U.S. and non-U.S. issuers, including emerging market debt. Under normal circumstances, the Fund invests at least 80% of its net assets in fixed income securities. These securities will be chosen from the broad universe of available fixed income securities rated investment grade by at least one national securities rating agency or unrated securities that the Adviser believes are of comparable quality. The Fund may invest up to 20% of its net assets in below investment grade, high yield debt obligations. The Fund may also invest a portion of its assets in securities that are restricted as to resale. The Adviser anticipates that the Fund's modified adjusted duration will generally range from 3 to 6 years, similar to that of the Lehman Brothers Aggregate Bond Index, the Fund's comparative benchmark. In selecting investments for the Fund, the Adviser generally selects a greater weighting in obligations of domestic corporations and mortgage-backed securities relative to the Fund's comparative benchmark, and a lower relative weighting in U.S. Treasury and government agency issues. Because securities tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell derivative instruments (such as futures, options and swaps, including credit default swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate or credit risks. The Fund may count the value of certain derivatives with investment grade fixed income characteristics towards its policy to invest, under normal circumstances, at least 80% of its net assets in fixed income securities. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. Mortgage-backed investments involve risk of loss due to prepayments and, like any bond, due to default. Because of the sensitivity of mortgage-related securities to changes in interest rates, the Fund's performance may be more volatile than if it did not hold these securities. Foreign securities involve special risks such as currency fluctuations, economic or financial instability, lack of timely or reliable financial information and unfavorable political or legal developments. These risks are increased for investments in emerging markets. Below investment grade securities (sometimes referred to as "junk bonds") involve greater risk of default or downgrade and are more volatile than investment grade securities. Below investment grade securities may also be less liquid than higher quality securities. The risks associated with floating rate loans are similar to the risks of below investment grade securities. In addition, the value of the collateral securing the loan may decline, causing a loan to be substantially unsecured. Difficulty in selling a floating rate loan may result in a loss. Borrowers may pay back principal before the scheduled due date when interest rates decline, which may require the Fund to replace a particular loan with a lower-yielding security. There may be less extensive public information available with respect to loans than for rated, registered or exchange listed CORE BOND FUND 4 PROSPECTUS securities. The Fund may assume the credit risk of the primary lender in addition to the borrower, and investments in loan assignments may involve the risks of being a lender. U.S. government securities can exhibit price movements resulting from changes in interest rates. Treasury inflation protected securities ("TIPS") can also exhibit price movements as a result of changing inflation expectations and seasonal inflation patterns. Certain U.S. government securities are backed by the full faith and credit of the U.S. Government, while others are backed by the ability of the issuing entity to borrow from the U.S. Treasury or by the issuing entity's own resources. Restricted securities may increase the level of illiquidity in the Fund during any period that qualified institutional buyers become uninterested in purchasing these restricted securities. The Adviser intends to invest only in restricted securities that it believes present minimal liquidity risk. Because the Fund invests in derivatives, it is exposed to additional volatility and potential losses. Credit default swaps can increase the Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. The use of derivatives may cause the Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. The Fund began operating on October 11, 2004. Performance between December 30, 1997 to January 25, 2002 and January 25, 2002 to October 11, 2004 is that of the Class I Shares and Class P Shares, respectively, of the Seix Core Bond Fund, the Fund's predecessor. The performance of the predecessor fund's Class I Shares has not been adjusted to reflect the Fund's A Share expenses. If it had been, the performance would have been lower. This bar chart shows changes in the performance of the Fund's Class A Shares from year to year.* The chart does not reflect sales charges. If sales charges had been reflected, returns would be less than those shown. (BAR CHART) 1998 7.81% 1999 -0.53% 2000 10.40% 2001 6.83% 2002 7.23% 2003 4.58% 2004 4.26% 2005 1.82%
BEST QUARTER WORST QUARTER 4.25% -2.25% (9/30/01) (6/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was -1.21. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Lehman Brothers U.S. Aggregate Index. These returns reflect applicable sales charges and assume shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown only for the Fund's Class A Shares. After-tax returns for other classes will vary. CORE BOND FUND PROSPECTUS 5
A SHARES* 1 YEAR 5 YEARS SINCE INCEPTION** Fund Returns Before Taxes -3.06% 3.91% 4.63% Fund Returns After Taxes on Distributions -4.28% 2.44% 2.76% Fund Returns After Taxes on Distributions and Sale of Fund Shares -1.99% 2.45% 2.78% Lehman Brothers U.S. Aggregate Index (reflects no deduction for fees, expenses or taxes) 2.43% 5.87% 6.06%
* Performance between December 30, 1997 to January 25, 2002 and January 25, 2002 to October 11, 2004 is that of the predecessor fund's Class I Shares and Class P Shares, respectively. ** Since inception of the predecessor fund on December 30, 1997.
C SHARES* 1 YEAR 5 YEARS SINCE INCEPTION** Fund Returns Before Taxes 0.32% 4.97% 5.30% Lehman Brothers U.S. Aggregate Index (reflects no deduction for fees, expenses or taxes) 2.43% 5.87% 6.06%
* Performance between December 30, 1997 to January 25, 2002 and January 25, 2002 to October 11, 2004 is that of the predecessor fund's Class I Shares and Class P Shares, respectively. ** Since inception of the predecessor fund on December 30, 1997. (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Lehman Brothers U.S. Aggregate Index is a widely-recognized index of U.S. Treasury and agency securities, corporate bond issues, mortgage-backed securities, asset-backed securities and corporate mortgage-backed securities. (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
A SHARES C SHARES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)* 4.75% None Maximum Deferred Sales Charge (as a percentage of net asset value)** None 1.00% Redemption Fee (as percentage of net asset value)*** 2.00% 2.00%
* This sales charge varies depending on how much you invest. You may buy A Shares in amounts of $1,000,000 or more at net asset value (without a front- end sales charge), but if you redeem those shares within one year of your purchase, you will pay a deferred sales charge of 1.00%. See "Sales Charges." ** This sales charge is imposed if you sell C Shares within one year of your purchase. See "Sales Charges." *** This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." CORE BOND FUND 6 PROSPECTUS - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
A SHARES C SHARES Investment Advisory Fees 0.25% 0.25% Distribution and Service (12b-1) Fees 0.25% 1.00% Other Expenses(1) 0.06% 0.06% ----- ----- Total Annual Operating Expenses(2) 0.56% 1.31%
(1) Adjusted to reflect an expected change in Other Expenses for the current fiscal year. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: If you sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $530 $646 $773 $1,143 C Shares $233 $415 $718 $1,579
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $530 $646 $773 $1,143 C Shares $133 $415 $718 $1,579
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." - ------------------------------------------------------------- ADDITIONAL AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- Unlike the Average Annual Total Returns on page 5 the table below reflects the Fund's results calculated without sales charges.
A SHARES* 1 YEAR 5 YEARS SINCE INCEPTION** Fund Returns Before Taxes 1.82% 4.92% 5.27% Fund Returns After Taxes on Distributions 0.54% 3.44% 3.39% Fund Returns After Taxes on Distributions and Sale of Fund Shares 1.18% 3.32% 3.34% Lehman Brothers U.S. Aggregate Index (reflects no deduction for fees, expenses or taxes) 2.43% 5.87% 6.06%
* Performance between December 30, 1997 to January 25, 2002 and January 25, 2002 to October 11, 2004 is that of the predecessor fund's Class I Shares and Class P Shares, respectively. ** Since inception of the predecessor fund on December 30, 1997. FLORIDA TAX-EXEMPT BOND FUND PROSPECTUS 7 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Current income exempt from federal income taxes for Florida residents with shares themselves expected to be exempt from the Florida intangible personal property tax INVESTMENT FOCUS Florida municipal securities SHARE PRICE VOLATILITY Low PRINCIPAL INVESTMENT STRATEGY Attempts to invest more Fund assets in undervalued sectors and less in overvalued ones INVESTOR PROFILE Florida residents who want income exempt from federal income taxes
(TELESCOPE ICON) INVESTMENT STRATEGY The Florida Tax-Exempt Bond Fund invests at least 80% of its net assets in municipal securities with income exempt from federal income taxes, and the shares themselves are expected to be exempt from the Florida intangible personal property tax. Issuers of these securities can be located in Florida, Puerto Rico and other U.S. territories and possessions. In addition, the Fund may invest up to 20% of its net assets in securities subject to the alternative minimum tax or in certain taxable debt securities. In selecting investments for the Fund, the Adviser tries to limit risk as much as possible. Based on the Adviser's analysis of municipalities, credit risk, market trends and investment cycles, the Adviser attempts to invest more of the Fund's assets in undervalued market sectors and less in overvalued sectors. The Adviser tries to diversify the Fund's holdings within Florida. The Adviser also tries to identify and invest in municipal issuers with improving credit and avoid those with deteriorating credit. Under certain circumstances, such as a national financial emergency or a temporary decline in availability of Florida obligations, the Fund may invest up to 20% of its assets in securities subject to the Florida intangible personal property tax and/or securities that generate income subject to federal personal income taxes. These securities may include short-term municipal securities outside Florida or certain taxable fixed income securities. In addition, to implement its investment strategy, the Fund may buy or sell, derivative instruments (such as futures, options, swaps and inverse floaters) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. There may be economic or political changes that impact the ability of municipal issuers to repay principal and to make interest payments on municipal securities. Changes in the financial condition or credit rating of municipal issuers also may adversely affect the value of the Fund's securities. The Fund's concentration of investments in securities of issuers located in Florida subjects the Fund to economic and government policies within Florida. Because the Fund invests in derivatives, it is exposed to additional volatility and potential losses. Inverse floaters are volatile and involve leverage risk. Certain derivatives may cause taxable income. FLORIDA TAX-EXEMPT BOND FUND 8 PROSPECTUS (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's A Shares from year to year.* The chart does not reflect sales charges. If sales charges had been reflected, returns would be less than those shown. (BAR CHART) 1996 3.73% 1997 7.60% 1998 5.94% 1999 -2.41% 2000 11.30% 2001 3.56% 2002 10.23% 2003 3.97% 2004 1.97% 2005 2.19%
BEST QUARTER WORST QUARTER 5.41% -2.47% (9/30/02) (6/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was -0.37%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Lehman Brothers 10-Year Municipal Bond Index and the Lipper Florida Municipal Debt Funds Objective. These returns reflect applicable sales charges and assumes shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only the A Shares. After-tax returns for other classes will vary.
A SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes -2.65% 3.33% 4.23% Fund Returns After Taxes on Distributions -2.72% 3.11% 4.05% Fund Returns After Taxes on Distributions and Sale of Fund Shares -0.67% 3.21% 4.05% Lehman Brothers 10-Year Municipal Bond Index (reflects no deduction for fees, expenses or taxes) 2.74% 5.45% 5.69% Lipper Florida Municipal Debt Funds Objective (reflects no deduction for taxes) 3.33% 4.67% 4.69%
C SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes 0.49% 3.78% 4.21% Lehman Brothers 10-Year Municipal Bond Index (reflects no deduction for fees, expenses or taxes) 2.74% 5.45% 5.69% Lipper Florida Municipal Debt Funds Objective (reflects no deduction for taxes) 3.33% 4.67% 4.69%
FLORIDA TAX-EXEMPT BOND FUND PROSPECTUS 9 (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX/OBJECTIVE? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Lehman Brothers 10-Year Municipal Bond Index is a widely-recognized index of long-term investment grade tax-exempt bonds. The Index includes general obligation bonds, revenue bonds, insured bonds and prefunded bonds with maturities between 8 and 12 years. The Index represents various market sectors and geographic locations. The Lipper Florida Municipal Debt Funds Objective is a composite index of mutual funds with investment goals similar to the Fund's goals. It reports the average return of the Florida intermediate-term municipal bond mutual funds tracked by Lipper Analytical Services, Inc. The number of funds in the Objective varies. (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
A SHARES C SHARES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)* 4.75% None Maximum Deferred Sales Charge (as a percentage of net asset value)** None 1.00% Redemption Fee (as a percentage of net asset value)*** 2.00% 2.00%
* This sales charge varies depending upon how much you invest. You may buy A Shares in amounts of $1,000,000 or more at net asset value (without an initial sales charge), but if you redeem those shares within one year of your purchase, you will pay a deferred sales charge of 1.00%. See "Sales Charges." ** This sales charge is imposed if you sell C Shares within one year of your purchase. See "Sales Charges." *** This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
A SHARES C SHARES Investment Advisory Fees(1) 0.55% 0.55% Distribution and Service (12b-1) Fees 0.15%(2) 1.00% Other Expenses 0.06% 0.06% ------------ ------------------- Total Annual Operating Expenses(3) 0.76% 1.61%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) Adjusted to reflect a reduction in 12b-1 fees effective August 1, 2005. The Fund's Distribution and Service Plan for A Shares authorizes payment of up to 0.18% of average daily net assets of A Shares for distribution and shareholder services. Currently, the Board of Trustees has only approved payment of up to 0.15% of average daily net assets. (3) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. FLORIDA TAX-EXEMPT BOND FUND 10 PROSPECTUS - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: If you sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $549 $706 $877 $1,372 C Shares $264 $508 $876 $1,911
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $549 $706 $877 $1,372 C Shares $164 $508 $876 $1,911
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." - ------------------------------------------------------------- ADDITIONAL AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- Unlike the Average Annual Total Returns on page 8 the table below reflects the Fund's results calculated without sales charges.
A SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes 2.19% 4.34% 4.74% Fund Returns After Taxes on Distributions 2.11% 4.12% 4.56% Fund Returns After Taxes on Distributions and Sale of Fund Shares 2.53% 4.09% 4.50% Lehman Brothers 10-Year Municipal Bond Index (reflects no deduction for fees, expenses or taxes) 2.74% 5.45% 5.69% Lipper Florida Municipal Debt Funds Objective (reflects no deduction for taxes) 3.33% 4.67% 4.69%
GEORGIA TAX-EXEMPT BOND FUND PROSPECTUS 11 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Current income exempt from federal and state income taxes for Georgia residents without undue risk INVESTMENT FOCUS Georgia municipal securities SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Attempts to invest more Fund assets in undervalued sectors and less in overvalued ones INVESTOR PROFILE Georgia residents who want income exempt from federal and state income taxes
(TELESCOPE ICON) INVESTMENT STRATEGY The Georgia Tax-Exempt Bond Fund invests at least 80% of its net assets in municipal securities with income exempt from federal and Georgia income taxes. Issuers of these securities can be located in Georgia, Puerto Rico and other U.S. territories and possessions. In addition, the Fund may invest up to 20% of its assets in securities subject to the alternative minimum tax or in certain taxable debt securities. In selecting investments for the Fund, the Adviser tries to limit risk as much as possible. Based on the Adviser's analysis of municipalities, credit risk, market trends and investment cycles, the Adviser attempts to invest more of the Fund's assets in undervalued market sectors and less in overvalued sectors. The Adviser tries to diversify the Fund's holdings within Georgia. The Adviser also tries to identify and invest in municipal issuers with improving credit and avoid those with deteriorating credit. In addition, to implement its investment strategy, the Fund may buy or sell, derivative instruments (such as futures, options, swaps and inverse floaters) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. There may be economic or political changes that impact the ability of municipal issuers to repay principal and to make interest payments on municipal securities. Changes in the financial condition or credit rating of municipal issuers also may adversely affect the value of the Fund's securities. The Fund's concentration of investments in securities of issuers located in Georgia subjects the Fund to economic conditions and government policies within Georgia. Because the Fund invests in derivatives, it is exposed to additional volatility and potential losses. Inverse floaters are volatile and involve leverage risk. Certain derivatives may cause taxable income. GEORGIA TAX-EXEMPT BOND FUND 12 PROSPECTUS (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's A Shares from year to year.* The chart does not reflect sales charges. If sales charges had been reflected, returns would be less than those shown. (BAR CHART) 1996 3.43% 1997 7.96% 1998 5.47% 1999 -2.49% 2000 9.30% 2001 4.00% 2002 8.94% 2003 3.63% 2004 2.74% 2005 2.58%
BEST QUARTER WORST QUARTER 4.23% -2.74% (9/30/02) (6/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was -0.28%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Lehman Brothers 10-Year Municipal Bond Index and the Lipper Georgia Municipal Debt Funds Objective. These returns reflect applicable sales charges and assumes shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only the A Shares. After-tax returns for other classes will vary.
A SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes -2.32% 3.35% 4.00% Fund Returns After Taxes on Distributions -2.34% 3.25% 3.91% Fund Returns After Taxes on Distributions and Sale of Fund Shares -0.40% 3.34% 3.91% Lehman Brothers 10-Year Municipal Bond Index (reflects no deduction for fees, expenses or taxes) 2.74% 5.45% 5.69% Lipper Georgia Municipal Debt Funds Objective (reflects no deduction for taxes) 2.36% 4.51% 4.73%
C SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes 0.88% 3.79% 3.97% Lehman Brothers 10-Year Municipal Bond Index (reflects no deduction for fees, expenses or taxes) 2.74% 5.45% 5.69% Lipper Georgia Municipal Debt Funds Objective (reflects no deduction for taxes) 2.36% 4.51% 4.73%
GEORGIA TAX-EXEMPT BOND FUND PROSPECTUS 13 (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX/OBJECTIVE? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Lehman Brothers 10-Year Municipal Bond Index is a widely-recognized index of long-term investment grade tax-exempt bonds. The Index includes general obligation bonds, revenue bonds, insured bonds and prefunded bonds with maturities between 8 and 12 years. The Index represents various market sectors and geographic locations. The Lipper Georgia Municipal Debt Funds Objective is a composite index of mutual funds with investment goals similar to the Fund's goals. It reports the average return of the Georgia intermediate-term municipal bond mutual funds tracked by Lipper Analytical Services, Inc. The number of funds in the Objective varies. (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
A SHARES C SHARES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)* 4.75% None Maximum Deferred Sales Charge (as a percentage of net asset value)** None 1.00% Redemption Fee (as a percentage of net asset value)*** 2.00% 2.00%
* This sales charge varies depending upon how much you invest. You may buy A Shares in amounts of $1,000,000 or more at net asset value (without an initial sales charge), but if you redeem those shares within one year of your purchase, you will pay a deferred sales charge of 1.00%. See "Sales Charges." ** This sales charge is imposed if you sell C Shares within one year of your purchase. See "Sales Charges." *** This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
A SHARES C SHARES Investment Advisory Fees(1) 0.55% 0.55% Distribution and Service (12b-1) Fees 0.15%(2) 1.00% Other Expenses 0.08% 0.08% ------------ ------------------- Total Annual Operating Expenses(3) 0.78% 1.63%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) Adjusted to reflect a reduction in 12b-1 fees effective August 1, 2005. The Fund's Distribution and Service Plan for A Shares authorizes payment of up to 0.18% of average daily net assets of A Shares for distribution and shareholder services. Currently, the Board of Trustees has only approved payment of up to 0.15% of average daily net assets. (3) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. GEORGIA TAX-EXEMPT BOND FUND 14 PROSPECTUS - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: If you sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $551 $712 $888 $1,395 C Shares $266 $514 $887 $1,933
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $551 $712 $888 $1,395 C Shares $166 $514 $887 $1,933
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." - ------------------------------------------------------------- ADDITIONAL AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- Unlike the Average Annual Total Returns on page 12 the table below reflects the Fund's results calculated without sales charges.
A SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes 2.58% 4.35% 4.50% Fund Returns After Taxes on Distributions 2.57% 4.26% 4.41% Fund Returns After Taxes on Distributions and Sale of Fund Shares 2.84% 4.22% 4.37% Lehman Brothers 10-Year Municipal Bond Index (reflects no deduction for fees, expenses or taxes) 2.74% 5.45% 5.69% Lipper Georgia Municipal Debt Funds Objective (reflects no deduction for taxes) 2.36% 4.51% 4.73%
HIGH INCOME FUND PROSPECTUS 15 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOALS PRIMARY High current income SECONDARY Total return INVESTMENT FOCUS High yield corporate and other debt instruments of U.S. and non-U.S. issuers SHARE PRICE VOLATILITY High PRINCIPAL INVESTMENT STRATEGY Attempts to identify lower-rated securities offering high current income of issuers generating adequate cash flow to meet their obligations INVESTOR PROFILE Investors who seek high current income and who are willing to accept greater share price volatility through investment in high yield, below investment grade debt instruments
(TELESCOPE ICON) INVESTMENT STRATEGY The High Income Fund invests primarily in a diversified portfolio of higher yielding, lower-rated income producing debt instruments, including corporate obligations, floating rate loans and other debt obligations. The Fund may invest in debt obligations of U.S. and non-U.S. issuers, including emerging market debt. The Fund will invest at least 65%, and may invest up to 100%, of its assets in securities rated below investment grade by either Moody's Investor Services, Inc. or Standard & Poor's Rating Services or in unrated securities that the Adviser believes are of comparable quality. Such securities are commonly known as "junk bonds" and offer greater risks than investment grade debt securities. The Fund may also invest a portion of its assets in securities that are restricted as to resale. In selecting securities for the Fund, the Adviser employs a research driven process designed to identify value areas within the high yield market. The Adviser seeks to identify securities which meet the following criteria: (1) industries that have strong fundamentals; (2) companies that have good business prospects and increasing credit strength; and (3) issuers with stable or growing cash flows and effective management. Because securities tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell derivative instruments (such as futures, options and swaps, including credit default swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate or credit risks. The Fund may count the value of certain derivatives with below investment grade fixed income characteristics towards its policy to invest, under normal circumstances, at least 65% of its net assets in non-investment grade fixed income securities. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. Below investment grade securities (sometimes referred to as "junk bonds") involve greater risk of default or downgrade and are more volatile than investment grade securities. Below investment grade securities may also be less liquid than higher quality securities. The risks associated with floating rate loans are similar to the risks of below investment grade securities. In addition, the value of the collateral securing the loan may decline, causing a loan to be substantially unsecured. Difficulty in selling a floating rate loan may result in a loss. Borrowers may pay back principal before the scheduled due date when interest rates decline, which may require the Fund to replace a particular loan with a lower-yielding security. There may be less extensive public information available with respect to loans than for rated, registered or exchange listed securities. The Fund may assume the credit risk of the primary lender in addition to the borrower, and investments in loan assignments may involve the risks of being a lender. Foreign securities involve special risks such as currency fluctuations, economic or financial instability, lack of timely or reliable financial information and unfavorable HIGH INCOME FUND 16 PROSPECTUS political or legal developments. These risks are increased for investments in emerging markets. Restricted securities may increase the level of illiquidity in the Fund during any period that qualified institutional buyers become uninterested in purchasing these restricted securities. The Adviser intends to invest only in restricted securities that it believes present minimal liquidity risk. Because the Fund invests in derivatives, it is exposed to additional volatility and potential losses. Credit default swaps can increase the Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. The use of derivatives may cause the Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. The periods prior to March 28, 2000 represent the performance of the ESC Strategic Income Fund, the Fund's predecessor. This bar chart shows changes in the performance of the Fund's C Shares from year to year.* The chart does not reflect sales charges. If sales charges had been reflected, returns would be less than those shown. (BAR CHART) 1996 5.84% 1997 5.05% 1998 4.43% 1999 1.28% 2000 -9.46% 2001 5.55% 2002 -3.75% 2003 24.83% 2004 9.60% 2005 3.36%
BEST QUARTER WORST QUARTER 8.56% -9.92% (6/30/03) (3/31/00)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 3.34%. HIGH INCOME FUND PROSPECTUS 17 - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Lehman Brothers U.S. Corporate High Yield Bond Index. These returns reflect applicable sales charges and assumes shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After Tax return are shown only for the A Shares. After tax returns for other classes will vary.
A SHARES 1 YEAR SINCE INCEPTION* Fund Returns Before Taxes -1.05% 6.33% Fund Returns After Taxes on Distributions -4.73% 2.83% Fund Returns After Taxes on Distributions and Sale of Fund Shares -0.22% 3.59% Lehman Brothers U.S. Corporate High Yield Bond Index (reflects no deduction for fees, expenses or taxes) 2.74% 8.81%
* Since inception of the A Shares on October 27, 2003. Benchmark returns since September 30, 2003 (benchmark returns available only on a month end basis).
C SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes 2.44% 7.51% 4.34% Lehman Brothers U.S. Corporate High Yield Bond Index (reflects no deduction for fees, expenses or taxes) 2.74% 8.85% 6.54%
(LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Lehman Brothers U.S. Corporate High Yield Bond Index is a widely-recognized, market value-weighted (higher market value bonds have more influence than lower market value bonds) index which covers the universe of fixed rate, non-investment grade debt. HIGH INCOME FUND 18 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
A SHARES C SHARES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)* 4.75% None Maximum Deferred Sales Charge (as a percentage of net asset value)** None 1.00% Redemption Fee (as a percentage of net asset value)*** 2.00% 1.00%
* This sales charge varies depending upon how much you invest. You may buy A Shares in amounts of $1,000,000 or more at net asset value (without an initial sales charge), but if you redeem those shares within one year of your purchase, you will pay a deferred sales charge of 1.00%. See "Sales Charges." ** This sales charge is imposed if you sell C Shares if within one year of your purchase. See "Sales Charges." *** This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
A SHARES C SHARES Investment Advisory Fees(1) 0.60% 0.60% Distribution and Service (12b-1) Fees 0.30% 1.00% Other Expenses 0.15% 0.15% ------------ ------------------- Total Annual Operating Expenses(2) 1.05% 1.75%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) Effective August 1, 2006, the Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses to the levels shown below. These waivers may be discontinued at any time.
A SHARES C SHARES High Income Fund 1.00% 1.70%
- ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: If you sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $577 $793 $1,027 $1,697 C Shares $278 $551 $ 949 $2,062
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $577 $793 $1,027 $1,697 C Shares $178 $551 $ 949 $2,062
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." HIGH INCOME FUND PROSPECTUS 19 - ------------------------------------------------------------- ADDITIONAL AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- Unlike the Average Annual Total Returns on page 17 the table below reflects the Fund's results calculated without sales charges.
A SHARES 1 YEAR SINCE INCEPTION* Fund Returns Before Taxes 3.90% 8.74% Fund Returns After Taxes on Distributions 0.04% 5.16% Fund Returns After Taxes on Distributions and Sale of Fund Shares 3.02% 5.62% Lehman Brothers U.S. Corporate High Yield Bond Index (reflects no deduction for fees, expenses or taxes) 2.74% 8.81%
* Since inception of A Shares on October 27, 2003. Benchmark returns since September 30, 2003 (benchmark returns available only on a month end basis). INTERMEDIATE BOND FUND 20 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Total return that consistently exceeds the total return of the broad U.S. dollar-denominated, investment grade market of intermediate-term government and corporate bonds INVESTMENT FOCUS Intermediate-term investment grade debt securities SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Invest in intermediate-term fixed income securities with an emphasis on corporate and mortgage-backed securities INVESTOR PROFILE Investors who want to receive income from their investment, as well as an increase in the value of the investment
(TELESCOPE ICON) INVESTMENT STRATEGY The Intermediate Bond Fund invests in various types of income producing debt securities including mortgage- and asset-backed securities, government and agency obligations, corporate obligations and floating rate loans. The Fund may invest in debt securities of U.S. and non-U.S. issuers, including emerging market debt. Under normal circumstances, the Fund invests at least 80% of its net assets in fixed income securities. These securities will be chosen from the broad universe of available intermediate-term fixed income securities rated investment grade by at least one national securities rating agency or unrated securities that the Adviser believes are of comparable quality. The Fund may invest up to 20% of its net assets in below investment grade, high yield debt obligations. The Fund may also invest a portion of its assets in securities that are restricted as to resale. The Adviser anticipates that the Fund will maintain an average-weighted maturity of 3 to 10 years and the Fund will be managed with a duration that is close to that of its comparative benchmark, the Lehman Brothers Intermediate Government/Credit Bond Index, which is generally between 3 to 4 years. In selecting investments for the Fund, the Adviser generally selects a greater weighting in obligations of domestic corporations and mortgage-backed securities relative to the Fund's comparative benchmark, and a lower relative weighting in U.S. Treasury and government agency issues. Because securities tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell derivative instruments (such as futures, options and swaps, including credit default swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate or credit risks. The Fund may count the value of certain derivatives with investment grade intermediate-term fixed income characteristics towards its policy to invest, under normal circumstances, at least 80% of its net assets in fixed income securities. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. Mortgage-backed investments involve risk of loss due to prepayments and, like any bond, due to default. Because of the sensitivity of mortgage-related securities to changes in interest rates, the Fund's performance may be more volatile than if it did not hold these securities. Foreign securities involve special risks such as currency fluctuations, economic or financial instability, lack of timely or reliable financial information and unfavorable political or legal developments. These risks are increased for investments in emerging markets. Below investment grade securities (sometimes referred to as "junk bonds") involve greater risk of default or downgrade and are more volatile than investment grade securities. Below investment grade securities may also be less liquid than higher quality securities. The risks associated with floating rate loans are similar to the risks of below investment grade securities. In addition, the value of the collateral securing the loan may decline, causing a loan to be substantially INTERMEDIATE BOND FUND PROSPECTUS 21 unsecured. Difficulty in selling a floating rate loan may result in a loss. Borrowers may pay back principal before the scheduled due date when interest rates decline, which may require the Fund to replace a particular loan with a lower-yielding security. There may be less extensive public information available with respect to loans than for rated, registered or exchange listed securities. The Fund may assume the credit risk of the primary lender in addition to the borrower, and investments in loan assignments may involve the risks of being a lender. U.S. government securities can exhibit price movements resulting from changes in interest rates. Treasury inflation protected securities ("TIPS") can also exhibit price movements as a result of changing inflation expectations and seasonal inflation patterns. Certain U.S. government securities are backed by the full faith and credit of the U.S. Government, while others are backed by the ability of the issuing entity to borrow from the U.S. Treasury or by the issuing entity's own resources. Restricted securities may increase the level of illiquidity in the Fund during any period that qualified institutional buyers become uninterested in purchasing these restricted securities. The Adviser intends to invest only in restricted securities that it believes present minimal liquidity risk. Because the Fund invests in derivatives, it is exposed to additional volatility and potential losses. Credit default swaps can increase the Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. The use of derivatives may cause the Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. The Fund began operating on October 11, 2004. Performance prior to October 11, 2004 is that of the Class I Shares of the Seix Intermediate Bond Fund, the Fund's predecessor, which began operations on June 30, 1999, and has not been adjusted to reflect A Share or C Share expenses. If it had been, performance would have been lower. This bar chart shows changes in the performance of the Fund's Class A Shares from year to year.* The chart does not reflect sales charges. If sales charges had been reflected, returns would be less than those shown. (BAR CHART) 2000 10.19% 2001 7.03% 2002 7.19% 2003 4.03% 2004 3.60% 2005 0.97%
BEST QUARTER WORST QUARTER 4.33% -2.33% (9/30/01) (6/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was -0.53%. INTERMEDIATE BOND FUND 22 PROSPECTUS - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Lehman Brothers Intermediate Government/Credit Bond Index. These returns reflect applicable sales charges and assume shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown only for the Fund's A Shares. After-tax returns for other classes will vary.
A SHARES* 1 YEAR 5 YEARS SINCE INCEPTION** Fund Returns Before Taxes -3.82% 3.52% 4.44% Fund Returns After Taxes on Distributions -4.94% 1.75% 2.48% Fund Returns After Taxes on Distributions and Sale of Fund Shares -2.46% 1.94% 2.58% Lehman Brothers Intermediate Government/ Credit Bond Index (reflects no deduction for fees, expenses or taxes) 1.58% 5.50% 5.92%
* Performance prior to October 11, 2004 is that of the predecessor fund's Class I Shares. ** Since inception of the predecessor fund on June 30, 1999.
C SHARES* 1 YEAR 5 YEARS SINCE INCEPTION** Fund Returns Before Taxes -0.56% 4.41% 5.12% Lehman Brothers Intermediate Government/ Credit Bond Index (reflects no deduction for fees, expenses or taxes) 1.58% 5.50% 5.92%
* Performance prior to October 11, 2004, is that of the predecessor fund's Class I Shares. ** Since inception of the predecessor fund on June 30, 1999. (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Lehman Brothers Intermediate Government/Credit Bond Index is a widely-recognized, market-value weighted (higher market value bonds have more influence than lower market value bonds) index of U.S. Treasury and agency securities, corporate bond issues and mortgage-backed securities having maturities of 10 years or less. INTERMEDIATE BOND FUND PROSPECTUS 23 (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
A SHARES C SHARES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)* 4.75% None Maximum Deferred Sales Charge (as a percentage of net asset value)** None 1.00% Redemption Fee (as percentage of net asset value)*** 2.00% 2.00%
* This sales charge varies depending on how much you invest. You may buy A Shares in amounts of $1,000,000 or more at net asset value (without a front- end sales charge), but if you redeem those shares within one year of your purchase, you will pay a deferred sales charge of 1.00%. See "Sales Charges." ** This charge is imposed if you sell C Shares within one year of your purchase. See "Sales Charges." *** This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
A SHARES C SHARES Investment Advisory Fees 0.25% 0.25% Distribution and Service (12b-1) Fees 0.25% 1.00% Other Expenses(1) 0.05% 0.05% ------------ ------------------- Total Annual Operating Expenses(2) 0.55% 1.30%
(1) Adjusted to reflect an expected change in Other Expenses for the current fiscal year. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: If you sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $529 $643 $768 $1,132 C Shares $232 $412 $713 $1,568
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $529 $643 $768 $1,132 C Shares $132 $412 $713 $1,568
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." INTERMEDIATE BOND FUND 24 PROSPECTUS - ------------------------------------------------------------- ADDITIONAL AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- Unlike the Average Annual Total Returns on page 22 the table below reflects the Fund's results calculated without sales charges.
A SHARES* 1 YEAR 5 YEARS SINCE INCEPTION** Fund Returns Before Taxes 0.97% 4.54% 5.22% Fund Returns After Taxes on Distributions -0.21% 2.76% 3.25% Fund Returns After Taxes on Distributions and Sale of Fund Shares 0.65% 2.81% 3.26% Lehman Brothers Intermediate Government/Credit Bond Index (reflects no deduction for fees, expenses or taxes) 1.58% 5.50% 5.92%
* Performance prior to October 11, 2004 is that of the predecessor fund's Class I Shares. ** Since inception of the predecessor fund on June 30, 1999. INVESTMENT GRADE BOND FUND PROSPECTUS 25 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL High total return through current income and capital appreciation, while preserving the principal amount invested INVESTMENT FOCUS Investment grade U.S. government and corporate debt securities SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Attempts to identify relatively inexpensive securities in a selected market index INVESTOR PROFILE Investors who want to receive income from their investment, as well as an increase in the value of the investment
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Investment Grade Bond Fund invests at least 80% of its net assets in fixed income securities rated investment grade by at least one national securities rating agency or unrated securities that the Adviser believes are of comparable quality. The Adviser focuses on corporate debt securities, U.S. Treasury obligations, and mortgage-backed securities. The Fund may invest in debt obligations of U.S. and non-U.S. issuers. The Fund may invest up to 20% of its net assets in below investment grade, high yield debt obligations, including emerging market debt and floating rate loans. The Fund may also invest a portion of its assets in securities that are restricted as to resale. In selecting investments for the Fund, the Adviser tries to minimize risk while attempting to outperform selected market indices. Currently, the Adviser's selected index is the Lehman Brothers U.S. Government/Credit Index, a widely-recognized, unmanaged index of investment grade government and corporate debt securities. The Adviser seeks to invest more in portions of the Index that seem relatively inexpensive, and less in those that seem expensive. The Adviser allocates the Fund's investments among various market sectors based on the Adviser's analysis of historical data, yield information and credit ratings. Because securities tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell derivative instruments (such as futures, options and swaps, including credit default swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate or credit risks. The Fund may count the value of certain derivatives with investment grade fixed income characteristics towards its policy to invest, under normal circumstances, at least 80% of its net assets in investment grade fixed income securities. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. Mortgage-backed investments involve risk of loss due to prepayments and, like any bond, due to default. Because of the sensitivity of mortgage-related securities to changes in interest rates, the Fund's performance may be more volatile than if it did not hold these securities. U.S. government securities can exhibit price movements resulting from changes in interest rates. Treasury inflation protected securities ("TIPS") can also exhibit price movements as a result of changing inflation expectations and seasonal inflation patterns. Certain U.S. government securities are backed by the full faith and credit of the U.S. Government, while others are backed by the ability of the issuing entity to borrow from the U.S. Treasury or by the issuing entity's own resources. Foreign securities involve special risks such as currency fluctuations, economic or financial instability, lack of timely or reliable financial information and unfavorable political or legal developments. These risks are increased for investments in emerging markets. Below investment grade securities (sometimes referred to as "junk bonds") involve greater risk of default or downgrade and are more volatile than investment grade securities. Below investment grade securities may also be less liquid than higher quality securities. The risks associated with floating rate loans are similar to the risks of below investment grade securities. In addition, the value of the collateral securing the loan may decline, causing a loan to be substantially INVESTMENT GRADE BOND FUND 26 PROSPECTUS unsecured. Difficulty in selling a floating rate loan may result in a loss. Borrowers may pay back principal before the scheduled due date when interest rates decline, which may require the Fund to replace a particular loan with a lower-yielding security. There may be less extensive public information available with respect to loans than for rated, registered or exchange listed securities. The Fund may assume the credit risk of the primary lender in addition to the borrower, and investments in loan assignments may involve the risks of being a lender. Restricted securities may increase the level of illiquidity in the Fund during any period that qualified institutional buyers become uninterested in purchasing these restricted securities. The Adviser intends to invest only in restricted securities that it believes present minimal liquidity risk. Because the Fund invests in derivatives, it is exposed to additional volatility and potential losses. Credit default swaps can increase the Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. The use of derivatives may cause the Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's A Shares from year to year.* The chart does not reflect sales charges. If sales charges had been reflected, returns would be less than those shown. (BAR CHART) 1996 1.93% 1997 8.64% 1998 8.79% 1999 -1.93% 2000 6.13% 2001 8.68% 2002 6.99% 2003 3.28% 2004 3.66% 2005 1.78%
BEST QUARTER WORST QUARTER 5.31% -3.57% (9/30/98) (6/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was -0.40%. INVESTMENT GRADE BOND FUND PROSPECTUS 27 - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Lehman Brothers U.S. Government/Credit Index, the Lehman Brothers U.S. Aggregate Index and the Lipper Intermediate Investment-Grade Debt Funds Objective. These returns reflect applicable sales charges and assumes shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only the A Shares. After-tax returns for other classes will vary.
A SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes -3.05% 3.83% 4.23% Fund Returns After Taxes on Distributions -4.19% 2.39% 2.35% Fund Returns After Taxes on Distributions and Sale of Fund Shares -1.99% 2.39% 2.42% Lehman Brothers U.S. Government/ Credit Index (reflects no deduction for fees, expenses or taxes) 2.37% 6.11% 6.17% Lehman Brothers U.S. Aggregate Index (reflects no deduction for fees, expenses or taxes) 2.43% 5.87% 6.16% Lipper Intermediate Investment-Grade Debt Funds Objective (reflects no deduction for taxes) 1.77% 5.27% 5.35%
C SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes 0.20% 4.29% 4.20% Lehman Brothers U.S. Government/Credit Index (reflects no deduction for fees, expenses or taxes) 2.37% 6.11% 6.17% Lehman Brothers U.S. Aggregate Index (reflects no deduction for fees, expenses or taxes) 2.43% 5.87% 6.16% Lipper Intermediate Investment-Grade Debt Funds Objective (reflects no deduction for taxes) 1.77% 5.27% 5.35%
(LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX/OBJECTIVE? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Lehman Brothers U.S. Government/Credit Index is a widely-recognized composite made up of the Lehman Brothers U.S. Government Index and the Lehman Brothers U.S. Credit Index, which include U.S. government, Treasury and agency securities, as well as high grade corporate bonds. The Lehman Brothers U.S. Aggregate Index is a widely-recognized index of securities that are SEC-registered, taxable, and dollar denominated. The Index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. The Lipper Intermediate Investment-Grade Debt Funds Objective is a widely-recognized, equally weighted average that invests primarily in investment grade debt issues (rated in the top four grades) with dollar-weighted average maturities of five to ten years. The number of funds in the Objective varies. INVESTMENT GRADE BOND FUND 28 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
A SHARES C SHARES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)* 4.75% None Maximum Deferred Sales Charge (as a percentage of net asset value)** None 1.00% Redemption Fee (as a percentage of net asset value)*** 2.00% 2.00%
* This sales charge varies depending upon how much you invest. You may buy A Shares in amounts of $1,000,000 or more at net asset value (without an initial sales charge), but if you redeem those shares within one year of your purchase, you will pay a deferred sales charge of 1.00%. See "Sales Charges." ** This charge is imposed if you sell C Shares within one year of your purchase. See "Sales Charges." *** This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
A SHARES C SHARES Investment Advisory Fees(1) 0.50% 0.50% Distribution and Service (12b-1) Fees 0.30%(2) 1.00% Other Expenses 0.06% 0.06% ------------ ------------------- Total Annual Operating Expenses(3) 0.86% 1.56%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) Adjusted to reflect a reduction in 12b-1 fees effective August 1, 2005. The Fund's Distribution and Service Plan for A Shares authorizes payment of up to 0.35% of average daily net assets of A Shares for distribution and shareholder services. Currently, the Board of Trustees has only approved payment of up to 0.30% of average daily net assets. (3) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: If you sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $559 $736 $929 $1,485 C Shares $259 $493 $850 $1,856
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $559 $736 $929 $1,485 C Shares $159 $493 $850 $1,856
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." INVESTMENT GRADE BOND FUND PROSPECTUS 29 - ------------------------------------------------------------- ADDITIONAL AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- Unlike the Average Annual Total Returns on page 27 the table below reflects the Fund's results calculated without sales charges.
A SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes 1.78% 4.85% 4.74% Fund Returns After Taxes on Distributions 0.59% 3.39% 2.85% Fund Returns After Taxes on Distributions and Sale of Fund Shares 1.15% 3.27% 2.86% Lehman Brothers U.S. Government/ Credit Index (reflects no deduction for fees, expenses or taxes) 2.37% 6.11% 6.17% Lehman Brothers U.S. Aggregate Index (reflects no deduction for fees, expenses or taxes) 2.43% 5.87% 6.16% Lipper Intermediate Investment-Grade Debt Funds Objective (reflects no deduction for fees, expenses or taxes) 1.77% 5.27% 5.35%
INVESTMENT GRADE TAX-EXEMPT BOND FUND 30 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL High total return through (i) current income that is exempt from federal income taxes and (ii) capital appreciation, while preserving the principal amount invested INVESTMENT FOCUS Investment grade municipal securities SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Attempts to invest more Fund assets in undervalued sectors and less in overvalued ones INVESTOR PROFILE Investors who want to receive tax-free current income and an increase in the value of their investment
(TELESCOPE ICON) INVESTMENT STRATEGY The Investment Grade Tax-Exempt Bond Fund invests at least 80% of its net assets in investment grade tax-exempt obligations, like municipal securities. The issuers of these securities may be located in any U.S. state, territory or possession. In addition, the Fund may invest up to 20% of its assets in securities subject to the alternative minimum tax or in certain taxable debt securities. In selecting investments for the Fund, the Adviser tries to limit risk as much as possible. Based on the Adviser's analysis of municipalities, credit risk, market trends and investment cycles, the Adviser attempts to invest more of the Fund's assets in undervalued market sectors and less in overvalued sectors. The Adviser also tries to identify and invest in municipal issuers with improving credit and avoid those with deteriorating credit. The Adviser anticipates that the Fund's average weighted maturity will range from 4 to 10 years. The Adviser may retain securities if the rating of the security falls below investment grade and the Adviser deems retention of the security to be in the best interests of the Fund. Because securities tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell, derivative instruments (such as futures, options, swaps and inverse floaters) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. There may be economic or political changes that impact the ability of municipal issuers to repay principal and to make interest payments on municipal securities. Changes in the financial condition or credit rating of municipal issuers also may adversely affect the value of the Fund's securities. Because the Fund invests in derivatives, it is exposed to additional volatility and potential losses. Inverse floaters are volatile and involve leverage risk. Certain derivatives may cause taxable income. INVESTMENT GRADE TAX-EXEMPT BOND FUND PROSPECTUS 31 PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. (TARGET ICON) This bar chart shows changes in the performance of the Fund's A Shares from year to year.* The chart does not reflect sales charges. If sales charges had been reflected, returns would be less than those shown. (BAR CHART) 1996 4.99% 1997 7.36% 1998 6.73% 1999 -0.75% 2000 10.41% 2001 5.09% 2002 9.92% 2003 3.97% 2004 3.06% 2005 1.84%
BEST QUARTER WORST QUARTER 4.68% -1.68% (9/30/02) (6/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was -0.10%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average total returns for the periods ended December 31, 2005, to those of the Lehman Brothers 5-Year Municipal Bond Index and the Lipper Intermediate Municipal Debt Funds Objective. These returns reflect applicable sales charges and assumes shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only the A Shares. After-tax returns for other classes will vary.
A SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes -3.01% 3.72% 4.70% Fund Returns After Taxes on Distributions -3.13% 3.01% 3.93% Fund Returns After Taxes on Distributions and Sale of Fund Shares -1.08% 3.11% 3.96% Lehman Brothers 5-Year Municipal Bond Index (reflects no deduction for fees, expenses or taxes) 0.95% 4.62% 4.78% Lipper Intermediate Municipal Debt Funds Objective (reflects no deduction for taxes) 1.62% 4.32% 4.57%
INVESTMENT GRADE TAX-EXEMPT BOND FUND 32 PROSPECTUS
C SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes 0.25% 4.22% 4.69% Lehman Brothers 5-Year Municipal Bond Index (reflects no deduction for fees, expenses or taxes) 0.95% 4.62% 4.78% Lipper Intermediate Municipal Debt Funds Objective (reflects no deduction for taxes) 1.62% 4.32% 4.57%
(LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX/OBJECTIVE? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Lehman Brothers 5-Year Municipal Bond Index is a widely-recognized index of intermediate investment grade tax-exempt bonds. The Index includes general obligation bonds, revenue bonds, insured bonds and prefunded bonds with maturities between 4 and 6 years. The Lipper Intermediate Municipal Debt Funds Objective is a composite of mutual funds with investment goals similar to the Fund's goals. It reports the average return of the intermediate term municipal bond mutual funds tracked by Lipper Analytical Services, Inc. The number of funds in the Objective varies. INVESTMENT GRADE TAX-EXEMPT BOND FUND 32 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
A SHARES C SHARES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)* 4.75% None Maximum Deferred Sales Charge (as a percentage of net asset value)** None 1.00% Redemption Fee (as a percentage of net asset value)*** 2.00% 2.00%
* This sales charge varies depending upon how much you invest. You may buy A Shares in amounts of $1,000,000 or more at net asset value (without an initial sales charge), but if you redeem those shares within one year of your purchase, you will pay a deferred sales charge of 1.00%. See "Sales Charges." ** This sales charge is imposed if you sell C Shares within one year of your purchase. See "Sales Charges." *** This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
A SHARES C SHARES Investment Advisory Fees(1) 0.50% 0.50% Distribution and Service (12b-1) Fees 0.30%(2) 1.00% Other Expenses 0.07% 0.07% ------------ ------------------- Total Annual Operating Expenses(3) 0.87% 1.57%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) Adjusted to reflect a reduction in 12b-1 fees effective August 1, 2005. The Fund's Distribution and Service Plan for A Shares authorizes payment of up to 0.35% of average daily net assets of A Shares for distribution and shareholder services. Currently, the Board of Trustees has only approved payment of up to 0.30% of average daily net assets. (3) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: If you sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $560 $739 $934 $1,497 C Shares $260 $496 $855 $1,867
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $560 $739 $934 $1,497 C Shares $160 $496 $855 $1,867
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." INVESTMENT GRADE TAX-EXEMPT BOND FUND PROSPECTUS 33 - ------------------------------------------------------------- ADDITIONAL AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- Unlike the Average Annual Total Returns on page 31 the table below reflects the Fund's results calculated without sales charges.
A SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes 1.84% 4.74% 5.21% Fund Returns After Taxes on Distributions 1.71% 4.02% 4.44% Fund Returns After Taxes on Distributions and Sale of Fund Shares 2.11% 4.00% 4.41% Lehman Brothers 5-Year Municipal Bond Index (reflects no deduction for fees, expenses or taxes) 0.95% 4.62% 4.78% Lipper Intermediate Municipal Debt Funds Objective (reflects no deduction for taxes) 1.62% 4.32% 4.57%
LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND 34 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL High current income, while preserving capital INVESTMENT FOCUS Mortgage-backed securities SHARE PRICE VOLATILITY Low PRINCIPAL INVESTMENT STRATEGY Attempts to identify securities that are less prone to prepayment risk INVESTOR PROFILE Conservative investors who want to receive income from their investment
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Limited-Term Federal Mortgage Securities Fund invests at least 80% of its net assets in U.S. government agency mortgage-backed securities, such as Fannie Mae, GNMA and collateralized mortgage obligations. In selecting investments for the Fund, the Adviser tries to identify securities that the Adviser expects to perform well in rising and falling markets. The Adviser also attempts to reduce the risk that the underlying mortgages are prepaid by focusing on securities that it believes are less prone to this risk. For example, Fannie Mae or GNMA securities that were issued years ago may be less prone to prepayment risk because there have been many opportunities for prepayment, but few have occurred. Because securities tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. Mortgage-backed investments involve risk of loss due to prepayments and, like any bond, due to default. Because of the sensitivity of mortgage-related securities to changes in interest rates, the Fund's performance may be more volatile than if it did not hold these securities. U.S. government securities can exhibit price movements resulting from changes in interest rates. Treasury inflation protected securities ("TIPS") can also exhibit price movements as a result of changing inflation expectations and seasonal inflation patterns. Certain U.S. government securities are backed by the full faith and credit of the U.S. Government, while others are backed by the ability of the issuing entity to borrow from the U.S. Treasury or by the issuing entity's own resources. For information about the risks involved when investing in derivatives, see "More Information About Risk." LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND PROSPECTUS 35 (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's A Shares from year to year.* The chart does not reflect sales charges. If sales charges had been reflected, returns would be less than those shown. (BAR CHART) 1996 4.29% 1997 6.37% 1998 6.73% 1999 0.96% 2000 8.29% 2001 7.14% 2002 7.23% 2003 1.16% 2004 2.02% 2005 1.33%
BEST QUARTER WORST QUARTER 4.20% -1.67% (9/30/01) (6/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 0.69%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Merrill Lynch 1-5 Year AAA U.S. Treasuries/ Agencies Index and the Merrill Lynch 1-5 Year U.S. Treasuries Index. These returns reflect applicable sales charges and assumes shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only the A Shares. After-tax returns for other classes will vary.
A SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes -1.19% 3.20% 4.25% Fund Returns After Taxes on Distributions -2.49% 1.83% 2.40% Fund Returns After Taxes on Distributions and Sale of Fund Shares -0.78% 1.91% 2.47% Merrill Lynch 1-5 Year AAA U.S. Treasuries/ Agencies Index (reflects no deduction for fees, expenses or taxes) 1.45% 4.17% 5.11% Merrill Lynch 1-5 Year U.S. Treasuries Index (reflects no deduction for fees, expenses or taxes) 1.39% 4.07% 5.04%
C SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes -0.24% 3.35% 4.15% Merrill Lynch 1-5 Year AAA U.S. Treasuries/ Agencies Index (reflects no deduction for fees, expenses or taxes) 1.45% 4.17% 5.11% Merrill Lynch 1-5 Year U.S. Treasuries Index (reflects no deduction for fees, expenses or taxes) 1.39% 4.07% 5.04%
LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND 36 PROSPECTUS (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Merrill Lynch 1-5 Year AAA U.S. Treasuries/Agencies Index includes U.S. government and agency bonds that have a minimum issue size of $150 million. The current market value of the Index is $1.50 trillion with a duration of 2.06 years and a yield to maturity of 2.48%. The Merrill Lynch 1-5 Year U.S. Treasuries Index is a widely-recognized, capitalization-weighted (companies with larger market capitalizations have more influence than those with smaller market capitalizations) index of U.S. Treasury securities with maturities of 1 year or greater and no more than 5 years. (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
A SHARES C SHARES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)* 2.50% None Maximum Deferred Sales Charge (as a percentage of net asset value)** None 1.00% Redemption Fee (as a percentage of net asset value)*** 2.00% 2.00%
* This sales charge varies depending upon how much you invest. You may buy A Shares in amounts of $1,000,000 or more at net asset value (without an initial sales charge), but if you redeem those shares within one year of your purchase, you will pay a deferred sales charge of 1.00%. See "Sales Charges." ** This sales charge is imposed if you sell C Shares within one year of your purchase. See "Sales Charges." *** This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
A SHARES C SHARES Investment Advisory Fees(1) 0.50% 0.50% Distribution and Service (12b-1) Fees 0.20%(2) 1.00% Other Expenses 0.08% 0.08% ------------ ------------------- Total Annual Operating Expenses(3) 0.78% 1.58%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) Adjusted to reflect a reduction in 12b-1 fees effective August 1, 2005. The Fund's Distribution and Service Plan for A Shares authorizes payment of up to 0.23% of average daily net assets of A Shares for distribution and shareholder services. Currently, the Board of Trustees has only approved payment of up to 0.20% of average daily net assets. (3) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: If you sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $328 $493 $672 $1,192 C Shares $261 $499 $860 $1,878
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $328 $493 $672 $1,192 C Shares $161 $499 $860 $1,878
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND PROSPECTUS 37 - ------------------------------------------------------------- ADDITIONAL AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- Unlike the Average Annual Total Returns on page 35 the table below reflects the Fund's results calculated without sales charges.
A SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes 1.33% 3.74% 4.51% Fund Returns After Taxes on Distributions -0.01% 2.35% 2.66% Fund Returns After Taxes on Distributions and Sale of Fund Shares 0.86% 2.36% 2.70% Merrill Lynch 1-5 Year AAA U.S. Treasuries/Agencies Index (reflects no deduction for fees, expenses or taxes) 1.45% 4.17% 5.11% Merrill Lynch 1-5 Years U.S. Treasuries Index (reflects no deduction for fees, expenses or taxes) 1.39% 4.07% 5.04%
MARYLAND MUNICIPAL BOND FUND 38 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL High current income exempt from federal and Maryland income tax, consistent with preservation of capital INVESTMENT FOCUS Maryland municipal securities SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Invests primarily in investment grade municipal securities INVESTOR PROFILE Maryland residents who want income exempt from federal and state income taxes
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Maryland Municipal Bond Fund invests at least 80% of its net assets in municipal securities, including securities subject to the alternative minimum tax, with income exempt from federal and Maryland income taxes. In addition, the Fund may invest up to 20% of its assets in certain taxable debt securities. Issuers of these securities can be located in Maryland, Puerto Rico and other U.S. territories and possessions. In selecting investments for the Fund, the Adviser tries to limit risk by buying primarily investment grade securities. There are no limits on the Fund's average weighted maturity or on the remaining maturities of individual securities. In addition, to implement its investment strategy, the Fund may buy or sell, derivative instruments (such as futures, options, swaps and inverse floaters) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. There may be economic or political changes that impact the ability of municipal issuers to repay principal and to make interest payments on municipal securities. Changes in the financial condition or credit rating of municipal issuers also may adversely affect the value of the Fund's securities. The Fund's concentration of investments in securities of issuers located in Maryland subjects the Fund to economic and government policies of Maryland. The Fund is non-diversified, which means that it may invest in the securities of relatively few issuers. As a result, the Fund may be more susceptible to a single adverse economic or regulatory occurrence affecting one or more of these issuers, and may experience increased volatility due to its investments in those securities. Because the Fund invests in derivatives, it is exposed to additional volatility and potential losses. Inverse floaters are volatile and involve leverage risk. Certain derivatives may cause taxable income. MARYLAND MUNICIPAL BOND FUND PROSPECTUS 39 (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's C Shares from year to year.* The chart does not reflect sales charges. If sales charges had been reflected, returns would be less than those shown. (BAR CHART) 1997 7.90% 1998 4.91% 1999 -4.17% 2000 10.29% 2001 3.62% 2002 7.88% 2003 3.25% 2004 2.35% 2005 1.60%
BEST QUARTER WORST QUARTER 3.98% -2.20% (9/30/02) (6/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 0.02%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Lehman Brothers 10-Year Municipal Bond Index and the Lipper Maryland Municipal Debt Funds Objective. These returns reflect applicable sales charges and assumes shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only the C Shares. After-tax returns for other classes will vary.
C SHARES 1 YEAR 5 YEARS SINCE INCEPTION* Fund Returns Before Taxes 0.62% 3.72% 4.20% Fund Returns After Taxes on Distributions 0.48% 3.40% 4.03% Fund Returns After Taxes on Distributions and Sale of Fund Shares 1.50% 3.37% 3.95% Lehman Brothers 10-Year Municipal Bond Index (reflects no deduction for fees, expenses or taxes) 2.74% 5.45% 5.91% Lipper Maryland Municipal Debt Funds Objective (reflects no deduction for taxes) 2.55% 4.52% 4.90%
* Since inception date of the C Shares on April 25, 1996. Benchmark returns since March 31, 1996 (benchmark returns available only on a month end basis). (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX/OBJECTIVE? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Lehman Brothers 10-Year Municipal Bond Index is a widely-recognized index of long-term investment grade tax-exempt bonds. The Index includes general obligation bonds, revenue bonds, insured bonds and prefunded bonds with maturities between 8 and 12 years. The Index represents various market sectors and geographic locations. The Lipper Maryland Municipal Debt Funds Objective is an average of funds that limit their assets to those securities that are exempt from taxation in a specified state (double tax-exempt) or city (triple tax-exempt). The number of funds in the Objective varies. MARYLAND MUNICIPAL BOND FUND 40 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
A SHARES C SHARES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)* 4.75% None Maximum Deferred Sales Charge (as a percentage of net asset value)** None 1.00% Redemption Fee (as a percentage of net asset value)*** 2.00% 2.00%
* This sales charge varies depending upon how much you invest. You may buy A Shares in amounts of $1,000,000 or more at net asset value (without an initial sales charge), but if you redeem those shares within one year of your purchase, you will pay a deferred sales charge of 1.00%. See "Sales Charges." ** This sales charge is imposed if you sell C Shares within one year of your purchase. See "Sales Charges." *** This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
A SHARES C SHARES Investment Advisory Fees(1) 0.55% 0.55% Distribution and Service (12b-1) Fees 0.15% 1.00% Other Expenses 0.10% 0.10% ------------ ------------------- Total Annual Operating Expenses(2) 0.80% 1.65%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: If you sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $553 $718 $898 $1,418 C Shares $268 $520 $897 $1,955
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $553 $718 $898 $1,418 C Shares $168 $520 $897 $1,955
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." NORTH CAROLINA TAX-EXEMPT BOND FUND PROSPECTUS 41 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Current income exempt from federal and state income taxes for North Carolina residents without undue risk INVESTMENT FOCUS North Carolina municipal securities SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Attempts to invest more Fund assets in undervalued sectors and less in overvalued ones INVESTOR PROFILE North Carolina residents who want income exempt from federal and state income taxes
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the North Carolina Tax-Exempt Bond Fund invests at least 80% of its net assets in municipal securities with income exempt from federal and North Carolina income taxes. Issuers of these securities can be located in North Carolina, Puerto Rico and other U.S. territories and possessions. In addition, the Fund may invest up to 20% of its assets in securities subject to the alternative minimum tax or in certain taxable debt securities. In selecting investments for the Fund, the Adviser tries to limit risk as much as possible. Based on the Adviser's analysis of municipalities, credit risk, market trends and investment cycles, the Adviser attempts to invest more of the Fund's assets in undervalued market sectors and less in overvalued sectors. The Adviser tries to diversify the Fund's holdings within North Carolina. The Adviser also tries to identify and invest in municipal issuers with improving credit and avoid those with deteriorating credit. In addition, to implement its investment strategy, the Fund may buy or sell, derivative instruments (such as futures, options, swaps and inverse floaters) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THE FUND? Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. There may be economic or political changes that impact the ability of municipal issuers to repay principal and to make interest payments on municipal securities. Changes in the financial condition or credit rating of municipal issuers also may adversely affect the value of the Fund's securities. The Fund is non-diversified, which means that it may invest in the securities of relatively few issuers. As a result, the Fund may be more susceptible to a single adverse economic or regulatory occurrence affecting one or more of these issuers, and may experience increased volatility due to its investments in those securities. The Fund's concentration of investments in securities of issuers located in North Carolina subjects the Fund to economic and government policies of North Carolina. Because the Fund invests in derivatives, it is exposed to additional volatility and potential losses. Inverse floaters are volatile and involve leverage risk. Certain derivatives may cause taxable income. NORTH CAROLINA TAX-EXEMPT BOND FUND 42 PROSPECTUS (TARGET ICON) PERFORMANCE INFORMATION The bar chart and performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. The Fund commenced operations on March 21, 2005. Performance between January 8, 2004 and March 21, 2005 is that of the CCMI Tax-Exempt North Carolina Bond Fund, the Fund's predecessor. This bar chart shows the performance of the Fund's A Shares for the last year.* The chart does not reflect sales charges. If sales charges had been reflected, returns would be less than those shown. (BAR CHART) 2005 2.62%
BEST QUARTER WORST QUARTER 3.29% -1.03% (6/30/05) (3/31/05)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was -0.03%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Lehman Brothers 10-Year Municipal Bond Index. These returns assume shareholders redeem all of their shares at the end of the periods indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only the A Shares. After-tax returns for other classes will vary.
A SHARES* 1 YEAR SINCE INCEPTION** Fund Returns Before Taxes -2.23% 0.58% Fund Returns After Taxes on Distributions -2.35% 0.05% Fund Returns After Taxes on Distributions and Sale of Fund Shares -0.26% 0.45% Lehman Brothers 10-Year Municipal Bond Index (reflects no deduction for fees, expenses or taxes) 2.74% 3.44%
* Performance between January 8, 2004 and March 21, 2005 is that of the predecessor fund. ** Since inception of the predecessor fund on January 8, 2004. Benchmark returns since December 31, 2003 (benchmark returns available only on a month end basis.)
C SHARES* 1 YEAR SINCE INCEPTION** Fund Returns Before Taxes 1.33% 2.93% Lehman Brothers 10-Year Municipal Bond Index (reflects no deduction for fees, expenses or taxes) 2.74% 3.44%
* Performance between January 8, 2004 and March 21, 2005 is that of the predecessor fund. ** Since inception of the predecessor fund on January 8, 2004. Benchmark returns since December 31, 2003 (benchmark returns available only on a month end basis.) (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Lehman Brothers 10-Year Municipal Bond Index is a widely recognized index of long-term investment grade tax-exempt bonds. The index includes general obligation bonds, revenue bonds, insured bonds and prefunded bonds with maturities between 8 and 12 years. NORTH CAROLINA TAX-EXEMPT BOND FUND PROSPECTUS 43 (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
A SHARES C SHARES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)* 4.75% None Maximum Deferred Sales Charge (as a percentage of net asset value)** None 1.00% Redemption Fee (as a percentage of net asset value)*** 2.00% 2.00%
* This sales charge varies depending upon how much you invest. You may buy A Shares in amounts of $1,000,000 or more at net asset value (without an initial sales charge), but if you redeem those shares within one year of your purchase, you will pay a deferred sales charge of 1.00%. See "Sales Charges." ** This sales charge is imposed if you sell C Shares within one year of your purchase. See "Sales Charges." *** This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
A SHARES C SHARES Investment Advisory Fees(1) 0.55% 0.55% Distribution and Service (12b-1) Fees 0.15% 1.00% Other Expenses 0.12% 0.12% ------------ ------------------- Total Annual Operating Expenses(2) 0.82% 1.67%
(1) The fee information has been adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser has contractually agreed to waive fees and reimburse expenses until at least August 1, 2007 in order to keep Total Annual Operating Expenses from exceeding 0.86% and 1.71% for A Shares and C Shares, respectively. If at any point before August 1, 2009, Total Annual Operating Expenses are less than the applicable expense cap, the Adviser may retain the difference to recapture any of the prior waivers or reimbursements. In addition, the Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These voluntary waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: If you sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $555 $724 $908 $1,440 C Shares $270 $526 $907 $1,976
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $555 $724 $908 $1,440 C Shares $170 $526 $907 $1,976
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." NORTH CAROLINA TAX-EXEMPT BOND FUND 44 PROSPECTUS - ------------------------------------------------------------- ADDITIONAL AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- Unlike the Average Annual Total Returns on page 42 the table below reflects the Fund's results calculated without sales charges.
A SHARES* 1 YEAR SINCE INCEPTION** Fund Returns Before Taxes 2.62% 3.08% Fund Returns After Taxes on Distributions 2.50% 2.54% Fund Returns After Taxes on Distributions and Sale of Fund Shares 2.96% 2.58% Lehman Brothers 10-Year Municipal Bond Index (reflects no deduction for fees, expenses or taxes) 2.74% 3.44%
* Performance between January 8, 2004 and March 21, 2005 is that of the predecessor fund. ** Since inception of the predecessor fund on January 8, 2004. Benchmark returns since December 31, 2003 (benchmark returns available only on a month end basis.) SEIX FLOATING RATE HIGH INCOME FUND PROSPECTUS 45 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL To provide a high level of current income by investing primarily in first and second lien senior floating rate loans and other floating rate debt securities. INVESTMENT FOCUS Senior floating rate loans and other floating rate debt securities SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Invest in a portfolio of interests in first and second lien senior secured floating rate loans and other floating rate debt securities INVESTOR PROFILE Investors who seek: - Current income and a hedge against rising interest rates; - Diversification by adding assets that have traditionally exhibited low correlation to other asset classes; - Relatively high risk adjusted returns compared to other short term investment vehicles.
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Seix Floating Rate High Income Fund invests at least 80% of its net assets in a combination of first and second lien senior floating rate loans and other floating rate debt securities. These loans are loans made by banks and other large financial institutions to various companies and are senior in the borrowing companies' capital structure. Coupon rates are floating, not fixed and are tied to a benchmark lending rate, the most popular of which is LIBOR ("London Interbank Offered Rate"). LIBOR is based on rates that contributor banks in London charge each other for interbank deposits and is typically used to set coupon rates on floating rate debt securities. The interest rates of these floating rate debt securities vary periodically based upon a benchmark indicator of prevailing interest rates. The Fund may invest all or substantially all of its assets in floating rate loans and debt securities that are rated below investment grade, or in comparable unrated securities. The Fund may also invest up to 20% of its total assets in any combination of junior debt securities or securities with a lien on collateral lower than a senior claim on collateral, high yield fixed rate bonds, investment grade fixed income debt obligations, asset-backed securities (such as special purpose trusts investing in bank loans), money market securities and repurchase agreements. In deciding which debt securities to buy and sell, the portfolio managers will emphasize securities which are within the segment of the high yield market it has targeted, which are securities rated either "BB" and "B" by Standard & Poor's Rating Services or "Ba" and "B" by Moody's Investor Services, Inc. or unrated securities that the Adviser believes are of comparable quality. The Fund may invest up to 20% of its total assets in senior loans made to non-U.S. borrowers provided that no more than 5% of these loans are non-U.S. dollar denominated. The Fund may also engage in certain hedging transactions. Preservation of capital is considered when consistent with the Fund's objective. Some types of senior loans in which the Fund may invest require that an open loan for a specific amount be continually offered to a borrower. These types of senior loans are commonly referred to as revolvers. Because revolvers contractually obligate the lender (and therefore those with an interest in the loan) to fund the loan at the borrower's discretion, the Fund must have funds sufficient to cover its contractual obligation. Therefore the Fund will maintain, on a daily basis, high-quality, liquid assets in an amount at least equal in value to its contractual obligation to fulfill the revolving senior loan. The Fund will not encumber any assets that are otherwise encumbered. The Fund will limit its investments in such obligations to no more than 25% of the Fund's total assets. In addition, to implement its investment strategy, the Fund may buy or sell to a limited extent, derivative instruments (such as futures, options, credit linked notes and swaps, including credit default and total return swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate or credit risks. The Fund may count the value of certain derivatives with floating rate debt or high yield bond characteristics towards its policy to invest, under normal circumstances, at least 80% of its net assets in a combination of senior floating rate loans and other floating rate debt securities and high yield bonds. SEIX FLOATING RATE HIGH INCOME FUND 46 PROSPECTUS (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. Economic and other market events may reduce the demand for certain senior loans held by the Fund, which may adversely impact the net asset value of the Fund. Loans and other debt securities are subject to credit risk. Credit risk is the possibility that an issuer will fail to make timely payments of interest or principal, or go bankrupt. The lower the ratings of such debt securities, the greater their risks. In addition, lower rated securities have higher risk characteristics, and changes in economic conditions are likely to cause issuers of these securities to be unable to meet their obligations. Many floating rate loans are such lower rated securities. Below investment grade securities (sometimes referred to as "junk bonds") involve greater risk of default or downgrade and are more volatile than investment grade securities. Below investment grade securities may also be less liquid than higher quality securities. The risks associated with floating rate loans are similar to the risks of below investment grade securities. In addition, the value of the collateral securing the loan may decline, causing a loan to be substantially unsecured. Difficulty in selling a floating rate loan may result in a loss. Borrowers may pay back principal before the scheduled due date when interest rates decline, which may require the Fund to replace a particular loan with a lower-yielding security. There may be less extensive public information available with respect to loans than for rated, registered or exchange listed securities. The Fund may assume the credit risk of the primary lender in addition to the borrower, and investments in loan assignments may involve the risks of being a lender. Foreign securities involve special risks such as currency fluctuations, economic or financial instability, lack of timely or reliable financial information and unfavorable political or legal developments. These risks are increased for investments in emerging markets. The Fund is non-diversified, which means that it may invest in the securities of relatively few issuers. As a result, the Fund may be more susceptible to a single adverse economic or regulatory occurrence affecting one or more of these issuers, and may experience increased volatility due to its investments in those securities. Because the Fund invests in derivatives, it is exposed to additional volatility and potential losses. Credit default swaps can increase the Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. Total return swaps could result in losses if their reference index, security, or investments do not perform as anticipated. The use of derivatives may cause the Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. (TARGET ICON) PERFORMANCE INFORMATION No performance information is included because the Fund does not have performance history for a full calendar year. SEIX FLOATING RATE HIGH INCOME FUND PROSPECTUS 47 (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
A SHARES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)* 4.75% Redemption Fee (as a percentage of net asset value)** 2.00%
* This sales charge varies depending on how much you invest. You may buy A Shares in amounts of $1,000,000 or more at net asset value (without a front- end sales charge), but if you redeem those shares within one year of your purchase, you will pay a deferred sales charge of 1.00%. See "Sales Charges." ** This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
A SHARES Investment Advisory Fees 0.45% Distribution and Service (12b-1) Fees(1) 0.30% Other Expenses(2) 0.10% ------------ Total Annual Fund Operating Expenses(3) 0.85%
(1) The Fund's Distribution and Service Plan for A Shares authorizes payment of up to 0.35% of average daily net assets of A Shares for distribution and shareholder services. Currently, the Board of Trustees has only approved payment of up to 0.30% of average daily net assets. (2) Other Expenses are based on estimated amounts for the current fiscal year. (3) The Adviser has contractually agreed to waive fees and reimburse expenses until at least August 1, 2007 in order to keep Total Annual Operating Expenses from exceeding 0.85%. If at any point before August 1, 2009, Total Annual Operating Expenses are less than the applicable expense cap, the Adviser may retain the difference to recapture any of the prior waivers or reimbursements. In addition, the Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These voluntary waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: If you sell your shares at the end of the period:
1 YEAR 3 YEARS $558 $733
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS $558 $733
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." SEIX HIGH YIELD FUND 48 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL PRIMARY High income SECONDARY Capital appreciation INVESTMENT FOCUS High yield corporate and other debt instruments of U.S. and non-U.S. entities SHARE PRICE VOLATILITY High PRINCIPAL INVESTMENT STRATEGY Attempts to identify lower rated, higher yielding bonds offering above average total return INVESTOR PROFILE Investors who seek above average total return
(TELESCOPE ICON) INVESTMENT STRATEGY The Seix High Yield Fund invests in various types of lower rated, higher yielding debt instruments, including corporate obligations, floating rate loans and other debt obligations. The Fund may invest in debt obligations of U.S. and non-U.S. issuers, including emerging market debt. Under normal circumstances, the Fund invests at least 80% of its net assets in high yield securities. These securities will be chosen from the broad universe of available U.S. dollar-denominated, high yield securities rated below investment grade by either Moody's Investor Services, Inc. or Standard & Poor's Rating Services or unrated securities that the Adviser believes are of comparable quality. Such securities are commonly known as "junk bonds" and offer greater risks than investment grade bonds. Although the Fund seeks to achieve its investment objective primarily through investment in high yield securities, the Fund may invest up to 20% of its net assets in investment grade securities. The Fund will be managed with a duration that is close to the Fund's comparative benchmark, the Merrill Lynch High Yield Master Index, which is generally between 3 and 6 years. The Fund may also invest a portion of its assets in securities that are restricted as to resale. In selecting securities for the Fund, the Adviser employs a research driven process designed to identify value areas within the high yield market. In deciding which securities to buy and sell, the portfolio managers will emphasize securities which are within the segment of the high yield market it has targeted for emphasis, which are "BB" and "B" rated issuers. The Adviser seeks to identify securities which meet the following criteria: (1) industries that have strong fundamentals; (2) companies that have good business prospects and increasing credit strength; and (3) issuers with stable or growing cash flows and effective management. Because securities tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell derivative instruments (such as futures, options and swaps, including credit default swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate or credit risks. The Fund may count the value of certain derivatives with below investment grade fixed income characteristics towards its policy to invest, under normal circumstances, at least 80% of its net assets in high yield corporate securities rated as non- investment grade. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. Below investment grade securities (sometimes referred to as "junk bonds") involve greater risk of default or downgrade and are more volatile than investment grade securities. Below investment grade securities may also be less liquid than higher quality securities. The risks associated with floating rate loans are similar to the risks of below investment grade securities. In addition, the value of the collateral securing the loan may decline, causing a loan to be substantially unsecured. Difficulty in selling a floating rate loan may result in a loss. Borrowers may pay back principal before the scheduled due date when interest rates decline, which may require the Fund to replace a particular loan SEIX HIGH YIELD FUND PROSPECTUS 49 with a lower-yielding security. There may be less extensive public information available with respect to loans than for rated, registered or exchange listed securities. The Fund may assume the credit risk of the primary lender in addition to the borrower, and investments in loan assignments may involve the risks of being a lender. Foreign securities involve special risks such as currency fluctuations, economic or financial instability, lack of timely or reliable financial information and unfavorable political or legal developments. These risks are increased for investments in emerging markets. Restricted securities may increase the level of illiquidity in the Fund during any period that qualified institutional buyers become uninterested in purchasing these restricted securities. The Adviser intends to invest only in restricted securities that it believes present minimal liquidity risk. Because the Fund invests in derivatives, it is exposed to additional volatility and potential losses. Credit default swaps can increase the Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. The use of derivatives may cause the Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. The Fund began operating on October 11, 2004. Performance between December 29, 2000 to December 21, 2001 and December 21, 2001 to October 11, 2004 is that of the Class I Shares and Class P Shares, respectively, of the Seix Core Bond Fund, the Fund's predecessor. The performance of the predecessor fund's Class I Shares has not been adjusted to reflect the Fund's A Share expenses. If it had been, the performance would have been lower. This bar chart shows changes in the performance of the Fund's Class A Shares from year to year.* The chart does not reflect sales charges. If sales charges had been reflected, returns would be less than those shown. (BAR CHART) 2001 11.24% 2002 6.01% 2003 15.16% 2004 8.07% 2005 2.61%
BEST QUARTER WORST QUARTER 5.78% -1.67% (3/31/01) (3/31/05)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 0.12%. SEIX HIGH YIELD FUND 50 PROSPECTUS - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Merrill Lynch High Yield Master Index. These returns reflect applicable sales charges and assume shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown only for the Fund's A Shares. After-tax returns for other classes will vary.
A SHARES* 1 YEAR 5 YEARS SINCE INCEPTION** Fund Returns Before Taxes -2.25% 7.48% 7.47% Fund Returns After Taxes on Distributions -4.65% 5.06% 5.06% Fund Returns After Taxes on Distributions and Sale of Fund Shares -1.36% 4.95% 4.95% Merrill Lynch High Yield Master Index (reflects no deduction for fees, expenses or taxes) 2.83% 8.76% 9.07%
* Performance between December 29, 2000 to December 21, 2001 and December 21, 2001 to October 11, 2004 is that of the predecessor fund's Class I Shares and Class P Shares, respectively. ** Since inception of the predecessor fund on December 29, 2000. Benchmark returns since November 30, 2000 (benchmark returns available only on a month end basis).
C SHARES* 1 YEAR 5 YEARS SINCE INCEPTION** Fund Returns Before Taxes 0.95% 8.55% 8.54% Merrill Lynch High Yield Master Index (reflects no deduction for fees, expenses or taxes) 2.83% 8.76% 9.07%
* Performance between December 29, 2000 to December 21, 2001 and December 21, 2001 to October 11, 2004 is that of the predecessor fund's Class I Shares and Class P Shares, respectively. ** Since inception of the predecessor fund on December 29, 2000. Benchmark returns since November 30, 2000 (benchmark returns available only on a month end basis). (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Merrill Lynch High Yield Master Index is a widely-recognized index of U.S. high yield corporate bond issues having maturities of at least one year. SEIX HIGH YIELD FUND PROSPECTUS 51 (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
A SHARES C SHARES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)* 4.75% None Maximum Deferred Sales Charge (as a percentage of net asset value)** None 1.00% Redemption Fee (as percentage of net asset value)*** 2.00% 2.00%
* This sales charge varies depending on how much you invest. You may buy A Shares in amounts of $1,000,000 or more at net asset value (without a front- end sales charge), but if you redeem those shares within one year of your purchase, you will pay a deferred sales charge of 1.00%. See "Sales Charges." ** This sales charge is imposed if you sell C Shares within one year of your purchase. See "Sales Charges." *** This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
A SHARES C SHARES Investment Advisory Fees(1) 0.43% 0.43% Distribution and Service (12b-1) Fees 0.25% 1.00% Other Expenses(2) 0.06% 0.06% ------------ ------------------- Total Annual Operating Expenses(3) 0.74% 1.49%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) Adjusted to reflect an expected change in Other Expenses for the current fiscal year. (3) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: If you sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $547 $700 $867 $1,350 C Shares $252 $471 $813 $1,779
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $547 $700 $867 $1,350 C Shares $152 $471 $813 $1,779
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." SEIX HIGH YIELD FUND 52 PROSPECTUS - ------------------------------------------------------------- ADDITIONAL AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- Unlike the Average Annual Total Returns on page 50 the table below reflects the Fund's results calculated without sales charges.
A SHARES* 1 YEAR 5 YEARS SINCE INCEPTION** Fund Returns Before Taxes 2.61% 8.54% 8.53% Fund Returns After Taxes on Distributions 0.10% 6.09% 6.08% Fund Returns After Taxes on Distributions and Sale of Fund Shares 1.81% 5.86% 5.85% Merrill Lynch High Yield Master Index (reflects no deduction for fees, expenses or taxes) 2.83% 8.76% 9.07%
* Performance between December 29, 2000 to December 21, 2001 and December 21, 2001 to October 11, 2004 is that of the predecessor fund's Class I Shares and Class P Shares, respectively. ** Since inception of the predecessor fund on December 29, 2000. Benchmark returns since November 30, 2000 (benchmark returns available only on a month end basis). SHORT-TERM BOND FUND PROSPECTUS 53 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL High current income, while preserving capital INVESTMENT FOCUS Investment grade U.S. government and corporate debt securities SHARE PRICE VOLATILITY Low PRINCIPAL INVESTMENT STRATEGY Attempts to identify securities that offer a comparably better return than similar securities for a given level of credit risk INVESTOR PROFILE Income oriented investors who are willing to accept increased risk for the possibility of returns greater than money market investing
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Short-Term Bond Fund invests at least 80% of its net assets in a diversified portfolio of short- to medium-term investment grade U.S. Treasury, corporate debt, mortgage-backed and asset-backed securities. The Fund expects that it will normally maintain an effective maturity of 3 years or less. In selecting investments for the Fund, the Adviser attempts to identify securities that offer a comparably better investment return for a given level of credit risk. For example, short-term bonds generally have better returns than money market instruments, with a fairly modest increase in credit risk and/or volatility. The Adviser manages the Fund from a total return perspective. That is, the Adviser makes day-to-day investment decisions for the Fund with a view towards maximizing returns. The Adviser analyzes yields, market sectors and credit risk in an effort to identify attractive investments with the best risk/reward trade-off. Because securities tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. The Adviser may retain securities if the rating of the security falls below investment grade and the Adviser deems retention of the security to be in the best interests of the Fund. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will lose value because of increases in interest rates. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. Mortgage-backed investments involve risk of loss due to prepayments and, like any bond, due to default. Because of the sensitivity of mortgage-related securities to changes in interest rates, the Fund's performance may be more volatile than if it did not hold these securities. U.S. government securities can exhibit price movements resulting from changes in interest rates. Treasury inflation protected securities ("TIPS") can also exhibit price movements as a result of changing inflation expectations and seasonal inflation patterns. Certain U.S. government securities are backed by the full faith and credit of the U.S. Government, while others are backed by the ability of the issuing entity to borrow from the U.S. Treasury or by the issuing entity's own resources. For information about the risks involved when investing in derivatives, see "More Information About Risk." SHORT-TERM BOND FUND 54 PROSPECTUS (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's A Shares from year to year.* The chart does not reflect sales charges. If sales charges had been reflected, returns would be less than those shown. (BAR CHART) 1996 3.66% 1997 6.46% 1998 6.73% 1999 0.76% 2000 7.39% 2001 7.33% 2002 2.47% 2003 2.30% 2004 0.76% 2005 1.34%
BEST QUARTER WORST QUARTER 3.81% -1.09% (9/30/01) (6/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 1.91%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Citigroup 1-3 Year Government/Credit Index. These returns reflect applicable sales charges and assumes shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only the A Shares. After-tax returns for other classes will vary.
A SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes -1.17% 2.30% 3.63% Fund Returns After Taxes on Distributions -2.16% 1.10% 1.93% Fund Returns After Taxes on Distributions and Sale of Fund Shares -0.77% 1.24% 2.03% Citigroup 1-3 Year Government/Credit Index (reflects no deduction for fees, expenses or taxes) 1.82% 4.19% 5.11%
C SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes -0.10% 2.44% 3.52% Citigroup 1-3 Year Government/Credit Index (reflects no deduction for fees, expenses or taxes) 1.82% 4.19% 5.11%
SHORT-TERM BOND FUND PROSPECTUS 55 (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Citigroup 1-3 Year Government/Credit Index is a widely-recognized index of U.S. Treasury securities, government agency obligations, and corporate debt securities rated at least investment grade (BBB). The securities in the Index have maturities of 1 year or greater and less than 3 years. (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
A SHARES C SHARES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)* 2.50% None Maximum Deferred Sales Charge (as a percentage of net asset value)** None 1.00% Redemption Fee (as a percentage of net asset value)*** 2.00% 2.00%
* This sales charge varies depending upon how much you invest. You may buy A Shares in amounts of $1,000,000 or more at net asset value (without an initial sales charge), but if you redeem those shares within one year of your purchase, you will pay a deferred sales charge of 1.00%. See "Sales Charges." ** This sales charge is imposed if you sell C Shares within one year of your purchase. See "Sales Charges." *** This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
A SHARES C SHARES Investment Advisory Fees(1) 0.40% 0.40% Distribution and Service (12b-1) Fees 0.20%(2) 1.00% Other Expenses 0.08% 0.08% ------------ ------------------- Total Annual Operating Expenses(3) 0.68% 1.48%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) Adjusted to reflect a reduction in 12b-1 fees effective August 1, 2005. The Fund's Distribution and Service Plan for A Shares authorizes payment of up to 0.23% of average daily net assets of A Shares for distribution and shareholder services. Currently, the Board of Trustees has only approved payment of up to 0.20% of average daily net assets. (3) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: If you sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $318 $462 $619 $1,075 C Shares $251 $468 $808 $1,768
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $318 $462 $619 $1,075 C Shares $151 $468 $808 $1,768
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." SHORT-TERM BOND FUND 56 PROSPECTUS - ------------------------------------------------------------- ADDITIONAL AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- Unlike the Average Annual Total Returns on page 54 the table below reflects the Fund's results calculated without sales charges.
A SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes 1.34% 2.81% 3.89% Fund Returns After Taxes on Distributions 0.33% 1.60% 2.19% Fund Returns After Taxes on Distributions and Sale of Fund Shares 0.87% 1.67% 2.26% Citigroup 1-3 Year Government/Credit Index (reflects no deduction for fees, expenses or taxes) 1.82% 4.19% 5.11%
SHORT-TERM U.S. TREASURY SECURITIES FUND PROSPECTUS 57 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL High current income, while preserving capital INVESTMENT FOCUS Short-term U.S. Treasury securities SHARE PRICE VOLATILITY Low PRINCIPAL INVESTMENT STRATEGY Attempts to identify Treasury securities with maturities that offer a comparably better return potential and yield than either shorter maturity or longer maturity securities for a given level of interest rate risk INVESTOR PROFILE Income oriented investors who are willing to accept increased risk for the possibility of returns greater than money market investing
(TELESCOPE ICON) INVESTMENT STRATEGY The Short-Term U.S. Treasury Securities Fund invests exclusively in short-term U.S. Treasury securities (those with remaining maturities of 5 years or less) and shares of registered money market funds that invest in the foregoing. The Fund intends to maintain an average weighted maturity from 1 to 3 years. The Fund offers investors the opportunity to capture the advantage of investing in short-term bonds over money market instruments. Generally, short-term bonds offer a comparably better return than money market instruments, with a modest increase in interest rate risk. The Adviser manages the Fund from a total return perspective. That is, the Adviser makes day-to-day investment decisions for the Fund with a view toward maximizing total return. The Adviser tries to select those U.S. Treasury securities that offer the best risk/reward trade-off. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will lose value because of increases in interest rates. Interest rate risk is generally higher for investments with longer maturities or durations. Short-term U.S. Treasury securities may underperform other segments of the fixed income market or the fixed income market as a whole. U.S. Treasury securities are considered to be among the safest investments, however, they are not guaranteed against price movements due to changing interest rates. Treasury inflation protected securities ("TIPS") can exhibit price movements as a result of changing inflation expectations and seasonal inflation patterns. For information about the risks involved when investing in derivatives, see "More Information About Risk." SHORT-TERM U.S. TREASURY SECURITIES FUND 58 PROSPECTUS (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's A Shares from year to year.* The chart does not reflect sales charges. If sales charges had been reflected, returns would be less than those shown. (BAR CHART) 1996 4.38% 1997 5.70% 1998 6.09% 1999 2.55% 2000 6.48% 2001 6.39% 2002 4.36% 2003 1.20% 2004 0.01% 2005 1.20%
BEST QUARTER WORST QUARTER 2.60% -0.98% (9/30/01) (6/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 0.68%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Citigroup 1-3 Year Treasury Index and the Citigroup 6-Month Treasury Bill Index. These returns reflect applicable sales charges and assumes shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only the A Shares. After-tax returns for other classes will vary.
A SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes -1.37% 2.08% 3.54% Fund Returns After Taxes on Distributions -2.16% 1.05% 2.03% Fund Returns After Taxes on Distributions and Sale of Fund Shares -0.89% 1.17% 2.09% Citigroup 1-3 Year Treasury Index (reflects no deduction for fees, expenses or taxes) 1.65% 3.66% 4.79% Citigroup 6-Month Treasury Bill Index (reflects no deduction for fees, expenses or taxes) 3.10% 2.59% 4.04%
C SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes -0.30% 2.33% 3.55% Citigroup 1-3 Year Treasury Index (reflects no deduction for fees, expenses or taxes) 1.65% 3.66% 4.79% Citigroup 6-Month Treasury Bill Index (reflects no deduction for fees, expenses or taxes) 3.10% 2.59% 4.04%
(LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Citigroup 1-3 Year Treasury Index is a widely-recognized index of U.S. Treasury securities with maturities of one year or greater and less than three years. The Citigroup 6-Month Treasury Bill Index is a widely-recognized index of the 6 month U.S. Treasury Bills. SHORT-TERM U.S. TREASURY SECURITIES FUND PROSPECTUS 59 (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
A SHARES C SHARES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)* 2.50% None Maximum Deferred Sales Charge (as a percentage of net asset value)** None 1.00% Redemption Fee (as a percentage of net asset value)*** 2.00% 2.00%
* This sales charge varies depending upon how much you invest. You may buy A Shares in amounts of $1,000,000 or more at net asset value (without an initial sales charge), but if you redeem those shares within one year of your purchase, you will pay a deferred sales charge of 1.00%. See "Sales Charges." ** This sales charge is imposed if you sell C Shares within one year of your purchase. See "Sales Charges." *** This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
A SHARES C SHARES Investment Advisory Fees(1) 0.40% 0.40% Distribution and Service (12b-1) Fees 0.18% 1.00% Other Expenses 0.14% 0.14% ------------ ------------------- Total Annual Operating Expenses(2) 0.72% 1.54%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) Effective August 1, 2006, the Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses to the levels shown below. These waivers may be discontinued at any time.
A SHARES C SHARES Short-Term U.S. Treasury Securities Fund 0.68% 1.50%
- ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: If you sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $322 $474 $641 $1,122 C Shares $257 $486 $839 $1,834
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $322 $474 $641 $1,122 C Shares $157 $486 $839 $1,834
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." SHORT-TERM U.S. TREASURY SECURITIES FUND 60 PROSPECTUS - ------------------------------------------------------------- ADDITIONAL AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- Unlike the Average Annual Total Returns on page 58 the table below reflects the Fund's results calculated without sales charges.
A SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes 1.20% 2.61% 3.81% Fund Returns After Taxes on Distributions 0.39% 1.56% 2.30% Fund Returns After Taxes on Distributions and Sale of Fund Shares 0.78% 1.62% 2.32% Citigroup 1-3 Year Treasury Index (reflects no deduction for fees, expenses or taxes) 1.65% 3.66% 4.79% Citigroup 6-Month Treasury Bill Index (reflects no deduction for fees, expenses or taxes) 3.10% 2.59% 4.04%
STRATEGIC INCOME FUND PROSPECTUS 61 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOALS PRIMARY Current income SECONDARY Preservation of capital INVESTMENT FOCUS High yield corporate, government, and other debt instruments of U.S. and non-U.S. issuers SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Attempts to increase income while reducing share price volatility through diversification across three major sectors of the fixed income market INVESTOR PROFILE Investors who seek high current income with reduced risk of share price volatility
(TELESCOPE ICON) INVESTMENT STRATEGY The Strategic Income Fund invests primarily in a diversified portfolio of high yield corporate obligations, government securities, and floating rate loans. The Fund may invest in U.S. and non-U.S. debt obligations, including emerging market debt. The Fund will maintain a minimum average credit quality of BBB. The Fund will invest at least 15%, but not more than 60%, of its assets in a particular sector. The Fund may also invest a portion of its assets in securities that are restricted as to resale. In selecting corporate debt securities for the Fund, the Adviser seeks out companies with good fundamentals and performing prospects that are currently out of favor with investors. The primary basis for security selection is the potential income offered by the security relative to the Adviser's assessment of the issuer's ability to generate the cash flow required to meet its obligation. The Adviser employs a "bottom-up" approach, identifying investment opportunities based on the underlying financial and economic fundamentals of the specific issuer. Because securities tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell derivative instruments (such as futures, options and swaps, including credit default swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate or credit risks. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. Below investment grade securities (sometimes referred to as "junk bonds") involve greater risk of default or downgrade and are more volatile than investment grade securities. Below investment grade securities may also be less liquid than higher quality securities. The risks associated with floating rate loans are similar to the risks of below investment grade securities. In addition, the value of the collateral securing the loan may decline, causing a loan to be substantially unsecured. Difficulty in selling a floating rate loan may result in a loss. Borrowers may pay back principal before the scheduled due date when interest rates decline, which may require the Fund to replace a particular loan with a lower-yielding security. There may be less extensive public information available with respect to loans than for rated, registered or exchange listed securities. The Fund may assume the credit risk of the primary lender in addition to the borrower, and investments in loan assignments may involve the risks of being a lender. Foreign securities involve special risks such as currency fluctuations, economic or financial instability, lack of timely or reliable financial information and unfavorable political or legal developments. These risks are increased for investments in emerging markets. U.S. government securities can exhibit price movements resulting from changes in interest rates. Treasury inflation protected securities ("TIPS") can also exhibit price movements as a result of changing inflation expectations and seasonal inflation patterns. Certain U.S. government securities are backed by the full faith and credit of the U.S. Government, while others are backed by the ability of the issuing entity to borrow from the U.S. Treasury or by the issuing entity's own resources. STRATEGIC INCOME FUND 62 PROSPECTUS Restricted securities may increase the level of illiquidity in the Fund during any period that qualified institutional buyers become uninterested in purchasing these restricted securities. The Adviser intends to invest only in restricted securities that it believes present minimal liquidity risk. Because the Fund invests in derivatives, it is exposed to additional volatility and potential losses. Credit default swaps can increase the Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. The use of derivatives may cause the Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows the changes in performance of the Fund's C Shares from year to year.* The chart does not reflect sales charges. If sales charges had been reflected, returns would be less than those shown. (BAR CHART) 2002 3.08% 2003 10.91% 2004 10.07% 2005 -2.27%
BEST QUARTER WORST QUARTER 5.71% -1.98% (12/31/04) (6/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 0.95%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of a Hybrid 34/33/33 Blend of the Merrill Lynch AAA U.S. Treasury/Agency Master Index, Merrill Lynch U.S. High Yield Master II Index and the Merrill Lynch Global Government Bond II ex U.S. Index. These returns reflect applicable sales charges and assumes shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only the C Shares. After-tax returns for other classes will vary.
A SHARES 1 YEAR SINCE INCEPTION* Fund Returns Before Taxes -6.43% 2.89% Hybrid 34/33/33 Blend of the Following Market Benchmarks 3.10% -0.30% Merrill Lynch AAA U.S. Treasury/Agency Master Index (reflects no deduction for fees, expenses or taxes) 2.66% -1.84% Merrill Lynch U.S. High Yield Master II Index (reflects no deduction for fees, expenses or taxes) 2.74% 0.43% Merrill Lynch Global Government Bond II ex U.S. Index (reflects no deduction for fees, expenses or taxes) 5.60% 1.22%
* Since inception of the A Shares on October 8, 2003. Benchmark returns since September 30, 2003 (benchmark returns available only on a month end basis). STRATEGIC INCOME FUND PROSPECTUS 63
C SHARES 1 YEAR SINCE INCEPTION* Fund Returns Before Taxes -3.20% 4.95% Fund Returns After Taxes on Distributions -4.84% 2.99% Fund Return After Taxes on Distributions and Sale of Fund Shares -1.92% 3.09% Hybrid 34/33/33 Blend of the Following Market Benchmarks 3.10% 0.27% Merrill Lynch AAA U.S. Treasury/Agency Master Index (reflects no deduction for fees, expenses or taxes) 2.66% -0.22% Merrill Lynch U.S. High Yield Master II Index (reflects no deduction for fees, expenses or taxes) 2.74% 0.23% Merrill Lynch Global Government Bond II ex U.S. Index (reflects no deduction for fees, expenses or taxes) 5.60% 0.28%
* Since inception of the C Shares on November 30, 2001. (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Merrill Lynch AAA U.S. Treasury/Agency Master Index is a widely-recognized U.S. government index that tracks the performance of the combined U.S. Treasury and U.S. agency markets. It includes U.S. dollar- denominated, U.S. Treasury and U.S. agency bonds, issued in the U.S. domestic bond market, having at least one year remaining term to maturity, a fixed coupon schedule and a minimum amount outstanding of $1 billion for U.S. Treasuries and $150 million for U.S. agencies. The Merrill Lynch U.S. High Yield Master II Index is a widely-recognized, market-value weighted (higher market value bonds have more influence than lower market value bonds) index that tracks the performance of below investment grade U.S. dollar-denominated corporate bonds publicly issued in the U.S. domestic market. The Merrill Lynch Global Government Bond II ex U.S. Index is a widely-recognized subset of the Merrill Lynch Global Government Bond Index including Belgian, Danish, Irish, Italian, New Zealand, Portuguese, Spanish, and Swedish returns. The Merrill Lynch Global Government Bond Index is a widely-recognized, broad-based index consisting of various maturities comprising Australian, Canadian, Dutch, French, German, Japanese, Swiss, U.K., and U.S. individual country returns. STRATEGIC INCOME FUND 64 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
A SHARES C SHARES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)* 4.75% None Maximum Deferred Sales Charge (as a percentage of net asset value)** None 1.00% Redemption Fee (as a percentage of net asset value)*** 2.00% 2.00%
* This sales charge varies depending upon how much you invest. You may buy A Shares in amounts of $1,000,000 or more at net asset value (without an initial sales charge), but if you redeem those shares within one year of your purchase, you will pay a deferred sales charge of 1.00%. See "Sales Charges." ** This sales charge is imposed if you sell C Shares within one year of your purchase. See "Sales Charges." *** This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
A SHARES C SHARES Investment Advisory Fees(1) 0.60% 0.60% Distribution and Service (12b-1) Fees 0.30%(2) 1.00% Other Expenses 0.12% 0.12% ------------ ------------------- Total Annual Operating Expenses(3) 1.02% 1.72%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) Adjusted to reflect a reduction in 12b-1 fees effective August 1, 2005. The Fund's Distribution and Service Plan for A Shares authorizes payment of up to 0.35% of average daily net assets of A Shares for distribution and shareholder services. Currently, the Board of Trustees has only approved payment of up to 0.30% of average daily net assets. (3) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return and Fund operating expenses remain the same. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: If you sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $574 $784 $1,011 $1,664 C Shares $275 $542 $ 933 $2,030
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $574 $784 $1,011 $1,664 C Shares $175 $542 $ 933 $2,030
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." STRATEGIC INCOME FUND PROSPECTUS 65 - ------------------------------------------------------------- ADDITIONAL AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- Unlike the Average Annual Total Returns on page 62 the tables below reflect the Fund's results calculated without sales charges.
A SHARES 1 YEAR SINCE INCEPTION* Fund Returns Before Taxes -1.72% 5.18% Hybrid 34/33/33 Blend of the Following Market Benchmarks 3.10% -0.30% Merrill Lynch AAA U.S. Treasury/Agency Master Index (reflects no deduction for fees, expenses or taxes) 2.66% -1.84% Merrill Lynch U.S. High Yield Master II Index (reflects no deduction for fees, expenses or taxes) 2.74% 0.43% Merrill Lynch Global Government Bond II ex U.S. Index (reflects no deduction for fees, expenses or taxes) 5.60% 1.22%
* Since inception of the A shares on October 8, 2003. Benchmark returns since September 30, 2003 (benchmark returns available only on a month end basis). U.S. GOVERNMENT SECURITIES FUND 66 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL High current income, while preserving capital INVESTMENT FOCUS Mortgage-backed securities and U.S. Treasury obligations SHARE PRICE VOLATILITY Low to moderate PRINCIPAL INVESTMENT STRATEGY Attempts to increase income without adding undue risk INVESTOR PROFILE Conservative investors who want to receive income from their investment
(TELESCOPE ICON) INVESTMENT STRATEGY The U.S. Government Securities Fund invests at least 80% of its net assets in U.S. government debt securities, such as mortgage- backed securities and U.S. Treasury obligations. In an attempt to provide a consistently high dividend without adding undue risk, the Fund focuses its investments in mortgage-backed securities. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will lose value because of increases in interest rates. Interest rate risk is generally higher for investments with longer maturities or durations. U.S. government debt securities may underperform other segments of the fixed income market or the fixed income market as a whole. Mortgage-backed investments involve risk of loss due to prepayments and, like any bond, due to default. Because of the sensitivity of mortgage-related securities to changes in interest rates, the Fund's performance may be more volatile than if it did not hold these securities. U.S. government securities can exhibit price movements resulting from changes in interest rates. Treasury inflation protected securities ("TIPS") can also exhibit price movements as a result of changing inflation expectations and seasonal inflation patterns. Certain U.S. government securities are backed by the full faith and credit of the U.S. Government, while others are backed by the ability of the issuing entity to borrow from the U.S. Treasury or by the issuing entity's own resources. For information about the risks involved when investing in derivatives, see "More Information About Risk." (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's A Shares from year to year.* The chart does not reflect sales charges. If sales charges had been reflected, returns would be less than those shown. (BAR CHART) 1996 2.08% 1997 8.60% 1998 7.74% 1999 -1.49% 2000 10.50% 2001 6.61% 2002 9.23% 2003 0.87% 2004 3.02% 2005 1.67%
BEST QUARTER WORST QUARTER 4.82% -2.31% (9/30/01) (3/31/96)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was -0.76%. U.S. GOVERNMENT SECURITIES FUND PROSPECTUS 67 - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average total returns for the periods ended December 31, 2005, to those of the Merrill Lynch Government/Mortgage Custom Index and the Lehman Brothers Intermediate U.S. Government Bond Index. These returns reflect applicable sales charges and assumes shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only the A Shares. After-tax returns for other classes will vary.
A SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes -3.20% 3.22% 4.31% Fund Returns After Taxes on Distributions -4.34% 1.74% 2.44% Fund Returns After Taxes on Distributions and Sale of Fund Shares -2.09% 1.89% 2.51% Merrill Lynch Government/Mortgage Custom Index (reflects no deduction for fees, expenses or taxes) 2.64% 5.47% 6.09% Lehman Brothers Intermediate U.S. Government Bond Index (reflects no deduction for fees, expenses or taxes) 1.68% 4.82% 5.50%
C SHARES 1 Year 5 Years 10 Years Fund Returns Before Taxes 0.05% 3.67% 4.28% Merrill Lynch Government/Mortgage Custom Index (reflects no deduction for fees, expenses or taxes) 2.64% 5.47% 6.09% Lehman Brothers Intermediate U.S. Government Bond Index (reflects no deduction for fees, expenses or taxes) 1.68% 4.82% 5.50%
(LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Merrill Lynch Government/Mortgage Custom Index is a synthetic index created by combining, at their respective market weights (i) the Merrill Lynch Government Master Index, which is a widely-recognized index comprised of U.S. Treasury securities and U.S. government agency securities with a maturity of at least 1 year; and (ii) the Merrill Lynch Mortgage Master Index, which is a widely-recognized index comprised of mortgage-backed securities including 15 and 30 year single family mortgages in addition to aggregated pooled mortgages. The Lehman Brothers Intermediate U.S. Government Bond Index is a widely-recognized, market value-weighted (higher market value bonds have more influence than lower market value bonds) index of U.S. Treasury securities, U.S. government agency obligations, and corporate debt backed by the U.S. Government, fixed-rate nonconvertible corporate debt securities, Yankee bonds, and nonconvertible debt securities issued by or guaranteed by foreign governments and agencies. All securities in the Index are rated investment grade (BBB) or higher, with maturities of at least 1 year. U.S. GOVERNMENT SECURITIES FUND 68 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
A SHARES C SHARES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)* 4.75% None Maximum Deferred Sales Charge (as a percentage of net asset value)** None 1.00% Redemption Fee (as a percentage of net asset value)*** 2.00% 2.00%
* This sales charge varies depending upon how much you invest. You may buy A Shares in amounts of $1,000,000 or more at net asset value (without an initial sales charge), but if you redeem those shares within one year of your purchase, you will pay a deferred sales charge of 1.00%. See "Sales Charges." ** This sales charge is imposed if you sell C Shares within one year of your purchase. See "Sales Charges." *** This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
A SHARES C SHARES Investment Advisory Fees(1) 0.50% 0.50% Distribution and Service (12b-1) Fees 0.30%(2) 1.00% Other Expenses 0.07% 0.07% ------------ ------------------- Total Annual Operating Expenses(3) 0.87% 1.57%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) Adjusted to reflect a reduction in 12b-1 fees effective August 1, 2005. The Fund's Distribution and Service Plan for A Shares authorizes payment of up to 0.35% of average daily net assets of A Shares for distribution and shareholder services. Currently, the Board of Trustees has only approved payment of up to 0.30% of average daily net assets. (3) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: If you sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $560 $739 $934 $1,497 C Shares $260 $496 $855 $1,867
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $560 $739 $934 $1,497 C Shares $160 $496 $855 $1,867
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." U.S. GOVERNMENT SECURITIES FUND PROSPECTUS 69 - ------------------------------------------------------------- ADDITIONAL AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- Unlike the Average Annual Total Returns on page 67 the table below reflects the Fund's results calculated without sales charges.
A SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes 1.67% 4.23% 4.81% Fund Returns After Taxes on Distributions 0.48% 2.74% 2.93% Fund Returns After Taxes on Distributions and Sale of Fund Shares 1.08% 2.75% 2.95% Merrill Lynch Government/ Mortgage Custom Index (reflects no deduction for fees, expenses or taxes) 2.64% 5.47% 6.09% Lehman Brothers Intermediate U.S. Government Bond Index (reflects no deduction for fees, expenses or taxes) 1.68% 4.82% 5.50%
VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND 70 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL High current income exempt from federal and Virginia income tax, consistent with preservation of capital INVESTMENT FOCUS Virginia municipal securities SHARE PRICE VOLATILITY Low PRINCIPAL INVESTMENT STRATEGY Attempts to limit risk by investing in investment grade municipal securities with an intermediate average maturity INVESTOR PROFILE Virginia residents who want income exempt from federal and state income taxes
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Virginia Intermediate Municipal Bond Fund invests at least 80% of its net assets in municipal securities, including securities subject to the alternative minimum tax, with income exempt from federal and Virginia income taxes. In addition, the Fund may invest up to 20% of its net assets in certain taxable debt securities. Issuers of these securities can be located in Virginia, Puerto Rico and other U.S. territories and possessions. In selecting investments for the Fund, the Adviser tries to limit risk by buying investment grade securities. The Adviser also considers stability and growth of principal. The Adviser expects that the Fund's average weighted maturity will range from 5 to 10 years but there is no limit on the maturities of individual securities. In addition, to implement its investment strategy, the Fund may buy or sell, derivative instruments (such as futures, options, swaps and inverse floaters) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. There may be economic or political changes that impact the ability of municipal issuers to repay principal and to make interest payments on municipal securities. Changes in the financial condition or credit rating of municipal issuers also may adversely affect the value of the Fund's securities. The Fund is non-diversified, which means that it may invest in the securities of relatively few issuers. As a result, the Fund may be more susceptible to a single adverse economic or regulatory occurrence affecting one or more of these issuers, and may experience increased volatility due to its investments in those securities. The Fund's concentration of investments in securities of issuers located in Virginia subjects the Fund to economic and government policies of Virginia. Because the Fund invests in derivatives, it is exposed to additional volatility and potential losses. Inverse floaters are volatile and involve leverage risk. Certain derivatives may cause taxable income. VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND PROSPECTUS 71 (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's A Shares from year to year.* The chart does not reflect sales charges. If sales charges had been reflected, returns would be less than those shown. (BAR CHART) 1996 2.94% 1997 7.24% 1998 5.32% 1999 -2.43% 2000 9.35% 2001 4.50% 2002 7.83% 2003 3.78% 2004 2.50% 2005 2.20%
BEST QUARTER WORST QUARTER 3.70% -2.09% (9/30/02) (6/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 0.15%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Lehman Brothers 5-Year Municipal Bond Index and the Lipper Other States Intermediate Municipal Debt Funds Objective. These returns reflect applicable sales charges and assumes shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown only for the A Shares. After-tax returns for other classes will vary.
A SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes -2.64% 3.14% 3.77% Fund Returns After Taxes on Distributions -2.74% 2.79% 3.55% Fund Returns After Taxes on Distributions and Sale of Fund Shares -0.52% 2.93% 3.63% Lehman Brothers 5-Year Municipal Bond Index (reflects no deduction for fees, expenses or taxes) 0.95% 4.62% 4.78% Lipper Other States Intermediate Municipal Debt Funds Objective (reflects no deduction for taxes) 1.45% 4.03% 4.16%
(LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX/OBJECTIVE? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Lehman Brothers 5-Year Municipal Bond Index is a widely-recognized index composed of tax-exempt bonds with maturities ranging between 4 and 6 years. The Lipper Other States Intermediate Municipal Debt Funds Objective is an average of funds that invest in municipal debt issues with dollar-weighted average maturities of five to ten years and are exempt from taxation on a specified city or state basis. The number of funds in the Objective varies. VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND 72 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
A SHARES C SHARES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)* 4.75% None Maximum Deferred Sales Charge (as a percentage of net asset value)** None 1.00% Redemption Fee (as a percentage of net asset value)*** 2.00% 2.00%
* This sales charge varies depending upon how much you invest. You may buy A Shares in amounts of $1,000,000 or more at net asset value (without an initial sales charge), but if you redeem those shares within one year of your purchase, you will pay a deferred sales charge of 1.00%. See "Sales Charges." ** This sales charge is imposed if you sell C Shares within one year of your purchase. See "Sales Charges." *** This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
A SHARES C SHARES Investment Advisory Fees(1) 0.55% 0.55% Distribution and Service (12b-1) Fees 0.15% 1.00% Other Expenses 0.08% 0.08% ------------ ------------------- Total Annual Operating Expenses(2) 0.78% 1.63%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) Effective August 1, 2006, the Adviser has contractually agreed to waive all or a portion of its fees and reimburse expenses until at least August 1, 2007 in order to limit Total Operating Expenses to the following levels:
A SHARES C SHARES Virginia Intermediate Municipal Bond Fund 0.75% 1.60%
If at any point before August 1, 2009, Total Annual Operating Expenses are less than the applicable expense cap, the Adviser may retain the difference to recapture any of the prior waivers or reimbursements. In addition, the Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These voluntary waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: If you sell your shares at the end of the period:
1 YEAR* 3 YEARS 5 YEARS 10 YEARS A Shares $548 $709 $885 $1,392 C Shares $263 $511 $884 $1,930
* Without waivers and reimbursements, Year 1 costs would be: A Shares $551 C Shares $266 If you do not sell your shares at the end of the period:
1 YEAR* 3 YEARS 5 YEARS 10 YEARS A Shares $548 $709 $885 $1,392 C Shares $163 $511 $884 $1,930
* Without waivers and reimbursements, Year 1 costs would be: A Shares $551 C Shares $166 - ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND PROSPECTUS 73 - ------------------------------------------------------------- ADDITIONAL AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- Unlike the Average Annual Total Returns on page 71 the tables below reflect the Fund's results calculated without sales charges.
A SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes 2.20% 4.14% 4.27% Fund Returns After Taxes on Distributions 2.09% 3.79% 4.06% Fund Returns After Taxes on Distributions and Sale of Fund Shares 2.69% 3.80% 4.08% Lehman Brothers 5-Year Municipal Bond Index (reflects no deduction for fees, expenses or taxes) 0.95% 4.62% 4.78% Lipper Other States Intermediate Municipal Debt Funds Objective (reflects no deduction for taxes) 1.45% 4.03% 4.16%
MORE INFORMATION ABOUT RISK 74 PROSPECTUS (LIFE PRESERVER ICON) MORE INFORMATION ABOUT RISK BELOW INVESTMENT GRADE RISK Core Bond Fund High Income Fund Intermediate Bond Fund Investment Grade Bond Fund Investment Grade Tax-Exempt Bond Fund Seix Floating Rate High Income Fund Seix High Yield Fund Short-Term Bond Fund Strategic Income Fund High yield securities, which are also known as "junk bonds," involve greater risks of default or downgrade and are more volatile than investment grade securities. High yield securities involve greater risk of default or price declines than investment grade securities due to actual or perceived changes in an issuer's credit-worthiness. In addition, issuers of high yield securities may be more susceptible than other issuers to economic downturns. High yield securities are subject to the risk that the issuer may not be able to pay interest or dividends and ultimately to repay principal upon maturity. Discontinuation of these payments could substantially adversely affect the market value of the security. High yield securities may be less liquid than higher quality investments. A security whose credit rating has been lowered may be particularly difficult to sell. DERIVATIVES RISK All Funds Derivatives may involve risks different from, and possibly greater than, those of traditional investments. A Fund may use derivatives (such as futures, options, and swaps and inverse floaters) to attempt to achieve its investment objective and offset certain investment risks, while at the same time maintaining liquidity. These positions may be established for hedging or non- hedging purposes. Risks associated with the use of derivatives include those associated with hedging and leveraging activities: - - 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. - - A Fund experiencing losses over certain ranges in the market that exceed losses experienced by a fund that does not use derivatives. - - There may be an imperfect or no correlation between the changes in market value of the securities held by a Fund and the prices of derivatives. - - There may not be a liquid secondary market for derivatives. - - Trading restrictions or limitations may be imposed by an exchange. - - Government regulations may restrict trading in derivatives. - - The other party to an agreement (e.g., options or swaps) may default; however, in certain circumstances, such counter-party risk may be reduced by having an organization with very good credit act as intermediary. Because options premiums paid or received by a Fund are small in relation to the market value of the investments underlying the options, buying and selling put and call options can be more speculative than investing directly in securities. A Fund's investments in securities whose interest rates bear an inverse relationship to the interest rate on another security or the value of an index are called inverse floaters. An investment in inverse floaters may involve greater risk than an investment in a fixed rate bond. Because changes in the interest rate on the other security or index inversely affect the residual interest paid on the inverse floater, the value and income on an inverse floater are generally more volatile than that of a fixed rate bond. Inverse floaters have varying degrees of liquidity, and the market for these securities is relatively volatile. These securities tend to underperform the market for fixed rate bonds in a rising interest rate environment, but tend to outperform the market for fixed rate bonds when interest rates decline. Credit default swaps can increase a Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. The use of derivatives may cause a Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. Total return swaps could result in losses if their reference MORE INFORMATION ABOUT RISK PROSPECTUS 75 index, security or investments do not perform as anticipated. EMERGING MARKETS RISK Core Bond Fund High Income Fund Intermediate Bond Fund Investment Grade Bond Fund Seix Floating Rate High Income Fund Seix High Yield Fund Strategic Income Fund Emerging market countries are countries that the World Bank or the United Nations considers to be emerging or developing. Most countries or regions are included in this category, except for Australia, Canada, Hong Kong, Japan, New Zealand, Singapore, the United Kingdom, the United States and most of the countries located in Western Europe. Emerging markets may be more likely to experience political turmoil or rapid changes in market or economic conditions than more developed countries. In addition, the financial stability of issuers (including governments) in emerging market countries may be more precarious than in other countries. As a result, there will tend to be an increased risk of price volatility associated with a Fund's investments in emerging market countries, which may be magnified by currency fluctuations relative to the U.S. dollar. Governments of some emerging market countries have defaulted on their bonds and may do so in the future. EXCHANGE TRADED FUND RISK All Funds The Funds may purchase shares of exchange-traded funds ("ETFs") to temporarily gain exposure to a particular portion of the market while awaiting an opportunity to purchase securities directly. ETFs are investment companies that are bought and sold on a securities exchange. An ETF holds a portfolio of securities designed to track a particular market segment or index. ETFs, like mutual funds, have expenses associated with their operation, including advisory fees. When the Fund invests in an ETF, in addition to directly bearing expenses associated with its own operations, it will bear a pro rata portion of the ETF's expense. The risks of owning shares of an ETF generally reflect the risks of owning the underlying securities the ETF is designed to track, although lack of liquidity in an ETF could result in being more volatile than the underlying portfolio of securities. In addition, because of ETF expenses, compared to owning the underlying securities directly, it may be more costly to own an ETF. FIXED INCOME RISK All Funds The prices of a Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, a Fund's fixed income securities will decrease in value if interest rates rise and vice versa. Long-term debt securities generally are more sensitive to changes in interest rates, usually making them more volatile than short-term debt securities and thereby increasing risk. Debt securities are also subject to credit risk, which is the possibility than an issuer will fail to make timely payments of interest or principal, or go bankrupt. The lower the ratings of such debt securities, the greater their risks. In addition, lower rated securities have higher risk characteristics, and changes in economic conditions are likely to cause issuers of these securities to be unable to meet their obligations. Debt securities are also subject to income risk, which is the possibility that falling interest rates will cause a Fund's income to decline. Income risk is generally higher for short-term bonds. FLOATING RATE LOAN RISK Core Bond Fund High Income Fund Intermediate Bond Fund Investment Grade Bond Fund Seix Floating Rate High Income Fund Seix High Yield Fund Strategic Income Fund As fixed income securities, investments in floating rate loans are subject to interest rate risk, but that risk is less because the interest rate of the loan adjusts periodically. As debt securities, investments in floating rate loans are subject to credit risk. Many floating rate loans are in unrated or lower credit rated securities. When a security is unrated, a Fund must rely more heavily on the analytical ability of the Adviser. Many floating rate loan investments share the same risks as high yield securities, MORE INFORMATION ABOUT RISK 76 PROSPECTUS although these risks are reduced when the floating rate loans are senior and secured as opposed to many high yield securities that are junior and unsecured. Floating rate securities are often subject to restrictions on resale which can result in reduced liquidity. A floating rate loan also may not be fully collateralized, although one lending institution will often be required to monitor collateral. Borrowers may repay principal faster than the scheduled due date which may result in a Fund replacing that loan with a lower-yielding security. Investment in loan participation interests may result in increased exposure to financial services sector risk. A loan may not be fully collateralized which may cause the loan to decline significantly in value, although one lending institution acting as agent for all of the lenders will generally be required to administer and manage the loan and, with respect to collateralized loans, to service or monitor the collateral. Certain portfolio managers and other personnel of the Adviser may also manage similar investment portfolios of floating rate loans for another non-investment adviser contracted affiliated business, Seix Structured Products, LLC ("SSP"). SSP is a subsidiary of SunTrust Bank and an affiliate of the Adviser, but not a client of the Adviser. In that role, this group purchases bank loans on behalf of SSP, for purposes of subsequent collateralized loan obligation ("CLO") transactions where the Adviser and its affiliate, SunTrust Capital Markets, Inc., will serve as collateral manager and as structuring agent/placement agent, respectively. The trustee and custodian of the CLO transactions are not affiliated entities of the Adviser or SunTrust Capital Markets. In addition, the Adviser serves as adviser to an account established with its affiliate, SunTrust Equity Funding, LLC for the purpose of purchasing high yield securities for subsequent sale to these same CLO transactions. Each of these transactions is subject to the approval of the independent trustee of the CLO transaction. In addition to disclosure to the trustee, all such transactions are fully disclosed to potential investors in the CLO's Offering and Disclosure documents. As a result of these multiple investment-oriented and associated relationships, there exists a potential risk that the portfolio managers may favor other adviser and non-adviser contracted businesses over a Fund, especially when allocating certain types of transactions. The Adviser has created and implemented additional policies and procedures designed to protect shareholders against such conflicts; however, there can be no absolute guarantee that a Fund will always participate in the same or similar investments or receive equal or better individual investment allocations at any given time. FOREIGN SECURITY RISK Core Bond Fund High Income Fund Intermediate Bond Fund Investment Grade Bond Fund Seix Floating Rate High Income Fund Seix High Yield Fund Strategic Income Fund Investments in securities of foreign companies or governments can be more volatile than investments in U.S. companies or governments. Political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. Diplomatic, political, or economic developments, including nationalization or appropriation, could affect investments in foreign countries. Foreign securities markets generally have less trading volume and less liquidity than U.S. markets. The value of securities denominated in foreign currencies, and of dividends from such securities, can change significantly when foreign currencies strengthen or weaken relative to the U.S. dollar. As a result, changes in the value of those currencies compared to the U.S. dollar may affect (positively or negatively) the value of a Fund's investment. Certain foreign currencies may be particularly volatile, and foreign governments may intervene in the currency markets, causing a decline in value or liquidity in a Fund's foreign currency holdings. These currency movements may happen separately from and in response to events that do not otherwise affect the value of the security in the issuer's home country. Foreign companies or governments generally are not subject to uniform accounting, auditing, and financial reporting standards comparable to those applicable to domestic U.S. companies or governments. Transaction costs are generally higher than those in the U.S. and expenses for custodial arrangements of foreign securities may be somewhat greater than typical expenses for custodial arrangements of similar U.S. securities. Some MORE INFORMATION ABOUT RISK PROSPECTUS 77 foreign governments levy withholding taxes against dividend and interest income. Although in some countries a portion of these taxes are recoverable, the non-recovered portion will reduce the income received from the securities comprising the portfolio. MORTGAGE-BACKED SECURITIES RISK Core Bond Fund High Income Fund Intermediate Bond Fund Investment Grade Bond Fund Limited-Term Federal Mortgage Securities Fund Seix High Yield Fund Short-Term Bond Fund Strategic Income Fund U.S. Government Securities Fund Mortgage-backed securities are fixed income securities representing an interest in a pool of underlying mortgage loans. Mortgage-backed securities are sensitive to changes in interest rates, but may respond to these changes differently from other fixed income securities due to the likelihood that a change in the general level of interest rates will impact the magnitude and timing of any prepayments of the underlying mortgage loans. As a result, it may not be possible to accurately determine in advance the actual maturity date or average life of a mortgage-backed security. The uncertainty inherent in assessing prepayment risk makes it difficult to calculate the average maturity of a portfolio including mortgage-backed securities, and therefore, to assess the volatility risk of a Fund. MUNICIPAL ISSUER RISK Florida Tax-Exempt Bond Fund Georgia Tax-Exempt Bond Fund Investment Grade Tax-Exempt Bond Fund Maryland Municipal Bond Fund North Carolina Tax-Exempt Bond Fund Virginia Intermediate Municipal Bond Fund There may be economic or political changes that impact the ability of municipal issuers to repay principal and to make interest payments on municipal securities. Changes to the financial condition or credit rating of municipal issuers may also adversely affect the value of a Fund's municipal securities. Constitutional or legislative limits on borrowing by municipal issuers may result in reduced supplies of municipal securities. Moreover, certain municipal securities are backed only by a municipal issuer's ability to levy and collect taxes. In addition, a Fund's concentration of investments in issuers located in a single state makes the Fund more susceptible to adverse political or economic developments affecting that state. The Fund also may be riskier than mutual funds that buy securities of issuers in numerous states. REGIONAL RISK Florida Tax-Exempt Bond Fund Georgia Tax-Exempt Bond Fund Maryland Municipal Bond Fund North Carolina Tax-Exempt Bond Fund Virginia Intermediate Municipal Bond Fund To the extent that a Fund's investments are concentrated in a specific geographic region, a Fund may be subject to the political and other developments affecting that region. Regional economies are often closely interrelated, and political and economic developments affecting one region, country or state often affect other regions, countries or states, thus subjecting a Fund to additional risks. MORE INFORMATION ABOUT FUND INVESTMENTS 78 PROSPECTUS (MOUNTAIN ICON) MORE INFORMATION ABOUT FUND INVESTMENTS This prospectus describes the Funds' primary strategies, and the Funds will normally invest in the types of securities described in this prospectus. However, in addition to the investments and strategies described in this prospectus, each Fund also may invest in other securities, use other strategies and engage in other investment practices. These investments and strategies, as well as those described in this prospectus, are described in detail in the Statement of Additional Information. The investments and strategies described in this prospectus are those that the Funds use under normal conditions. During unusual economic or market conditions, or for temporary defensive or liquidity purposes, each Fund may invest up to 100% of its assets in cash, money market instruments, repurchase agreements and short-term obligations that would not ordinarily be consistent with a Fund's objectives. In addition, each Fund may shorten its average weighted maturity to as little as 90 days. A Fund will do so only if the Adviser believes that the risk of loss outweighs the opportunity for higher income. Of course, a Fund cannot guarantee that it will achieve its investment goal. INFORMATION ABOUT PORTFOLIO HOLDINGS A description of the Funds' policies and procedures with respect to the circumstances under which the Funds disclose their portfolio securities is available in the Statement of Additional Information. (MAGNIFIYING GLASS ICON) INVESTMENT ADVISER Trusco Capital Management, Inc., 50 Hurt Plaza, Suite 1400, Atlanta, Georgia 30303 ("Trusco" or the "Adviser"), serves as the investment adviser to the Funds. Seix Advisors, a fixed income division of Trusco Capital Management, Inc., manages the following STI Classic Funds: Core Bond Fund, High Income Fund, Intermediate Bond Fund, Investment Grade Bond Fund, Limited-Term Federal Mortgage Securities Fund, Seix Floating Rate High Income Fund, Seix High Yield Fund, Strategic Income Fund and U.S. Government Securities Fund, and is located at 10 Mountainview Road, Suite C-200, Upper Saddle River, NJ 07458. As of June 30, 2006, Trusco had approximately $71 billion in assets under management. For the fiscal year ended March 31, 2006, the following Funds paid the Adviser advisory fees (after waivers) based on the respective Fund's average daily net assets of: Core Bond Fund 0.25% Florida Tax-Exempt Bond Fund 0.57% Georgia Tax-Exempt Bond Fund 0.57% High Income Fund 0.59% Intermediate Bond Fund 0.25% Investment Grade Bond Fund 0.58% Investment Grade Tax-Exempt Bond Fund 0.58% Limited-Term Federal Mortgage Securities Fund 0.54% Maryland Municipal Bond Fund 0.56% North Carolina Tax-Exempt Bond Fund 0.56%* Seix High Yield Fund 0.45% Short-Term Bond Fund 0.47% Short-Term U.S. Treasury Securities Fund 0.45% Strategic Income Fund 0.65% U.S. Government Securities Fund 0.58% Virginia Intermediate Municipal Bond Fund 0.58%*
* The Adviser has contractually agreed to waive fees and reimburse expenses of the North Carolina Tax-Exempt Bond Fund and the Virginia Intermediate Municipal Bond Fund until at least August 1, 2007 in order to keep total operating expenses from exceeding the applicable expense cap. If at any point before August 1, 2009, total annual operating expenses are less than the expense cap, the Adviser may retain the difference to recapture any of the prior waivers or reimbursements. For its advisory services to the Seix Floating Rate High Income Fund, the Adviser is entitled to receive an annual advisory fee of 0.45% based on the Fund's average daily net assets. The Adviser has contractually agreed to waive fees and reimburse expenses until at least August 1, 2007 in order to keep total operating expenses from exceeding the applicable expense cap. If PORTFOLIO MANAGERS PROSPECTUS 79 at any point before August 1, 2009, total annual operating expenses are less than the expense cap, the Adviser may retain the difference to recapture any of the prior waivers or reimbursements. Since August 1, 2005, the following breakpoints have been used in computing the advisory fee:
Average Daily Net Assets Discount From Full Fee First $500 million None-Full Fee Next $500 million 5% Over $1 billion 10%
Based on average daily net assets for the fiscal year ended March 31, 2006, the asset level of the following Fund had reached a breakpoint in the advisory fee.* Had the Fund's asset levels been lower, the Adviser may have been entitled to receive maximum advisory fees as follows: Seix High Yield Fund 0.45%
* Fund expenses in the "Annual Fund Operating Expenses" tables shown earlier in this prospectus reflect the advisory breakpoints. A discussion regarding the basis for the Board of Trustees' approval of the investment advisory contract with the Adviser appears in the Funds' semi-annual report to shareholders for the period ended September 30, 2005. The Adviser is responsible for making investment decisions for the Funds and continuously reviews, supervises and administers each Fund's respective investment program. The Board of Trustees supervises the Adviser and establishes policies that the Adviser must follow in its management activities. The Adviser may use its affiliates as brokers for Fund transactions. An investment adviser has a fiduciary obligation to its clients when the adviser has authority to vote their proxies. Under the current contractual agreement, the Adviser is authorized to vote proxies on behalf of each Fund. Information regarding the Adviser's, and thus each Fund's, Proxy Voting Policies and Procedures is provided in the Statement of Additional Information. A copy of the Funds' Proxy Voting Policies and Procedures may be obtained by contacting the STI Classic Funds at 1-888-STI-FUND, or by visiting www.sticlassicfunds.com. PORTFOLIO MANAGERS The following individuals are primarily responsible for the day-to-day management of the Funds. Mr. Joseph Calabrese, CFA, has served as Managing Director since joining Trusco in May 2004. He has co-managed the LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND and the U.S. GOVERNMENT SECURITIES FUND since July 2004. Prior to joining Trusco, Mr. Calabrese served as Senior Portfolio Manager of Seix Investment Advisors, Inc. from May 1997 to May 2004. He has more than 19 years of investment experience. Mr. George E. Calvert, Jr., has served as Vice President of Trusco since August 2000. He has managed the MARYLAND MUNICIPAL BOND FUND and the VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND since August 2000. Mr. Calvert has more than 28 years of investment experience. Mr. Chris Carter, CFA, has served as Vice President since joining Trusco in July 2003. He has managed the GEORGIA TAX-EXEMPT BOND FUND since August 2003 and the NORTH CAROLINA TAX-EXEMPT BOND FUND since March 2005. Prior to joining Trusco, Mr. Carter served as Portfolio Manager and Fixed Income Trader of Evergreen Investment Management Company from January 2002 to July 2003, after serving as Portfolio Manager and Fixed Income Trader of Wachovia Asset Management from September 1998 to January 2002. He has more than 15 years of investment experience. Mr. Robert W. Corner has served as Managing Director of Trusco since September 1996. Mr. Corner has co-managed the SHORT-TERM BOND FUND since January 2003. He has more than 19 years of investment experience. Mr. George Goudelias has served as Managing Director since joining Trusco in May 2004. He has co-managed the HIGH INCOME FUND since July 2004. He also has co-managed the SEIX FLOATING RATE HIGH INCOME FUND and SEIX HIGH YIELD FUND since their inception. Prior to joining Trusco, Mr. Goudelias served as Director of High Yield Research of Seix Investment Advisors, Inc. from February 2001 to May 2004. He has more than 20 years of investment experience. Mr. Michael McEachern, CFA, has served as Managing Director since joining Trusco in May 2004. He has co-managed the HIGH INCOME FUND and the STRATEGIC PURCHASING, SELLING AND EXCHANGING FUND SHARES 80 PROSPECTUS INCOME FUND since July 2004. He also has co-managed the SEIX FLOATING RATE HIGH INCOME FUND and SEIX HIGH YIELD FUND since their inception, after serving as the portfolio manager for the Seix High Yield Fund's predecessor fund. Prior to joining Trusco, Mr. McEachern served as Senior Portfolio Manager of Seix Investment Advisors, Inc. from June 1997 to May 2004. He has more than 21 years of investment experience. Mr. H. Rick Nelson has served as Managing Director of Trusco since March 2002. He has co-managed the SHORT-TERM BOND FUND since January 2003 and the SHORT-TERM U.S. TREASURY SECURITIES FUND since January 2005. Prior to joining Trusco, Mr. Nelson served as Senior Vice President at Wachovia Asset Management from June 1985 to March 2002. He has more than 24 years of investment experience. Mr. Brian Nold has served as a Senior High Yield Analyst since joining Trusco in May 2004. He has co-managed the HIGH INCOME FUND since August 2006. Prior to joining Trusco, Mr. Nold served as a Senior High Yield Analyst at Seix Investment Advisors, Inc. from March 2003 to May 2004. He has more than 6 years of investment experience. Mr. Ronald Schwartz, CFA, has served as Managing Director of Trusco since July 2000. He has managed the FLORIDA TAX-EXEMPT BOND FUND and INVESTMENT GRADE TAX-EXEMPT BOND FUND since their inception. He has more than 25 years of investment experience. Mr. Chad Stephens has served as Vice President of Trusco since December 2000, and has co-managed the SHORT-TERM U.S. TREASURY SECURITIES FUND since January 2005. Prior to joining Trusco, Mr. Stephens was Vice President MBS Trader at Wachovia Securities from June 1990 to October 2000. He has more than 15 years of investment experience. Mr. John Talty, CFA, has served as Executive Vice President since joining Trusco in May 2004. He has co-managed the INVESTMENT GRADE BOND FUND, LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND and U.S. GOVERNMENT SECURITIES FUND since July 2004. He also has co-managed the CORE BOND FUND and the INTERMEDIATE BOND FUND since their inception, after serving as a Portfolio Manager for each Fund's predecessor fund, the Seix Core Bond Fund and Seix Intermediate Bond Fund, respectively. Prior to joining Trusco, Mr. Talty served as President and Senior Portfolio Manager of Seix Investment Advisors, Inc. from January 1993 to May 2004. He had more than 25 years of investment experience. Mr. Perry Troisi has served as Managing Director since joining Trusco in May 2004. He has co-managed the INVESTMENT GRADE BOND FUND since July 2004. He has also co-managed the CORE BOND FUND and the INTERMEDIATE BOND FUND since their inception, after serving as a Portfolio Manager for each Fund's predecessor Fund, the Seix Core Bond Fund and Seix Intermediate Bond Fund, respectively. Prior to joining Trusco, Mr. Troisi served as Senior Portfolio Manager of Seix Investment Advisors, Inc. from November 1999 to May 2004. He has more than 20 years of investment experience. Mr. Adrien Webb, CFA, has served as Managing Director since joining Trusco in May 2004. He has co-managed the STRATEGIC INCOME FUND since October 2004. Prior to joining Trusco, Mr. Webb served as Senior Portfolio Manager of Seix Investment Advisors, Inc. from May 2000 to May 2004. He has more than 11 years of investment experience. The Statement of Additional Information provides additional information regarding the Funds' portfolio managers' compensation, other accounts managed by the portfolio managers and the portfolio managers' ownership of securities of the Funds. (HAND SHAKE ICON) PURCHASING, SELLING AND EXCHANGING FUND SHARES This section tells you how to purchase, sell (sometimes called "redeem") and exchange A Shares and C Shares of the Funds. HOW TO PURCHASE FUND SHARES You may purchase shares of the Funds through financial institutions or intermediaries that are authorized to place transactions in Fund shares for their customers. Please contact your financial institution or intermediary directly and follow its procedures for Fund share transactions. Your financial institution or intermediary may charge a fee for its services, in addition to the fees charged by a Fund. You will also generally have to address your correspondence or questions regarding a Fund to your financial institution or intermediary. Your investment professional can assist you in opening a brokerage account that will be used for purchasing shares of the STI Classic Funds. PURCHASING, SELLING AND EXCHANGING FUND SHARES PROSPECTUS 81 Shareholders who purchased shares directly from the Funds may purchase additional Fund shares by: - - Mail - - Telephone (1-888-STI-FUND) - - Wire - - Fax (1-800-451-8377) - - Automated Clearing House ("ACH") The Funds do not accept cash, credit card checks, third-party checks, travelers' checks, money orders, bank starter checks or checks drawn in a foreign currency, as payment for Fund shares. If you pay with a check or ACH transfer that does not clear or if your payment is not received in a timely manner, your purchase may be canceled. You will be responsible for any losses or expenses incurred by the Fund or transfer agent, and the Fund can redeem shares you own in this or another identically registered STI Classic Funds account as reimbursement. WHEN CAN YOU PURCHASE SHARES? You may purchase shares on any day that the New York Stock Exchange ("NYSE") is open for business (a "Business Day"). The price per share (the offering price) will be the net asset value per share ("NAV") next determined after the Funds receive your purchase order in proper form plus any applicable sales charges. Each Fund calculates its NAV once each Business Day at the regularly-scheduled close of normal trading on the NYSE (normally, 4:00 p.m., Eastern time). So, for you to receive the current Business Day's NAV, a Fund or its authorized agent must receive your purchase order in proper form before 4:00 p.m., Eastern time. If the NYSE closes early -- such as on days in advance of certain holidays -- the Funds will calculate NAV as of the earlier closing time. The Funds will not accept orders that request a particular day or price for the transaction or any other special conditions. YOU MAY HAVE TO TRANSMIT YOUR PURCHASE, SALE AND EXCHANGE REQUESTS TO YOUR FINANCIAL INSTITUTION OR INTERMEDIARY AT AN EARLIER TIME FOR YOUR TRANSACTION TO BECOME EFFECTIVE THAT DAY. THIS ALLOWS THE FINANCIAL INSTITUTION OR INTERMEDIARY TIME TO PROCESS YOUR REQUEST AND TRANSMIT IT TO THE TRANSFER AGENT IN TIME TO MEET THE ABOVE STATED FUND CUT-OFF TIMES. FOR MORE INFORMATION ABOUT HOW TO PURCHASE, SELL OR EXCHANGE FUND SHARES, INCLUDING A SPECIFIC FINANCIAL INSTITUTION'S OR INTERMEDIARY'S INTERNAL ORDER ENTRY CUT-OFF TIMES, PLEASE CONTACT YOUR FINANCIAL INSTITUTION OR INTERMEDIARY DIRECTLY. A Fund may reject any purchase order. HOW THE FUNDS CALCULATE NAV NAV is calculated by adding the total value of a Fund's investments and other assets, subtracting its liabilities and then dividing that figure by the number of outstanding shares of the Fund. In calculating NAV, each Fund generally values its investment portfolio at market price. If market prices are not readily available or the Fund reasonably believes that they are unreliable, such as in the case of a security value that has been materially affected by events occurring after the relevant market closes, a Fund is required to price those securities at fair value as determined in good faith using methods approved by the Board of Trustees. A Fund's determination of a security's fair value price often involves the consideration of a number of subjective factors, and is therefore subject to the unavoidable risk that the value that a Fund assigns to a security may be higher or lower than the security's value would be if a reliable market quotation for the security was readily available. When valuing fixed income securities with remaining maturities of more than 60 days, the Funds use the value of the security provided by pricing services. The values provided by a pricing service may be based upon market quotations for the same security, securities expected to trade in a similar manner, or a pricing matrix. When valuing fixed income securities with remaining maturities of 60 days or less, the Funds use the security's amortized cost. Amortized cost and the use of a pricing matrix in valuing fixed income securities are forms of fair value pricing. With respect to non-U.S. securities held by a Fund, the Fund may take factors influencing specific markets or issues into consideration in determining the fair value of a non-U.S. security. International securities markets may be open on days when the U.S. markets are closed. In such cases, the value of any international securities owned by a Fund may be significantly affected on days when investors cannot buy or sell shares. In addition, PURCHASING, SELLING AND EXCHANGING FUND SHARES 82 PROSPECTUS due to the difference in times between the close of the international markets and the time a Fund prices its shares, the value the Fund assigns to securities generally will not be the same as the primary markets or exchanges. In determining fair value prices, a Fund may consider the performance of securities on their primary exchanges, foreign currency appreciation/depreciation, securities market movements in the U.S., or other relevant information as related to the securities. MINIMUM/MAXIMUM PURCHASES To purchase shares for the first time, you must invest in any Fund at least:
CLASS DOLLAR AMOUNT A Shares $2,000 C Shares $5,000 ($2,000 for IRA or other tax qualified accounts)
Purchases of C Shares of the Short-Term U.S. Treasury Securities Fund requested in an amount of $100,000 or more will be automatically made in A Shares of that Fund. Purchases of C Shares of the Limited-Term Federal Mortgage Securities Fund or the Short-Term Bond Fund requested in an amount of $250,000 or more will be automatically made in A Shares of that Fund. Purchases of C Shares of any other Fund requested in an amount of $1,000,000 or more will automatically be made in A Shares of that Fund. Your subsequent investments in any Fund must be made in amounts of at least $1,000 or, if you pay by a statement coupon, $100. A Fund may accept investments of smaller amounts for either class of shares at its discretion. SYSTEMATIC INVESTMENT PLAN If you have a checking or savings account with a bank, you may purchase shares of either class automatically through regular deductions from your account. With a $500 minimum initial investment, you may begin regularly-scheduled investments of $50 or more once or twice a month. If you are buying C Shares, you should plan on investing at least $5,000 per Fund during the first two years. The Distributor may close your account if you do not meet this minimum investment requirement at the end of two years. CUSTOMER IDENTIFICATION FOREIGN INVESTORS To purchase shares of the Funds, you must be a U.S. citizen residing in the U.S. or its territories or a U.S. entity with a U.S. tax identification number. If you owned shares on July 31, 2006, you may keep your account open even if you do not reside in the U.S. or its territories, but you may not make additional purchases or exchanges. These restrictions do not apply to investors with U.S. military APO or FPO addresses. CUSTOMER IDENTIFICATION AND VERIFICATION To help the government fight the funding of terrorism and money laundering activities, federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account. When you open an account, you will be asked to provide your name, residential street address, date of birth, Social Security number or tax identification number. You may also be asked for other information that will allow us to identify you. Entities are also required to provide additional documentation. This information will be verified to ensure the identity of all persons opening a mutual fund account. In certain instances, the Funds are required to collect documents to fulfill its legal obligation. Documents provided in connection with your application will be used solely to establish and verify a customer's identity. The Funds are required by law to reject your new account application if the required identifying information is not provided. Attempts to collect the missing information required on the application will be performed by either contacting you or, if applicable, your broker. If this information is unable to be obtained within a timeframe established in the sole discretion of the Funds, your application will be rejected. Upon receipt of your application in proper form (or upon receipt of all identifying information required on the application), your investment will be accepted and your order will be processed at the NAV next-determined. However, the Funds reserve the right to close your account at the then-current day's price if the Funds are unable to verify your identity. Attempts to verify your identity will be performed within a timeframe established in the sole discretion of the Funds. If the Funds are unable to verify your identity, the Funds reserve the right to liquidate your account at the then- PURCHASING, SELLING AND EXCHANGING FUND SHARES PROSPECTUS 83 current day's price and remit proceeds to you via check. The Funds reserve the further right to hold your proceeds until your original check clears the bank. In such an instance, you may be subject to a gain or loss on Fund shares and will be subject to corresponding tax implications. ANTI-MONEY LAUNDERING PROGRAM Customer identification and verification is part of the Funds' overall obligation to deter money laundering under federal law. The Funds have adopted an anti-money laundering compliance program designed to prevent the Funds from being used for money laundering or the financing of terrorist activities. In this regard, the Funds reserve the right to (i) refuse, cancel or rescind any purchase or exchange order, (ii) freeze any account and/or suspend account services, or (iii) involuntarily redeem your account in cases of threatening conduct or suspected fraudulent or illegal activity. These actions will be taken when, in the sole discretion of Fund management, they are deemed to be in the best interest of the Funds or in cases when the Funds are requested or compelled to do so by governmental or law enforcement authority. (DOLLAR ICON) SALES CHARGES FRONT-END SALES CHARGES -- A SHARES The offering price of A Shares is the NAV next calculated after a Fund receives your request in proper form, plus the front-end sales charge. The amount of any front-end sales charge included in your offering price varies, depending on the amount of your investment: Core Bond Fund Florida Tax-Exempt Bond Fund Georgia Tax-Exempt Bond Fund High Income Fund Intermediate Bond Fund Investment Grade Bond Fund Investment Grade Tax-Exempt Bond Fund Maryland Municipal Bond Fund North Carolina Tax-Exempt Bond Fund Seix Floating Rate High Income Fund Seix High Yield Fund Strategic Income Fund U.S. Government Securities Fund Virginia Intermediate Municipal Bond Fund
YOUR SALES CHARGE YOUR SALES CHARGE AS A PERCENTAGE OF AS A PERCENTAGE OF IF YOUR INVESTMENT IS: OFFERING PRICE* YOUR NET INVESTMENT Less than $50,000 4.75% 4.99% $50,000 but less than $100,000 4.50% 4.71% $100,000 but less than $250,000 3.50% 3.63% $250,000 but less than $500,000 2.50% 2.56% $500,000 but less than $1,000,000 2.00% 2.04% $1,000,000 and over None None
* The Distributor may pay a percentage of the offering price as a commission to broker-dealers. While investments over $1,000,000 are not subject to a front-end sales charge, the Distributor may pay dealer commissions ranging from 0.25% to 1.00%. Limited-Term Federal Mortgage Securities Fund Short-Term Bond Fund Short-Term U.S. Treasury Securities Fund
YOUR SALES CHARGE YOUR SALES CHARGE AS A PERCENTAGE OF AS A PERCENTAGE OF IF YOUR INVESTMENT IS: OFFERING PRICE* YOUR NET INVESTMENT Less than $50,000 2.50% 2.56% $50,000 but less than $100,000 2.25% 2.30% $100,000 but less than $250,000 2.00% 2.04% $250,000 but less than $500,000 1.75% 1.78% $500,000 but less than $1,000,000 1.50% 1.52% $1,000,000 and over None None
* The Distributor may pay a percentage of the offering price as a commission to broker-dealers. While investments over $1,000,000 are not subject to a front-end sales charge, the Distributor may pay dealer commissions ranging from 0.25% to 1.00%. INVESTMENTS OF $1,000,000 OR MORE. You do not pay an initial sales charge when you buy $1,000,000 or more of A Shares (excluding A Shares of STI Classic Money Market Funds) in either a single investment or through our rights of accumulation, letter of intent, or combined purchase/quantity discount programs. However, you will pay a deferred sales charge of 1.00% if you redeem any of these A Shares within one year of purchase. The deferred sales charge is calculated based on the lessor of (1) the NAV of the shares at the time of purchase or (2) NAV of the shares next calculated after the Fund receives your redemption request. The deferred sales charge does not apply to shares you PURCHASING, SELLING AND EXCHANGING FUND SHARES 84 PROSPECTUS purchase through the reinvestment of dividends or capital gains distributions. WAIVER OF FRONT-END SALES CHARGE -- A SHARES The front-end sales charge will be waived on A Shares purchased: - - through reinvestment of dividends and distributions; - - through an account managed by an affiliate of the Adviser; - - by persons repurchasing shares they redeemed within the last 180 days (see "Repurchase of A Shares"); - - by employees, and members of their immediate family (spouse, mother, father, mother-in-law, father-in-law, and children (including step-children) under the age of 21 years), of the Adviser and its affiliates; - - by current STI Classic Funds shareholders reinvesting distributions from qualified employee benefit retirement plans and rollovers from individual retirement accounts (IRAs); - - by persons investing an amount less than or equal to the value of an account distribution when an account for which a bank affiliated with the Adviser acted in a fiduciary, administrative, custodial or investment advisory capacity is closed; - - through dealers, retirement plans, asset allocation and wrap programs and financial institutions that, under their dealer agreements with the Distributor or otherwise, do not receive any portion of the front-end sales charge; or - - by Trustees of the STI Classic Funds. REPURCHASE OF A SHARES You may repurchase any amount of A Shares of any Fund at NAV (without the normal front-end sales charge), up to the limit of the value of any amount of A Shares (other than those which were purchased with reinvested dividends and distributions) that you redeemed within the past 180 days. In effect, this allows you to reacquire shares that you may have had to redeem, without re-paying the front-end sales charge. Such repurchases may be subject to special tax rules. See the section on Taxes in the Statement of Additional Information for more information. To exercise this privilege, the Funds must receive your purchase order within 180 days of your redemption. In addition, you must notify the Fund when you send in your purchase order that you are repurchasing shares. REDUCED SALES CHARGES -- A SHARES RIGHTS OF ACCUMULATION. In calculating the appropriate sales charge rate, this right allows you to add the market value (at the close of business on the day of the current purchase) of your existing holdings in any class of shares to the amount of A shares you are currently purchasing. You should retain any records necessary to substantiate the historical amounts you have invested. The Funds may amend or terminate this right at any time. Please see the Statement of Additional Information for details. LETTER OF INTENT. A Letter of Intent allows you to purchase shares over a 13-month period and receive the same sales charge as if you had purchased all the shares at the same time. The Funds will hold a certain portion of your investment in escrow until you fulfill your commitment. Please see the Statement of Additional Information for details. COMBINED PURCHASE/QUANTITY DISCOUNT PRIVILEGE. When calculating the appropriate sales charge rate, the Funds will combine same day purchases of shares of any class made by you, your spouse and your minor children (under age 21). This combination also applies to A Shares you purchase with a Letter of Intent. You can also obtain this information about sales charges, rights of accumulation and Letters of Intent on the Funds' website at www.sticlassicfunds.com. CONTINGENT DEFERRED SALES CHARGES ("CDSC") -- C SHARES You do not pay a sales charge when you purchase C Shares. The offering price of C Shares is simply the next calculated NAV. But if you sell your shares within the first year after your purchase, you will pay a CDSC equal to 1% of either (1) the NAV of the shares at the time of purchase, or (2) NAV of the shares next calculated after the Funds receive your sale request, whichever is less. The Funds will use the first-in, first-out ("FIFO") method to determine the holding period. So, you never pay a CDSC on any increase in your investment above the initial offering price. The CDSC does not apply to shares purchased through the reinvestment of dividends or capital distributions or to the exchange of C Shares of one Fund for C Shares of another Fund. PURCHASING, SELLING AND EXCHANGING FUND SHARES PROSPECTUS 85 WAIVER OF CDSC The CDSC will be waived if you sell your C Shares for the following reasons: - - Death or Postpurchase Disablement (as defined in Section 72(m)(7) of the Internal Revenue Code) - You are shareholder/joint shareholder or participant/beneficiary of certain retirement plans; - You die or become disabled after the account is opened; - Redemption must be made within 1 year of such death/disability; - The Funds must be notified in writing of such death/disability at time of redemption request; - The Funds must be provided with satisfactory evidence of death (death certificate) or disability (doctor's certificate specifically referencing disability as defined in 72(m)(7) referenced above). - - Shares purchased through dividend and capital gains reinvestment. - - Participation in the Systematic Withdrawal Plan described below: - Withdrawal not to exceed 10% of the current balance of a Fund in a 12 month period, the 10% amount will be calculated as of the date of the initial Systematic Withdrawal Plan and recalculated annually on the 12 month anniversary date. Shares purchased through dividend or capital gains reinvestment, although not subject to the CDSC, will be included in calculating the account value and 10% limitation amount; - If the total of all Fund account withdrawals (Systematic Withdrawal Plan or otherwise) exceeds the 10% limit within the 12 month period following the initial calculation date, the entire Systematic Withdrawal Plan for the period will be subject to the applicable sales charge, in the initial year of a Systematic Withdrawal Plan, the withdrawal limitation period shall begin 12 months before the initial Systematic Withdrawal Plan payment; - To qualify for the CDSC waiver under the Systematic Withdrawal Plan a Fund account must have a minimum of $25,000 at Systematic Withdrawal Plan inception and must also reinvest dividends and capital gains distributions. - - Required mandatory minimum withdrawals made after 70 1/2 under any retirement plan qualified under IRS Code Section 401, 408 or 403(b) or resulting from the tax free return of an excess distribution to an Individual Retirement Account (IRA). Satisfactory qualified plan documentation to support any waiver includes employer letter (separation from services) and plan administrator certificate (certain distributions under plan requirements). - - Permitted exchanges of shares, except if shares acquired by exchange are then redeemed within the period during which a CDSC would apply to the initial shares purchased. - - Exchanges in connection with plans of Fund reorganizations such as mergers and acquisitions. To take advantage of any of these waivers, you must qualify in advance. To see if you qualify, please call your investment professional or other investment representative. These waivers are subject to change or elimination at any time at the discretion of the Funds. OFFERING PRICE OF FUND SHARES The offering price of A Shares is the NAV next calculated after the transfer agent receives your request in proper form, plus the front-end sales charge. The offering price of C Shares is simply the next calculated NAV. You can also obtain this information about sales charges, rights of accumulation and letters of intent on the Funds' website at www.sticlassicfunds.com. HOW TO SELL YOUR FUND SHARES If you own your shares through an account with a broker or other financial institution or intermediary, contact that broker, financial institution or intermediary to sell your shares. Your broker, financial institution or intermediary may charge a fee for its services, in addition to the fees charged by the Funds. Shareholders who purchased shares directly from the Funds may sell their Fund shares by: - - Mail - - Telephone (1-888-STI-FUND) - - Wire - - Fax (1-800-451-8377) - - ACH PURCHASING, SELLING AND EXCHANGING FUND SHARES 86 PROSPECTUS A MEDALLION SIGNATURE GUARANTEE()] by a bank or other financial institution (a notarized signature is not sufficient) is required to redeem shares: - - made payable to someone other than the registered shareholder; - - sent to an address or bank account other than the address or bank account of record; - - sent to an address or bank account of record that has been changed within the last 15 calendar days. ] MEDALLION SIGNATURE GUARANTEE: A Medallion Signature Guarantee verifies the authenticity of your signature and helps ensure that you, in fact, authorized changes to your account. A Medallion Signature Guarantee may be obtained from a domestic bank or trust company, broker, dealer, clearing agency, savings association or other financial institution participating in a Medallion Program recognized by the Securities Trading Association. Signature guarantees from financial institutions that do not reflect one of the following are not part of the program and will not be accepted. The acceptable Medallion programs are Securities Transfer Agents Medallion Program, (STAMP), Stock Exchange Medallion Program, (SEMP), or the New York Stock Exchange, Inc. Medallion Program, (NYSE MSP). Contact your local financial adviser or institution for further assistance. The sale price of each share will be the next NAV determined after the Funds receive your request less, in the case of C Shares, any applicable CDSC. REDEMPTION FEE A redemption fee of 2% of the value of the shares sold will be imposed on shares redeemed within 7 days or less after their date of purchase unless the redemption is excluded under the Redemption Fee Policy. The redemption fee is intended to limit short-term trading and to help offset costs to the Funds' remaining shareholders of that type of activity. (See "Redemption Fee Policy.") SYSTEMATIC WITHDRAWAL PLAN If you have at least $10,000 in your account, you may use the systematic withdrawal plan. Under the plan you may arrange monthly, quarterly, semi-annual or annual automatic withdrawals of at least $50 from any Fund. The proceeds of each withdrawal will be mailed to you by check or, if you have a checking or savings account with a bank, may be electronically transferred to your account. Please check with your bank. Withdrawals under the Systematic Withdrawal Plan may be subject to a CDSC unless they meet the requirements described above under "Waiver of the CDSC." RECEIVING YOUR MONEY Normally, the Funds will send your sale proceeds within five Business Days after the Funds receive your request, but a Fund may take up to seven days to pay the sale proceeds if making immediate payment would adversely affect the Fund (for example, to allow the Fund to raise capital in the case of a larger redemption). Your proceeds can be wired to your bank account (subject to a fee) or sent to you by check. IF YOU RECENTLY PURCHASED YOUR SHARES BY CHECK OR THROUGH ACH, REDEMPTION PROCEEDS MAY NOT BE AVAILABLE UNTIL YOUR FUNDS HAVE CLEARED (WHICH MAY TAKE UP TO 15 CALENDAR DAYS FROM YOUR DATE OF PURCHASE). REDEMPTIONS IN KIND The Funds generally pay redemption proceeds in cash. However, under unusual conditions that make the payment of cash unwise (and for the protection of the Funds' remaining shareholders), the Funds might pay all or part of your redemption proceeds in liquid securities with a market value equal to the redemption price (redemption in kind). It is highly unlikely that your shares would ever be redeemed in kind, but if they were you would probably have to pay transaction costs to sell the securities distributed to you, as well as taxes on any capital gains from the sale as with any redemption. INVOLUNTARY SALES OF YOUR SHARES If your account balance drops below the required minimum as a result of redemptions you may be required to sell your shares. The account balance minimums are:
CLASS DOLLAR AMOUNT A Shares $2,000 ($5,000 for Strategic Income Fund) C Shares $5,000 ($2,000 for IRA or other tax qualified accounts)
But, the Funds will always give you at least 60 days written notice to give you time to add to your account and avoid the sale of your shares. PURCHASING, SELLING AND EXCHANGING FUND SHARES PROSPECTUS 87 SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES A Fund may suspend your right to sell your shares if the NYSE restricts trading, the SEC declares an emergency or for other reasons approved by the SEC. More information about this is in the Statement of Additional Information. HOW TO EXCHANGE YOUR SHARES You may exchange your shares on any Business Day by contacting the Funds or your financial institution or intermediary by mail or telephone. Exchange requests must be for an amount of at least $1,000. The exchange privilege is not intended as a vehicle for short-term trading. Excessive exchange activity may interfere with Fund management and may have an adverse effect on all shareholders. In order to limit excessive exchange activity and in other circumstances where it is in the best interests of a Fund, all Funds reserve the right to revise or terminate the exchange privilege, limit the amount or number of exchanges or reject any exchange or restrict or refuse purchases if (1) a Fund or its manager(s) believes the Fund would be harmed or unable to invest effectively, or (2) a Fund receives or anticipates orders that may dramatically affect the Fund as outlined under "Market Timing Policies and Procedures" below. IF YOU RECENTLY PURCHASED SHARES BY CHECK OR THROUGH ACH, YOU MAY NOT BE ABLE TO EXCHANGE YOUR SHARES UNTIL YOUR FUNDS HAVE CLEARED (WHICH MAY TAKE UP TO 15 CALENDAR DAYS FROM YOUR DATE OF PURCHASE). This exchange privilege may be changed or canceled at any time upon 60 days notice. EXCHANGES When you exchange shares, you are really selling your shares of one Fund and buying shares of another STI Classic Fund. So, your sale price and purchase price will be based on the NAV next calculated after the Funds receive your exchange request in proper form. REDEMPTION FEE A redemption fee of 2% of the value of the shares sold will be imposed on shares exchanged for shares of another STI Classic Fund within 7 days or less after their date of purchase unless the redemption is excluded under the Redemption Fee Policy. The redemption fee is intended to limit short-term trading and to help offset costs to the Funds' remaining shareholders of that type of activity. (See "Redemption Fee Policy.") A SHARES You may exchange A Shares of any Fund for A Shares of any other STI Classic Fund. If you exchange shares that you purchased without a sales charge or with a lower sales charge into an STI Classic Fund with a sales charge or with a higher sales charge, the exchange is subject to a sales charge equal to the difference between the lower and higher applicable sales charges. If you exchange shares into an STI Classic Fund with the same, lower or no sales charge there is no sales charge for the exchange. The amount of your exchange must meet any initial or subsequent purchase minimums applicable to the STI Classic Fund into which you are making the exchange. C SHARES You may exchange C Shares of any Fund for C Shares of any other STI Classic Fund. For purposes of computing the CDSC applicable to C Shares, the length of time you have owned your shares will be measured from the original date of purchase and will not be affected by any exchange. TELEPHONE TRANSACTIONS Purchasing, selling and exchanging Fund shares over the telephone is extremely convenient, but not without risk. Although the Funds have certain safeguards and procedures to confirm the identity of callers and the authenticity of instructions, the Funds are not responsible for any losses or costs incurred by following telephone instructions the Funds reasonably believe to be genuine. If you or your financial institution or intermediary transact with the Funds over the telephone, you will generally bear the risk of any loss. The Funds reserve the right to modify, suspend or terminate telephone transaction privileges at any time. To redeem shares by telephone: - - redemption checks must be made payable to the registered shareholder; and - - redemption checks must be mailed to an address or wired to a bank account of record that has been associated with the shareholder account for at least 15 calendar days. MARKET TIMING POLICIES AND PROCEDURES 88 PROSPECTUS MARKET TIMING POLICIES AND PROCEDURES The Funds are intended for long-term investment purposes only and discourage shareholders from engaging in "market timing" or other types of excessive short-term trading. This frequent trading into and out of the Funds may present risks to the Funds' long-term shareholders, all of which could adversely affect shareholder returns. The risks posed by frequent trading include interfering with the efficient implementation of the Funds' investment strategies, triggering the recognition of taxable gains and losses on the sale of Fund investments, requiring the Funds to maintain higher cash balances to meet redemption requests, and experiencing increased transaction costs. A Fund that invests a significant amount of its assets in overseas markets is particularly susceptible to the risk of certain investors using a strategy known as time-zone arbitrage. Investors using this strategy attempt to take advantage of the differences in value of foreign securities that might result from events that occur between the close of the foreign securities market on which a foreign security is traded and the time at which the Fund calculates its NAV. The Funds and/or their service providers will take steps reasonably designed to detect and deter frequent trading by shareholders pursuant to the Funds' policies and procedures described in this prospectus and approved by the Funds' Board of Trustees. For purposes of applying these policies, the Funds' service providers may consider the trading history of accounts under common ownership or control. The Funds' policies and procedures include: - - Shareholders are restricted from making more than one (1) "round trip" into or out of a Fund within 14 days or more than two (2) "round trips" within any continuous 90 day period. If a shareholder exceeds either "round trip" restriction, he or she may be deemed a "Market Timer," and the Funds and/or their service providers may, at their discretion, reject any additional purchase orders. The Funds define a round trip as a purchase into a Fund by a shareholder, followed by a subsequent redemption out of the Fund. Anyone considered to be a Market Timer by the Funds, their manager(s) or a shareholder servicing agent may be notified in writing of their designation as a Market Timer. - - The Funds reserve the right to reject any purchase request by any investor or group of investors for any reason without prior notice, including, in particular, if the Funds or their Adviser reasonably believes that the trading activity would be harmful or disruptive to the Funds. - - A redemption fee of 2% of the value of the shares sold will be imposed on shares redeemed (including exchanges) within 7 days or less after their date of purchase. The redemption fee proceeds will be paid to the applicable Fund to help offset costs to the Fund's remaining shareholders. The Funds will use the first-in, first-out ("FIFO") method to determine the holding period. Under this method, the date of the redemption will be compared to the earliest purchase date of shares of a particular Fund held in a shareholder's account. If this holding period is less than the required holding period, the redemption fee will be assessed. The Funds and/or their service providers seek to apply these policies to the best of their abilities uniformly and in a manner they believe is consistent with the interests of the Funds' long-term shareholders. Although these policies are designed to deter frequent trading, none of these measures alone nor all of them taken together eliminate the possibility that frequent trading in the Funds will occur, particularly with respect to trades placed by shareholders that invest in the Funds through omnibus arrangements maintained by brokers, retirement plan accounts and other financial intermediaries. The Funds' and their service providers' access to information about individual shareholder transactions made through such omnibus arrangements is often unavailable or severely limited. The Funds rely in large part on the policies, ability and willingness of brokers, retirement plan accounts and other financial intermediaries who maintain omnibus arrangements to detect and deter short-term trading. Despite this reliance, the Funds cannot assure that their policies will be enforced with regard to those Fund shares held through such omnibus arrangements (which may represent a majority of Fund shares), and as a result frequent trading could adversely affect the Funds and their long-term shareholders as discussed above. In addition to the previously mentioned initiatives to discourage market timing, the Funds intend to continually evaluate and, if practical, implement other measures to deter market timing. REDEMPTION FEE POLICY PROSPECTUS 89 REDEMPTION FEE POLICY A redemption fee of 2% of the value of the shares sold will be imposed on shares redeemed (including exchanges) within 7 days or less after their date of purchase. The redemption fee proceeds will be paid to the Fund to help offset costs to the Fund's remaining shareholders. The Funds will use the FIFO method to determine the holding period. Under this method, the date of the redemption will be compared to the earliest purchase date of shares of a particular Fund held in a shareholder's account. If this holding period is less than the required holding period, the redemption fee will be assessed. The redemption fee is applicable to Fund shares purchased either directly or through a financial intermediary, such as a broker-dealer. Transactions through financial intermediaries typically are placed with the Funds on an omnibus basis and include both purchase and sale transactions placed on behalf of multiple investors. For this reason, the Funds request the support from financial intermediaries of their obligation to assess the redemption fee on customer accounts and to collect and remit the proceeds to the Funds. However, due to operational requirements, the intermediaries' methods for tracking and calculating the fee may be inadequate or differ in some respects from the Funds' methods. The redemption fee may not apply to certain categories of redemptions, such as those that the Funds reasonably believe may not raise frequent trading or market timing concerns. These categories include, but are not limited to, the following: (i) accounts held through an omnibus arrangement, such as participants in certain group retirement plans (e.g., 401(k)/403(b) type participant accounts) or automatic asset allocation accounts, because information may not be available regarding beneficial owners or whose processing systems are incapable of properly applying the redemption fee to underlying shareholders; (ii) redemptions resulting from certain transfers upon the death of a shareholder; (iii) redemptions by certain pension plans as required by law or by regulatory authorities; (iv) Systematic Withdrawal Plan accounts; (v) retirement loans and withdrawals; (vi) shares sold due to the drop of an account balance below the required minimum as discussed under "Involuntary Sales of Your Shares"; and (vii) shares purchased through reinvestment of dividends or capital gains distributions. Dealers who purchase A Shares or C Shares on behalf of Market Timers, including Market Timers with shares held through an omnibus account, may not be eligible to receive any dealer commissions and also may not be eligible to receive 12b-1 fees from the original date of purchase. Further, the Funds reserve the right to refuse any purchase or exchange requests by any investor at any time. The Funds also reserve the right to modify or eliminate the redemption fee for certain categories of investors or waivers at any time. Such changes will be approved prior to implementation by the Funds' Board of Trustees. DISTRIBUTION OF FUND SHARES Each Fund has adopted a distribution plan that allows the Fund to pay distribution and service fees for the sale and distribution of its shares, and for services provided to shareholders. Because these fees are paid out of a Fund's assets continuously, over time these fees will increase the cost of your investment and may cost you more than paying other types of sales charges. While C Shares are sold without any initial sales charge, the distributor may pay at the time of sale up to 1% of the amount invested to broker-dealers and other financial intermediaries who sell C Shares. Through the distribution plan, the distributor is reimbursed for these payments, as well as other distribution related services provided by the distributor. DIVIDENDS, DISTRIBUTIONS AND TAXES 90 PROSPECTUS For A Shares, each Fund's distribution plan authorizes payment of up to the amount shown under "Maximum Fee" in the table below. Currently, however, the Board of Trustees has only approved payment of up to the amount shown under "Current Approved Fee" in the table below. Fees are shown as a percentage of the average daily net assets of the Fund's A Shares.
CURRENT MAXIMUM APPROVED FEE FEE Core Bond Fund 0.25% 0.25% Florida Tax-Exempt Bond Fund 0.18% 0.15% Georgia Tax-Exempt Bond Fund 0.18% 0.15% High Income Fund 0.30% 0.30% Intermediate Bond Fund 0.25% 0.25% Investment Grade Bond Fund 0.35% 0.30% Investment Grade Tax-Exempt Bond Fund 0.35% 0.30% Limited-Term Federal Mortgage Securities Fund 0.23% 0.20% Maryland Municipal Bond Fund 0.15% 0.15% North Carolina Tax-Exempt Bond Fund 0.15% 0.15% Seix Floating Rate High Income Fund 0.35% 0.30% Seix High Yield Fund 0.25% 0.25% Short-Term Bond Fund 0.23% 0.20% Short-Term U.S. Treasury Securities Fund 0.18% 0.18% Strategic Income Fund 0.35% 0.30% U.S. Government Securities Fund 0.35% 0.30% Virginia Intermediate Municipal Bond Fund 0.15% 0.15%
For C Shares, the maximum distribution fee is 1.00% of the average daily net assets of a Fund's C Shares. The distributor may provide financial assistance in connection with pre-approved seminars, conferences and advertising to the extent permitted by applicable state or self-regulatory agencies, such as the National Association of Securities Dealers. From its own assets, the Adviser or its affiliates may make payments based on gross sales and current assets to selected brokerage firms or institutions. The amount of these payments may be substantial. The minimum aggregate sales required for eligibility for such payments, and the factors in selecting the brokerage firms and institutions to which they will be made, are determined from time to time by the Adviser. Furthermore, in addition to the fees that may be paid by the Funds, the Adviser or its affiliates may pay fees from its own capital resources to brokers, banks, financial advisers, retirement plan service providers and other financial intermediaries, including affiliates, for providing distribution-related or shareholder services. DIVIDENDS AND DISTRIBUTIONS Each Fund declares dividends daily and pays these dividends monthly. Each Fund makes distributions of its net realized capital gains, if any, at least annually. If you own Fund shares on a Fund's record date, you will be entitled to receive the distribution. You will receive dividends and distributions in the form of additional Fund shares unless you elect to receive payment in cash. To elect cash payment, you must notify the Fund in writing prior to the date of the distribution. Your election will be effective for dividends and distributions paid after the Fund receives your written notice. To cancel your election, simply send the Fund written notice. TAXES PLEASE CONSULT YOUR TAX ADVISOR REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL, STATE AND LOCAL INCOME TAXES. Below the Funds have summarized some important tax issues that affect the Funds and their shareholders. This summary is based on current tax laws, which may change. More information on taxes is in the Statement of Additional Information. Each Fund will distribute substantially all of its net investment income and its net realized capital gains, if any, at least annually. The dividends and distributions you receive may be subject to federal, state and local taxation, depending upon your tax situation. Distributions you receive from a Fund may be taxable whether or not you reinvest them. Income distributions are generally taxable at ordinary income tax rates and will not qualify for the reduced tax rates on qualifying dividend income. Long-term capital gains are currently taxed at a maximum rate of 15%. Capital gains distributions are generally taxable at the rates applicable to long-term capital gains. Absent further legislation, the maximum 15% tax rate on long-term capital gains will cease to apply to taxable years beginning after December 31, 2010. EACH SALE OR EXCHANGE OF FUND SHARES MAY BE A TAXABLE EVENT. FOR TAX PURPOSES, AN EXCHANGE OF YOUR FUND SHARES FOR SHARES OF ANOTHER STI CLASSIC FUND IS THE SAME AS A SALE. A TRANSFER DIVIDENDS, DISTRIBUTIONS AND TAXES PROSPECTUS 91 FROM ONE SHARE CLASS TO ANOTHER SHARE CLASS IN THE SAME STI CLASSIC FUND SHOULD NOT BE A TAXABLE EVENT. If you have a tax-advantaged or other retirement account you will generally not be subject to federal taxation on income and capital gain distributions until you begin receiving your distributions from your retirement account. You should consult your tax advisor regarding the rules governing your own retirement plan. The Florida Tax-Exempt Bond Fund, Georgia Tax-Exempt Bond Fund, Investment Grade Tax-Exempt Bond Fund, Maryland Municipal Bond Fund, North Carolina Tax-Exempt Bond Fund and Virginia Intermediate Municipal Bond Fund intend to distribute federally tax-exempt income. Each Fund may invest a portion of its assets in securities that generate taxable income for federal or state income taxes. Income exempt from federal tax may be subject to state and local taxes. Any capital gains distributed by these Funds may be taxable. While shareholders of state specific Funds may receive distributions that are exempt from that particular state's income tax, such distributions may be taxable in other states where the shareholder files tax returns. Except for those certain Funds that expect to distribute federally tax-exempt income (described above), the Funds expect to distribute primarily ordinary income dividends currently taxable at a maximum rate of 35%. The Short-Term U.S. Treasury Securities Fund and the U.S. Government Securities Fund each expect that a substantial portion of Fund distributions will represent interest earned on U.S. obligations, while the Investment Grade Bond Fund and the Short-Term Bond Fund expect that some portion of each Fund's distributions will be so derived. Many states grant tax-free status to dividends paid from interest earned on direct obligations of the U.S. government, subject to certain limitations. MORE INFORMATION ABOUT TAXES IS IN THE STATEMENT OF ADDITIONAL INFORMATION. FINANCIAL HIGHLIGHTS 92 PROSPECTUS FINANCIAL HIGHLIGHTS The financial highlights table is intended to help you understand a Fund's financial performance for the period of the Fund's (and its predecessor's) operations. There was no financial information for the Seix Floating Rate High Income Fund because that Fund did not begin operations until after March 31, 2006. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This financial information has been audited by PricewaterhouseCoopers LLP except the information for the period ended May 31, 2004 for the North Carolina Tax-Exempt Bond Fund, the information for each of the three years (or periods) ended October 31, 2003 for the Core Bond Fund, Intermediate Bond Fund and Seix High Yield Fund and the information for the year ended May 31, 2001 for all other Funds, which has been audited by predecessor independent accounting firms, one of which has ceased operations. The Report of Independent Registered Public Accounting Firm for each period shown, along with the Funds' financial statements and related notes, are included in the Annual Reports to Shareholders for such periods. The 2006 Annual Report is available upon request and without charge by calling 1-888-STI-FUND or on the Funds' website at www.sticlassicfunds.com. For a Share Outstanding Throughout the Periods
NET ASSET NET REALIZED VALUE, NET AND UNREALIZED DIVIDENDS FROM BEGINNING OF INVESTMENT GAINS (LOSSES) TOTAL FROM NET INVESTMENT PERIOD INCOME ON INVESTMENTS OPERATIONS INCOME ------ ------ -------------- ---------- ------ CORE BOND FUND A SHARES Year Ended March 31, 2006.......... $10.41 0.38 (0.24) 0.14 (0.39) Period Ended March 31, 2005........ $10.60 0.12(a) (0.13)(a) (0.01) (0.13) Year Ended October 31, 2004*....... $10.49 0.18 0.35 0.53 (0.19) Year Ended October 31, 2003........ $10.08 0.29 0.34 0.63 (0.22) Period Ended October 31, 2002(b)... $10.00 0.27 0.09 0.36 (0.28) C SHARES Year Ended March 31, 2006.......... $10.12 0.32 (0.24) 0.08 (0.33) Period Ended March 31, 2005........ $10.30 0.11 (0.13) (0.02) (0.11) Period Ended October 31, 2004*(c).. $10.25 0.01 0.06 0.07 (0.02) FLORIDA TAX-EXEMPT BOND FUND A SHARES Year Ended March 31, 2006.......... $10.91 0.33 (0.03) 0.30 (0.33) Period Ended March 31, 2005**...... $10.93 0.25 0.11 0.36 (0.25) Year Ended May 31, 2004............ $11.69 0.30(a) (0.56)(a) (0.26) (0.30) Year Ended May 31, 2003............ $10.95 0.38 0.79 1.17 (0.38) Year Ended May 31, 2002............ $10.79 0.38 0.22 0.60 (0.38) Year Ended May 31, 2001............ $10.07 0.42 0.72 1.14 (0.42) C SHARES Year Ended March 31, 2006.......... $10.93 0.24 (0.03) 0.21 (0.24) Period Ended March 31, 2005**...... $10.96 0.19 0.10 0.29 (0.19) Year Ended May 31, 2004............ $11.71 0.24(a) (0.55)(a) (0.31) (0.24) Year Ended May 31, 2003............ $10.97 0.32 0.79 1.11 (0.32) Year Ended May 31, 2002............ $10.81 0.32 0.22 0.54 (0.32) Year Ended May 31, 2001............ $10.09 0.37 0.72 1.09 (0.37) DISTRIBUTIONS TOTAL FROM REALIZED DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS ------------- ------------- CORE BOND FUND A SHARES Year Ended March 31, 2006.......... (0.01) (0.40) Period Ended March 31, 2005........ (0.05) (0.18) Year Ended October 31, 2004*....... (0.23) (0.42) Year Ended October 31, 2003........ -- (0.22) Period Ended October 31, 2002(b)... -- (0.28) C SHARES Year Ended March 31, 2006.......... (0.01) (0.34) Period Ended March 31, 2005........ (0.05) (0.16) Period Ended October 31, 2004*(c).. -- (0.02) FLORIDA TAX-EXEMPT BOND FUND A SHARES Year Ended March 31, 2006.......... (0.05) (0.38) Period Ended March 31, 2005**...... (0.13) (0.38) Year Ended May 31, 2004............ (0.20) (0.50) Year Ended May 31, 2003............ (0.05) (0.43) Year Ended May 31, 2002............ (0.06) (0.44) Year Ended May 31, 2001............ -- (0.42) C SHARES Year Ended March 31, 2006.......... (0.05) (0.29) Period Ended March 31, 2005**...... (0.13) (0.32) Year Ended May 31, 2004............ (0.20) (0.44) Year Ended May 31, 2003............ (0.05) (0.37) Year Ended May 31, 2002............ (0.06) (0.38) Year Ended May 31, 2001............ -- (0.37)
+ Total return excludes sales charge. Not annualized for periods less than one year. ++ Annualized for periods less than one year. +++ Portfolio turnover is not annualized for periods less than one year. (a) Per share data was calculated using the average shares method. (b) Commenced operations on January 25, 2002. (c) Commenced operations on October 11, 2004. * Effective November 1, 2003, this Fund adopted a change in the amortization and accretion methodology on fixed income securities. The cumulative effect of this change in methodology was immaterial. ** Effective June 1, 2004, this Fund adopted a change in the amortization and accretion methodology on fixed income securities. The cumulative effect of this change in methodology was immaterial. FINANCIAL HIGHLIGHTS PROSPECTUS 93
NET ASSETS, RATIO OF NET NET ASSET VALUE, TOTAL END OF EXPENSES TO END OF PERIOD RETURN+ PERIOD (000) AVERAGE NET ASSETS++ ------------- ------- ------------ -------------------- $10.15 1.38% $ 493 0.56% $10.41 (0.11)% $ 267 0.62% $10.60 5.22% $ 417 0.70% $10.49 6.24% $ 303 0.68% $10.08 3.69% $ 166 0.80% $ 9.86 0.76% $ 28 1.24% $10.12 (0.17)% $ 1 1.01% $10.30 0.65% $ 1 1.10% $10.83 2.73% $ 5,077 0.80% $10.91 3.24% $ 6,129 0.86% $10.93 (2.28)% $ 5,906 0.92% $11.69 10.89% $ 8,191 0.92% $10.95 5.66% $ 2,935 0.92% $10.79 11.50% $ 2,747 0.91% $10.85 1.95% $ 8,783 1.56% $10.93 2.66% $12,347 1.42% $10.96 (2.68)% $19,952 1.42% $11.71 10.32% $40,241 1.42% $10.97 5.15% $21,897 1.42% $10.81 10.95% $12,806 1.41% RATIO OF EXPENSES TO RATIO OF NET AVERAGE NET ASSETS INVESTMENT INCOME (EXCLUDING WAIVERS, PORTFOLIO TO AVERAGE REIMBURSEMENTS AND TURNOVER NET ASSETS++ EXPENSE OFFSET)++ RATE+++ ------------ ----------------- ------- 3.67% 0.56% 236% 2.78% 0.62% 150% 2.80% 0.83% 330% 2.66% 0.68% 463% 3.30% 1.11% 502% 3.10% 1.27% 236% 2.50% 1.37% 150% 2.71% 1.41% 330% 2.98% 0.81% 90% 2.65% 0.94% 66% 2.62% 1.13% 56% 3.29% 1.13% 62% 3.44% 1.37% 91% 4.00% 1.38% 59% 2.22% 1.66% 90% 2.09% 1.73% 66% 2.14% 1.81% 56% 2.81% 1.80% 62% 2.93% 1.84% 91% 3.49% 1.89% 59%
FINANCIAL HIGHLIGHTS 94 PROSPECTUS
NET ASSET NET REALIZED VALUE, NET AND UNREALIZED DIVIDENDS FROM BEGINNING OF INVESTMENT GAINS (LOSSES) TOTAL FROM NET INVESTMENT PERIOD INCOME ON INVESTMENTS OPERATIONS INCOME ------ ------ -------------- ---------- ------ GEORGIA TAX-EXEMPT BOND FUND A SHARES Year Ended March 31, 2006.......... $10.22 0.35(a) (0.03)(a) 0.32 (0.35) Period Ended March 31, 2005*....... $10.25 0.27 0.20 0.47 (0.26) Year Ended May 31, 2004............ $10.90 0.32(a) (0.58)(a) (0.26) (0.32) Year Ended May 31, 2003............ $10.31 0.35 0.59 0.94 (0.35) Year Ended May 31, 2002............ $10.12 0.37 0.19 0.56 (0.37) Year Ended May 31, 2001............ $ 9.51 0.38 0.61 0.99 (0.38) C SHARES Year Ended March 31, 2006.......... $10.22 0.27(a) (0.04)(a) 0.23 (0.27) Period Ended March 31, 2005*....... $10.25 0.22 0.20 0.42 (0.21) Year Ended May 31, 2004............ $10.90 0.27(a) (0.58)(a) (0.31) (0.27) Year Ended May 31, 2003............ $10.30 0.30 0.60 0.90 (0.30) Year Ended May 31, 2002............ $10.11 0.32 0.19 0.51 (0.32) Year Ended May 31, 2001............ $ 9.51 0.33 0.60 0.93 (0.33) HIGH INCOME FUND A SHARES Year Ended March 31, 2006.......... $ 7.39 0.53 (0.03) 0.50 (0.53) Period Ended March 31, 2005*....... $ 7.38 0.44 0.22 0.66 (0.44) Period Ended May 31, 2004(b)....... $ 7.39 0.35(a) (0.01)(a) 0.34 (0.35) C SHARES Year Ended March 31, 2006.......... $ 7.38 0.49 (0.03) 0.46 (0.49) Period Ended March 31, 2005*....... $ 7.38 0.42 0.21 0.63 (0.42) Year Ended May 31, 2004............ $ 7.16 0.57(a) 0.22(a) 0.79 (0.57) Year Ended May 31, 2003............ $ 7.25 0.57 (0.09) 0.48 (0.57) Year Ended May 31, 2002............ $ 7.69 0.55 (0.44) 0.11 (0.55) Year Ended May 31, 2001............ $ 7.88 0.55 (0.19) 0.36 (0.55) INTERMEDIATE BOND FUND A SHARES Year Ended March 31, 2006.......... $10.08 0.39 (0.25) 0.14 (0.36) Period Ended March 31, 2005........ $10.36 0.13 (0.21) (0.08) (0.12) Period Ended October 31, 2004**(c)........................ $10.32 0.02 0.04 0.06 (0.02) C SHARES Year Ended March 31, 2006.......... $10.08 0.28 (0.21) 0.07 (0.29) Period Ended March 31, 2005........ $10.36 0.11 (0.21) (0.10) (0.10) Period Ended October 31, 2004**(c)........................ $10.32 0.01 0.04 0.05 (0.01) DISTRIBUTIONS TOTAL FROM REALIZED DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS ------------- ------------- GEORGIA TAX-EXEMPT BOND FUND A SHARES Year Ended March 31, 2006.......... (0.01) (0.36) Period Ended March 31, 2005*....... (0.24) (0.50) Year Ended May 31, 2004............ (0.07) (0.39) Year Ended May 31, 2003............ -- (0.35) Year Ended May 31, 2002............ -- (0.37) Year Ended May 31, 2001............ -- (0.38) C SHARES Year Ended March 31, 2006.......... (0.01) (0.28) Period Ended March 31, 2005*....... (0.24) (0.45) Year Ended May 31, 2004............ (0.07) (0.34) Year Ended May 31, 2003............ -- (0.30) Year Ended May 31, 2002............ -- (0.32) Year Ended May 31, 2001............ -- (0.33) HIGH INCOME FUND A SHARES Year Ended March 31, 2006.......... (0.38) (0.91) Period Ended March 31, 2005*....... (0.21) (0.65) Period Ended May 31, 2004(b)....... -- (0.35) C SHARES Year Ended March 31, 2006.......... (0.38) (0.87) Period Ended March 31, 2005*....... (0.21) (0.63) Year Ended May 31, 2004............ -- (0.57) Year Ended May 31, 2003............ -- (0.57) Year Ended May 31, 2002............ -- (0.55) Year Ended May 31, 2001............ -- (0.55) INTERMEDIATE BOND FUND A SHARES Year Ended March 31, 2006.......... (0.01) (0.37) Period Ended March 31, 2005........ (0.08) (0.20) Period Ended October 31, 2004**(c)........................ -- (0.02) C SHARES Year Ended March 31, 2006.......... (0.01) (0.30) Period Ended March 31, 2005........ (0.08) (0.18) Period Ended October 31, 2004**(c)........................ -- (0.01)
+ Total return excludes sales charge. Not annualized for periods less than one year. ++ Annualized for periods less than one year. +++ Portfolio turnover is not annualized for periods less than one year. (a) Per share data was calculated using the average shares method. (b) Commenced operations on October 27, 2003. (c) Commenced operations on October 11, 2004. * Effective June 1, 2004, these Funds adopted a change in the amortization and accretion methodology on fixed income securities. The cumulative effect of this change in methodology was immaterial to all Funds except for the Fund noted below:
CHANGE TO RATIO OF NET INVESTMENT CHANGE TO NET INCOME TO CHANGE TO REALIZED AND AVERAGE NET ASSETS NET INVESTMENT UNREALIZED GAINS -------------------- INCOME PER SHARE (LOSSES) PER SHARE A SHARES C SHARES ---------------- ------------------ -------- -------- Georgia Tax-Exempt Bond Fund................................ $0.01 $(0.01) 0.14% 0.14%
** Effective November 1, 2003, this Fund adopted a change in the amortization and accretion methodology on fixed income securities. The cumulative effect of this change in methodology was immaterial. FINANCIAL HIGHLIGHTS PROSPECTUS 95
NET ASSETS, RATIO OF NET NET ASSET VALUE, TOTAL END OF EXPENSES TO END OF PERIOD RETURN+ PERIOD (000) AVERAGE NET ASSETS++ ------------- ------- ------------ -------------------- $10.18 3.12% $ 3,711 0.79% $10.22 4.57% $ 2,660 0.86% $10.25 (2.39)% $ 2,735 0.92% $10.90 9.29% $ 2,630 0.92% $10.31 5.58% $ 2,844 0.92% $10.12 10.56% $ 2,901 0.91% $10.17 2.25% $ 9,567 1.57% $10.22 4.09% $10,664 1.42% $10.25 (2.87)% $13,351 1.42% $10.90 8.86% $16,591 1.42% $10.30 5.07% $14,269 1.42% $10.11 9.92% $14,079 1.41% $ 6.98 7.20% $ 403 1.03% $ 7.39 9.17% $ 739 1.03% $ 7.38 4.61% $ 1,508 1.10% $ 6.97 6.57% $36,062 1.62% $ 7.38 8.69% $52,847 1.40% $ 7.38 11.23% $75,693 1.40% $ 7.16 7.52% $64,418 1.40% $ 7.25 1.46% $46,864 1.40% $ 7.69 4.74% $19,875 1.40% $ 9.85 1.39% $ 4 0.56% $10.08 (0.82)% $ 1 0.63% $10.36 0.53% $ 1 0.71% $ 9.85 0.74% $ 68 1.24% $10.08 (0.96)% $ 1 0.91% $10.36 0.51% $ 1 1.00% RATIO OF EXPENSES TO RATIO OF NET AVERAGE NET ASSETS INVESTMENT INCOME (EXCLUDING WAIVERS, PORTFOLIO TO AVERAGE REIMBURSEMENTS AND TURNOVER NET ASSETS++ EXPENSE OFFSET)++ RATE+++ ------------ ----------------- ------- 3.38% 0.81% 43% 3.12% 0.99% 52% 3.06% 1.36% 100% 3.34% 1.41% 17% 3.58% 1.36% 23% 3.83% 1.42% 21% 2.61% 1.67% 43% 2.56% 1.73% 52% 2.55% 1.84% 100% 2.84% 1.84% 17% 3.08% 1.84% 23% 3.33% 1.89% 21% 7.36% 1.13% 208% 7.34% 1.39% 191% 7.80% 1.88% 49% 6.78% 1.83% 208% 6.78% 1.88% 191% 7.62% 1.98% 49% 8.43% 2.00% 20% 7.35% 2.02% 59% 6.88% 2.13% 10% 3.83% 0.57% 154% 2.84% 0.63% 94% 2.58% 0.71% 130% 2.86% 1.25% 154% 2.47% 1.36% 94% 2.22% 1.41% 130%
FINANCIAL HIGHLIGHTS 96 PROSPECTUS
NET ASSET NET REALIZED VALUE, NET AND UNREALIZED DIVIDENDS FROM BEGINNING OF INVESTMENT GAINS (LOSSES) TOTAL FROM NET INVESTMENT PERIOD INCOME ON INVESTMENTS OPERATIONS INCOME ------ ------ -------------- ---------- ------ INVESTMENT GRADE BOND FUND A SHARES Year Ended March 31, 2006.......... $10.50 0.38 (0.10) 0.28 (0.38) Period Ended March 31, 2005*....... $10.31 0.26 0.18 0.44 (0.25) Year Ended May 31, 2004............ $10.94 0.31(a) (0.60)(a) (0.29) (0.34) Year Ended May 31, 2003............ $10.24 0.38 0.74 1.12 (0.42) Year Ended May 31, 2002............ $10.23 0.48 0.01 0.49 (0.48) Year Ended May 31, 2001............ $ 9.58 0.57 0.65 1.22 (0.57) C SHARES Year Ended March 31, 2006.......... $10.51 0.31 (0.11) 0.20 (0.31) Period Ended March 31, 2005*....... $10.31 0.21 0.19 0.40 (0.20) Year Ended May 31, 2004............ $10.95 0.25(a) (0.60)(a) (0.35) (0.29) Year Ended May 31, 2003............ $10.25 0.31 0.76 1.07 (0.37) Year Ended May 31, 2002............ $10.24 0.42 0.01 0.43 (0.42) Year Ended May 31, 2001............ $ 9.59 0.53 0.65 1.18 (0.53) INVESTMENT GRADE TAX-EXEMPT BOND FUND A SHARES Year Ended March 31, 2006.......... $11.46 0.29 0.01 0.30 (0.29) Period Ended March 31, 2005*....... $11.46 0.19 0.19 0.38 (0.20) Year Ended May 31, 2004............ $12.03 0.23(a) (0.33)(a) (0.10) (0.22) Year Ended May 31, 2003............ $11.58 0.25 0.91 1.16 (0.25) Year Ended May 31, 2002............ $11.39 0.29 0.46 0.75 (0.29) Year Ended May 31, 2001............ $10.68 0.40 0.71 1.11 (0.40) C SHARES Year Ended March 31, 2006.......... $11.44 0.21 0.01 0.22 (0.21) Period Ended March 31, 2005*....... $11.44 0.14 0.19 0.33 (0.15) Year Ended May 31, 2004............ $12.01 0.17(a) (0.32)(a) (0.15) (0.17) Year Ended May 31, 2003............ $11.57 0.20 0.90 1.10 (0.20) Year Ended May 31, 2002............ $11.38 0.24 0.46 0.70 (0.24) Year Ended May 31, 2001............ $10.67 0.34 0.71 1.05 (0.34) DISTRIBUTIONS TOTAL FROM REALIZED DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS ------------- ------------- INVESTMENT GRADE BOND FUND A SHARES Year Ended March 31, 2006.......... -- (0.38) Period Ended March 31, 2005*....... -- (0.25) Year Ended May 31, 2004............ -- (0.34) Year Ended May 31, 2003............ -- (0.42) Year Ended May 31, 2002............ -- (0.48) Year Ended May 31, 2001............ -- (0.57) C SHARES Year Ended March 31, 2006.......... -- (0.31) Period Ended March 31, 2005*....... -- (0.20) Year Ended May 31, 2004............ -- (0.29) Year Ended May 31, 2003............ -- (0.37) Year Ended May 31, 2002............ -- (0.42) Year Ended May 31, 2001............ -- (0.53) INVESTMENT GRADE TAX-EXEMPT BOND FUND A SHARES Year Ended March 31, 2006.......... (0.08) (0.37) Period Ended March 31, 2005*....... (0.18) (0.38) Year Ended May 31, 2004............ (0.25) (0.47) Year Ended May 31, 2003............ (0.46) (0.71) Year Ended May 31, 2002............ (0.27) (0.56) Year Ended May 31, 2001............ -- (0.40) C SHARES Year Ended March 31, 2006.......... (0.08) (0.29) Period Ended March 31, 2005*....... (0.18) (0.33) Year Ended May 31, 2004............ (0.25) (0.42) Year Ended May 31, 2003............ (0.46) (0.66) Year Ended May 31, 2002............ (0.27) (0.51) Year Ended May 31, 2001............ -- (0.34)
+ Total return excludes sales charge. Not annualized for periods less than one year. ++ Annualized for periods less than one year. +++ Portfolio turnover is not annualized for periods less than one year. (a) Per share data was calculated using the average shares method. * Effective June 1, 2004, these Funds adopted a change in the amortization and accretion methodology on fixed income securities. The cumulative effect of this change in methodology is noted below:
CHANGE TO RATIO OF NET INVESTMENT CHANGE TO NET INCOME TO CHANGE TO REALIZED AND AVERAGE NET ASSETS NET INVESTMENT UNREALIZED GAINS -------------------- INCOME PER SHARE (LOSSES) PER SHARE A SHARES C SHARES ---------------- ------------------ -------- -------- Investment Grade Bond Fund.................................. $ 0.01 $(0.01) 0.14% 0.14% Investment Grade Tax-Exempt Bond Fund....................... $(0.01) $ 0.01 (0.07)% (0.06)%
FINANCIAL HIGHLIGHTS PROSPECTUS 97
NET ASSETS, RATIO OF NET NET ASSET VALUE, TOTAL END OF EXPENSES TO END OF PERIOD RETURN+ PERIOD (000) AVERAGE NET ASSETS++ ------------- ------- ------------ -------------------- $10.40 2.69% $20,210 1.00% $10.50 4.24% $23,687 1.21% $10.31 (2.70)% $31,263 1.22% $10.94 11.16% $34,874 1.22% $10.24 4.81% $20,825 1.22% $10.23 13.09% $21,244 1.21% $10.40 1.94% $13,580 1.63% $10.51 3.90% $17,923 1.71% $10.31 (3.27)% $24,327 1.71% $10.95 10.61% $37,810 1.71% $10.25 4.27% $36,200 1.71% $10.24 12.54% $25,791 1.70% $11.39 2.57% $16,182 0.99% $11.46 3.28% $17,430 1.20% $11.46 (0.85)% $19,086 1.22% $12.03 10.42% $21,756 1.22% $11.58 6.71% $20,436 1.22% $11.39 10.48% $18,601 1.21% $11.37 1.92% $10,284 1.65% $11.44 2.86% $15,612 1.70% $11.44 (1.33)% $22,969 1.70% $12.01 9.82% $32,684 1.70% $11.57 6.21% $24,587 1.70% $11.38 9.97% $20,010 1.69% RATIO OF EXPENSES TO RATIO OF NET AVERAGE NET ASSETS INVESTMENT INCOME (EXCLUDING WAIVERS, PORTFOLIO TO AVERAGE REIMBURSEMENTS AND TURNOVER NET ASSETS++ EXPENSE OFFSET)++ RATE+++ ------------ ----------------- ------- 3.57% 1.00% 171% 2.90% 1.26% 268% 2.90% 1.38% 119% 3.45% 1.38% 137% 4.40% 1.40% 123% 5.77% 1.42% 131% 2.93% 1.66% 171% 2.39% 1.84% 268% 2.40% 2.00% 119% 3.01% 1.97% 137% 3.90% 1.96% 123% 5.24% 1.99% 131% 2.49% 0.99% 237% 1.93% 1.26% 178% 1.92% 1.36% 242% 2.16% 1.36% 329% 2.51% 1.36% 311% 3.54% 1.37% 285% 1.85% 1.67% 237% 1.43% 1.82% 178% 1.45% 1.92% 242% 1.68% 1.91% 329% 2.03% 1.92% 311% 3.04% 1.96% 285%
FINANCIAL HIGHLIGHTS 98 PROSPECTUS
NET ASSET NET REALIZED VALUE, NET AND UNREALIZED DIVIDENDS FROM BEGINNING OF INVESTMENT GAINS (LOSSES) TOTAL FROM NET INVESTMENT PERIOD INCOME ON INVESTMENTS OPERATIONS INCOME ------ ------ -------------- ---------- ------ LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND A SHARES Year Ended March 31, 2006.......... $10.07 0.30 (0.11) 0.19 (0.39) Period Ended March 31, 2005*....... $10.16 0.29 (0.08) 0.21 (0.30) Year Ended May 31, 2004............ $10.57 0.21(a) (0.35)(a) (0.14) (0.27) Year Ended May 31, 2003............ $10.29 0.24(a) 0.44(a) 0.68 (0.39) Year Ended May 31, 2002............ $10.00 0.40 0.31 0.71 (0.40) Year Ended May 31, 2001............ $ 9.60 0.53 0.40 0.93 (0.53) C SHARES Year Ended March 31, 2006.......... $10.10 0.23 (0.12) 0.11 (0.32) Period Ended March 31, 2005*....... $10.18 0.25 (0.07) 0.18 (0.26) Year Ended May 31, 2004............ $10.59 0.17(a) (0.35)(a) (0.18) (0.23) Year Ended May 31, 2003............ $10.31 0.21(a) 0.43(a) 0.64 (0.35) Year Ended May 31, 2002............ $10.02 0.37 0.31 0.68 (0.37) Year Ended May 31, 2001............ $ 9.62 0.50 0.40 0.90 (0.50) MARYLAND MUNICIPAL BOND FUND A SHARES Year Ended March 31, 2006(b)....... $10.32 0.30 (0.07) 0.23 (0.31) C SHARES Year Ended March 31, 2006.......... $10.29 0.28 (0.04) 0.24 (0.28) Period Ended March 31, 2005*....... $10.29 0.21 0.10 0.31 (0.22) Year Ended May 31, 2004............ $10.96 0.26(a) (0.47)(a) (0.21) (0.26) Year Ended May 31, 2003............ $10.34 0.27 0.63 0.90 (0.27) Year Ended May 31, 2002............ $10.14 0.29 0.20 0.49 (0.29) Year Ended May 31, 2001............ $ 9.48 0.33 0.66 0.99 (0.33) NORTH CAROLINA TAX-EXEMPT BOND FUND A SHARES Year Ended March 31, 2006.......... $ 9.87 0.37 0.01 0.38 (0.37) Period Ended March 31, 2005(c)..... $ 9.97 0.01 (0.10) (0.09) (0.01) C SHARES Year Ended March 31, 2006.......... $ 9.87 0.30 0.02 0.32 (0.30) Period Ended March 31, 2005(c)..... $ 9.97 0.01 (0.10) (0.09) (0.01) SEIX HIGH YIELD FUND A SHARES Year Ended March 31, 2006.......... $10.70 0.65 (0.10) 0.55 (0.65) Period Ended March 31, 2005........ $11.18 0.28 (0.35) (0.07) (0.28) Year Ended October 31, 2004**...... $10.75 0.56 0.45 1.01 (0.56) Year Ended October 31, 2003........ $ 9.78 0.68 0.82 1.50 (0.53) Period Ended October 31, 2002(d)... $10.00 0.54 (0.22) 0.32 (0.51) C SHARES Year Ended March 31, 2006.......... $10.93 0.58 (0.10) 0.48 (0.58) Period Ended March 31, 2005........ $11.42 0.26 (0.36) (0.10) (0.26) Period Ended October 31, 2004**(e)........................ $11.32 0.04 0.10 0.14 (0.04) DISTRIBUTIONS TOTAL FROM REALIZED DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS ------------- ------------- LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND A SHARES Year Ended March 31, 2006.......... -- (0.39) Period Ended March 31, 2005*....... -- (0.30) Year Ended May 31, 2004............ -- (0.27) Year Ended May 31, 2003............ (0.01) (0.40) Year Ended May 31, 2002............ (0.02) (0.42) Year Ended May 31, 2001............ -- (0.53) C SHARES Year Ended March 31, 2006.......... -- (0.32) Period Ended March 31, 2005*....... -- (0.26) Year Ended May 31, 2004............ -- (0.23) Year Ended May 31, 2003............ (0.01) (0.36) Year Ended May 31, 2002............ (0.02) (0.39) Year Ended May 31, 2001............ -- (0.50) MARYLAND MUNICIPAL BOND FUND A SHARES Year Ended March 31, 2006(b)....... (0.09) (0.40) C SHARES Year Ended March 31, 2006.......... (0.09) (0.37) Period Ended March 31, 2005*....... (0.09) (0.31) Year Ended May 31, 2004............ (0.20) (0.46) Year Ended May 31, 2003............ (0.01) (0.28) Year Ended May 31, 2002............ -- (0.29) Year Ended May 31, 2001............ -- (0.33) NORTH CAROLINA TAX-EXEMPT BOND FUND A SHARES Year Ended March 31, 2006.......... -- (0.37) Period Ended March 31, 2005(c)..... -- (0.01) C SHARES Year Ended March 31, 2006.......... -- (0.30) Period Ended March 31, 2005(c)..... -- (0.01) SEIX HIGH YIELD FUND A SHARES Year Ended March 31, 2006.......... (0.15) (0.80) Period Ended March 31, 2005........ (0.13) (0.41) Year Ended October 31, 2004**...... (0.02) (0.58) Year Ended October 31, 2003........ -- (0.53) Period Ended October 31, 2002(d)... (0.03) (0.54) C SHARES Year Ended March 31, 2006.......... (0.15) (0.73) Period Ended March 31, 2005........ (0.13) (0.39) Period Ended October 31, 2004**(e)........................ -- (0.04)
+ Total return excludes sales charge. Not annualized for periods less than one year. ++ Annualized for periods less than one year. +++ Portfolio turnover is not annualized for periods less than one year. (a) Per share data was calculated using the average shares method. (b) Commenced operations on April 13, 2005 (c) Commenced operations on March 21, 2005. (d) Commenced operations on December 21, 2001. (e) Commenced operations on October 11, 2004. * Effective June 1, 2004, these Funds adopted a change in the amortization and accretion methodology on fixed income securities. The cumulative effect of this change in methodology is noted below:
CHANGE TO RATIO OF CHANGE TO NET NET INVESTMENT INCOME TO CHANGE TO REALIZED AND AVERAGE NET ASSETS NET INVESTMENT UNREALIZED GAINS ------------------------- INCOME PER SHARE (LOSSES) PER SHARE A SHARES C SHARES ---------------- ------------------ -------- -------- Limited-Term Federal Mortgage Securities Fund....................................... $ 0.04 $(0.04) 0.42% 0.36% Maryland Municipal Bond Fund................. $(0.01) $ 0.01 (0.06)%
** Effective November 1, 2003, this Fund adopted a change in the amortization and accretion methodology on fixed income securities. The cumulative effect of this change in methodology is noted below:
CHANGE TO RATIO OF CHANGE TO NET NET INVESTMENT INCOME TO CHANGE TO REALIZED AND AVERAGE NET ASSETS NET INVESTMENT UNREALIZED GAINS ------------------------- INCOME PER SHARE (LOSSES) PER SHARE A SHARES C SHARES ---------------- ------------------ -------- -------- Seix High Yield Fund......................... $0.01 $(0.01) 0.05% 0.84%
FINANCIAL HIGHLIGHTS PROSPECTUS 99
NET ASSETS, RATIO OF NET NET ASSET VALUE, TOTAL END OF EXPENSES TO END OF PERIOD RETURN+ PERIOD (000) AVERAGE NET ASSETS++ ------------- ------- ------------ -------------------- $ 9.87 1.93% $ 4,398 0.83% $10.07 2.07% $ 5,854 0.90% $10.16 (1.36)% $ 9,495 0.96% $10.57 6.72% $ 13,668 0.96% $10.29 7.16% $ 1,578 0.96% $10.00 9.84% $ 849 0.95% $ 9.89 1.14% $ 20,112 1.50% $10.10 1.81% $ 34,924 1.31% $10.18 (1.71)% $ 70,000 1.31% $10.59 6.33% $166,211 1.31% $10.31 6.83% $ 15,930 1.31% $10.02 9.50% $ 3,452 1.30% $10.15 2.25% $ 502 0.77% $10.16 2.30% $ 9,333 1.67% $10.29 3.03% $ 13,197 1.63% $10.29 (1.97)% $ 18,897 1.64% $10.96 8.81% $ 29,556 1.64% $10.34 4.84% $ 23,215 1.64% $10.14 10.59% $ 12,090 1.63% $ 9.88 3.85% $ 110 0.66% $ 9.87 (0.89)% $ -- --% $ 9.89 3.23% $ 2 1.58% $ 9.87 (0.90)% $ -- --% $10.45 5.22% $ 36,291 0.73% $10.70 (0.64)% $ 9,706 0.78% $11.18 9.73% $ 15,975 0.80% $10.75 15.72% $ 14,992 0.90% $ 9.78 3.29% $ 9,877 0.89% $10.68 4.45% $ 5,814 1.39% $10.93 (0.89)% $ 3,260 1.14% $11.42 1.20% $ 1 1.18% RATIO OF EXPENSES TO RATIO OF NET AVERAGE NET ASSETS INVESTMENT INCOME (EXCLUDING WAIVERS, PORTFOLIO TO AVERAGE REIMBURSEMENTS AND TURNOVER NET ASSETS++ EXPENSE OFFSET)++ RATE+++ ------------ ----------------- ------- 3.21% 0.85% 81% 3.47% 1.00% 41% 2.06% 1.17% 146% 2.33% 1.20% 117% 3.50% 2.06% 410% 5.39% 2.28% 532% 2.54% 1.65% 81% 3.04% 1.74% 41% 1.68% 1.82% 146% 1.97% 1.80% 117% 2.88% 1.98% 410% 4.99% 2.60% 532% 3.54% 0.78% 55% 2.69% 1.70% 55% 2.50% 1.74% 30% 2.46% 1.82% 15% 2.52% 1.81% 31% 2.75% 1.83% 45% 3.24% 1.97% 42% 2.47% 0.67% 85% 3.84% --% 32% 2.18% 1.58% 85% 3.70% --% 32% 5.94% 0.73% 95% 6.12% 0.85% 42% 6.22% 0.88% 73% 6.45% 0.93% 108% 6.53% 1.20% 97% 5.25% 1.48% 95% 5.46% 1.54% 42% 6.29% 1.41% 73%
FINANCIAL HIGHLIGHTS 100 PROSPECTUS
NET ASSET NET REALIZED VALUE, NET AND UNREALIZED DIVIDENDS FROM BEGINNING OF INVESTMENT GAINS (LOSSES) TOTAL FROM NET INVESTMENT PERIOD INCOME ON INVESTMENTS OPERATIONS INCOME ------ ------ -------------- ---------- ------ SHORT-TERM BOND FUND A SHARES Year Ended March 31, 2006.......... $ 9.75 0.30 (0.01) 0.29 (0.31) Period Ended March 31, 2005*....... $ 9.87 0.19 (0.12) 0.07 (0.19) Year Ended May 31, 2004............ $10.07 0.22(a) (0.20)(a) 0.02 (0.22) Year Ended May 31, 2003............ $10.04 0.31 0.03 0.34 (0.31) Year Ended May 31, 2002............ $10.06 0.44 (0.02) 0.42 (0.44) Year Ended May 31, 2001............ $ 9.67 0.54 0.39 0.93 (0.54) C SHARES Year Ended March 31, 2006.......... $ 9.75 0.24 (0.01) 0.23 (0.25) Period Ended March 31, 2005*....... $ 9.86 0.16 (0.11) 0.05 (0.16) Year Ended May 31, 2004............ $10.06 0.19(a) (0.20)(a) (0.01) (0.19) Year Ended May 31, 2003............ $10.03 0.28 0.03 0.31 (0.28) Year Ended May 31, 2002............ $10.06 0.40 (0.03) 0.37 (0.40) Year Ended May 31, 2001............ $ 9.67 0.52 0.39 0.91 (0.52) SHORT-TERM U.S. TREASURY SECURITIES FUND A SHARES Year Ended March 31, 2006.......... $ 9.90 0.26 (0.11) 0.15 (0.26) Period Ended March 31, 2005*....... $10.10 0.13 (0.11) 0.02 (0.13) Year Ended May 31, 2004............ $10.35 0.12(a) (0.13)(a) (0.01) (0.12) Year Ended May 31, 2003............ $10.19 0.20 0.22 0.42 (0.20) Year Ended May 31, 2002............ $10.13 0.35 0.09 0.44 (0.35) Year Ended May 31, 2001............ $ 9.85 0.48 0.28 0.76 (0.48) C SHARES Year Ended March 31, 2006.......... $ 9.89 0.20 (0.11) 0.09 (0.20) Period Ended March 31, 2005*....... $10.09 0.10 (0.11) (0.01) (0.10) Year Ended May 31, 2004............ $10.34 0.10(a) (0.13)(a) (0.03) (0.10) Year Ended May 31, 2003............ $10.18 0.17 0.22 0.39 (0.17) Year Ended May 31, 2002............ $10.11 0.33 0.10 0.43 (0.33) Year Ended May 31, 2001............ $ 9.83 0.46 0.28 0.74 (0.46) STRATEGIC INCOME FUND A SHARES Year Ended March 31, 2006.......... $10.27 0.41(a) (0.41)(a) -- (0.41) Period Ended March 31, 2005*....... $ 9.82 0.39(a) 0.49(a) 0.88 (0.37) Period Ended May 31, 2004(b)....... $ 9.93 0.33(a) (0.07)(a) 0.26 (0.31) C SHARES Year Ended March 31, 2006.......... $10.24 0.35(a) (0.41)(a) (0.06) (0.35) Period Ended March 31, 2005*....... $ 9.81 0.37(a) 0.46(a) 0.83 (0.34) Year Ended May 31, 2004............ $ 9.99 0.50(a) (0.14)(a) 0.36 (0.48) Year Ended May 31, 2003............ $ 9.80 0.57 0.19 0.76 (0.57) Period Ended May 31, 2002(c)....... $10.00 0.25 (0.20) 0.05 (0.25) DISTRIBUTIONS TOTAL FROM REALIZED DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS ------------- ------------- SHORT-TERM BOND FUND A SHARES Year Ended March 31, 2006.......... -- (0.31) Period Ended March 31, 2005*....... -- (0.19) Year Ended May 31, 2004............ -- (0.22) Year Ended May 31, 2003............ -- (0.31) Year Ended May 31, 2002............ -- (0.44) Year Ended May 31, 2001............ -- (0.54) C SHARES Year Ended March 31, 2006.......... -- (0.25) Period Ended March 31, 2005*....... -- (0.16) Year Ended May 31, 2004............ -- (0.19) Year Ended May 31, 2003............ -- (0.28) Year Ended May 31, 2002............ -- (0.40) Year Ended May 31, 2001............ -- (0.52) SHORT-TERM U.S. TREASURY SECURITIES FUND A SHARES Year Ended March 31, 2006.......... -- (0.26) Period Ended March 31, 2005*....... (0.09) (0.22) Year Ended May 31, 2004............ (0.12) (0.24) Year Ended May 31, 2003............ (0.06) (0.26) Year Ended May 31, 2002............ (0.03) (0.38) Year Ended May 31, 2001............ -- (0.48) C SHARES Year Ended March 31, 2006.......... -- (0.20) Period Ended March 31, 2005*....... (0.09) (0.19) Year Ended May 31, 2004............ (0.12) (0.22) Year Ended May 31, 2003............ (0.06) (0.23) Year Ended May 31, 2002............ (0.03) (0.36) Year Ended May 31, 2001............ -- (0.46) STRATEGIC INCOME FUND A SHARES Year Ended March 31, 2006.......... (0.18) (0.59) Period Ended March 31, 2005*....... (0.06) (0.43) Period Ended May 31, 2004(b)....... (0.06) (0.37) C SHARES Year Ended March 31, 2006.......... (0.18) (0.53) Period Ended March 31, 2005*....... (0.06) (0.40) Year Ended May 31, 2004............ (0.06) (0.54) Year Ended May 31, 2003............ -- (0.57) Period Ended May 31, 2002(c)....... -- (0.25)
+ Total return excludes sales charge. Not annualized for periods less than one year. ++ Annualized for periods less than one year. +++ Portfolio turnover is not annualized for periods less than one year. (a) Per share data was calculated using the average shares method. (b) Commenced operations on October 8, 2003. (c) Commenced operations on November 30, 2001. * Effective June 1, 2004, these Funds adopted a change in the amortization and accretion methodology on fixed income securities. The cumulative effect of this change in methodology was immaterial to all Funds except for the Funds noted below:
CHANGE TO RATIO OF NET INVESTMENT CHANGE TO NET INCOME TO CHANGE TO REALIZED AND AVERAGE NET ASSETS NET INVESTMENT UNREALIZED GAINS -------------------- INCOME PER SHARE (LOSSES) PER SHARE A SHARES C SHARES ---------------- ------------------ -------- -------- Short-Term Bond Fund........................................ $0.01 $(0.01) 0.07% 0.06% Strategic Income Fund....................................... $0.01 $(0.01) 0.14% 0.13%
FINANCIAL HIGHLIGHTS PROSPECTUS 101
NET ASSETS, RATIO OF NET NET ASSET VALUE, TOTAL END OF EXPENSES TO END OF PERIOD RETURN+ PERIOD (000) AVERAGE NET ASSETS++ ------------- ------- ------------ -------------------- $ 9.73 3.01% $ 5,062 0.77% $ 9.75 0.67% $ 5,783 0.89% $ 9.87 0.24% $ 5,880 0.91% $10.07 3.47% $ 5,685 0.91% $10.04 4.19% $ 5,767 0.91% $10.06 9.90% $ 4,176 0.90% $ 9.73 2.34% $ 9,559 1.42% $ 9.75 0.46% $ 15,114 1.26% $ 9.86 (0.11)% $ 23,528 1.26% $10.06 3.11% $ 32,608 1.26% $10.03 3.75% $ 26,392 1.26% $10.06 9.60% $ 10,682 1.25% $ 9.79 1.52% $ 4,336 0.76% $ 9.90 0.21% $ 6,349 0.84% $10.10 (0.06)% $ 12,823 0.86% $10.35 4.13% $ 15,558 0.86% $10.19 4.44% $ 4,735 0.86% $10.13 7.87% $ 2,179 0.85% $ 9.78 0.88% $ 19,958 1.39% $ 9.89 (0.03)% $ 33,796 1.12% $10.09 (0.30)% $ 62,232 1.11% $10.34 3.88% $127,757 1.11% $10.18 4.29% $ 70,720 1.11% $10.11 7.67% $ 27,861 1.10% $ 9.68 (0.01)% $ 1,741 1.10% $10.27 9.04% $ 3,795 1.15% $ 9.82 2.59% $ 4,181 1.15% $ 9.65 (0.57)% $ 46,703 1.63% $10.24 8.60% $ 79,792 1.42% $ 9.81 3.59% $117,216 1.43% $ 9.99 8.16% $129,965 1.43% $ 9.80 0.55% $ 39,490 1.53% RATIO OF EXPENSES TO RATIO OF NET AVERAGE NET ASSETS INVESTMENT INCOME (EXCLUDING WAIVERS, PORTFOLIO TO AVERAGE REIMBURSEMENTS AND TURNOVER NET ASSETS++ EXPENSE OFFSET)++ RATE+++ ------------ ----------------- ------- 3.09% 0.79% 94% 2.26% 1.00% 64% 2.21% 1.21% 66% 3.09% 1.28% 89% 4.28% 1.26% 142% 5.47% 1.71% 87% 2.44% 1.59% 94% 1.88% 1.74% 64% 1.87% 1.87% 66% 2.74% 1.85% 89% 3.89% 1.87% 142% 5.09% 2.17% 87% 2.60% 0.82% 151% 1.47% 0.95% 82% 1.20% 1.06% 131% 1.76% 1.07% 140% 3.36% 1.41% 117% 4.81% 1.56% 87% 1.99% 1.65% 151% 1.22% 1.74% 82% 0.97% 1.82% 131% 1.59% 1.79% 140% 3.09% 1.81% 117% 4.45% 1.96% 87% 4.08% 1.16% 317% 4.59% 1.37% 305% 5.15% 1.60% 95% 3.53% 1.83% 317% 4.34% 1.98% 305% 4.98% 2.03% 95% 5.67% 2.04% 52% 5.49% 2.07% 43%
FINANCIAL HIGHLIGHTS 102 PROSPECTUS
NET ASSET NET REALIZED VALUE, NET AND UNREALIZED DIVIDENDS FROM BEGINNING OF INVESTMENT GAINS (LOSSES) TOTAL FROM NET INVESTMENT PERIOD INCOME ON INVESTMENTS OPERATIONS INCOME ------ ------ -------------- ---------- ------ U.S. GOVERNMENT SECURITIES FUND A SHARES Year Ended March 31, 2006.......... $10.41 0.32 (0.17) 0.15 (0.37) Period Ended March 31, 2005*....... $10.35 0.26 0.08 0.34 (0.28) Year Ended May 31, 2004............ $10.93 0.27(a) (0.50)(a) (0.23) (0.31) Year Ended May 31, 2003............ $10.47 0.40 0.51 0.91 (0.42) Year Ended May 31, 2002............ $10.38 0.50 0.26 0.76 (0.50) Year Ended May 31, 2001............ $ 9.86 0.54 0.52 1.06 (0.54) C SHARES Year Ended March 31, 2006.......... $10.41 0.27 (0.19) 0.08 (0.30) Period Ended March 31, 2005*....... $10.35 0.21 0.08 0.29 (0.23) Year Ended May 31, 2004............ $10.93 0.22(a) (0.50)(a) (0.28) (0.26) Year Ended May 31, 2003............ $10.48 0.34 0.50 0.84 (0.36) Year Ended May 31, 2002............ $10.38 0.45 0.27 0.72 (0.45) Year Ended May 31, 2001............ $ 9.86 0.49 0.52 1.01 (0.49) VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND A SHARES Year Ended March 31, 2006.......... $10.11 0.33 (0.03) 0.30 (0.33) Period Ended March 31, 2005*....... $10.15 0.27 0.05 0.32 (0.27) Year Ended May 31, 2004............ $10.68 0.33(a) (0.44)(a) (0.11) (0.33) Year Ended May 31, 2003............ $10.29 0.36 0.49 0.85 (0.36) Year Ended May 31, 2002............ $10.14 0.39 0.16 0.55 (0.40) Year Ended May 31, 2001............ $ 9.59 0.42 0.55 0.97 (0.42) C SHARES Period Ended March 31, 2006(b)..... $10.27 0.14 (0.19) (0.05) (0.14) DISTRIBUTIONS TOTAL FROM REALIZED DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS ------------- ------------- U.S. GOVERNMENT SECURITIES FUND A SHARES Year Ended March 31, 2006.......... -- (0.37) Period Ended March 31, 2005*....... -- (0.28) Year Ended May 31, 2004............ (0.04) (0.35) Year Ended May 31, 2003............ (0.03) (0.45) Year Ended May 31, 2002............ (0.17) (0.67) Year Ended May 31, 2001............ -- (0.54) C SHARES Year Ended March 31, 2006.......... -- (0.30) Period Ended March 31, 2005*....... -- (0.23) Year Ended May 31, 2004............ (0.04) (0.30) Year Ended May 31, 2003............ (0.03) (0.39) Year Ended May 31, 2002............ (0.17) (0.62) Year Ended May 31, 2001............ -- (0.49) VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND A SHARES Year Ended March 31, 2006.......... (0.07) (0.40) Period Ended March 31, 2005*....... (0.09) (0.36) Year Ended May 31, 2004............ (0.09) (0.42) Year Ended May 31, 2003............ (0.10) (0.46) Year Ended May 31, 2002............ -- (0.40) Year Ended May 31, 2001............ -- (0.42) C SHARES Period Ended March 31, 2006(b)..... (0.07) (0.21)
+ Total return excludes sales charge. Not annualized for periods less than one year. ++ Annualized for periods less than one year. +++ Portfolio turnover is not annualized for periods less than one year. (a) Per share data was calculated using the average shares method. (b) Commenced operations on September 1, 2005. * Effective June 1, 2004, these Funds adopted a change in the amortization and accretion methodology on fixed income securities. The cumulative effect of this change in methodology was immaterial to all Funds except for the Fund noted below:
CHANGE TO RATIO OF NET INVESTMENT CHANGE TO NET INCOME TO CHANGE TO REALIZED AND AVERAGE NET ASSETS NET INVESTMENT UNREALIZED GAINS -------------------- INCOME PER SHARE (LOSSES) PER SHARE A SHARES C SHARES ---------------- ------------------ -------- -------- U.S. Government Securities Fund............................. $0.02 $(0.02) 0.11% 0.17%
FINANCIAL HIGHLIGHTS PROSPECTUS 103
NET ASSETS, RATIO OF NET NET ASSET VALUE, TOTAL END OF EXPENSES TO END OF PERIOD RETURN+ PERIOD (000) AVERAGE NET ASSETS++ ------------- ------- ------------ -------------------- $10.19 1.43% $ 3,032 0.99% $10.41 3.32% $ 3,080 1.17% $10.35 (2.17)% $ 8,484 1.22% $10.93 8.79% $ 9,333 1.22% $10.47 7.47% $ 8,483 1.22% $10.38 10.95% $ 6,617 1.21% $10.19 0.76% $ 7,909 1.66% $10.41 2.83% $12,229 1.74% $10.35 (2.67)% $18,993 1.73% $10.93 8.14% $39,423 1.73% $10.48 7.06% $31,922 1.73% $10.38 10.45% $21,617 1.72% $10.01 2.92% $ 5,480 0.79% $10.11 3.14% $ 7,143 0.80% $10.15 (1.04)% $10,566 0.79% $10.68 8.38% $10,484 0.79% $10.29 5.47% $ 7,257 0.79% $10.14 10.23% $ 6,197 0.76% $10.01 (0.52)% $ 9 1.62% RATIO OF EXPENSES TO RATIO OF NET AVERAGE NET ASSETS INVESTMENT INCOME (EXCLUDING WAIVERS, PORTFOLIO TO AVERAGE REIMBURSEMENTS AND TURNOVER NET ASSETS++ EXPENSE OFFSET)++ RATE+++ ------------ ----------------- ------- 3.31% 0.99% 118% 3.17% 1.28% 64% 2.54% 1.52% 240% 3.59% 1.45% 150% 4.70% 1.40% 262% 5.21% 1.83% 207% 2.60% 1.68% 118% 2.50% 1.85% 64% 2.04% 1.97% 240% 3.10% 1.93% 150% 4.17% 1.93% 262% 4.71% 2.04% 207% 3.22% 0.82% 54% 3.16% 0.90% 46% 3.19% 1.04% 26% 3.40% 1.07% 30% 3.82% 1.11% 33% 4.20% 1.11% 32% 2.35% 1.62% 54%
[THIS PAGE INTENTIONALLY LEFT BLANK] INVESTMENT ADVISER: Trusco Capital Management, Inc. 50 Hurt Plaza, Suite 1400 Atlanta, Georgia 30303 More information about the STI Classic Funds is available without charge through the following: STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI includes detailed information about the STI Classic Funds. The SAI is on file with the SEC and is incorporated by reference into this prospectus. This means that the SAI, for legal purposes, is a part of this prospectus. ANNUAL AND SEMI-ANNUAL REPORTS: These reports list each Fund's holdings and contain information from the Funds' managers about strategies and recent market conditions and trends and their impact on Fund performance. The reports also contain detailed financial information about the Funds. TO OBTAIN AN SAI, ANNUAL OR SEMI-ANNUAL REPORT, OR MORE INFORMATION: TELEPHONE: 1-888-STI-FUND MAIL: STI Classic Funds BISYS Fund Services Limited Partnership 3435 Stelzer Road Columbus, Ohio 43219 WEBSITE: www.sticlassicfunds.com SEC: You can also obtain the SAI or the Annual and Semi-Annual reports, as well as other information about the STI Classic Funds, from the EDGAR Database on the SEC's website at http://www.sec.gov. You may review and copy documents at the SEC Public Reference Room in Washington, DC (for information on the operation of the Public Reference Room, call 202-942-8090). You may request documents by mail from the SEC, upon payment of a duplicating fee, by writing to: Securities and Exchange Commission, Public Reference Section, Washington, DC 20549-0102. You may also obtain this information, upon payment of a duplicating fee, by e-mailing the SEC at publicinfo@sec.gov. The STI Classic Funds' Investment Company Act registration number is 811-06557. STI CLASSIC FUNDS PU-ACB-0806 STI CLASSIC FUNDS I Shares PROSPECTUS STI CLASSIC EQUITY FUNDS Capital Appreciation Fund Small Cap Growth Stock Fund Investment Adviser: Trusco Capital Management, Inc. (the "Adviser") August 1, 2006 The Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense. PROSPECTUS ABOUT THIS PROSPECTUS The STI Classic Funds is a mutual fund family that offers shares in separate investment portfolios that have individual investment goals and strategies. This prospectus gives you important information about the I Shares of the Capital Appreciation Fund and the Small Cap Growth Stock Fund ("Funds") that you should know before investing. Please read this prospectus and keep it for future reference. This prospectus has been arranged into different sections so that you can easily review this important information. On the next page, there is some general information you should know about risk and return that is common to each of the Funds. For more detailed information about each Fund, please see: 2 CAPITAL APPRECIATION FUND 5 SMALL CAP GROWTH STOCK FUND 8 MORE INFORMATION ABOUT RISK 9 MORE INFORMATION ABOUT FUND INVESTMENTS 10 INFORMATION ABOUT PORTFOLIO HOLDINGS 10 INVESTMENT ADVISER 10 PORTFOLIO MANAGERS 11 PURCHASING AND SELLING FUND SHARES 13 MARKET TIMING POLICIES AND PROCEDURES 14 DIVIDENDS AND DISTRIBUTIONS 15 TAXES 16 FINANCIAL HIGHLIGHTS INSIDE PRIVACY POLICY BACK COVER BACK HOW TO OBTAIN MORE INFORMATION ABOUT COVER THE STI CLASSIC FUNDS
- -------------------------------------------------------------------------------- (SUITCASE FUND SUMMARY ICON) (TELESCOPE INVESTMENT STRATEGY ICON) (LIFE WHAT ARE THE PRINCIPAL RISKS OF INVESTING? PRESERVER ICON) (TARGET PERFORMANCE INFORMATION ICON) (LINE WHAT IS AN INDEX? GRAPH ICON) (COIN FUND FEES AND EXPENSES ICON) (MOUNTAIN MORE INFORMATION ABOUT FUND INVESTMENTS ICON) (MAGNIFYING INVESTMENT ADVISER GLASS ICON) (HAND PURCHASING AND SELLING FUND SHARES SHAKE ICON)
- -------------------------------------------------------------------------------- AUGUST 1, 2006 PROSPECTUS 1 CUSIP/TICKER SYMBOL
FUND NAME CLASS INCEPTION TICKER CUSIP Capital Appreciation Fund I Shares 7/1/92 STCAX 784766867 Small Cap Growth Stock Fund I Shares 10/8/98 SSCTX 784766263
RISK/RETURN INFORMATION COMMON TO THE STI CLASSIC FUNDS Each Fund is a mutual fund. A mutual fund pools shareholders' money and, using professional investment managers, invests it in securities. Each Fund has its own investment goal and strategies for reaching that goal. The Adviser is responsible for investing Fund assets in a way that it believes will help a Fund achieve its goal. Still, investing in each Fund involves risk and there is no guarantee that a Fund will achieve its goal. The Adviser's judgments about the markets, the economy or companies may not anticipate actual market movements, economic conditions or company performance, and these judgments may affect the return on your investment. In fact, no matter how good a job the Adviser does, you could lose money on your investment in a Fund, just as you could with other investments. A FUND SHARE IS NOT A BANK DEPOSIT AND IT IS NOT INSURED OR GUARANTEED BY THE FDIC OR ANY GOVERNMENT AGENCY. The value of your investment in a Fund is based on the market prices of the securities the Fund holds. These prices change daily due to economic and other events that affect particular companies and other issuers. These price movements, sometimes called volatility, may be greater or lesser depending on the types of securities the Fund owns and the markets in which it trades. The effect on a Fund of a change in the value of a single security will depend on how widely the Fund diversifies its holdings. Each Fund's investment goal may be changed without shareholder approval. Before investing, make sure that the Fund's goal matches your own. CAPITAL APPRECIATION FUND 2 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Capital appreciation INVESTMENT FOCUS U.S. common stocks SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Attempts to identify companies with above average growth potential INVESTOR PROFILE Investors who want the value of their investment to grow, but do not need to receive income on their investment
(TELESCOPE ICON) INVESTMENT STRATEGY The Capital Appreciation Fund invests primarily in U.S. common stocks and other equity securities that the Adviser believes have strong business fundamentals, such as revenue growth, cash flows and earnings trends. The Adviser's strategy focuses primarily on large cap stocks but will also utilize mid-cap stocks. In selecting investments for the Fund, the Adviser chooses companies that it believes have above average growth potential. The Adviser applies proprietary models to rank stocks based on earnings trends and valuations. It then performs in-depth fundamental analysis to determine the quality and sustainability of earnings, as well as the quality of management. Risk controls are in place to assist in maintaining a portfolio that is diversified by security type and industry sector. The Adviser uses a "bottom-up" process based on individual company earnings trends and fundamentals to determine the weighting of the Fund's investments in various equity market sectors. Because companies tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. Mid-cap stocks can perform differently from other segments of the equity market or the equity market as a whole and can be more volatile than stocks of larger companies. Large cap stocks can perform differently from other segments of the equity market or the equity market as a whole. Large capitalization companies may be less flexible in evolving markets or unable to implement change as quickly as smaller capitalization companies. Accordingly, the value of large cap stocks may not rise to the same extent as the value of small or mid-cap stocks. For information about the risks involved when investing in derivatives, see "More Information About Risk." CAPITAL APPRECIATION FUND PROSPECTUS 3 (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1996 20.31% 1997 31.13% 1998 28.06% 1999 9.71% 2000 1.62% 2001 -6.49% 2002 -21.98% 2003 18.52% 2004 6.37% 2005 -1.27%
BEST QUARTER WORST QUARTER 22.93% -14.98% (12/31/98) (9/30/01)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 0.29%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the S&P 500(R) Index. These returns assume shareholders redeem all of their shares at the end of the period indicated.
I SHARES 1 YEAR 5 YEARS 10 YEARS Capital Appreciation Fund -1.27% -1.91% 7.42% S&P 500(R) Index (reflects no deduction for fees or expenses) 4.91% 0.54% 9.07%
(LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The S&P 500(R) Index is a widely-recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index of 500 stocks designed to mimic the overall U.S. equity market's industry weightings. CAPITAL APPRECIATION FUND 4 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.92% Other Expenses 0.07% ----------------- Total Annual Operating Expenses(2) 0.99%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $101 $315 $547 $1,213
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." SMALL CAP GROWTH STOCK FUND PROSPECTUS 5 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Long-term capital appreciation INVESTMENT FOCUS U.S. small cap common stocks of growth companies SHARE PRICE VOLATILITY High PRINCIPAL INVESTMENT STRATEGY Identifies small cap companies with above average growth potential INVESTOR PROFILE Investors who want the value of their investment to grow, but do not need current income
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Small Cap Growth Stock Fund invests at least 80% of its net assets in U.S. traded equity securities of small cap companies. U.S. traded equity securities may include listed American Depositary Receipts ("ADRs"). The Adviser considers small cap companies to be companies with market capitalizations below $3 billion. The Fund's investment philosophy is based on the premise that a portfolio of small cap stocks with positive earnings trends, reasonable valuation, and strong fundamentals will provide superior returns over time. The Adviser applies a multi-factor proprietary model to identify companies with strong current earnings growth, improving profitability, a strong balance sheet, strong current and projected business fundamentals, and priced at reasonable valuations. The Adviser then uses fundamental research to select the portfolio of stocks it believes has the best current risk/return relationship. The Adviser believes in executing a very disciplined and objective investment process and in controlling risk through a broadly diversified portfolio. Because companies tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Since it purchases common stocks, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the stock markets have moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. Small cap stocks can perform differently from other segments of the equity market or the equity market as a whole and can be more volatile than stocks of larger companies. Because the Fund may invest in ADRs, it is subject to some of the same risks as direct investments in foreign companies. These include the risk that political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. For information about the risks involved when investing in derivatives, see "More Information About Risk." SMALL CAP GROWTH STOCK FUND 6 PROSPECTUS (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1999 20.55% 2000 11.76% 2001 -0.82% 2002 -22.71% 2003 45.64% 2004 19.21% 2005 7.92%
BEST QUARTER WORST QUARTER 24.19% -22.83% (06/30/03) (09/30/01)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 2.67%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Russell 2000(R) Growth Index. These returns assume shareholders redeem all of their shares at the end of the period indicated.
SINCE I SHARES 1 YEAR 5 YEARS INCEPTION* Small Cap Growth Stock Fund 7.92% 7.51% 15.48% Russell 2000(R) Growth Index (reflects no deduction for fees or expenses) 4.15% 2.28% 9.16%
* Since inception of the I Shares on October 8, 1998. Benchmark returns since September 30, 1998 (benchmark returns available only on a month end basis). (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Russell 2000(R) Growth Index is a widely recognized, capitalization-weighted index that measures the performance of those Russell 2000 companies with higher price-to-book ratios and higher forecasted growth values. The Russell 2000(R) Index is a widely recognized, capitalization-weighted index that measures the performance of the 2,000 smallest companies in the Russell 3000(R) Index. The Russell 3000(R) Index is a widely recognized, capitalization-weighted index that measures the performance of the 3,000 largest U.S. companies based on total market capitalization. SMALL CAP GROWTH STOCK FUND PROSPECTUS 7 (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 1.10% Other Expenses 0.07% ------------- Total Annual Operating Expenses(2) 1.17%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $119 $372 $644 $1,420
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." MORE INFORMATION ABOUT RISK 8 PROSPECTUS (LIFE PRESERVER ICON) MORE INFORMATION ABOUT RISK DERIVATIVES RISK All Funds Derivatives may involve risks different from, and possibly greater than, those of traditional investments. The Funds may use derivatives (such as futures, options, and swaps) to attempt to achieve their investment objective and offset certain investment risks, while at the same time maintaining liquidity. These positions may be established for hedging or non-hedging purposes. Risks associated with the use of derivatives include those associated with hedging and leveraging activities: - - 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. - - The Fund experiencing losses over certain ranges in the market that exceed losses experienced by a fund that does not use derivatives. - - 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 derivatives. - - There may not be a liquid secondary market for derivatives. - - Trading restrictions or limitations may be imposed by an exchange. - - Government regulations may restrict trading in derivatives. - - The other party to an agreement (e.g., options or swaps) may default; however, in certain circumstances, such counter-party risk may be reduced by having an organization with very good credit act as intermediary. Because options premiums paid or received by the Funds are small in relation to the market value of the investments underlying the options, buying and selling put and call options can be more speculative than investing directly in securities. EQUITY RISK All Funds Equity securities include public and privately issued equity securities, common and preferred stocks, warrants, rights to subscribe to common stock and convertible securities, as well as instruments that attempt to track the price movement of equity indices. Investments in equity securities and equity derivatives in general are subject to market risks that may cause their prices to fluctuate over time. The value of securities convertible into equity securities, such as warrants or convertible debt, is also affected by prevailing interest rates, the credit quality of the issuer and any call provision. Fluctuations in the value of equity securities in which a mutual fund invests will cause a fund's net asset value to fluctuate. An investment in a portfolio of equity securities may be more suitable for long-term investors who can bear the risk of these share price fluctuations. EXCHANGE TRADED FUND RISK All Funds The Funds may purchase shares of exchange-traded funds ("ETFs") to temporarily gain exposure to a particular portion of the market while awaiting an opportunity to purchase securities directly. ETFs are investment companies that are bought and sold on a securities exchange. An ETF holds a portfolio of securities designed to track a particular market segment or index. ETFs, like mutual funds, have expenses associated with their operation, including advisory fees. When a Fund invests in an ETF, in addition to directly bearing expenses associated with its own operations, it will bear a pro rata portion of the ETF's expense. The risks of owning shares of an ETF generally reflect the risks of owning the underlying securities the ETF is designed to track, although lack of liquidity in an ETF could result in being more volatile than the underlying portfolio of securities. In addition, because of ETF expenses, compared to owning the underlying securities directly, it may be more costly to own an ETF. MORE INFORMATION ABOUT FUND INVESTMENTS PROSPECTUS 9 FOREIGN SECURITY RISK Small Cap Growth Stock Fund Investments in securities of foreign companies or governments can be more volatile than investments in U.S. companies or governments. Political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. Diplomatic, political, or economic developments, including nationalization or appropriation, could affect investments in foreign countries. Foreign securities markets generally have less trading volume and less liquidity than U.S. markets. Foreign companies or governments generally are not subject to uniform accounting, auditing, and financial reporting standards comparable to those applicable to domestic U.S. companies or governments. Transaction costs are generally higher than those in the U.S. and expenses for custodial arrangements of foreign securities may be somewhat greater than typical expenses for custodial arrangements of similar U.S. securities. Some foreign governments levy withholding taxes against dividend and interest income. Although in some countries a portion of these taxes are recoverable, the non-recovered portion will reduce the income received from the securities comprising the portfolio. LARGE COMPANY RISK Capital Appreciation Fund Large cap stocks can perform differently from other segments of the equity market or the equity market as a whole. Companies with large capitalization tend to go in and out of favor based on market and economic conditions and, while they can be less volatile than companies with smaller market capitalizations, they may also be less flexible in evolving markets or unable to implement change as quickly as their smaller counterparts. Accordingly, the value of large cap stocks may not rise to the same extent as the value of small or mid-cap companies. SMALLER COMPANY RISK All Funds Small and mid-capitalization stocks can perform differently from other segments of the equity market or the equity market as a whole. The small and mid- capitalization companies the Fund invests in may be more vulnerable to adverse business or economic events than larger, more established companies. In particular, these companies may have limited product lines, markets and financial resources, and my depend upon a relatively small management group. Therefore, small and mid-cap stocks can be more volatile than those of larger companies. These securities may be traded over-the-counter or listed on an exchange. (MOUNTAIN ICON) MORE INFORMATION ABOUT FUND INVESTMENTS This prospectus describes the Funds' primary strategies, and the Funds will normally invest in the types of securities described in this prospectus. However, in addition to the investments and strategies described in this prospectus, each Fund also may invest in other securities, use other strategies and engage in other investment practices. These investments and strategies, as well as those described in this prospectus, are described in detail in the Statement of Additional Information. The investments and strategies described in this prospectus are those that the Funds use under normal conditions. During unusual economic or market conditions, or for temporary defensive or liquidity purposes, each Fund may invest up to 100% of its assets in cash, money market instruments, repurchase agreements and short-term obligations. A Fund will do so only if the Adviser believes that the risk of loss outweighs the opportunity for capital gains or higher income. Of course, a Fund cannot guarantee that it will achieve its investment goal. INFORMATION ABOUT PORTFOLIO HOLDINGS 10 PROSPECTUS INFORMATION ABOUT PORTFOLIO HOLDINGS A description of the Funds' policies and procedures with respect to the circumstances under which the Funds disclose their portfolio securities is available in the Statement of Additional Information. (MAGNIFIYING GLASS ICON) INVESTMENT ADVISER Trusco Capital Management, Inc., 50 Hurt Plaza, Suite 1400, Atlanta, Georgia 30303 ("Trusco" or the "Adviser"), serves as the investment adviser to the Funds. As of June 30, 2006, the Adviser had approximately $71 billion in assets under management. For the fiscal year ended March 31, 2006, the Funds paid the Adviser advisory fees (after waivers) based on the respective Fund's average daily net assets of: Capital Appreciation Fund 1.00% Small Cap Growth Stock Fund 1.11% Since August 1, 2005, the following breakpoints have been used in computing the advisory fee:
AVERAGE DAILY NET ASSETS DISCOUNT FROM FULL FEE - ------------------------ ---------------------- First $500 million None - Full Fee Next $500 million 5% Over $1 billion 10%
Based on average daily net assets for the fiscal year ended March 31, 2006, the asset levels of the Funds had reached a breakpoint in the advisory fee.* Had the Funds' asset levels been lower, the Adviser may have been entitled to receive maximum advisory fees as follows: Capital Appreciation Fund 0.97% Small Cap Growth Stock Fund 1.15%
* Fund expenses in the "Annual Fund Operating Expenses" tables shown earlier in this prospectus reflect the advisory breakpoints. A discussion regarding the basis for the Board of Trustees' approval of the investment advisory contracts with the Adviser appears in the Funds' semi-annual report to shareholders for the period ended September 30, 2005. The Adviser is responsible for making investment decisions for the Funds and continuously reviews, supervises and administers each Fund's respective investment program. The Board of Trustees supervises the Adviser and establishes policies that the Adviser must follow in its management activities. The Adviser may use its affiliates as brokers for Fund transactions. An investment adviser has a fiduciary obligation to its clients when the adviser has authority to vote their proxies. Under the current contractual agreement, the Adviser is authorized to vote proxies on behalf of each Fund. Information regarding the Adviser's, and thus each Fund's, Proxy Voting Policies and Procedures is provided in the Statement of Additional Information. A copy of the Proxy Voting Policies and Procedures may be obtained by contacting the STI Classic Funds at 1-888-STI-FUND, or by visiting www.sticlassicfunds.com. PORTFOLIO MANAGERS The following individuals are primarily responsible for the day-to-day management of the Funds. Mr. James P. Foster has served as Managing Director of Trusco since May 2004 and has been with Trusco since 1988. He has co-managed the SMALL CAP GROWTH STOCK FUND since June 2006. He has more than 37 years of investment experience. Ms. Elizabeth G. Pola, CFA, joined Trusco in 1983 and has served as Executive Vice President and Director of Equity Research of Trusco since 2000. She has co- managed the CAPITAL APPRECIATION FUND since December 2005. She has more than 24 years of investment experience. Mr. Robert J. Rhodes, CFA, joined Trusco in 1973 and has served as Executive Vice President and head of the equity funds group at Trusco since February 2000. He has co-managed the CAPITAL APPRECIATION FUND since December 2005, after managing the Fund since June 2000. He has more than 33 years of investment experience. Mr. Stuart F. Van Arsdale, CFA, has served as Managing Director of Trusco since May 2002. He has co-managed the SMALL CAP GROWTH STOCK FUND since June 2006. Prior to joining Trusco, Mr. Van Arsdale served as Director of Growth Investments for Deprince, Race & Zollo, Inc. from October 1998 to April 2002. He has more than 26 years of investment experience. PURCHASING AND SELLING FUND SHARES PROSPECTUS 11 The Statement of Additional Information provides additional information regarding the portfolio managers' compensation, other accounts managed by the portfolio managers and the portfolio managers' ownership of securities in the Funds. (HAND SHAKE ICON) PURCHASING AND SELLING FUND SHARES This section tells you how to purchase and sell (sometimes called "redeem") I Shares of the Funds. Investors purchasing or selling shares through a pension or 401(k) plan should also refer to their Plan documents. HOW TO PURCHASE FUND SHARES The Funds offer I Shares exclusively to financial institutions and intermediaries for their own accounts or for the accounts of customers for which they act as fiduciary agent, investment adviser, or custodian and which consist of: - - assets of a bona fide trust, or - - assets of a business entity possessing a tax identification number. As a result, you, as a customer of a financial institution or intermediary may purchase I Shares through accounts made with financial institutions or intermediaries. I Shares will be held of record by (in the name of) your financial institution or intermediary. Depending upon the terms of your account, however, you may have, or be given, the right to vote your I Shares. WHEN CAN YOU PURCHASE SHARES? You may purchase shares on any day that the New York Stock Exchange ("NYSE") is open for business (a "Business Day"). The price per share (the offering price) will be the net asset value per share ("NAV") next determined after the Funds receive your purchase order in proper form. Each Fund calculates its NAV once each Business Day at the regularly-scheduled close of normal trading on the NYSE (normally, 4:00 p.m., Eastern Time). So, for you to receive the current Business Day's NAV, a Fund or its authorized agent must receive your purchase order in proper form before 4:00 p.m., Eastern Time. If the NYSE closes early - such as on days in advance of certain holidays - the Funds will calculate NAV as of the earlier closing time. The Funds will not accept orders that request a particular day or price for the transaction or any other special conditions. YOU MAY HAVE TO TRANSMIT YOUR PURCHASE AND SALE REQUESTS TO YOUR FINANCIAL INSTITUTION OR INTERMEDIARY AT AN EARLIER TIME FOR YOUR TRANSACTION TO BECOME EFFECTIVE THAT DAY. THIS ALLOWS THE FINANCIAL INSTITUTION OR INTERMEDIARY TIME TO PROCESS YOUR REQUEST AND TRANSMIT IT TO THE TRANSFER AGENT IN TIME TO MEET THE ABOVE STATED FUND CUT-OFF TIMES. FOR MORE INFORMATION ABOUT HOW TO PURCHASE OR SELL FUND SHARES, INCLUDING A SPECIFIC FINANCIAL INSTITUTION'S OR INTERMEDIARY'S INTERNAL ORDER ENTRY CUT-OFF TIME, PLEASE CONTACT YOUR FINANCIAL INSTITUTION OR INTERMEDIARY DIRECTLY. A Fund may reject any purchase order. HOW THE FUNDS CALCULATE NAV NAV is calculated by adding the total value of a Fund's investments and other assets, subtracting its liabilities and then dividing that figure by the number of outstanding shares of the Fund. In calculating NAV, each Fund generally values its investment portfolio at market price. If market prices are not readily available or a Fund reasonably believes that they are unreliable, such as in the case of a security value that has been materially affected by events occurring after the relevant market closes, the Fund is required to price those securities at fair value as determined in good faith using methods approved by the Board of Trustees. A Fund's determination of a security's fair value price often involves the consideration of a number of subjective factors, and is therefore subject to the unavoidable risk that the value that a Fund assigns to a security may be higher or lower than the security's value would be if a reliable market quotation for the security was readily available. Although the Funds invest primarily in the stocks of U.S. companies that are traded on U.S. exchanges, there may be limited circumstances in which a Fund would price securities at fair value - for example, if the exchange on which a portfolio security is principally traded closed early or if a trading in a particular security was halted during the day and did not resume prior to the time a Fund calculated its NAV. IN-KIND PURCHASES Payment for shares of a Fund may, in the discretion of the Adviser, be made in the form of securities that are PURCHASING AND SELLING FUND SHARES 12 PROSPECTUS permissible investments for such Fund. In connection with an in-kind securities payment, a Fund will require, among other things, that the securities (a) meet the investment objectives and policies of the Fund; (b) are acquired for investment and not for resale; (c) are liquid securities that are not restricted as to transfer either by law or liquidity of markets; (d) have a value that is readily ascertainable (e.g., by a listing on a nationally recognized securities exchange); and (e) are valued on the day of purchase in accordance with the pricing methods used by the Fund. For further information about this form of payment, please call 1-888-STI-FUND. CUSTOMER IDENTIFICATION FOREIGN INVESTORS The Funds do not generally accept investments in I Shares by non-U.S. citizens or entities. CUSTOMER IDENTIFICATION AND VERIFICATION To help the government fight the funding of terrorism and money laundering activities, federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account. When you open an account, you will be asked to provide your name, residential street address, date of birth, Social Security number or tax identification number. You may also be asked for other information that will allow us to identify you. Entities are also required to provide additional documentation. This information will be verified to ensure the identity of all persons opening a mutual fund account. In certain instances, the Funds are required to collect documents to fulfill their legal obligation. Documents provided in connection with your application will be used solely to establish and verify a customer's identity. The Funds are required by law to reject your new account application if the required identifying information is not provided. Attempts to collect the missing information required on the application will be performed by either contacting you or, if applicable, your broker. If this information is unable to be obtained within a timeframe established in the sole discretion of the Funds, your application will be rejected. Upon receipt of your application in proper form (or upon receipt of all identifying information required on the application), your investment will be accepted and your order will be processed at the NAV next determined. However, the Funds reserve the right to close your account at the then-current day's price if the Funds are unable to verify your identity. Attempts to verify your identity will be performed within a timeframe established in the sole discretion of the Funds. If the Funds are unable to verify your identity, the Funds reserve the right to liquidate your account at the then-current day's price and remit proceeds to you via check. The Funds reserve the further right to hold your proceeds until your original check clears the bank. In such an instance, you may be subject to a gain or loss on Fund shares and will be subject to corresponding tax implications. ANTI-MONEY LAUNDERING PROGRAM Customer identification and verification is part of the Funds' overall obligation to deter money laundering under federal law. The Funds have adopted an anti-money laundering compliance program designed to prevent the Funds from being used for money laundering or the financing of terrorist activities. In this regard, the Funds reserve the right to (i) refuse, cancel or rescind any purchase or exchange order, (ii) freeze any account and/or suspend account services, or (iii) involuntarily redeem your account in cases of threatening conduct or suspected fraudulent or illegal activity. These actions will be taken when, in the sole discretion of Fund management, they are deemed to be in the best interest of the Funds or in cases when the Funds are requested or compelled to do so by governmental or law enforcement authority. HOW TO SELL YOUR FUND SHARES You may sell your shares on any Business Day by contacting your financial institution or intermediary. Your financial institution or intermediary will give you information about how to sell your shares including any specific cut-off times required. Holders of I Shares may sell shares by following the procedures established when they opened their account or accounts with the Funds or with their financial institution or intermediary. The sale price of each share MARKET TIMING POLICIES AND PROCEDURES PROSPECTUS 13 will be the next NAV determined after the Funds receive your request in proper form. A MEDALLION SIGNATURE GUARANTEE] by a bank or other financial institution (a notarized signature is not sufficient) is required to redeem shares: - made payable to someone other than the registered shareholder; - sent to an address or bank account other than the address or bank account of record; or - sent to an address or bank account of record that has been changed within the last 15 calendar days. Other documentation may be required depending on the registration of the account. ] MEDALLION SIGNATURE GUARANTEE: A Medallion Signature Guarantee verifies the authenticity of your signature and helps ensure that changes to your account are fact authorized by you. A Medallion Signature Guarantee may be obtained from a domestic bank or trust company, broker, dealer, clearing agency, savings association or other financial institution participating in a Medallion Program recognized by the Securities Trading Association. Signature guarantees from financial institutions that do not reflect one of the following are not part of the program and will note accepted. The acceptable Medallion programs are Securities Transfer Agents Medallion Program, (STAMP), Stock Exchange Medallion Program, (SEMP), or the New York Stock Exchange, Inc. Medallion Program, (NYSE MSP). Contact your local financial adviser for further assistance. RECEIVING YOUR MONEY Normally, the Funds will send your sale proceeds within five Business Days after the Funds receive your request but a Fund may take up to seven days to pay the sale proceeds if making immediate payment would adversely affect the Fund (for example, to allow the Fund to raise capital in the case of a large redemption). REDEMPTIONS IN KIND The Funds generally pay redemption proceeds in cash. However, under unusual conditions that make the payment of cash unwise (and for the protection of the Funds' remaining shareholders), the Funds might pay all or part of your redemption proceeds in liquid securities with a market value equal to the redemption price (redemption in kind). It is highly unlikely that your shares would ever be redeemed in kind, but if they were you would probably have to pay transaction costs to sell the securities distributed to you, as well as taxes on any capital gains from the sale as with any redemption. SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES A Fund may suspend your right to sell your shares if the NYSE restricts trading, the SEC declares an emergency or for other reasons approved by the SEC. More information about this is in the Statement of Additional Information. TELEPHONE TRANSACTIONS Purchasing and selling Fund shares over the telephone is extremely convenient, but not without risk. Although the Funds have certain safeguards and procedures to confirm the identity of callers and the authenticity of instructions, the Funds are not responsible for any losses or costs incurred by following telephone instructions the Funds reasonably believe to be genuine. If you or your financial institution or intermediary transact with the Funds over the telephone, you will generally bear the risk of any loss. The Funds reserve the right to modify, suspend or terminate telephone transaction privileges at any time. To redeem shares by telephone: - redemption checks must be made payable to the registered shareholder; and - redemption checks must be mailed to an address or wired to a bank account of record that has been associated with the shareholder account for at least 15 calendar days. MARKET TIMING POLICIES AND PROCEDURES The Funds are intended for long-term investment purposes only and discourage shareholders from engaging in "market timing" or other types of excessive short-term trading. This frequent trading into and out of the Funds may present risks to the Funds' long-term shareholders, all of which could adversely affect shareholder returns. The risks posed by frequent trading DIVIDENDS AND DISTRIBUTIONS 14 PROSPECTUS include interfering with the efficient implementation of the Funds' investment strategies, triggering the recognition of taxable gains and losses on the sale of Fund investments, requiring the Funds to maintain higher cash balances to meet redemption requests, and experiencing increased transaction costs. The Funds and/or their service providers will take steps reasonably designed to detect and deter frequent trading by shareholders pursuant to the Funds' policies and procedures described in this prospectus and approved by the Funds' Board of Trustees. For purposes of applying these policies, the Funds' service providers may consider the trading history of accounts under common ownership or control. The Funds' policies and procedures include: - Shareholders are restricted from making more than one (1) "round trip" into or out of a Fund within 14 days or more than two (2) "round trips" within any continuous 90 day period. If a shareholder exceeds either "round trip" restriction, he or she may be deemed a "Market Timer," and the Funds and/or their service providers may, at their discretion, reject any additional purchase orders. The Funds define a round trip as a purchase into a Fund by a shareholder, followed by a subsequent redemption out of the Fund. Anyone considered to be a Market Timer by the Fund, their manager(s) or a shareholder servicing agent may be notified in writing of their designation as a Market Timer. - The Funds reserve the right to reject any purchase request by any investor or group of investors for any reason without prior notice, including, in particular, if the Funds or their Adviser reasonably believe that the trading activity would be harmful or disruptive to the Funds. The Funds and/or their service providers seek to apply these policies to the best of their abilities uniformly and in a manner they believe is consistent with the interests of the Funds' long-term shareholders. Although these policies are designed to deter frequent trading, none of these measures alone nor all of them taken together eliminate the possibility that frequent trading in the Funds will occur, particularly with respect to trades placed by shareholders that invest in the Funds through omnibus arrangements maintained by brokers, retirement plan accounts and other financial intermediaries. The Funds' and their service providers' access to information about individual shareholder transactions made through such omnibus arrangements is often unavailable or severely limited. The Funds rely in large part on the policies, ability and willingness of brokers, retirement plan accounts and other financial intermediaries who maintain omnibus arrangements to detect and deter short-term trading. Despite this reliance, the Funds cannot assure that its policies will be enforced with regard to those Fund shares held through such omnibus arrangements (which may represent a majority of Fund shares), and as a result frequent trading could adversely affect the Funds and their long-term shareholders as discussed above. In addition to the previously mentioned initiatives to discourage market timing, the Funds intend to continually evaluate and, if practical, implement other measures to deter market timing. DISTRIBUTION OF FUND SHARES The distributor may provide financial assistance in connection with pre-approved seminars, conferences and advertising to the extent permitted by applicable state or self-regulatory agencies, such as the National Association of Securities Dealers. From its own assets, the Adviser or its affiliates may make payments based on gross sales and current assets to selected brokerage firms or institutions. The amount of these payments may be substantial. The minimum aggregate sales required for eligibility for such payments, and the factors in selecting the brokerage firms and institutions to which they will be made, are determined from time to time by the Adviser. Furthermore, in addition to the fees that may be paid by the Funds, the Adviser or its affiliates may pay fees from its own capital resources to brokers, banks, financial advisers, retirement plan service providers and other financial intermediaries, including affiliates, for providing distribution-related or shareholder services. DIVIDENDS AND DISTRIBUTIONS The Funds distribute their net investment income quarterly. Each Fund makes distributions of its net realized capital gains, if any, at least annually. If your 401(k) Plan owns Fund shares on a Fund's record date, the Plan is entitled to receive the distribution. TAXES PROSPECTUS 15 As a Plan participant, you will receive dividends and distributions in the form of additional Fund shares if you own shares of the Fund on the date the dividend or distribution is allocated by the Plan. You will, therefore, not receive a dividend or distribution if you do not own shares of the Fund on the date the dividend or distribution is allocated. TAXES PLEASE CONSULT YOUR TAX ADVISOR REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL, STATE AND LOCAL INCOME TAXES. Below the Funds have summarized some important tax issues that affect the Funds and their shareholders. This summary is based on current tax laws, which may change. Dividends and distributions will accumulate on a tax-deferred basis if you are investing through an employer-sponsored retirement or savings plan that qualifies for tax-exempt treatment under federal income tax laws. Generally, you will not owe taxes on these distributions until you begin withdrawals from the plan. Redemptions of Fund shares resulting in withdrawals from the plan are subject to numerous complex and special tax rules and may be subject to a penalty in the case of premature withdrawals. You should consult your plan administrator, your plan's Summary Plan Description, and/or your tax advisory about the tax consequences of plan withdrawals. MORE INFORMATION ABOUT TAXES IS IN THE STATEMENT OF ADDITIONAL INFORMATION. FINANCIAL HIGHLIGHTS 16 PROSPECTUS FINANCIAL HIGHLIGHTS The financial highlights table is intended to help you understand a Fund's financial performance for the period of the Fund's (and its predecessor's) operations. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This financial information has been audited by PricewaterhouseCoopers LLP, except the information for the year ended May 31, 2001, which has been audited by a predecessor independent accounting firm that has ceased operations. The Report of Independent Registered Public Accounting Firm for each period shown, along with the Funds' financial statements and related notes, are included in the Annual Reports to Shareholders for such periods. The 2006 Annual Report is available upon request and without charge by calling 1-888-STI-FUND or on the Funds' website at www.sticlassicfunds.com.
NET ASSET NET REALIZED DIVIDENDS VALUE, NET AND UNREALIZED FROM NET DISTRIBUTIONS BEGINNING INVESTMENT GAINS (LOSSES) TOTAL FROM INVESTMENT FROM REALIZED OF PERIOD INCOME (LOSS) ON INVESTMENTS OPERATIONS INCOME CAPITAL GAINS --------- ------------- -------------- ---------- ---------- ------------- CAPITAL APPRECIATION FUND I SHARES Year Ended March 31, 2006................... $12.22 0.03(a) 0.86(a) 0.89 (0.02) (0.26) Period Ended March 31, 2005................... $12.33 0.03(a) 0.07(a) 0.10 (0.03) (0.18) Year Ended May 31, 2004................... $11.02 (0.03)(a) 1.34(a) 1.31 -- -- Year Ended May 31, 2003................... $12.24 (0.03)(a) (1.19)(a) (1.22) -- -- Year Ended May 31, 2002................... $13.89 -- (1.53) (1.53) -- (0.12) Year Ended May 31, 2001................... $17.12 (0.05) (0.38) (0.43) -- (2.80) SMALL CAP GROWTH STOCK FUND I SHARES Year Ended March 31, 2006................... $19.99 (0.14)(a) 5.46(a) 5.32 -- (1.66) Period Ended March 31, 2005................... $20.25 (0.08)(a) 2.27(a) 2.19 -- (2.45) Year Ended May 31, 2004................... $15.19 (0.16)(a) 5.22(a) 5.06 -- -- Year Ended May 31, 2003................... $17.28 (0.12)(a) (1.72)(a) (1.84) -- (0.25) Year Ended May 31, 2002................... $18.37 -- (1.02) (1.02) -- (0.07) Year Ended May 31, 2001................... $18.30 (0.18) 1.71 1.53 -- (1.46) TOTAL DIVIDENDS AND DISTRIBUTIONS ------------- CAPITAL APPRECIATION FUND I SHARES Year Ended March 31, 2006................... (0.28) Period Ended March 31, 2005................... (0.21) Year Ended May 31, 2004................... -- Year Ended May 31, 2003................... -- Year Ended May 31, 2002................... (0.12) Year Ended May 31, 2001................... (2.80) SMALL CAP GROWTH STOCK FUND I SHARES Year Ended March 31, 2006................... (1.66) Period Ended March 31, 2005................... (2.45) Year Ended May 31, 2004................... -- Year Ended May 31, 2003................... (0.25) Year Ended May 31, 2002................... (0.07) Year Ended May 31, 2001................... (1.46)
+ Not annualized for periods less than one year. ++ Annualized for periods less than one year. (a) Per share data calculated using average shares outstanding method. FINANCIAL HIGHLIGHTS PROSPECTUS 17
RATIO OF EXPENSES TO RATIO OF RATIO OF AVERAGE NET ASSETS NET ASSET NET ASSETS, NET EXPENSES NET INVESTMENT (EXCLUDING WAIVERS PORTFOLIO VALUE, END TOTAL END OF TO AVERAGE INCOME (LOSS) TO AND/OR TURNOVER OF PERIOD RETURN+ PERIOD (000) NET ASSETS++ AVERAGE NET ASSETS++ REIMBURSEMENTS)++ RATE - ---------- ------- ------------ ------------ -------------------- -------------------- --------- $12.83 7.33% $1,296,236 1.06% 0.22% 1.07% 74% $12.22 0.76% $1,493,213 1.19% 0.31% 1.21% 72% $12.33 11.89% $1,248,636 1.23% (0.25)% 1.24% 106% $11.02 (9.97)% $1,090,549 1.22% (0.32)% 1.24% 69% $12.24 (11.06)% $1,204,445 1.22% (0.54)% 1.24% 75% $13.89 (3.74)% $1,177,933 1.21% (0.29)% 1.24% 75% $23.65 27.55% $1,641,681 1.17% (0.66)% 1.18% 98% $19.99 10.60% $ 940,775 1.22% (0.46)% 1.22% 70% $20.25 33.31% $ 789,650 1.25% (0.83)% 1.25% 107% $15.19 (10.50)% $ 567,714 1.24% (0.87)% 1.24% 96% $17.28 (5.55)% $ 593,211 1.25% (1.01)% 1.25% 100% $18.37 8.33% $ 508,857 1.24% (0.95)% 1.25% 112%
[THIS PAGE INTENTIONALLY LEFT BLANK] INVESTMENT ADVISER: Trusco Capital Management, Inc. 50 Hurt Plaza, Suite 1400 Atlanta, Georgia 30303 More information about the STI Classic Funds is available without charge through the following: STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI includes detailed information about the STI Classic Funds. The SAI is on file with the SEC and is incorporated by reference into this prospectus. This means that the SAI, for legal purposes, is a part of this prospectus. ANNUAL AND SEMI-ANNUAL REPORTS: These reports list each Fund's holdings and contain information from the Funds' managers about strategies and recent market conditions and trends and their impact on Fund performance. The reports also contain detailed financial information about the Funds. TO OBTAIN AN SAI, ANNUAL OR SEMI-ANNUAL REPORT, OR MORE INFORMATION: TELEPHONE: 1-888-STI-FUND MAIL: STI Classic Funds BISYS Fund Services Limited Partnership 3435 Stelzer Road Columbus, Ohio 43219 WEBSITE: www.sticlassicfunds.com SEC: You can also obtain the SAI or the Annual and Semi-Annual reports, as well as other information about the STI Classic Funds, from the EDGAR Database on the SEC's website at http://www.sec.gov. You may review and copy documents at the SEC Public Reference Room in Washington, DC (for information on the operation of the Public Reference Room, call 202-942-8090). You may request documents by mail from the SEC, upon payment of a duplicating fee, by writing to: Securities and Exchange Commission, Public Reference Section, Washington, DC 20549-0102. You may also obtain this information, upon payment of a duplicating fee, by e-mailing the SEC at publicinfo@sec.gov. The STI Classic Funds' Investment Company Act registration number is 811-06557. STI CLASSIC FUNDS STI CLASSIC FUNDS Corporate Trust Shares PROSPECTUS STI CLASSIC MONEY MARKET FUNDS Classic Institutional U.S. Treasury Securities Money Market Fund Investment Adviser: Trusco Capital Management, Inc. (the "Adviser") August 1, 2006 The Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense. PROSPECTUS ABOUT THIS PROSPECTUS The STI Classic Funds is a mutual fund family that offers shares in separate investment portfolios that have individual investment goals and strategies. This prospectus gives you important information about the Corporate Trust Shares of the Classic Institutional U.S. Treasury Securities Money Market Fund ("Fund") that you should know before investing. Please read this prospectus and keep it for future reference. This prospectus has been arranged into different sections so that you can easily review this important information. On the next page, there is some general information you should know about risk and return. For more detailed information about the Fund, please see: 2 FUND SUMMARY 2 INVESTMENT STRATEGY 2 WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? 2 PERFORMANCE INFORMATION 3 FUND FEES AND EXPENSES 4 MORE INFORMATION ABOUT FUND INVESTMENTS 4 THIRD-PARTY RATINGS 4 INFORMATION ABOUT PORTFOLIO HOLDINGS 4 INVESTMENT ADVISER 4 PORTFOLIO MANAGERS 5 PURCHASING AND SELLING FUND SHARES 7 MARKET TIMING POLICIES AND PROCEDURES 8 DIVIDENDS AND DISTRIBUTIONS 8 TAXES 10 FINANCIAL HIGHLIGHTS INSIDE PRIVACY POLICY BACK COVER HOW TO OBTAIN MORE INFORMATION ABOUT BACK THE STI CLASSIC FUNDS COVER
- -------------------------------------------------------------------------------- (SUITCASE ICON) FUND SUMMARY (TELESCOPE ICON) INVESTMENT STRATEGY (LIFE PRESERVER WHAT ARE THE PRINCIPAL RISKS OF INVESTING? ICON) (TARGET ICON) PERFORMANCE INFORMATION (LINE GRAPH ICON) WHAT IS AN AVERAGE? (COIN ICON) FUND FEES AND EXPENSES (MOUNTAIN ICON) MORE INFORMATION ABOUT FUND INVESTMENTS (ICON) THIRD-PARTY RATINGS (MAGNIFYING GLASS INVESTMENT ADVISER ICON) (HAND SHAKE ICON) PURCHASING AND SELLING FUND SHARES
- -------------------------------------------------------------------------------- AUGUST 1, 2006 PROSPECTUS 1 CUSIP/TICKER SYMBOL
FUND NAME CLASS INCEPTION TICKER CUSIP Classic Institutional U.S. Treasury Securities Money Market Fund Corporate Trust Shares 6/2/99 -- 784767857
RISK/RETURN INFORMATION COMMON TO THE STI CLASSIC FUNDS The Fund is a mutual fund. A mutual fund pools shareholders' money and, using professional investment managers, invests it in securities. The Fund has an investment goal and strategies for reaching that goal. The Adviser invests Fund assets in a way that it believes will help the Fund achieve its goal. Still, investing in the Fund involves risk and there is no guarantee that the Fund will achieve its goal. The Adviser's judgments about the markets, the economy or companies may not anticipate actual market movements, economic conditions or company performance, and these judgments may affect the return on your investment. In fact, no matter how good a job the Adviser does, you could lose money on your investment in the Fund, just as you could with other investments. A FUND SHARE IS NOT A BANK DEPOSIT AND IT IS NOT INSURED OR GUARANTEED BY THE FDIC OR ANY GOVERNMENT AGENCY. The Fund's investment goal may be changed without shareholder approval. Before investing, make sure that the Fund's goal matches your own. CLASSIC INSTITUTIONAL U.S. TREASURY SECURITIES MONEY MARKET FUND 2 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL As high a level of current income as is consistent with preservation of capital and liquidity INVESTMENT FOCUS U.S. Treasury securities and repurchase agreements PRINCIPAL INVESTMENT STRATEGY Attempts to increase income without adding undue risk by analyzing yields INVESTOR PROFILE Conservative investors seeking current income through a liquid investment
(TELESCOPE ICON) INVESTMENT STRATEGY The Classic Institutional U.S. Treasury Securities Money Market Fund invests exclusively in U.S. Treasury bills, notes, bonds and components of these securities, repurchase agreements collateralized by these securities, and shares of registered money market funds that invest in the foregoing. The Fund limits its investments so as to obtain the highest investment quality rating by a nationally recognized statistical rating organization (AAAm by Standard & Poor's). In selecting investments for the Fund, the Adviser tries to increase income without adding undue risk by analyzing yields for various maturities. The Adviser actively manages the maturity of the Fund and its portfolio to maximize the Fund's yield based on current market interest rates and the Adviser's outlook on the market. As a money market fund, the Fund follows strict rules about credit risk, maturity and diversification of its investments. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? An investment in the Fund is subject to income risk, which is the possibility that the Fund's yield will decline due to falling interest rates. A Fund share is not a bank deposit and is not insured or guaranteed by the FDIC or any government agency. In addition, although a money market fund seeks to keep a constant price per share of $1.00, you may lose money by investing in the Fund. Although the Fund's U.S. Treasury securities are considered to be among the safest investments, they are not guaranteed against price movements due to changing interest rates. (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's Corporate Trust Shares from year to year.* (BAR CHART) 2000 5.85% 2001 3.45% 2002 1.35% 2003 0.70% 2004 0.88% 2005 2.66%
BEST QUARTER WORST QUARTER 1.52% 0.12% (12/31/00) (6/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 2.06%. CLASSIC INSTITUTIONAL U.S. TREASURY SECURITIES MONEY MARKET FUND PROSPECTUS 3 - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005 to those of the iMoneyNet, Inc. Treasury & Repo Retail Average. These returns assume shareholders redeem all of their shares at the end of the period indicated.
SINCE CORPORATE TRUST SHARES 1 YEAR 5 YEARS INCEPTION* Classic Institutional U.S. Treasury Securities Money Market Fund 2.66% 1.80% 2.67% iMoneyNet, Inc. Treasury & Repo Retail Average 2.39% 1.56% 2.39%
* Since inception of the Corporate Trust Shares on June 2, 1999. Benchmark returns since May 31, 1999 (benchmark returns available only on a month end basis). To obtain information about the Fund's current yield, call 1-888-STI-FUND. (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN AVERAGE? ------------------------------------------------------------- An average is a composite of mutual funds with similar investment goals. The iMoneyNet, Inc. Treasury & Repo Retail Average is a widely- recognized composite of money market funds that invest in U.S. Treasury bills and repurchase agreements backed by these securities. The number of funds in the Average varies. (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
CORPORATE TRUST SHARES Investment Advisory Fees(1) 0.14% Other Expenses 0.29% ---------------------- Total Annual Operating Expenses(2) 0.43%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser has contractually agreed to waive fees and reimburse expenses until at least August 1, 2007 in order to keep Total Annual Operating Expenses from exceeding 0.45%. If at any point before August 1, 2009, Total Annual Operating Expenses are less than the applicable expense cap, the Adviser may retain the difference to recapture any of the prior waivers or reimbursements. In addition, the Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These voluntary waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $44 $138 $241 $542
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." MORE INFORMATION ABOUT FUND INVESTMENTS 4 PROSPECTUS (MOUNTAIN ICON) MORE INFORMATION ABOUT FUND INVESTMENTS This prospectus describes the Fund's primary strategies, and the Fund will normally invest in the types of securities described in this prospectus. However, in addition to the investments and strategies described in this prospectus, the Fund also may invest in other securities, use other strategies and engage in other investment practices. These investments and strategies, as well as those described in this prospectus, are described in detail in the Statement of Additional Information. Of course, the Fund cannot guarantee that it will achieve its investment goal. (ICON) THIRD-PARTY RATINGS The Fund has been rated AAAm by Standard & Poor's Rating Services and Aaa by Moody's Investor Services, Inc. The National Association of Insurance Commissioners has approved the Fund as an eligible investment for insurance companies. INFORMATION ABOUT PORTFOLIO HOLDINGS A description of the Fund's policies and procedures with respect to the circumstances under which the Fund discloses its portfolio securities is available in the Statement of Additional Information. (MAGNIFYING GLASS ICON) INVESTMENT ADVISER Trusco Capital Management, Inc., ("Trusco" or the "Adviser"), 50 Hurt Plaza, Suite 1400, Atlanta, Georgia 30303, serves as the investment adviser to the Fund. As of June 30, 2006, the Adviser had approximately $71 billion in assets under management. For the fiscal year ended March 31, 2006, the Adviser received advisory fees (after waivers) of 0.16% of the Fund's average daily net assets. Since August 1, 2005 the following breakpoints have been used in computing the advisory fee:
AVERAGE DAILY NET ASSETS DISCOUNT FROM FULL FEE - ------------------------ ---------------------- First $1 billion None -- Full Fee Next $1.5 billion 5% Next $2.5 billion 10% Over $5 billion 20%
Based on average daily net assets for the fiscal year ended March 31, 2006, the Fund's asset level had reached a breakpoint in the advisory fee. Fund expenses in the "Annual Fund Operating Expenses" table shown earlier in this Prospectus reflect the advisory breakpoints. Had the Fund's asset levels been lower, the Adviser may have been entitled to receive maximum advisory fees of 0.15%. A discussion regarding the basis for the Board of Trustees' approval of the investment advisory contract with the Adviser appears in the Fund's semi-annual report to shareholders for the period ended September 30, 2005. The Adviser makes investment decisions for the Fund and continuously reviews, supervises and administers the Fund's investment program. The Board of Trustees supervises the Adviser and establishes policies that the Adviser must follow in its management activities. The Adviser may use its affiliates as brokers for Fund transactions. An investment adviser has a fiduciary obligation to its clients when the adviser has authority to vote their proxies. Under the current contractual agreement, the Adviser is authorized to vote proxies on behalf of the Fund. Information regarding the Adviser's, and thus the Fund's, Proxy Voting Policies and Procedures is provided in the Statement of Additional Information. A copy of the Fund's Proxy Voting Policies and Procedures may be obtained by contacting the STI Classic Funds at 1-888-STI-FUND, or by visiting www.sticlassicfunds.com. PORTFOLIO MANAGERS The following individuals are primarily responsible for the day-to-day management of the Fund. Mr. Greg Hallman has served as Vice President of Trusco since February 2006, after serving as Associate since November 1999. He has co-managed the Fund since November 2004. He has more than 7 years of investment experience. Ms. Kimberly C. Maichle, CFA, has served as Director of Trusco since February 2006, after serving as Vice President of Trusco since July 1995. She has co- managed the Fund since November 2004. She has more than 17 years of investment experience. Mr. E. Dean Speer, CFA, CPA, has served as a Director of Trusco since February 2006 and prior to that as Vice PURCHASING AND SELLING FUND SHARES PROSPECTUS 5 President of Trusco since June 2001. He has co-managed the Fund since January 2005. He has more than 8 years of investment experience. The Statement of Additional Information provides additional information regarding the Fund's portfolio managers' compensation, other accounts managed by the portfolio managers and the portfolio managers' ownership of securities of the Fund. (HAND SHAKE ICON) PURCHASING AND SELLING FUND SHARES This section tells you how to purchase and sell (sometimes called "redeem") Corporate Trust Shares of the Fund. HOW TO PURCHASE FUND SHARES The Fund offers Corporate Trust Shares only to accounts of various banking subsidiaries of SunTrust Banks, Inc. which are administered by the Corporate Trust Division ("SunTrust"). Shares are sold without a sales charge. Corporate Trust Shares will be held of record by (in the name of) SunTrust. Depending upon the terms of your account, however, you may have, or be given, the right to vote your Corporate Trust Shares. WHEN CAN YOU PURCHASE SHARES? You may purchase shares on any day that the New York Stock Exchange ("NYSE") and the Federal Reserve are open for business (a "Business Day"). The price per share (the offering price) will be the net asset value per share ("NAV") next determined after the Fund receives your purchase order in proper form. The Fund calculates its NAV once each Business Day at the regularly-scheduled close of normal trading on the NYSE (normally, 4:00 p.m., Eastern Time). So, for you to be eligible to receive dividends declared on the day that you submit your purchase order, the Fund or its authorized agent must receive your purchase order in proper form before 3:00 p.m., Eastern Time and federal funds (readily available funds) before 6:00 p.m., Eastern Time. Otherwise, your purchase order will be effective the following Business Day, as long as each Fund receives federal funds before calculating its NAV the following day. If the NYSE closes early -- such as on days in advance of certain holidays -- the Fund will calculate NAV as of the earlier closing time. The Fund will not accept orders that request a particular day or price for the transaction or any other special conditions. YOU MAY HAVE TO TRANSMIT YOUR PURCHASE AND SALE REQUESTS TO SUNTRUST AT AN EARLIER TIME THAN THOSE LISTED ABOVE FOR YOUR TRANSACTION TO BECOME EFFECTIVE THAT DAY. THIS ALLOWS SUNTRUST TIME TO PROCESS YOUR REQUEST AND TRANSMIT IT TO THE ADMINISTRATOR OR THE TRANSFER AGENT IN TIME TO MEET THE ABOVE STATED FUND CUT-OFF TIMES. FOR MORE INFORMATION ABOUT HOW TO PURCHASE OR SELL FUND SHARES THROUGH YOUR ACCOUNT, INCLUDING SPECIFIC INTERNAL ORDER ENTRY CUT-OFF TIMES, PLEASE CONTACT SUNTRUST DIRECTLY. The Fund may reject any purchase order. HOW THE FUND CALCULATES NAV NAV is calculated by adding the total value of the Fund's investments and other assets, subtracting its liabilities and then dividing that figure by the number of outstanding shares of the Fund. In calculating NAV, the Fund generally values its investment portfolio using the amortized cost valuation method, which is described in detail in the Statement of Additional Information. If the Adviser determines in good faith that this method is unreliable during certain market conditions or for other reasons, the Fund may value its portfolio at market price or at fair value as determined in good faith using methods approved by the Board of Trustees. The Fund expects its NAV to remain constant at $1.00 per share, although the Fund cannot guarantee this. IN-KIND PURCHASES Payment for shares of the Fund may, in the discretion of the Adviser, be made in the form of securities that are permissible investments for the Fund. In connection with an in-kind securities payment, the Fund will require, among other things, that the securities (a) meet the investment objectives and policies of the Fund; (b) are acquired for investment and not for resale; (c) are liquid securities that are not restricted as to transfer either by law or liquidity of markets; (d) have a value that is readily ascertainable (e.g., by a listing on a nationally recognized securities exchange); and (e) are valued on the day of purchase in accordance with the pricing methods used by the Fund. For further information about this form of payment, please call 1-888-STI-FUND. PURCHASING AND SELLING FUND SHARES 6 PROSPECTUS CUSTOMER IDENTIFICATION FOREIGN INVESTORS The Fund does not generally accept investments in Corporate Trust Shares by non-U.S. citizens or entities. CUSTOMER IDENTIFICATION AND VERIFICATION To help the government fight the funding of terrorism and money laundering activities, federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account. When you open an account, you will be asked to provide your name, residential street address, date of birth, Social Security number or tax identification number. You may also be asked for other information that will allow us to identify you. Entities are also required to provide additional documentation. This information will be verified to ensure the identity of all persons opening a mutual fund account. In certain instances, the Fund is required to collect documents to fulfill its legal obligation. Documents provided in connection with your application will be used solely to establish and verify a customer's identity. The Fund is required by law to reject your new account application if the required identifying information is not provided. Attempts to collect the missing information required on the application will be performed by either contacting you or, if applicable, your broker. If this information is unable to be obtained within a timeframe established in the sole discretion of the Fund, your application will be rejected. Upon receipt of your application in proper form (or upon receipt of all identifying information required on the application), your investment will be accepted and your order will be processed at the NAV next-determined. However, the Fund reserves the right to close your account at the then-current day's price if the Fund is unable to verify your identity. Attempts to verify your identity will be performed within a timeframe established in the sole discretion of the Fund. If the Fund is unable to verify your identity, the Fund reserves the right to liquidate your account at the then-current day's price and remit proceeds to you via check. The Fund reserves the further right to hold your proceeds until your original check clears the bank. In such an instance, you may be subject to a gain or loss on Fund shares and will be subject to corresponding tax implications. ANTI-MONEY LAUNDERING PROGRAM Customer identification and verification is part of the Fund's overall obligation to deter money laundering under federal law. The Fund has adopted an anti-money laundering compliance program designed to prevent the Fund from being used for money laundering or the financing of terrorist activities. In this regard, the Fund reserves the right to (i) refuse, cancel or rescind any purchase or exchange order, (ii) freeze any account and/or suspend account services, or (iii) involuntarily redeem your account in cases of threatening conduct or suspected fraudulent or illegal activity. These actions will be taken when, in the sole discretion of Fund management, they are deemed to be in the best interest of the Fund or in cases when the Fund is requested or compelled to do so by governmental or law enforcement authority. HOW TO SELL YOUR FUND SHARES You may sell your shares on any Business Day by contacting SunTrust. SunTrust will provide information about how to sell your shares including any specific cut-off times required. Redemption orders must be sent to the Fund by SunTrust as the record owner of shares. If you own Corporate Trust Shares through a subsidiary of SunTrust you may sell shares by following the procedures established when you opened your account or accounts. Redemption orders must be received by the Fund on a Business Day before 3:00 p.m., Eastern Time. Orders received after 3:00 p.m., Eastern Time will be executed the following Business Day. A MEDALLION SIGNATURE GUARANTEE[DIAMOND SYMBOL] by a bank or other financial institution (a notarized signature is not sufficient) is required to redeem shares: - - made payable to someone other than the registered shareholder; - - sent to an address or bank account other than the address or bank account of record; or - - sent to an address or bank account of record that has been changed within the last 15 calendar days. MARKET TIMING POLICIES AND PROCEDURES PROSPECTUS 7 Other documentation may be required depending on the registration of the account. [DIAMOND SYMBOL] MEDALLION SIGNATURE GUARANTEE: A Medallion Signature Guarantee verifies the authenticity of your signature and helps ensure that changes to your account are in fact authorized by you. A Medallion Signature Guarantee may be obtained from a domestic bank or trust company, broker, dealer, clearing agency, savings association or other financial institution participating in a Medallion Program recognized by the Securities Trading Association. Signature guarantees from financial institutions that do not reflect one of the following are not part of the program and will not be accepted. The acceptable Medallion programs are Securities Transfer Agents Medallion Program, (STAMP), Stock Exchange Medallion Program, (SEMP), or the New York Stock Exchange, Inc. Medallion Program, (NYSE MSP). Contact your local financial adviser for further assistance. RECEIVING YOUR MONEY Normally, the Fund will send your sale proceeds within five Business Days after the Fund receives your request, but the Fund may take up to seven days to pay the sale proceeds if making immediate payment would adversely affect the Fund (for example, to allow the Fund to raise capital in the case of a large redemption). REDEMPTIONS IN KIND The Fund generally pays redemption proceeds in cash. However, under unusual conditions that make the payment of cash unwise (and for the protection of the Fund's remaining shareholders), the Fund might pay all or part of your redemption proceeds in liquid securities with a market value equal to the redemption price (redemption in kind). It is highly unlikely that your shares would ever be redeemed in kind, but if they were you would probably have to pay transaction costs to sell the securities distributed to you, as well as taxes on any capital gains from the sale as with any redemption. SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES The Fund may suspend your right to sell your shares if the NYSE restricts trading, the SEC declares an emergency or for other reasons approved by the SEC. More information about this is in the Statement of Additional Information. TELEPHONE TRANSACTIONS Purchasing and selling Fund shares over the telephone is extremely convenient, but not without risk. Although the Fund has certain safeguards and procedures to confirm the identity of callers and the authenticity of instructions, the Fund is not responsible for any losses or costs incurred by following telephone instructions the Fund reasonably believes to be genuine. If you or your financial institution or intermediary transact with the Fund over the telephone, you will generally bear the risk of any loss. The Fund reserves the right to modify, suspend or terminate telephone transaction privileges at any time. To redeem shares by telephone: - - redemption checks must be made payable to the registered shareholder; and - - redemption checks must be mailed to an address or wired to a bank account of record that has been associated with the shareholder account for at least 15 calendar days. MARKET TIMING POLICIES AND PROCEDURES The Fund is a money market fund and seeks to provide a high degree of liquidity, current income and a stable net asset value of $1.00 per share. The Fund is designed to serve as a short-term cash equivalent investment for shareholders and, therefore, expects shareholders to engage in frequent purchases and redemptions. Because of the inherently liquid nature of the Fund's investments, and money market instruments in general, and the Fund's intended purpose to serve as a short-term investment vehicle for shareholders, the Adviser has informed the Board of Trustees that it believes that it would not be in shareholders' best interests to place any limitations on the frequency of shareholder purchases and redemptions into and out of the Fund. As a result, the Board has not adopted a Fund policy or procedures with respect to frequent purchases and redemptions. DISTRIBUTION OF FUND SHARES The distributor may provide financial assistance in connection with pre-approved seminars, conferences and advertising to the extent permitted by applicable state or DIVIDENDS, DISTRIBUTIONS AND TAXES 8 PROSPECTUS self-regulatory agencies, such as the National Association of Securities Dealers. From its own assets, the Adviser or its affiliates may make payments based on gross sales and current assets to selected brokerage firms or institutions. The amount of these payments may be substantial. The minimum aggregate sales required for eligibility for such payments, and the factors in selecting the brokerage firms and institutions to which they will be made, are determined from time to time by the Adviser. Furthermore, in addition to the fees that may be paid by the Fund, the Adviser or its affiliates may pay fees from its own capital resources to brokers, banks, financial advisers, retirement plan service providers and other financial intermediaries, including affiliates, for providing distribution-related or shareholder services. DIVIDENDS AND DISTRIBUTIONS The Fund declares dividends daily and pays these dividends monthly. The Fund makes distributions of its net realized capital gains, if any, at least annually. If you own Fund shares on a Fund's record date, you will be entitled to receive the distribution. You will receive dividends and distributions in the form of additional Fund shares unless you elect to receive payment in cash. To elect cash payment, you must notify the Fund in writing prior to the date of the distribution. Your election will be effective for dividends and distributions paid after the Fund receives your written notice. To cancel your election, simply send the Fund written notice. TAXES PLEASE CONSULT YOUR TAX ADVISOR REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL, STATE AND LOCAL INCOME TAXES. Below the Fund has summarized some important tax issues that affect the Fund and its shareholders. This summary is based on current tax laws, which may change. The Fund will distribute substantially all of its net investment income and its net realized capital gains, if any, at least annually. The dividends and distributions you receive may be subject to federal, state and local taxation, depending upon your tax situation. Distributions you receive from the Fund may be taxable whether or not you reinvest them. Income distributions are generally taxable at ordinary income tax rates and will not qualify for the reduced rates applicable to qualified dividend income. EACH SALE OF FUND SHARES MAY BE A TAXABLE EVENT; HOWEVER, BECAUSE THE FUND EXPECTS TO MAINTAIN A STABLE $1.00 NET ASSET VALUE PER SHARE, YOU SHOULD NOT EXPECT TO REALIZE ANY GAIN OR LOSS ON THE SALE OR EXCHANGE OF YOUR FUND SHARES. A transfer from one share class to another share class in the same STI Classic Fund should not be a taxable event. A significant portion of the Fund's distributions may represent interest earned on U.S. obligations. Many states grant tax-free status to dividends paid from interest earned on direct obligations of the U.S. Government, subject to certain limitations. MORE INFORMATION ABOUT TAXES IS IN THE STATEMENT OF ADDITIONAL INFORMATION. PROSPECTUS 9 [THIS PAGE INTENTIONALLY LEFT BLANK] FINANCIAL HIGHLIGHTS 10 PROSPECTUS FINANCIAL HIGHLIGHTS The financial highlights table is intended to help you understand the Fund's financial performance for the period of the Fund's operations. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This financial information has been audited by PricewaterhouseCoopers LLP, except the information for the year ended May 31, 2001, which has been audited by a predecessor independent accounting firm that has ceased operations. The Report of Independent Registered Public Accounting Firm for each period shown, along with the Fund's financial statements and related notes, are included in the Annual Reports to Shareholders for such periods. The 2006 Annual Report is available upon request and without charge by calling 1-888-STI-FUND or on the Fund's website at www.sticlassicfunds.com.
NET ASSET DIVIDENDS VALUE, NET NET REALIZED FROM NET DISTRIBUTIONS BEGINNING INVESTMENT GAIN (LOSS) TOTAL FROM INVESTMENT FROM REALIZED OF PERIOD INCOME ON INVESTMENTS OPERATIONS INCOME CAPITAL GAINS --------- ---------- -------------- ---------- ---------- ------------- CLASSIC INSTITUTIONAL U.S. TREASURY SECURITIES MONEY MARKET FUND CORPORATE TRUST SHARES Year Ended March 31, 2006................. $1.00 0.03 -- 0.03 (0.03) -- Period Ended March 31, 2005**............. $1.00 0.01 -- 0.01 (0.01) -- Year Ended May 31, 2004................... $1.00 0.01 -- 0.01 (0.01) --* Year Ended May 31, 2003................... $1.00 0.01 -- 0.01 (0.01) --* Year Ended May 31, 2002................... $1.00 0.02 -- 0.02 (0.02) -- Year Ended May 31, 2001................... $1.00 0.05 -- 0.05 (0.05) --
+ Not annualized for periods less than one year. ++ Annualized for periods less than one year. * Amount less than $0.005. ** Effective June 1, 2004, the Fund adopted a change in the amortization and accretion methodology on fixed income securities. The cumulative effect of this change in methodology was immaterial. FINANCIAL HIGHLIGHTS PROSPECTUS 11
TOTAL RATIO OF RATIO OF RATIO OF DIVIDENDS NET ASSET NET ASSETS, NET EXPENSES NET INVESTMENT EXPENSES TO AND VALUE, END TOTAL END OF TO AVERAGE INCOME TO AVERAGE NET ASSETS DISTRIBUTIONS OF PERIOD RETURN+ PERIOD (000) NET ASSETS++ AVERAGE NET ASSETS++ (EXCLUDING WAIVERS)++ - ------------- ---------- ------- ------------ -------------------- -------------------- --------------------- (0.03) $1.00 3.17% $2,068,462 0.44% 3.14% 0.44% (0.01) $1.00 1.14% $1,825,373 0.44% 1.38% 0.45% (0.01) $1.00 0.57% $1,378,551 0.46% 0.51% 0.49% (0.01) $1.00 1.10% $1,298,910 0.46% 1.05% 0.49% (0.02) $1.00 2.08% $1,805,066 0.46% 2.11% 0.50% (0.05) $1.00 5.53% $1,303,630 0.46% 5.38% 0.50%
[THIS PAGE INTENTIONALLY LEFT BLANK] INVESTMENT ADVISER: Trusco Capital Management, Inc. 50 Hurt Plaza, Suite 1400 Atlanta, Georgia 30303 More information about the STI Classic Funds is available without charge through the following: STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI includes detailed information about the STI Classic Funds. The SAI is on file with the SEC and is incorporated by reference into this prospectus. This means that the SAI, for legal purposes, is a part of this prospectus. ANNUAL AND SEMI-ANNUAL REPORTS: These reports list each Fund's holdings and contain information from the Funds' managers about strategies and recent market conditions and trends and their impact on Fund performance. The reports also contain detailed financial information about the Funds. TO OBTAIN AN SAI, ANNUAL OR SEMI-ANNUAL REPORT, OR MORE INFORMATION: TELEPHONE: SunTrust Corporate Trust Division 1-800-432-4760, option 1, ext. 4085 MAIL: STI Classic Funds BISYS Fund Services Limited Partnership 3435 Stelzer Road Columbus, Ohio 43219 WEBSITE: www.sticlassicfunds.com SEC: You can also obtain the SAI or the Annual and Semi-Annual reports, as well as other information about the STI Classic Funds, from the EDGAR Database on the SEC's website at http://www.sec.gov. You may review and copy documents at the SEC Public Reference Room in Washington, DC (for information on the operation of the Public Reference Room, call 202-942-8090). You may request documents by mail from the SEC, upon payment of a duplicating fee, by writing to: Securities and Exchange Commission, Public Reference Section, Washington, DC 20549-0102. You may also obtain this information, upon payment of a duplicating fee, by e-mailing the SEC at publicinfo@sec.gov. The STI Classic Funds' Investment Company Act registration number is 811-06557. STI CLASSIC FUNDS PU-INCT-0806 STI CLASSIC FUNDS A Shares C Shares PROSPECTUS
STI CLASSIC EQUITY FUNDS Aggressive Growth Stock Fund Balanced Fund Capital Appreciation Fund Emerging Growth Stock Fund International Equity Fund International Equity Index Fund Large Cap Quantitative Equity Fund (formerly Strategic Quantitative Equity Fund) Large Cap Relative Value Fund Large Cap Value Equity Fund Mid-Cap Equity Fund Mid-Cap Value Equity Fund Quality Growth Stock Fund Small Cap Growth Stock Fund Small Cap Quantitative Equity Fund Small Cap Value Equity Fund
Investment Adviser: Trusco Capital Management, Inc. (the "Adviser") Investment Subadviser: Zevenbergen Capital Investments LLC (the "Subadviser") (Aggressive Growth Stock Fund and Emerging Growth Stock Fund) August 1, 2006 The Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense. PROSPECTUS ABOUT THIS PROSPECTUS The STI Classic Funds is a mutual fund family that offers shares in separate investment portfolios that have individual investment goals and strategies. This prospectus gives you important information about the A Shares and C Shares of the Equity Funds ("Funds") that you should know before investing. Please read this prospectus and keep it for future reference. A Shares and C Shares have different expenses and other characteristics, allowing you to choose the class that best suits your needs. You should consider the amount you want to invest, how long you plan to have it invested, and whether you plan to make additional investments. A SHARES - - Front-end sales charge - - 12b-1 fees - - $2,000 minimum initial investment C SHARES - - Contingent deferred sales charge - - Higher 12b-1 fees - - $5,000 minimum initial investment This prospectus has been arranged into different sections so that you can easily review this important information. On the next page, there is some general information you should know about risk and return that is common to each of the Funds. For more detailed information about each Fund, please see: 2 AGGRESSIVE GROWTH STOCK FUND 6 BALANCED FUND 10 CAPITAL APPRECIATION FUND 14 EMERGING GROWTH STOCK FUND 18 INTERNATIONAL EQUITY FUND 22 INTERNATIONAL EQUITY INDEX FUND 26 LARGE CAP QUANTITATIVE EQUITY FUND 30 LARGE CAP RELATIVE VALUE FUND 35 LARGE CAP VALUE EQUITY FUND 39 MID-CAP EQUITY FUND 43 MID-CAP VALUE EQUITY FUND 47 QUALITY GROWTH STOCK FUND 52 SMALL CAP GROWTH STOCK FUND 56 SMALL CAP QUANTITATIVE EQUITY FUND 58 SMALL CAP VALUE EQUITY FUND 62 MORE INFORMATION ABOUT RISK 65 MORE INFORMATION ABOUT FUND INVESTMENTS 66 INFORMATION ABOUT PORTFOLIO HOLDINGS 66 INVESTMENT ADVISER 67 INVESTMENT SUBADVISER 67 PORTFOLIO MANAGERS 68 PURCHASING, SELLING AND EXCHANGING FUND SHARES 76 MARKET TIMING POLICIES AND PROCEDURES 77 REDEMPTION FEE POLICY 78 DIVIDENDS AND DISTRIBUTIONS 79 TAXES 80 FINANCIAL HIGHLIGHTS INSIDE PRIVACY POLICY BACK COVER BACK HOW TO OBTAIN MORE INFORMATION COVER ABOUT THE STI CLASSIC FUNDS
- -------------------------------------------------------------------------------- (SUITCASE FUND SUMMARY ICON) (TELESCOPE INVESTMENT STRATEGY ICON) (LIFE WHAT ARE THE PRINCIPAL RISKS OF INVESTING? PRESERVER ICON) (TARGET PERFORMANCE INFORMATION ICON) (LINE WHAT IS AN INDEX? GRAPH ICON) (COIN FUND FEES AND EXPENSES ICON) (MOUNTAIN MORE INFORMATION ABOUT FUND INVESTMENTS ICON) (MAGNIFYING INVESTMENT ADVISER GLASS ICON) (HAND PURCHASING, SELLING AND EXCHANGING SHAKE FUND SHARES ICON) (DOLLAR SALES CHARGES ICON)
- -------------------------------------------------------------------------------- AUGUST 1, 2006 PROSPECTUS 1 CUSIP/TICKER SYMBOLS
FUND NAME CLASS INCEPTION* TICKER CUSIP Aggressive Growth Stock Fund A Shares 2/23/04 SAGAX 784767212 Aggressive Growth Stock Fund C Shares 2/23/04 SAGLX 784767196 Balanced Fund A Shares 1/3/94 STBLX 784766727 Balanced Fund C Shares 6/14/95 SCBFX 784766446 Capital Appreciation Fund A Shares 6/9/92 STCIX 784766859 Capital Appreciation Fund C Shares 6/1/95 STCFX 784766479 Emerging Growth Stock Fund A Shares 2/23/04 SCEAX 784767253 Emerging Growth Stock Fund C Shares 2/27/04 SEGLX 784767246 International Equity Fund A Shares 1/2/96 SCIIX 784766396 International Equity Fund C Shares 1/2/96 SIEFX 784766412 International Equity Index Fund A Shares 6/6/94 SIIIX 784766586 International Equity Index Fund C Shares 6/8/95 SIIFX 784766420 Large Cap Quantitative Equity Fund A Shares 10/8/03 SQEAX 784767428 Large Cap Quantitative Equity Fund C Shares 10/13/03 SQELX 784767410 Large Cap Relative Value Fund A Shares 5/7/93 CFVIX 784766180 Large Cap Relative Value Fund C Shares 4/5/95 CVIBX 784766172 Large Cap Value Equity Fund A Shares 2/17/93 SVIIX 784766842 Large Cap Value Equity Fund C Shares 6/1/95 SVIFX 784766461 Mid-Cap Equity Fund A Shares 1/31/94 SCAIX 784766743 Mid-Cap Equity Fund C Shares 6/5/95 SCMEX 784766453 Mid-Cap Value Equity Fund A Shares 10/27/03 SAMVX 784767444 Mid-Cap Value Equity Fund C Shares 11/30/01 SMVFX 784767717 Quality Growth Stock Fund A Shares 10/14/03 SXSAX 784767394 Quality Growth Stock Fund C Shares 12/15/98 STTFX 784766214 Small Cap Growth Stock Fund A Shares 12/10/99 SCGIX 784766255 Small Cap Growth Stock Fund C Shares 10/8/98 SSCFX 784766248 Small Cap Quantitative Equity Fund A Shares 4/3/06 SCQAX 78476A579 Small Cap Quantitative Equity Fund C Shares 4/3/06 SCQEX 78476A561 Small Cap Value Equity Fund A Shares 10/9/03 SASVX 784767436 Small Cap Value Equity Fund C Shares 6/6/97 STCEX 784766321
* The performance included under "Performance Information" may include the performance of other classes of the Fund and/or predecessors of the Fund. RISK/RETURN INFORMATION COMMON TO THE STI CLASSIC FUNDS Each Fund is a mutual fund. A mutual fund pools shareholders' money and, using professional investment managers, invests it in securities. Each Fund has its own investment goal and strategies for reaching that goal. The Adviser (or the Subadviser) is responsible for investing Fund assets in a way that it believes will help a Fund achieve its goal. Still, investing in each Fund involves risk and there is no guarantee that a Fund will achieve its goal. The Adviser's (or the Subadviser's) judgments about the markets, the economy or companies may not anticipate actual market movements, economic conditions or company performance, and these judgments may affect the return on your investment. In fact, no matter how good a job the Adviser (or the Subadviser) does, you could lose money on your investment in a Fund, just as you could with other investments. A FUND SHARE IS NOT A BANK DEPOSIT AND IT IS NOT INSURED OR GUARANTEED BY THE FDIC OR ANY GOVERNMENT AGENCY. The value of your investment in a Fund is based on the market prices of the securities the Fund holds. These prices change daily due to economic and other events that affect particular companies and other issuers. These price movements, sometimes called volatility, may be greater or lesser depending on the types of securities a Fund owns and the markets in which they trade. The effect on a Fund of a change in the value of a single security will depend on how widely the Fund diversifies its holdings. Each Fund's investment goal may be changed without shareholder approval. Before investing, make sure that the Fund's goal matches your own. AGGRESSIVE GROWTH STOCK FUND 2 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Long-term capital appreciation INVESTMENT FOCUS Common stocks of U.S. multi-cap growth companies SHARE PRICE VOLATILITY High PRINCIPAL INVESTMENT STRATEGY Attempts to identify securities of companies with favorable prospects for future revenue, earnings and/or cash flow growth INVESTOR PROFILE Investors who want to increase the value of their investment, but do not need income, and who are willing to accept more volatility for the possibility of higher returns
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Aggressive Growth Stock Fund invests at least 80% of its net assets in common stocks and other U.S. traded equity securities. U.S. traded equity securities may include listed American Depositary Receipts ("ADRs"). The Fund may invest in companies of any size. The Fund invests primarily in common stocks of U.S. companies that exhibit strong growth characteristics. Using a "bottom-up" approach, the Subadviser identifies companies with favorable prospects for future revenue, earnings, and/or cash flow growth. Growth "drivers" are identified for each company and become critical to the ongoing evaluation process. Industry growth dynamics, company competitive positioning, pricing flexibility, and diversified product offerings are evaluated, providing the foundation for further fundamental research to determine the weighting of the Fund's investments. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. Small and mid-cap stocks can perform differently from other segments of the equity market or the equity market as a whole and can be more volatile than stocks of larger companies. Because the Fund may invest in ADRs, it is subject to some of the same risks as direct investments in foreign companies. These include the risk that political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. For information about the risks involved when investing in derivatives, see "More Information About Risk." AGGRESSIVE GROWTH STOCK FUND PROSPECTUS 3 (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows performance of the Fund's A Shares for the last year.* The chart does not reflect sales charges. If sales charges had been reflected, returns would be less than those shown. (BAR CHART) 2005 6.85%
BEST QUARTER WORST QUARTER 6.55% -7.69% (12/31/05) (3/31/05)
* The performance information above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was -0.53%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005 to those of the Russell 3000(R) Growth Index. These returns reflect applicable sales charges and assume shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only the A Shares. After-tax returns for other classes will vary.
SINCE A SHARES 1 YEAR INCEPTION* Fund Returns Before Taxes 0.71% 3.90% Fund Returns After Taxes on Distributions 0.71% 3.90% Fund Returns After Taxes on Distributions and Sale of Fund Shares 0.46% 3.32% Russell 3000(R) Growth Index (reflects no deduction for fees, expenses or taxes) 5.17% 4.98%
SINCE C SHARES 1 YEAR INCEPTION* Fund Returns Before Taxes 5.22% 6.66% Russell 3000(R) Growth Index (reflects no deduction for fees, expenses or taxes) 5.17% 4.98%
* Since inception of the A Shares on February 23, 2004. Benchmark returns since February 29, 2004 (benchmark returns available only on a month end basis). (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Russell 3000(R) Growth Index measures the performance of those companies found in the Russell universe with higher price-to-book ratios and higher forecasted growth values. The stocks in this Index are also members of either the Russell 1000(R) Growth or the Russell 2000(R) Growth indices. AGGRESSIVE GROWTH STOCK FUND 4 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
A SHARES C SHARES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)* 5.75% None Maximum Deferred Sales Charge (as a percentage of net asset value)** None 1.00% Redemption Fee (as a percentage of net asset value)*** 2.00% 2.00%
* This sales charge varies depending upon how much you invest. You may buy A Shares in amounts of $1,000,000 or more at net asset value (without an initial sales charge), but if you redeem those shares within one year of your purchase, you will pay a deferred sales charge of 1.00%. See "Sales Charges." ** This sales charge is imposed if you sell C Shares within one year of your purchase. See "Sales Charges." *** This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
A SHARES C SHARES Investment Advisory Fees(1) 1.10% 1.10% Distribution and Service (12b-1) Fees 0.30%(2) 1.00% Other Expenses 0.11% 0.11% ------------ ------------------- Total Annual Operating Expenses(3) 1.51% 2.21%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) Adjusted to reflect a reduction in 12b-1 fees effective August 1, 2005. The Fund's Distribution and Service Plan for A Shares authorizes payment of up to 0.35% of average daily net assets of A Shares for distribution and shareholder services. Currently, the Board of Trustees has only approved payment of up to 0.30% of average daily net assets. (3) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: If you sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $720 $1,025 $1,351 $2,273 C Shares $324 $ 691 $1,185 $2,544
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $720 $1,025 $1,351 $2,273 C Shares $224 $ 691 $1,185 $2,544
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." AGGRESSIVE GROWTH STOCK FUND PROSPECTUS 5 - ------------------------------------------------------------- ADDITIONAL AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- Unlike the Average Annual Total Returns on page 3, the table below reflects the Fund's results calculated without sales charges.
SINCE A SHARES 1 YEAR INCEPTION* Fund Returns Before Taxes 6.85% 7.27% Fund Returns After Taxes on Distributions 6.85% 7.27% Fund Returns After Taxes on Distributions and Sale of Fund Shares 4.45% 6.21% Russell 3000(R) Growth Index (reflects no deduction for fees, expenses or taxes) 5.17% 4.98%
* Since its inception of the A Shares on February 23, 2004. Benchmark returns since February 29, 2004 (benchmark returns available only on a month end basis). BALANCED FUND 6 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Capital appreciation and current income INVESTMENT FOCUS PRIMARY U.S. common stocks SECONDARY Bonds SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Attempts to identify companies with improving earnings growth and bonds with moderate risk INVESTOR PROFILE Investors who want income from their investment, as well as an increase in its value
(TELESCOPE ICON) INVESTMENT STRATEGY The Balanced Fund invests in common and preferred stocks, convertible securities, government obligations, corporate bonds, and U.S. traded equity securities, including listed American Depositary Receipts ("ADRs") among other types of securities. The Fund may invest in securities of U.S. and non-U.S. issuers. The Fund may invest in floating rate loans and emerging market debt, which are generally below investment grade, high yield obligations. The Fund may also invest a portion of its assets in securities that are restricted as to resale. In selecting stocks for the Fund, the Adviser focuses on generally large cap stocks which have improving earnings and fundamentals. In selecting bonds, the Adviser seeks to minimize risk while striving to outperform selected market indices. Because companies and securities tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell derivative instruments (such as futures, options and swaps, including credit default swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk, interest rate risk and credit risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. Foreign securities involve special risks such as currency fluctuations, economic or financial instability, lack of timely or reliable financial information and unfavorable political or legal developments. These risks are increased for investments in emerging markets. Below investment grade securities (sometimes referred to as "junk bonds") involve greater risk of default or downgrade and are more volatile than investment grade securities. Below investment grade securities may also be less liquid than higher quality securities. The risks associated with floating rate loans are similar to the risks of below investment grade securities. In addition, the value of the collateral securing the loan may decline, causing a loan to be substantially unsecured. Difficulty in selling a floating rate loan may result in a loss. Borrowers may pay back principal before the scheduled due date when interest rates decline, which may require the Fund to replace a particular loan with a lower-yielding security. There may be less extensive public information available with respect to loans than for rated, registered or exchange listed securities. The Fund may assume the credit risk of the primary lender in addition to the borrower, and investments in loan assignments may involve the risks of being a lender. U.S. government securities can exhibit price movements resulting from changes in interest rates. Treasury inflation protected securities ("TIPS") can also exhibit price movements as a result of changing inflation BALANCED FUND PROSPECTUS 7 expectations and seasonal inflation patterns. Certain U.S. government securities are backed by the full faith and credit of the U.S. Government, while others are backed by the ability of the issuing entity to borrow from the U.S. Treasury or by the issuing entity's own resources. Restricted securities may increase the level of illiquidity in the Fund during any period that qualified institutional buyers become uninterested in purchasing these restricted securities. The Adviser intends to invest only in restricted securities that it believes present minimal liquidity risk. Because the Fund invests in derivatives, it is exposed to additional volatility and potential losses. Credit default swaps can increase the Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. The use of derivatives may cause the Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's A Shares from year to year.* The chart does not reflect sales charges. If sales charges had been reflected, returns would be less than those shown. (BAR CHART) 1996 11.85% 1997 20.71% 1998 19.21% 1999 4.31% 2000 4.44% 2001 -0.07% 2002 -8.85% 2003 9.66% 2004 5.28% 2005 0.60%
BEST QUARTER WORST QUARTER 12.52% -6.01% (12/31/98) (6/30/02)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was -0.71%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of a Hybrid 60/40 Blend of the S&P 500(R) Index and the Lehman Brothers U.S. Government/Credit Index. These returns reflect applicable sales charges and assumes shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only the A Shares. After-tax returns for other classes will vary.
A SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes -5.17% -0.06% 5.75% Fund Returns After Taxes on Distributions -6.43% -0.87% 3.93% Fund Returns After Taxes on Distributions and Sale of Fund Shares -2.10% -0.35% 3.96% Hybrid 60/40 Blend of the Following Market Benchmarks 3.97% 3.10% 8.27% S&P 500(R) Index (reflects no deduction for fees, expenses or taxes) 4.91% 0.54% 9.07% Lehman Brothers U.S. Government/Credit Index (reflects no deduction for fees, expenses or taxes) 2.37% 6.11% 6.17%
C SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes -1.11% 0.39% 5.58% Hybrid 60/40 Blend of the Following Market Benchmarks 3.97% 3.10% 8.27% S&P 500(R) Index (reflects no deduction for fees, expenses or taxes) 4.91% 0.54% 9.07% Lehman Brothers U.S. Government/Credit Index (reflects no deduction for fees, expenses or taxes) 2.37% 6.11% 6.17%
BALANCED FUND 8 PROSPECTUS (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The S&P 500(R) Index is a widely-recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index of 500 stocks designed to mimic the overall U.S. equity market's industry weightings. The Lehman Brothers U.S. Government/Credit Index is a widely-recognized composite made up of the Lehman Brothers U.S. Government Index and the Lehman Brothers U.S. Credit Index, which include U.S. government, Treasury and agency securities, as well as high grade corporate bonds. (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
A SHARES C SHARES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)* 5.75% None Maximum Deferred Sales Charge (as a percentage of net asset value)** None 1.00% Redemption Fee (as a percentage of net asset value)*** 2.00% 2.00%
* This sales charge varies depending upon how much you invest. You may buy A Shares in amounts of $1,000,000 or more at net asset value (without an initial sales charge), but if you redeem those shares within one year of your purchase, you will pay a deferred sales charge of 1.00%. See "Sales Charges." ** This sales charge is imposed if you sell C Shares within one year of your purchase. See "Sales Charges." *** This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
A SHARES C SHARES Investment Advisory Fees(1) 0.85% 0.85% Distribution and Service (12b-1) Fees 0.28% 1.00% Other Expenses 0.10% 0.10% ------------ ------------------- Total Annual Operating Expenses(2) 1.23% 1.95%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: If you sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $693 $943 $1,212 $1,978 C Shares $298 $612 $1,052 $2,275
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $693 $943 $1,212 $1,978 C Shares $198 $612 $1,052 $2,275
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." BALANCED FUND PROSPECTUS 9 - ------------------------------------------------------------- ADDITIONAL AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- Unlike the Average Annual Total Returns on page 7, the table below reflects the Fund's results calculated without sales charges.
A SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes 0.60% 1.13% 6.37% Fund Returns After Taxes on Distributions -0.73% 0.31% 4.54% Fund Returns After Taxes on Distributions and Sale of Fund Shares 1.73% 0.66% 4.51% Hybrid 60/40 Blend of the Following Market Benchmarks 3.97% 3.10% 8.27% S&P 500(R) Index (reflects no deduction for fees, expenses or taxes) 4.91% 0.54% 9.07% Lehman Brothers U.S. Government/Credit Index (reflects no deduction for fees, expenses or taxes) 2.37% 6.11% 6.17%
CAPITAL APPRECIATION FUND 10 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Capital appreciation - --------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS U.S. common stocks - --------------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Moderate - --------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify companies with above average growth potential - --------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Investors who want the value of their investment to grow, but do not need to receive income on their investment - ---------------------------------------------------------------------------------------------------------
(TELESCOPE ICON) INVESTMENT STRATEGY The Capital Appreciation Fund invests primarily in U.S. common stocks and other equity securities that the Adviser believes have strong business fundamentals, such as revenue growth, cash flows and earnings trends. The Adviser's strategy focuses primarily on large cap stocks but will also utilize mid-cap stocks. In selecting investments for the Fund, the Adviser chooses companies that it believes have above average growth potential. The Adviser applies proprietary models to rank stocks based on earnings trends and valuations. It then performs in-depth fundamental analysis to determine the quality and sustainability of earnings, as well as the quality of management. Risk controls are in place to assist in maintaining a portfolio that is diversified by security type and industry sector. The Adviser uses a "bottom-up" process based on individual company earnings trends and fundamentals to determine the weighting of the Fund's investments in various equity market sectors. Because companies tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. Mid-cap stocks can perform differently from other segments of the equity market or the equity market as a whole and can be more volatile than stocks of larger companies. Large cap stocks can perform differently from other segments of the equity market or the equity market as a whole. Large capitalization companies may be less flexible in evolving markets or unable to implement change as quickly as smaller capitalization companies. Accordingly, the value of large cap stocks may not rise to the same extent as the value of small or mid-cap stocks. For information about the risks involved when investing in derivatives, see "More Information About Risk." CAPITAL APPRECIATION FUND PROSPECTUS 11 (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's A Shares from year to year.* The chart does not reflect sales charges. If sales charges had been reflected, returns would be less than those shown. (BAR CHART) 1996 19.50% 1997 30.34% 1998 27.26% 1999 9.06% 2000 0.94% 2001 -7.11% 2002 -22.48% 2003 17.72% 2004 5.69% 2005 -1.79%
BEST QUARTER WORST QUARTER 22.78% -15.10% (12/31/98) (9/30/01)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 0.13%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the S&P 500(R) Index. These returns reflect applicable sales charges and assumes shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only the A Shares. After-tax returns for other classes will vary.
A SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes -7.42% -3.68% 6.11% Fund Returns After Taxes on Distributions -7.73% -4.02% 3.77% Fund Returns After Taxes on Distributions and Sale of Fund Shares -4.41% -3.14% 4.13% S&P 500(R) Index (reflects no deduction for fees, expenses or taxes) 4.91% 0.54% 9.07%
C SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes -3.20% -2.98% 6.24% S&P 500(R) Index (reflects no deduction for fees, expenses or taxes) 4.91% 0.54% 9.07%
(LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The S&P 500(R) Index is a widely-recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index of 500 stocks designed to mimic the overall U.S. equity market's industry weightings. CAPITAL APPRECIATION FUND 12 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
A SHARES C SHARES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)* 5.75% None Maximum Deferred Sales Charge (as a percentage of net asset value)** None 1.00% Redemption Fee (as a percentage of net asset value)*** 2.00% 2.00%
* This sales charge varies depending upon how much you invest. You may buy A Shares in amounts of $1,000,000 or more at net asset value (without an initial sales charge), but if you redeem those shares within one year of your purchase, you will pay a deferred sales charge of 1.00%. See "Sales Charges." ** This sales charge is imposed if you sell C Shares within one year of your purchase. See "Sales Charges." *** This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
A SHARES C SHARES Investment Advisory Fees(1) 0.92% 0.92% Distribution and Service (12b-1) Fees 0.30%(2) 1.00% Other Expenses 0.07% 0.07% ------------ ------------------- Total Annual Operating Expenses(3) 1.29% 1.99%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) Adjusted to reflect a reduction in 12b-1 fees effective August 1, 2005. The Fund's Distribution and Service Plan for A Shares authorizes payment of up to 0.35% of average daily net assets of A Shares for distribution and shareholder services. Currently, the Board of Trustees has only approved payment of up to 0.30% of average daily net assets. (3) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: If you sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $699 $960 $1,242 $2,042 C Shares $302 $624 $1,073 $2,317
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $699 $960 $1,242 $2,042 C Shares $202 $624 $1,073 $2,317
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." CAPITAL APPRECIATION FUND PROSPECTUS 13 - ------------------------------------------------------------- ADDITIONAL AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- Unlike the Average Annual Total Returns on page 11, the table below reflects the Fund's results calculated without sales charges.
A SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes -1.79% -2.53% 6.74% Fund Returns After Taxes on Distributions -2.12% -2.88% 4.38% Fund Returns After Taxes on Distributions and Sale of Fund Shares -0.73% -2.18% 4.69% S&P 500(R) Index (reflects no deduction for fees, expenses or taxes) 4.91% 0.54% 9.07%
EMERGING GROWTH STOCK FUND 14 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Long-term capital appreciation INVESTMENT FOCUS Common stocks of U.S. small and mid-cap growth companies SHARE PRICE VOLATILITY High PRINCIPAL INVESTMENT STRATEGY Attempts to identify securities of small and mid-cap companies with favorable prospects for future revenue, earnings and/or cash flow growth INVESTOR PROFILE Investors who want to increase the value of their investment, but do not need income, and who are willing to accept more volatility for the possibility of higher returns
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Emerging Growth Stock Fund invests at least 80% of its net assets in common stocks and other U.S. traded equity securities. U.S. traded equity securities may include listed American Depositary Receipts ("ADRs"). The Fund invests primarily in stocks of U.S. companies with market capitalizations below $10 billion, and the Subadviser emphasizes companies with market capitalizations of $5 billion or less. In selecting investments for the Fund, the Subadviser looks for companies that exhibit strong growth characteristics. Using a "bottom-up" approach, the Subadviser identifies companies with favorable prospects for future revenue, earnings, and/or cash flow growth. Growth "drivers" are identified for each company and become critical to the ongoing evaluation process. Industry growth dynamics, company competitive positioning, pricing flexibility, and diversified product offerings are evaluated, providing the foundation for further fundamental research to determine the weighting of the Fund's investments. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. Small and mid-cap stocks can perform differently from other segments of the equity market or the equity market as a whole and can be more volatile than stocks of larger companies. Because the Fund may invest in ADRs, it is subject to some of the same risks as direct investments in foreign companies. These include the risk that political and economic events unique to a county or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. For information about the risks involved when investing in derivatives, see "More Information About Risk." EMERGING GROWTH STOCK FUND PROSPECTUS 15 (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows performance of the Fund's A Shares for the last year.* The chart does not reflect sales charges. If sales charges had been reflected, returns would be less than those shown. (BAR CHART) 2005 14.85%
BEST QUARTER WORST QUARTER 8.24% -4.98% (6/30/05) (3/31/05)
* The performance information above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 5.14%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005 to those of the Russell Midcap(R) Growth Index. These returns reflect applicable sales charges and assume shareholders redeem all of their shares at the end of the period indicated.
SINCE A SHARES 1 YEAR INCEPTION* Fund Returns Before Taxes 8.25% 3.41% Fund Returns After Taxes on Distributions 8.25% 3.41% Fund Returns After Taxes on Distributions and Sale of Fund Shares 5.36% 2.90% Russell Midcap(R) Growth Index (reflects no deduction for fees, expenses or taxes) 12.10% 12.95%
* Since inception of the A Shares on February 23, 2004.
SINCE C SHARES 1 YEAR INCEPTION* Fund Returns Before Taxes 13.20% 5.44% Russell Midcap(R) Growth Index (reflects no deduction for fees, expenses or taxes) 12.10% 12.04%
* Since inception of the C Shares on February 27, 2004. (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Russell Midcap(R) Growth Index measures the performance of those companies in the Russell universe with higher price-to-book ratios and higher forecasted growth values. EMERGING GROWTH STOCK FUND 16 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
A SHARES C SHARES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)* 5.75% None Maximum Deferred Sales Charge (as a percentage of net asset value)** None 1.00% Redemption Fee (as a percentage of net asset value)*** 2.00% 2.00%
* This sales charge varies depending upon how much you invest. You may buy A Shares in amounts of $1,000,000 or more at net asset value (without an initial sales charge), but if you redeem those shares within one year of your purchase, you will pay a deferred sales charge of 1.00%. See "Sales Charges." ** This sales charge is imposed if you sell C Shares within one year of your purchase. See "Sales Charges." *** This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
A SHARES C SHARES Investment Advisory Fees(1) 1.10% 1.10% Distribution and Service (12b-1) Fees 0.30%(2) 1.00% Other Expenses 0.11% 0.11% ------------ ------------------- Total Annual Operating Expenses(3) 1.51% 2.21%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) Adjusted to reflect a reduction in 12b-1 fees effective August 1, 2005. The Fund's Distribution and Service Plan for A Shares authorizes payment of up to 0.35% of average daily net assets of A Shares for distribution and shareholder services. Currently, the Board of Trustees has only approved payment of up to 0.30% of average daily net assets. (3) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: If you sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $720 $1,025 $1,351 $2,273 C Shares $324 $ 691 $1,185 $2,544
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $720 $1,025 $1,351 $2,273 C Shares $224 $ 691 $1,185 $2,544
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." EMERGING GROWTH STOCK FUND PROSPECTUS 17 - ------------------------------------------------------------- ADDITIONAL AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- Unlike the Average Annual Total Returns on page 15, the table below reflects the Fund's results calculated without sales charges.
SINCE A SHARES 1 YEAR INCEPTION* Fund Returns Before Taxes 14.85% 6.76% Fund Returns After Taxes on Distributions 14.85% 6.76% Fund Returns After Taxes on Distributions and Sale of Fund Shares 9.65% 5.77% Russell Midcap(R) Growth Index (reflects no deduction for fees, expenses or taxes) 12.10% 12.95%
* Since inception of the A Shares on February 23, 2004. INTERNATIONAL EQUITY FUND 18 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Long-term capital appreciation INVESTMENT FOCUS Foreign common stocks SHARE PRICE VOLATILITY High PRINCIPAL INVESTMENT STRATEGY Attempts to identify companies with good fundamentals or a history of consistent growth INVESTOR PROFILE Investors who want an increase in the value of their investment without regard to income, are willing to accept the increased risks of international investing for the possibility of higher returns, and want exposure to a diversified portfolio of international stocks
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the International Equity Fund invests at least 80% of its net assets in common stocks and other equity securities of foreign companies. The Fund invests primarily in developed countries, but may invest in countries with emerging markets. The Adviser applies a multi-factor model to identify stocks with positive earnings trends and attractive valuations. Fundamental analysis is used to determine those companies that are projected to have sustainability of earnings and global industry positioning. The Adviser's goal is to find companies with top management, quality products and sound financial positions, or a history of consistent growth in cash flows, sales, operating profits, returns on equity and returns on invested capital. Risk controls are in place to assist in maintaining a portfolio that is diversified by security type and industry sector and invested across multiple countries. In selecting investments for the Fund, the Adviser diversifies the Fund's investments among at least three foreign countries. Because companies tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The Fund is also subject to the risk that foreign common stocks may underperform other segments of the equity market or the equity market as a whole. Foreign securities involve special risks such as currency fluctuations, economic or financial instability, lack of timely or reliable financial information and unfavorable political or legal developments. These risks are increased for investments in emerging markets. For information about the risks involved when investing in derivatives, see "More Information About Risk." INTERNATIONAL EQUITY FUND PROSPECTUS 19 (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. A Shares and C Shares were offered beginning January 2, 1996. Performance on January 1, 1996 is that of I Shares of the Fund, and has not been adjusted to reflect A Share or C Share expenses, respectively. If it had been, performance would have been lower. This bar chart shows changes in the performance of the Fund's A Shares from year to year.* The chart does not reflect sales charges. If sales charges had been reflected, returns would be less than those shown. (BAR CHART) 1996 21.58% 1997 13.01% 1998 10.69% 1999 9.05% 2000 -3.74% 2001 -17.99% 2002 -17.30% 2003 36.14% 2004 18.49% 2005 12.87%
BEST QUARTER WORST QUARTER 18.62% -19.71% (6/30/03) (9/30/02)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 9.97%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Morgan Stanley Capital International Europe, Australasia, and Far East (MSCI(R) EAFE(R)) Index. These returns reflect applicable sales charges and assumes shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only the A Shares. After-tax returns for other classes will vary.
A SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes 6.35% 3.08% 6.40% Fund Returns After Taxes on Distributions 6.23% 2.97% 5.00 Fund Returns After Taxes on Distributions and Sale of Fund Shares 4.32% 2.61% 4.78 MSCI(R) EAFE(R) Index (reflects no deduction for fees, expenses or taxes) 13.54% 4.55% 5.84%
C SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes 11.04% 3.63% 6.31% MSCI(R) EAFE(R) Index (reflects no deduction for fees, expenses or taxes) 13.54% 4.55% 5.84%
(LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The MSCI(R) EAFE(R) Index is a widely-recognized, market capitalization index that measures market equity performance based upon indices from 21 foreign and developed countries. INTERNATIONAL EQUITY FUND 20 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
A SHARES C SHARES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)* 5.75% None Maximum Deferred Sales Charge (as a percentage of net asset value)** None 1.00% Redemption Fee (as a percentage of net asset value)*** 2.00% 2.00%
* This sales charge varies depending upon how much you invest. You may buy A Shares in amounts of $1,000,000 or more at net asset value (without an initial sales charge), but if you redeem those shares within one year of your purchase, you will pay a deferred sales charge of 1.00%. See "Sales Charges." ** This sales charge is imposed if you sell C Shares within one year of your purchase. See "Sales Charges." *** This redemption fee will be imposed on shares redeemed within 60 days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
A SHARES C SHARES Investment Advisory Fees(1) 1.13% 1.13% Distribution and Service (12b-1) Fees 0.30%(2) 1.00% Other Expenses 0.16% 0.16% ------------ ------------------- Total Annual Operating Expenses(3) 1.59% 2.29%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) Adjusted to reflect a reduction in 12b-1 fees effective August 1, 2005. The Fund's Distribution and Service Plan for A Shares authorizes payment of up to 0.33% of average daily net assets of A Shares for distribution and shareholder services. Currently, the Board of Trustees has only approved payment of up to 0.30% of average daily net assets. (3) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: If you sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $727 $1,048 $1,391 $2,356 C Shares $332 $ 715 $1,225 $2,626
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $727 $1,048 $1,391 $2,356 C Shares $232 $ 715 $1,225 $2,626
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." INTERNATIONAL EQUITY FUND PROSPECTUS 21 - ------------------------------------------------------------- ADDITIONAL AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- Unlike the Average Annual Total Returns on page 19, the table below reflects the Fund's results calculated without sales charges.
A SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes 12.87% 4.31% 7.02% Fund Returns After Taxes on Distributions 12.75% 4.20% 5.62% Fund Returns After Taxes on Distributions and Sale of Fund Shares 8.57% 3.68% 5.34% MSCI(R) EAFE(R) Index (reflects no deduction for fees, expenses or taxes) 13.54% 4.55% 5.84%
INTERNATIONAL EQUITY INDEX FUND 22 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Investment results that correspond to the performance of the MSCI(R) EAFE(R) GDP Weighted Index (Price Return) INVESTMENT FOCUS Foreign equity securities in the MSCI(R) EAFE(R) GDP Weighted Index (Price Return) SHARE PRICE VOLATILITY High PRINCIPAL INVESTMENT STRATEGY Statistical analysis to track the MSCI(R) EAFE(R)-GDP Weighted Index (Price Return) INVESTOR PROFILE Aggressive investors who want exposure to foreign markets and are willing to accept the increased risks of foreign investing for the possibility of higher returns
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the International Equity Index Fund invests at least 80% of its net assets in equity securities of foreign companies. In selecting investments for the Fund, the Adviser chooses companies included in the MSCI(R) EAFE (R)-GDP Weighted Index (Price Return), an index of equity securities of companies located in Europe, Australasia and the Far East. While the Fund is structured to have overall investment characteristics similar to those of the Index, it selects a sample of securities within the Index using a statistical process. Therefore, the Fund will not hold all securities included in the Index. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The Fund is also subject to the risk that foreign equity securities may underperform other segments of the equity market or the equity market as a whole. Foreign securities involve special risks such as currency fluctuations, economic or financial instability, lack of timely or reliable financial information and unfavorable political or legal developments. These risks are increased for investments in emerging markets. In addition to the above mentioned risks, the Adviser may not be able to match the performance of the Fund's benchmark. For information about the risks involved when investing in derivatives, see "More Information About Risk." (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's A Shares from year to year.* The chart does not reflect sales charges. If sales charges had been reflected, returns would be less than those shown. (BAR CHART) 1996 5.78% 1997 8.44% 1998 29.68% 1999 29.97% 2000 -17.44% 2001 -23.91% 2002 -16.74% 2003 39.80% 2004 20.39% 2005 12.43%
BEST QUARTER WORST QUARTER 21.20% -20.69% (12/31/98) (9/30/02)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 9.74%. INTERNATIONAL EQUITY INDEX FUND PROSPECTUS 23 - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Morgan Stanley Capital International Europe, Australasia, and Far East-Gross Domestic Product (MSCI(R) EAFE(R)-GDP) Weighted Index (Price Return). These returns reflect applicable sales charges and assumes shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only the A Shares. After-tax returns for other classes will vary.
A SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes 5.99% 2.47% 6.07% Fund Returns After Taxes on Distributions 5.78% 2.38% 5.27% Fund Returns After Taxes on Distributions and Sale of Fund Shares 4.08% 2.11% 4.93% MSCI(R) EAFE(R)-GDP Weighted Index (Price Return) (reflects no deduction for fees, expenses or taxes) 11.15% 3.48% 5.92%
C SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes 10.66% 3.07% 6.02% MSCI(R) EAFE(R)-GDP Weighted Index (Price Return) (reflects no deduction for fees, expenses or taxes) 11.15% 3.48% 5.92%
(LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The MSCI(R) EAFE(R)-GDP Weighted Index (Price Return) is a widely-recognized, market capitalization index that measures market equity performance based upon indices from 21 foreign and developed countries. The country weighting of the Index is calculated using the gross domestic product of each of the various countries and then with respect to the market capitalization of the various companies operating in each country. INTERNATIONAL EQUITY INDEX FUND 24 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
A SHARES C SHARES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)* 5.75% None Maximum Deferred Sales Charge (as a percentage of net asset value)** None 1.00% Redemption Fee (as a percentage of net asset value)*** 2.00% 2.00%
* This sales charge varies depending upon how much you invest. You may buy A Shares in amounts of $1,000,000 or more at net asset value (without an initial sales charge), but if you redeem those shares within one year of your purchase, you will pay a deferred sales charge of 1.00%. See "Sales Charges." ** This sales charge is imposed if you sell C Shares within one year of your purchase. See "Sales Charges." *** This redemption fee will be imposed on shares redeemed within 60 days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
A SHARES C SHARES Investment Advisory Fees(1) 0.50% 0.50% Distribution and Service (12b-1) Fees 0.30%(2) 1.00% Other Expenses 0.17% 0.17% ------------ ------------------- Total Annual Operating Expenses(3) 0.97% 1.67%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) Adjusted to reflect a reduction in 12b-1 fees effective August 1, 2005. The Fund's Distribution and Service Plan for A Shares authorizes payment of up to 0.35% of average daily net assets of A Shares for distribution and shareholder services. Currently, the Board of Trustees has only approved payment of up to 0.30% of average daily net assets. (3) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: If you sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $668 $866 $1,080 $1,696 C Shares $270 $526 $ 907 $1,976
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $668 $866 $1,080 $1,696 C Shares $170 $526 $ 907 $1,976
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." INTERNATIONAL EQUITY INDEX FUND PROSPECTUS 25 - ------------------------------------------------------------- ADDITIONAL AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- Unlike the Average Annual Total Returns on page 23, the table below reflects the Fund's results calculated without sales charges.
A SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes 12.43% 3.69% 6.70% Fund Returns After Taxes on Distributions 12.21% 3.60% 5.90% Fund Returns After Taxes on Distributions and Sale of Fund Shares 8.28% 3.16% 5.49% MSCI(R) EAFE(R) Index-GDP (Price Return) (reflects no deduction for fees, expenses or taxes) 11.15% 3.48% 5.92%
LARGE CAP QUANTITATIVE EQUITY FUND 26 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Long-term capital appreciation INVESTMENT FOCUS U.S. common stocks of companies with positive earnings characteristics purchased at reasonable value SHARE PRICE VOLATILITY High PRINCIPAL INVESTMENT STRATEGY Attempts to identify companies with superior earnings/valuation cycle characteristics within specific market sectors INVESTOR PROFILE Investors who want to increase the value of their investment and are willing to accept more volatility for the possibility of higher returns
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Large Cap Quantitative Equity Fund invests at least 80% of its net assets in common stocks and other U.S. traded equity securities of large cap companies. U.S. traded equity securities may include listed American Depositary Receipts ("ADRs"). The Adviser considers large cap companies to be companies with market capitalizations of at least $3 billion. The Fund may also invest in small and mid-cap companies so long as the Adviser determines they have growth potential. The Fund attempts, through the use of disciplined quantitative modeling, to objectively and consistently identify those companies with the most attractive earnings growth prospects and valuation characteristics within each sector. Those characteristics vary by sector. In some sectors, attractive stocks are selected based solely upon growth characteristics. In other sectors, a combination of growth and valuation characteristics are used to identify attractive stocks. The Adviser believes that companies with higher earnings growth prospects will have more highly valued stocks. Companies producing sustained accelerating rates of earnings growth will generate increasing stock valuations. Companies producing sustained decelerating rates of earnings growth will generate decreasing stock valuations. This cycle of accelerating earnings growth with increasing stock valuation and decelerating earnings growth with decreasing stock valuation is called the earnings-valuation cycle. The Adviser uses quantitative modeling to evaluate and select the common stock of companies based on the philosophy that earnings/valuation cycles dictate stock performance, earnings/valuation cycles differ among market sectors, and diversification controls risk. Because companies tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. Large cap stocks can perform differently from other segments of the equity market or the equity market as a whole. Large capitalization companies may be less flexible in evolving markets or unable to implement change as quickly as smaller capitalization companies. Accordingly, the value of large cap stocks may not rise to the same extent as the value of small or mid-cap stocks. Small and mid-cap stocks can perform differently from other segments of the equity market or the equity market as a whole and can be more volatile than stocks of larger companies. Because the Fund may invest in ADRs, it is subject to some of the same risks as direct investments in foreign companies. These include the risk that political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. For information about the risks involved when investing in derivatives, see "More Information About Risk." LARGE CAP QUANTITATIVE EQUITY FUND PROSPECTUS 27 (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's A Shares from year to year.* The chart does not reflect sales charges. If sales charges had been reflected, returns would be less than those shown. (BAR CHART) 2004 16.01% 2005 8.04%
BEST QUARTER WORST QUARTER 11.48% -3.15% (12/31/04) (9/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 3.35%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the S&P 500 (R) Index. These returns reflect applicable sales charges and assumes shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only the A Shares. After-tax returns for other classes will vary.
SINCE A SHARES 1 YEAR INCEPTION* Fund Returns Before Taxes 1.84% 10.77% Fund Returns After Taxes on Distributions -0.68% 8.40% Fund Returns After Taxes on Distributions and Sale of Fund Shares 1.36% 7.92% S&P 500(R) Index (reflects no deduction for fees, expenses or taxes) 4.91% 12.56%
* Since inception of the A Shares on October 8, 2003. Benchmark returns since September 30, 2003 (benchmark returns available only on a month end basis).
SINCE C SHARES 1 YEAR INCEPTION* Fund Returns Before Taxes 6.28% 11.70% S&P 500(R) Index (reflects no deduction for fees, expenses or taxes) 4.91% 12.56%
* Since inception of the C Shares on October 13, 2003. Benchmark returns since September 30, 2003 (bench mark returns available only on a month end basis). (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The S&P 500(R) Index is a widely-recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index of 500 stocks designed to mimic the overall U.S. equity market's industry weightings. LARGE CAP QUANTITATIVE EQUITY FUND 28 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
A SHARES C SHARES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)* 5.75% None Maximum Deferred Sales Charge (as a percentage of net asset value)** None 1.00% Redemption Fee (as a percentage of net asset value)*** 2.00% 2.00%
* This sales charge varies depending upon how much you invest. You may buy A Shares in amounts of $1,000,000 or more at net asset value (without an initial sales charge), but if you redeem those shares within one year of your purchase, you will pay a deferred sales charge of 1.00%. See "Sales Charges." ** This sales charge is imposed if you sell C Shares within one year of your purchase. See "Sales Charges." *** This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
A SHARES C SHARES Investment Advisory Fees(1) 0.85% 0.85% Distribution and Service (12b-1) Fees 0.25% 1.00% Other Expenses 0.11% 0.11% ------------ ------------------- Total Annual Operating Expenses(2) 1.21% 1.96%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: If you sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $691 $937 $1,202 $1,957 C Shares $299 $615 $1,057 $2,285
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $691 $937 $1,202 $1,957 C Shares $199 $615 $1,057 $2,285
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." LARGE CAP QUANTITATIVE EQUITY FUND PROSPECTUS 29 - ------------------------------------------------------------- ADDITIONAL AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- Unlike the Average Annual Total Returns on page 27, the table below reflects the Fund's results calculated without sales charges.
SINCE A SHARES 1 YEAR INCEPTION* Fund Returns Before Taxes 8.04% 13.74% Fund Returns After Taxes on Distributions 5.37% 11.31% Fund Returns After Taxes on Distributions and Sale of Fund Shares 5.41% 10.45% S&P 500 Index(R) (reflects no deduction for fees, expenses or taxes) 4.91% 12.56%
* Since inception of the A Shares on October 8, 2003. Benchmark returns since September 30, 2003 (benchmark returns available only on a month end basis). LARGE CAP RELATIVE VALUE FUND 30 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOALS PRIMARY Long-term capital appreciation SECONDARY Current income INVESTMENT FOCUS Equity securities SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Attempts to identify securities of companies with attractive valuation and/or above average earnings potential relative either to their sectors or the market as a whole INVESTOR PROFILE Investors who are looking for capital appreciation potential and some income with less volatility than the equity market as a whole
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Large Cap Relative Value Fund invests at least 80% of its net assets in large cap companies. The Adviser considers large cap companies to be companies with market capitalizations of at least $3 billion. The Fund invests primarily in common stocks and other U.S. traded equity securities, which may include listed American Depositary Receipts ("ADRs"). The Adviser uses sector-specific factors to highlight companies whose characteristics are currently undervalued versus market peers. The Adviser performs fundamental research to evaluate securities for the portfolio. The Adviser's approach attempts to identify a well-defined "investment thesis" (what it believes a company's prospects may be over the next 12 to 18 months) based on competitive positioning, business model, and potential catalysts and risks. The Adviser seeks securities with a positive risk/return profile, improving fundamentals and earnings outlook, and relative financial strength and flexibility. The Adviser may sell a security when the investment thesis is realized, the investment thesis breaks down, or a more attractive alternative presents itself. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The Adviser's value investing style may be out of favor in the marketplace for various periods of time. Value investing involves purchasing securities that are undervalued in comparison to their prospects for growth or to their peers or that have historically traded below their historical value. These securities are subject to the risk that their potential values as perceived by the Adviser are never realized by the market. Large cap stocks can perform differently from other segments of the equity market or the equity market as a whole. Large capitalization companies may be less flexible in evolving markets or unable to implement change as quickly as smaller capitalization companies. Accordingly, the value of large cap stocks may not rise to the same extent as the value of small or mid-cap stocks. Because the Fund may invest in ADRs, it is subject to some of the same risks as direct investments in foreign companies. These include the risk that political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. For information about the risks involved when investing in derivatives, see "More Information About Risk." LARGE CAP RELATIVE VALUE FUND PROSPECTUS 31 (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's A Shares from year to year.* The chart does not reflect sales charges. If sales charges had been reflected, returns would be less than those shown. 1996 19.12% 1997 27.58% 1998 18.25% 1999 14.10% 2000 1.30% 2001 -6.84% 2002 -19.84% 2003 27.95% 2004 14.03% 2005 9.32%
(BAR CHART) BEST QUARTER WORST QUARTER 17.35% -18.56% (6/30/97) (9/30/02)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 3.72%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Russell 1000(R) Value Index, the S&P 500(R)/ BARRA Value Index and the S&P 500(R) Index. These returns reflect applicable sales charges and assumes shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only the A Shares. After-tax returns for other classes will vary.
A SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes 3.02% 2.34% 8.84% Fund Returns After Taxes on Distributions 1.90% 1.94% 7.31% Fund Returns After Taxes on Distributions and Sale of Fund Shares 3.35% 1.89% 6.97% Russell 1000(R) Value Index* (reflects no deduction for fees, expenses or taxes) 7.05% 5.28% 10.94% S&P 500(R)/BARRA Value Index (reflects no deduction for fees, expenses or taxes) 6.33% 2.53% 9.44% S&P 500 Index(R) (reflects no deduction for fees, expenses or taxes) 4.91% 0.54% 9.07%
(*) Effective May 1, 2006 the Fund transitioned its benchmark from the S&P 500(R)/Barra Value Index to the Russell 1000(R) Value Index as a result of the discontinuation of the S&P/Barra Indices.
C SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes 7.49% 2.79% 8.68% Russell 1000(R) Value Index* (reflects no deduction for fees, expenses or taxes) 7.05% 5.28% 10.94% S&P 500(R)/BARRA Value Index (reflects no deduction for fees, expenses or taxes) 6.33% 2.53% 9.44% S&P 500 Index(R) (reflects no deduction for fees, expenses or taxes) 4.91% 0.54% 9.07%
(*) Effective May 1, 2006 the Fund transitioned its benchmark from the S&P 500(R)/Barra Value Index to the Russell 1000(R) Value Index as a result of the discontinuation of the S&P/Barra Indices. LARGE CAP RELATIVE VALUE FUND 32 PROSPECTUS (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Russell 1000(R) Value Index is a widely-recognized, capitalization weighted (companies with larger market capitalizations have more influence than those with smaller market capitalizations) index of companies in the Russell 1000(R) Index is a widely- recognized, comprehensive large-cap index that measures the performance of the largest 1,000 companies in the Russell 3000(R) Index. The Russell 3000(R) Index is a widely-recognized, capitalization-weighted index that measures the performance of the 3,000 largest U.S. companies based on total market capitalization. The S&P 500(R)/BARRA Value Index is a widely-recognized index comprised of securities in the S&P 500(R) Index that have lower price-to-book ratios. The S&P 500(R) Index is a widely-recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index of 500 stocks designed to mimic the overall U.S. equity market's industry weightings. LARGE CAP RELATIVE VALUE FUND PROSPECTUS 33 (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
A SHARES C SHARES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)* 5.75% None Maximum Deferred Sales Charge (as a percentage of net asset value)** None 1.00% Redemption Fee (as a percentage of net asset value)*** 2.00% 2.00%
* This sales charge varies depending upon how much you invest. You may buy A Shares in amounts of $1,000,000 or more at net asset value (without an initial sales charge), but if you redeem those shares within one year of your purchase, you will pay a deferred sales charge of 1.00%. See "Sales Charges." ** This sales charge is imposed if you sell C Shares within one year of your purchase. See "Sales Charges." *** This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
A SHARES C SHARES Investment Advisory Fees(1) 0.81% 0.81% Distribution and Service (12b-1) Fees 0.25% 1.00% Other Expenses 0.06% 0.06% ------------ ------------------- Total Annual Operating Expenses(2) 1.12% 1.87%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: If you sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $683 $911 $1,156 $1,860 C Shares $290 $588 $1,011 $2,190
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $683 $911 $1,156 $1,860 C Shares $190 $588 $1,011 $2,190
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." LARGE CAP RELATIVE VALUE FUND 34 PROSPECTUS - ------------------------------------------------------------- ADDITIONAL AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- Unlike the Average Annual Total Returns on page 31, the tables below reflect the Fund's results calculated without sales charges.
A SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes 9.32% 3.56% 9.48% Fund Returns After Taxes on Distributions 8.13% 3.15% 7.95% Fund Returns After Taxes on Distributions and Sale of Fund Shares 7.53% 2.94% 7.56% Russell 1000(R) Value Index* (reflects no deduction for fees, expenses or taxes) 7.05% 5.28% 10.94% S&P 500(R)/BARRA Value Index (reflects no deduction for fees, expenses or taxes) 6.33% 2.53% 9.44% S&P 500 Index(R) (reflects no deduction for fees, expenses or taxes) 4.91% 0.54% 9.07%
(*) Effective May 1, 2006 the Fund transitioned its benchmark from the S&P 500(R)/Barra Value Index to the Russell 1000(R) Value Index as a result of the discontinuation of the S&P/Barra Indices. LARGE CAP VALUE EQUITY FUND PROSPECTUS 35 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOALS PRIMARY Capital appreciation SECONDARY Current income INVESTMENT FOCUS Equity securities SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Attempts to identify high dividend-paying, undervalued stocks INVESTOR PROFILE Investors who are looking for current income and capital appreciation with less volatility than the average stock fund
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Large Cap Value Equity Fund invests at least 80% of its net assets in common stocks and other U.S. traded equity securities of large cap companies. U.S. traded equity securities may include listed American Depositary Receipts ("ADRs"). The Adviser considers large cap companies to be companies with market capitalizations of at least $3 billion. In selecting investments for the Fund, the Adviser primarily chooses companies that have a history of paying regular dividends. The Adviser focuses on dividend-paying stocks that trade below their historical value. The Adviser's "bottom-up" approach to stock selection emphasizes individual stocks over economic trends using fundamental research to identify positive catalysts for change. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. Large cap stocks can perform differently from other segments of the equity market or the equity market as a whole. Large capitalization companies may be less flexible in evolving markets or unable to implement change as quickly as smaller capitalization companies. Accordingly, the value of large cap stocks may not rise to the same extent as the value of small or mid-cap stocks. The Adviser's value investing style may be out of favor in the marketplace for various periods of time. Value investing involves purchasing securities that are undervalued in comparison to their prospects for growth or to their peers or that have historically traded below their historical value. These securities are subject to the risk that their potential values as perceived by the Adviser are never realized by the market. Because the Fund may invest in ADRs, it is subject to some of the same risks as direct investments in foreign companies. These include the risk that political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. For information about the risks involved when investing in derivatives, see "More Information About Risk." (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. C Shares were offered beginning on June 1, 1995. Performance between February 12, 1993 and June 1, 1995 is that of I Shares of the Fund, and has not been adjusted to reflect C Share expenses. If it had been, performance would have been lower. LARGE CAP VALUE EQUITY FUND 36 PROSPECTUS This bar chart shows changes in the performance of the Fund's A Shares from year to year.* The chart does not reflect sales charges. If sales charges had been reflected, returns would be less than those shown. (BAR CHART) 1996 19.06% 1997 26.57% 1998 10.16% 1999 -3.31% 2000 10.38% 2001 -1.33% 2002 -15.85% 2003 23.26% 2004 17.72% 2005 3.39% BEST QUARTER WORST QUARTER 15.29% -20.02% (6/30/99) (9/30/02)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 7.96%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Russell 1000(R) Value Index and the S&P 500(R)/ BARRA Value Index. These returns reflect applicable sales charges and assumes shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only the A Shares. After-tax returns for other classes will vary.
A SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes -2.57% 2.73% 7.32% Fund Returns After Taxes on Distributions -2.77% 2.42% 4.96% Fund Returns After Taxes on Distributions and Sale of Fund Shares -1.41% 2.18% 4.91%
A SHARES 1 YEAR 5 YEARS 10 YEARS Russell 1000(R) Value Index* (reflects no deduction for fees, expenses or taxes) 7.05% 5.28% 10.94% S&P 500(R)/BARRA Value Index (reflects no deduction for fees, expenses or taxes) 6.33% 2.53% 9.44%
* Effective May 1, 2006 the Fund transitioned its benchmark from the S&P 500(R)/Barra Value Index to the Russell 1000(R) Value Index as a result of the discontinuation of the S&P/Barra Indices.
C SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes 1.65% 3.19% 7.18% Russell 1000(R) Value Index* (reflects no deduction for fees, expenses or taxes) 7.05% 5.28% 10.94% S&P 500(R)/BARRA Value Index (reflects no deduction for fees, expenses or taxes) 6.33% 2.53% 9.44%
* Effective May 1, 2006 the Fund transitioned its benchmark from the S&P 500(R)/Barra Value Index to the Russell 1000(R) Value Index as a result of the discontinuation of the S&P/Barra Indices. (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Russell 1000(R) Value Index is a widely-recognized, capitalization weighted (companies with larger market capitalizations have more influence than those with smaller market capitalizations) index of companies in the Russell 1000(R) Index. The Russell 1000(R) Index is a widely-recognized, comprehensive large-cap index that measures the performance of the largest 1,000 companies in the Russell 3000(R) Index. The Russell 3000(R) Index is a widely-recognized, capitalization-weighted index that measures the performance of the 3,000 largest U.S. companies based on total market capitalization. The S&P 500(R)/BARRA Value Index is a widely-recognized index comprised of securities in the S&P 500(R) Index that have lower price-to-book ratios. The S&P 500(R) Index is a widely-recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index of 500 stocks designed to mimic the overall U.S. equity market's industry weightings. LARGE CAP VALUE EQUITY FUND PROSPECTUS 37 (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
A SHARES C SHARES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)* 5.75% None Maximum Deferred Sales Charge (as a percentage of net asset value)** None 1.00% Redemption Fee (as a percentage of net asset value)*** 2.00% 2.00%
* This sales charge varies depending upon how much you invest. You may buy A Shares in amounts of $1,000,000 or more at net asset value (without an initial sales charge), but if you redeem those shares within one year of your purchase, you will pay a deferred sales charge of 1.00%. See "Sales Charges." ** A 1% sales charge is imposed if you sell C Shares within one year of your purchase. See "Sales Charges." *** This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
A SHARES C SHARES Investment Advisory Fees(1) 0.78% 0.78% Distribution and Service (12b-1) Fees 0.30%(2) 1.00% Other Expenses 0.07% 0.07% ------------ ------------------- Total Annual Operating Expenses(3) 1.15%(2) 1.85%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) Adjusted to reflect a reduction in 12b-1 fees effective August 1, 2005. The Fund's Distribution and Service Plan for A Shares authorizes payment of up to 0.33% of average daily net assets of A Shares for distribution and shareholder services. Currently, the Board of Trustees has only approved payment of up to 0.30% of average daily net assets. (3) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: If you sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $685 $919 $1,172 $1,892 C Shares $288 $582 $1,001 $2,169
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $685 $919 $1,172 $1,892 C Shares $188 $582 $1,001 $2,169
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." LARGE CAP VALUE EQUITY FUND 38 PROSPECTUS - ------------------------------------------------------------- ADDITIONAL AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- Unlike the Average Annual Total Returns on page 36, the table below reflects the Fund's results calculated without sales charges.
A SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes 3.39% 3.95% 7.96% Fund Returns After Taxes on Distributions 3.18% 3.63% 5.58% Fund Returns After Taxes on Distributions and Sale of Fund Shares 2.48% 3.23% 5.47% Russell 1000(R) Value Index* (reflects no deduction for fees, expenses or taxes) 7.05% 5.28% 10.94% S&P 500(R)/BARRA Value Index (reflects no deduction for fees, expenses or taxes) 6.33% 2.53% 9.44%
* Effective May 1, 2006 the Fund transitioned its benchmark from the S&P 500 (R)/Barra Value Index to the Russell 1000 (R) Value Index as a result of the discontinuation of the S&P 500/Barra Indices. MID-CAP EQUITY FUND PROSPECTUS 39 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Capital appreciation INVESTMENT FOCUS U.S. mid-cap common stocks SHARE PRICE VOLATILITY Moderate to high PRINCIPAL INVESTMENT STRATEGY Attempts to identify companies with above average growth potential at an attractive price INVESTOR PROFILE Investors who want the value of their investment to grow and who are willing to accept more volatility for the possibility of higher returns
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Mid-Cap Equity Fund invests at least 80% of its net assets in common stocks and other U.S. traded equity securities of mid-cap companies. U.S. traded equity securities may include listed American Depositary Receipts ("ADRs"). The Adviser considers mid-cap companies to be companies with market capitalizations similar to those of companies in the Russell Midcap(R) Index. As of July 3, 2006, the market capitalization range of companies in the Russell Midcap Index was between approximately $1.59 billion and $16.44 billion. The Adviser believes that a portfolio of stocks with positive earnings characteristics purchased at a reasonable valuation will provide above average returns over time. In selecting investments for the Fund, the Adviser chooses companies that, in its opinion, offer above average stock price appreciation relative to other companies in the same economic sector. The Adviser utilizes proprietary, sector based models to rank stocks in each sector of the small and mid-cap markets. These models utilize fundamental stock characteristics such as growth rates and cash flows. The Adviser utilizes fundamental research in the creation, maintenance, and enhancement of the sector based models to reflect change in the underlying small and mid-cap markets. Risk management is utilized extensively and a critical component of the overall investment process. The strategy is diversified with generally 100 to 140 stocks in the portfolio. Each stock is generally limited to no more than two percent of the portfolio. The portfolio is managed to reduce tracking error and overall volatility to the benchmark. Because companies tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. Mid-cap stocks can perform differently from other segments of the equity market or the equity market as a whole and can be more volatile than stocks of larger companies. Because the Fund may invest in ADRs, it is subject to some of the same risks as direct investments in foreign companies. These include the risk that political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. For information about the risks involved when investing in derivatives, see "More Information About Risk." MID-CAP EQUITY FUND 40 PROSPECTUS (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's A Shares from year to year.* The chart does not reflect sales charges. If sales charges had been reflected, returns would be less than those shown. (BAR CHART) 1996 14.93% 1997 20.67% 1998 5.98% 1999 15.69% 2000 -3.42% 2001 1.88% 2002 -29.06% 2003 28.46% 2004 16.50% 2005 13.62%
BEST QUARTER WORST QUARTER 24.52% -20.00% (12/31/98) (9/30/98)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 3.50%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Russell Midcap(R) Index. These returns reflect applicable sales charges and assumes shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only the A Shares. After-tax returns for other classes will vary.
A SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes 7.07% 2.98% 6.64% Fund Returns After Taxes on Distributions 6.28% 2.80% 4.63% Fund Returns After Taxes on Distributions and Sale of Fund Shares 5.66% 2.54% 4.63% Russell Midcap(R) Index (reflects no deduction for fees, expenses or taxes) 12.65% 8.45% 12.49%
C SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes 11.85% 3.57% 6.61% Russell Midcap(R) Index (reflects no deduction for fees, expenses or taxes) 12.65% 8.45% 12.49%
(LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Russell Midcap(R) Index is a widely-recognized index that measures the performance of the 800 smallest companies in the Russell 1000(R) Index, which represent approximately 26% of the total market capitalization of the Russell 1000(R) Index. The Russell 1000(R) Index is a widely-recognized comprehensive large-cap index measuring the performance of the largest 1,000 U.S. incorporated companies. Each security in the Russell 1000(R) Index is float-adjusted market capitalization-weighted to ensure investable positions. MID-CAP EQUITY FUND PROSPECTUS 41 (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
A SHARES C SHARES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)* 5.75% None Maximum Deferred Sales Charge (as a percentage of net asset value)** None 1.00% Redemption Fee (as a percentage of net asset value)*** 2.00% 2.00%
* This sales charge varies depending upon how much you invest. You may buy A Shares in amounts of $1,000,000 or more at net asset value (without an initial sales charge), but if you redeem those shares within one year of your purchase, you will pay a deferred sales charge of 1.00%. See "Sales Charges." ** This sales charge is imposed if you sell C Shares within one year of your purchase. See "Sales Charges." *** This redemption fee will be imposed on shares redeemed within 60 days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
A SHARES C SHARES Investment Advisory Fees(1) 1.00% 1.00% Distribution and Service (12b-1) Fees 0.30%(2) 1.00% Other Expenses 0.09% 0.09% ------------ ------------------- Total Annual Operating Expenses(3) 1.39% 2.09%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) Adjusted to reflect a reduction in 12b-1 fees effective August 1, 2005. The Fund's Distribution and Service Plan for A Shares authorizes payment of up to 0.35% of average daily net assets of A Shares for distribution and shareholder services. Currently, the Board of Trustees has only approved payment of up to 0.30% of average daily net assets. (3) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: If you sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $708 $990 $1,292 $2,148 C Shares $312 $655 $1,124 $2,421
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $708 $990 $1,292 $2,148 C Shares $212 $655 $1,124 $2,421
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." MID-CAP EQUITY FUND 42 PROSPECTUS - ------------------------------------------------------------- ADDITIONAL AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- Unlike the Average Annual Total Returns on page 40, the table below reflects the Fund's results calculated without sales charges.
A SHARES 1 YEAR 5 YEARS 10 YEARS Fund Returns Before Taxes 13.62% 4.21% 7.27% Fund Returns After Taxes on Distributions 12.78% 4.03% 5.25% Fund Returns After Taxes on Distributions and Sale of Fund Shares 9.97% 3.60% 5.20% Russell Midcap(R) Index (reflects no deduction for fees, expenses or taxes) 12.56% 8.45% 12.49%
MID-CAP VALUE EQUITY FUND PROSPECTUS 43 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOALS PRIMARY Capital appreciation SECONDARY Current income INVESTMENT FOCUS U.S. mid-cap equity securities SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Attempts to identify undervalued mid-cap securities INVESTOR PROFILE Investors who primarily want the value of their investment to grow, but want to receive some income from the investment
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Mid-Cap Value Equity Fund invests at least 80% of its net assets in U.S. traded equity securities of mid-cap companies. U.S. traded equity securities may include listed American Depositary Receipts ("ADRs"). The Adviser considers mid-cap companies to be companies with market capitalizations similar to those of companies in the Russell Midcap(R) Value Index. As of July 3, 2006, the market capitalization range of companies in the Russell Midcap Value Index was between approximately $1.59 billion and $15.76 billion. In selecting investments for the Fund, the Adviser chooses common stocks that it believes are undervalued relative to their historical valuations. The Adviser buys stocks that pay a cash dividend and have a positive catalyst for change, such as management changes or new product introductions. The Adviser may sell a security when it achieves a designated target price, a company's growth prospects change, or the opportunity for a better investment arises. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. Mid-cap stocks can perform differently from other segments of the equity market or the equity market as a whole and can be more volatile than stocks of larger companies. The Adviser's value investing style may be out of favor in the marketplace for various periods of time. Value investing involves purchasing securities that are undervalued in comparison to their prospects for growth or to their peers or that have historically traded below their historical value. These securities are subject to the risk that their potential values as perceived by the Adviser are never realized by the market. Because the Fund may invest in ADRs, it is subject to some of the same risks as direct investments in foreign companies. These include the risk that political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. For information about the risks involved when investing in derivatives, see "More Information About Risk." MID-CAP VALUE EQUITY FUND 44 PROSPECTUS (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's C Shares from year to year.* The chart does not reflect sales charges. If sales charges had been reflected, returns would be less than those shown. (BAR CHART) 2002 -21.78% 2003 28.75% 2004 19.37% 2005 8.67%
BEST QUARTER WORST QUARTER 17.70% -23.13% (6/30/03) (9/30/02)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 8.01%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Russell Midcap(R) Value Index. These returns reflect applicable sales charges and assumes shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only the C Shares. After-tax returns for other classes will vary.
SINCE A SHARES 1 YEAR INCEPTION* Fund Returns Before Taxes 2.90% 15.20% Russell Midcap(R) Value Index (reflects no deduction for fees, expenses or taxes) 12.65% 20.42%
* Since inception of the A Shares on October 27, 2003. Benchmark return since October 31, 2003 (benchmark returns available only on a month end basis).
SINCE C SHARES 1 YEAR INCEPTION* Fund Returns Before Taxes 7.69% 8.05% Fund Return After Taxes on Distributions 5.78% 7.33% Fund Returns After Taxes on Distributions and Sale of Fund Shares 6.83% 6.71% Russell Midcap(R) Value Index (reflects no deduction for fees, expenses or taxes) 12.65% 15.65%
* Since inception of the C Shares on November 30, 2001. (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Russell Midcap(R) Value Index is a widely-recognized index that measures the performance of those Russell Midcap companies with lower price-to-book ratios and lower forecasted growth values. The stocks are also members of the Russell 1000(R) Value index. The Russell 1000(R) Value Index is a widely-recognized index that measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values. The Russell 1000(R) Index is a widely-recognized comprehensive large-cap index measuring the performance of the largest 1,000 U.S. incorporated companies. Each security in the Russell 1000(R) Index is float-adjusted market capitalization-weighted to ensure investable positions. MID-CAP VALUE EQUITY FUND PROSPECTUS 45 (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
A SHARES C SHARES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)* 5.75% None Maximum Deferred Sales Charge (as a percentage of net asset value)** None 1.00% Redemption Fee (as a percentage of net asset value)*** 2.00% 2.00%
* This sales charge varies depending upon how much you invest. You may buy A Shares in amounts of $1,000,000 or more at net asset value (without an initial sales charge), but if you redeem those shares within one year of your purchase, you will pay a deferred sales charge of 1.00%. See "Sales Charges." ** This sales charge is imposed if you sell C Shares within one year of your purchase. See "Sales Charges." *** This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
A SHARES C SHARES Investment Advisory Fees(1) 1.00% 1.00% Distribution and Service (12b-1) Fees 0.30%(2) 1.00% Other Expenses 0.08% 0.08% ------------ ------------------- Total Annual Operating Expenses(3) 1.38% 2.08%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) Adjusted to reflect a reduction in 12b-1 fees effective August 1, 2005. The Fund's Distribution and Service Plan for A Shares authorizes payment of up to 0.35% of average daily net assets of A Shares for distribution and shareholder services. Currently, the Board of Trustees has only approved payment of up to 0.30% of average daily net assets. (3) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: If you sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $707 $987 $1,287 $2,137 C Shares $311 $652 $1,119 $2,410
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $707 $987 $1,287 $2,137 C Shares $211 $652 $1,119 $2,410
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." MID-CAP VALUE EQUITY FUND 46 PROSPECTUS - ------------------------------------------------------------- ADDITIONAL AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- Unlike the Average Annual Total Returns on page 44, the table below reflects the Fund's results calculated without sales charges.
SINCE A SHARES 1 YEAR INCEPTION* Fund Returns Before Taxes 9.16% 18.36% Russell Midcap(R) Value Index (reflects no deduction for fees, expenses or taxes) 12.65% 20.42%
* Since inception of the A Shares on October 27, 2003. Benchmark return since October 31, 2003 (benchmark returns available only on a month end basis). QUALITY GROWTH STOCK FUND PROSPECTUS 47 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Long-term capital growth with nominal dividend income INVESTMENT FOCUS U.S. common stocks of financially strong companies, which the Adviser believes have excellent growth prospects SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Attempts to identify companies that have above average growth potential within a universe of financially strong companies INVESTOR PROFILE Investors who want to increase the value of their investment while minimizing taxable capital gains distributions
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Quality Growth Stock Fund invests at least 80% of its net assets in common stocks and other U.S. traded equity securities. U.S. traded equity securities may include listed American Depositary Receipts ("ADRs"). The Fund invests primarily in a diversified portfolio of common stocks of financially strong U.S. growth companies. The Adviser generally invests in companies with high and stable earnings growth and/or companies with improving earnings growth. Emphasis is placed on financially strong companies (large and mid-sized) which are market leaders in their respective industry segments as demonstrated by revenue growth, market shares and levels of profitability. Many of these companies have a history of stable or rising dividend payout policies. The key elements of the Fund's philosophy are that stocks of quality companies do well over time, good fundamental analysis identifies the sustainability of a company's earnings growth rate, risk control is an active process, and a sell discipline is essential. The Fund's approach for controlling risk is to: (1) have a significant exposure to companies with stable earnings growth as well as companies whose earnings growth is more exposed to the growth of the economy as a whole; (2) to be diversified among the major industry sectors; (3) to have representation in very large, large and medium sized companies and (4) to have a diversified portfolio of stocks so as to reduce the stock market risk associated with the misfortunes of specific companies. In addition, the Adviser employs an active sell discipline to identify companies whose earnings growth rate has deteriorated or has become significantly more uncertain; and also to reduce holdings which have been so successful that they have become a major holding in the Fund. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Since it purchases common stocks, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the stock markets have moved in cycles, and the value of the Fund's common stocks may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of stocks issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. Common stocks of U.S. growth companies may underperform other segments of the equity market or the equity market as a whole. Large cap stocks can perform differently from other segments of the equity market or the equity market as a whole. Large capitalization companies may be less flexible in evolving markets or unable to implement change as quickly as smaller capitalization companies. Accordingly, the value of large cap stocks may not rise to the same extent as the value of small or mid-cap stocks. Mid-cap stocks can perform differently from other segments of the equity market or the equity market as a whole and can be more volatile than stocks of larger companies. Because the Fund may invest in ADRs, it is subject to some of the same risks as direct investments in foreign companies. These include the risk that political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. For information about the risks involved when investing in derivatives, see "More Information About Risk." QUALITY GROWTH STOCK FUND 48 PROSPECTUS (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. The Fund began operating as a registered mutual fund on December 11, 1998. Performance prior to December 11, 1998 is that of the Adviser's similarly managed collective investment fund, which began operations on December 31, 1995. The collective investment fund's performance has been adjusted to reflect the fees and expenses for I Shares of the Fund. As a collective investment fund, rather than a registered mutual fund, it was not subject to the same investment and tax restrictions. If it had been, the collective investment fund's performance would have been lower. C Shares and A Shares were offered beginning on December 15, 1998 and October 14, 2003, respectively. Performance between December 11, 1998 and December 15, 1998 with respect to the C Shares and between December 11, 1998 and October 14, 2003 with respect to the A Shares is that of I Shares of the Fund, and has not been adjusted to reflect C Share or A Share expenses. If it had been, performance would have been lower. This bar chart shows changes in the performance of the Fund's C Shares from year to year.* The chart does not reflect sales charges. If sales charges had been reflected, returns would be less than those shown. (BAR CHART) 1996 21.00% 1997 28.79% 1998 31.73% 1999 23.52% 2000 -13.06% 2001 -19.08% 2002 -22.83% 2003 19.82% 2004 5.75% 2005 1.47%
BEST QUARTER WORST QUARTER 27.73% -16.41% (12/31/98) (9/30/02)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was -2.27%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the S&P 500(R) Index. These returns reflect applicable sales charges and assumes shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only the C Shares. After-tax returns for other classes will vary.
SINCE INCEPTION OF THE REGISTERED MUTUAL A SHARES 1 YEAR 5 YEARS FUND* 10 YEARS** Fund Returns Before Taxes -3.67% -4.57% -1.02% 5.94% S&P 500(R) Index (reflects no deduction for fees, expenses or taxes) 4.91% 0.54% 2.55% 9.07%
* Since inception of the I Shares on December 11, 1998, when the Fund began operating as a registered mutual fund. Benchmark returns since November 30, 1998 (benchmark returns available only on a month end basis). ** Includes performance of the Adviser's collective investment fund. QUALITY GROWTH STOCK FUND PROSPECTUS 49
SINCE INCEPTION OF THE REGISTERED MUTUAL C SHARES 1 YEAR 5 YEARS FUND* 10 YEARS** Fund Returns Before Taxes 0.47% -4.30% -1.10% 5.88% Fund Returns After Taxes on Distributions 0.46% -4.30% -1.10% N/A+ Fund Returns After Taxes on Distributions and Sale of Fund Shares 0.33% -3.60% -0.93% N/A+ S&P 500(R) Index (reflects no deduction for fees, expenses or taxes) 4.91% 0.54% 2.55% 9.07%
* Since inception of the I Shares on December 11, 1998, when the Fund began operating as a registered mutual fund. Benchmark returns since November 30, 1998 (benchmark returns available only on a month end basis). ** Includes performance of the Adviser's collective investment fund. + It is not possible to reflect the impact of taxes on the collective investment fund's performance. (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The S&P 500(R) Index is a widely-recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index of 500 stocks designed to mimic the overall U.S. equity market's industry weightings. QUALITY GROWTH STOCK FUND 50 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
A SHARES C SHARES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)* 5.75% None Maximum Deferred Sales Charge (as a percentage of net asset value)** None 1.00% Redemption Fee (as a percentage of net asset value)*** 2.00% 2.00%
* This sales charge varies depending upon how much you invest. You may buy A Shares in amounts of $1,000,000 or more at net asset value (without an initial sales charge), but if you redeem those shares within one year of your purchase, you will pay a deferred sales charge of 1.00%. See "Sales Charges." ** This sales charge is imposed if you sell C Shares within one year of your purchase. See "Sales Charges." *** This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
A SHARES C SHARES Investment Advisory Fees(1) 0.85% 0.85% Distribution and Service (12b-1) Fees 0.30%(2) 1.00% Other Expenses 0.15% 0.15% ------------ ------------------- Total Annual Operating Expenses(3) 1.30%() 2.00%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) Adjusted to reflect a reduction in 12b-1 fees effective August 1, 2005. The Fund's Distribution and Service Plan for A Shares authorizes payment of up to 0.35% of average daily net assets of A Shares for distribution and shareholder services. Currently, the Board of Trustees has only approved payment of up to 0.30% of average daily net assets. (3) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: If you sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $700 $963 $1,247 $2,053 C Shares $303 $627 $1,078 $2,327
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $700 $963 $1,247 $2,053 C Shares $203 $627 $1,078 $2,327
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." QUALITY GROWTH STOCK FUND PROSPECTUS 51 - ------------------------------------------------------------- ADDITIONAL AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- Unlike the Average Annual Total Returns on page 48, the table below reflects the Fund's results calculated without sales charges.
SINCE INCEPTION OF THE REGISTERED MUTUAL A SHARES 1 YEAR 5 YEARS FUND* 10 YEARS** Fund Returns Before Taxes 2.21% -3.43% -0.18% 6.57% S&P 500(R) Index (reflects no deduction for fees, expenses or taxes) 4.91% 0.54% 2.55% 9.07%
* Since inception of the I Shares on December 11, 1998, when the Fund began operating as a registered mutual fund. Benchmark returns since November 30, 1998 (benchmark returns available only on a month end basis). ** Includes performance of the Adviser's collective investment fund. SMALL CAP GROWTH STOCK FUND 52 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Long-term capital appreciation INVESTMENT FOCUS U.S. small cap common stocks of growth companies SHARE PRICE VOLATILITY High PRINCIPAL INVESTMENT STRATEGY Identifies small cap companies with above average growth potential INVESTOR PROFILE Investors who want the value of their investment to grow, but do not need current income
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Small Cap Growth Stock Fund invests at least 80% of its net assets in U.S. traded equity securities of small cap companies. U.S. traded equity securities may include listed American Depositary Receipts ("ADRs"). The Adviser considers small cap companies to be companies with market capitalizations below $3 billion. The Fund's investment philosophy is based on the premise that a portfolio of small cap stocks with positive earnings trends, reasonable valuation, and strong fundamentals will provide superior returns over time. The Adviser applies a multi-factor proprietary model to identify companies with strong current earnings growth, improving profitability, a strong balance sheet, strong current and projected business fundamentals, and priced at reasonable valuations. The Adviser then uses fundamental research to select the portfolio of stocks it believes has the best current risk/return relationship. The Adviser believes in executing a very disciplined and objective investment process and in controlling risk through a broadly diversified portfolio. Because companies tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Since it purchases common stocks, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the stock markets have moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. Small cap stocks can perform differently from other segments of the equity market or the equity market as a whole and can be more volatile than stocks of larger companies. Because the Fund may invest in ADRs, it is subject to some of the same risks as direct investments in foreign companies. These include the risk that political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. For information about the risks involved when investing in derivatives, see "More Information About Risk." (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. A Shares were offered beginning on December 10, 1999. A Share performance between October 8, 1998 and December 10, 1999 is that of I Shares of the Fund, and has not been adjusted to reflect A Share expenses. If it had been, performance would have been lower. Both C Shares and I Shares were offered beginning on October 8, 1998. SMALL CAP GROWTH STOCK FUND PROSPECTUS 53 This bar chart shows changes in the performance of the Fund's C Shares from year to year.* The chart does not reflect sales charges. If sales charges had been reflected, returns would be less than those shown. (BAR CHART) 1999 19.29% 2000 10.74% 2001 -1.86% 2002 -23.56% 2003 44.15% 2004 18.00% 2005 6.88%
BEST QUARTER WORST QUARTER 23.82% -23.11% (6/30/03) (9/30/01)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 2.55%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Russell 2000(R) Growth Index. These returns reflect applicable sales charges and assumes shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only the C Shares. After-tax returns for other classes will vary.
SINCE A SHARES 1 YEAR 5 YEAR INCEPTION* Fund Returns Before Taxes 1.37% 5.85% 14.19% Russell 2000(R) Growth Index (reflects no deduction for fees, expenses or taxes) 4.15% 2.28% 9.16%
* Since inception of the I Shares on October 8, 1998. Benchmark returns since September 30, 1998 (benchmark returns available only on a month end basis).
SINCE C SHARES 1 YEAR 5 YEARS INCEPTION* Fund Returns Before Taxes 5.90% 6.41% 14.31% Fund Returns After Taxes on Distributions 4.47% 5.51% 13.27% Fund Returns After Taxes on Distributions and Sale of Fund Shares 5.39% 5.28% 12.36% Russell 2000(R) Growth Index (reflects no deduction for fees, expenses or taxes) 4.15% 2.28% 9.16%
* Since inception of the C Shares on October 8, 1998. Benchmark returns since September 30, 1998 (benchmark returns available only on a month end basis). (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Russell 2000(R) Growth Index is a widely recognized, capitalization-weighted index that measures the performance of those Russell 2000 companies with higher price-to-book ratios and higher forecasted growth values. The Russell 2000(R) Index is a widely recognized, capitalization-weighted index that measures the performance of the 2,000 smallest companies in the Russell 3000(R) Index. The Russell 3000(R) Index is a widely recognized, capitalization-weighted index that measures the performance of the 3,000 largest U.S. companies based on total market capitalization. SMALL CAP GROWTH STOCK FUND 54 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
A SHARES C SHARES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)* 5.75% None Maximum Deferred Sales Charge (as a percentage of net asset value)** None 1.00% Redemption Fee (as a percentage of net asset value)*** 2.00% 2.00%
* This sales charge varies depending upon how much you invest. You may buy A Shares in amounts of $1,000,000 or more at net asset value (without an initial sales charge), but if you redeem those shares within one year of your purchase, you will pay a deferred sales charge of 1.00%. See "Sales Charges." ** This sales charge is imposed if you sell C Shares within one year of your purchase. See "Sales Charges." *** This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
A SHARES C SHARES Investment Advisory Fees(1) 1.10% 1.10% Distribution and Service (12b-1) Fees 0.30%(2) 1.00% Other Expenses 0.07% 0.07% ------------ ------------------- Total Annual Operating Expenses(3) 1.47% 2.17%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) Adjusted to reflect a reduction in 12b-1 fees effective August 1, 2005. The Fund's Distribution and Service Plan for A Shares authorizes payment of up to 0.35% of average daily net assets of A Shares for distribution and shareholder services. Currently, the Board of Trustees has only approved payment of up to 0.30% of average daily net assets. (3) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: If you sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $716 $1,013 $1,332 $2,231 C Shares $320 $ 679 $1,164 $2,503
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $716 $1,013 $1,332 $2,231 C Shares $220 $ 679 $1,164 $2,503
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." SMALL CAP GROWTH STOCK FUND PROSPECTUS 55 - ------------------------------------------------------------- ADDITIONAL AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- Unlike the Average Annual Total Returns on page 53, the table below reflects the Fund's results calculated without sales charges.
SINCE A SHARES 1 YEAR 5 YEARS INCEPTION* - --------------------------------------------------------- Fund Returns Before Taxes 7.55% 7.12% 15.13% - --------------------------------------------------------- Russell 2000 Growth(R) Index (reflects no deduction for fees, expenses or taxes) 4.15% 2.28% 9.16% - ---------------------------------------------------------
* Since inception of the I Shares on October 8, 1998. Benchmark returns since September 30, 1998 (benchmark returns only available on a month end basis). SMALL CAP QUANTITATIVE EQUITY FUND 56 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Long-term capital appreciation INVESTMENT FOCUS U.S. common stocks of small cap companies with positive earnings characteristics purchased at reasonable value SHARE PRICE VOLATILITY High PRINCIPAL INVESTMENT STRATEGY Attempts to identify small cap companies with superior earnings/valuation cycle characteristics within their specific market sectors INVESTOR PROFILE Investors who want to increase the value of their investment and are willing to accept more volatility for the possibility of higher returns
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Small Cap Quantitative Equity Fund invests at least 80% of its net assets in U.S. traded equity securities of small cap companies. U.S. traded equity securities may include listed American Depositary Receipts ("ADRs"). The Adviser considers small cap companies to be companies with market capitalizations below $3 billion. The Fund attempts, through the use of disciplined quantitative modeling, to objectively and consistently identify those companies with the most attractive earnings growth prospects and valuation characteristics within each sector. Those characteristics vary by sector. The Adviser believes that companies with higher earnings growth prospects will have more highly valued stocks. Companies producing sustained accelerating rates of earnings growth will generate increasing stock valuations. Companies producing sustained decelerating rates of earnings growth will generate decreasing stock valuations. This cycle of accelerating earnings growth with increasing stock valuation and decelerating earnings growth with decreasing stock valuation is called the earnings-valuation cycle. The Adviser uses quantitative modeling to evaluate and select the common stock of companies based on the philosophy that earnings/valuation cycles dictate stock performance, earnings/valuation cycles differ among market sectors, and diversification controls risk. Because companies tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and may lower performance. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. Small cap stocks can perform differently from other segments of the equity market or the equity market as a whole and can be more volatile than stocks of larger companies. Because the Fund may invest in ADRs, it is subject to some of the same risks as direct investments in foreign companies. These include the risk that political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. For information about the risks involved when investing in derivatives, see "More Information About Risk." (TARGET ICON) PERFORMANCE INFORMATION No performance information is included because the Fund does not have performance history for a full calendar year. SMALL CAP QUANTITATIVE EQUITY FUND PROSPECTUS 57 (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
A SHARES C SHARES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) 5.75%* None Maximum Deferred Sales Charge (as a percentage of net asset value) None 1.00%** Redemption Fee (as a percentage of net asset value)*** 2.00% 2.00%
* This sales charge varies depending on how much you invest. You may buy A Shares in amounts of $1,000,000 or more at net asset value (without an initial sales charge), but if you redeem those shares within one year of your purchase, you will pay a deferred sales charge of 1.00%. See "Sales Charges." ** This sales charge is imposed if you sell C Shares within one year of your purchase. See "Sales Charges." *** This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
A SHARES C SHARES Investment Advisory Fees 1.05% 1.05% Distribution and Service (12b-1) Fees 0.30%(1) 1.00% Other Expenses(2) 0.10% 0.10% ------ ------ Total Annual Fund Operating Expenses(3) 1.45% 2.15%
(1) The Fund's Distribution and Service Plan for A Shares authorizes payment of up to 0.35% of average daily net assets of A Shares for distribution and shareholder services. Currently, the Board of Trustees has only approved payment of up to 0.30% of average daily net assets. (2) Other Expenses are based on estimated amounts for the current fiscal year. (3) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: If you sell your shares at the end of the period:
1 YEAR 3 YEARS A Shares $714 $1,007 C Shares $318 $ 673
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS A Shares $714 $1,007 C Shares $218 $ 673
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." SMALL CAP VALUE EQUITY FUND 58 PROSPECTUS *Shares of the Small Cap Value Equity Fund are no longer available for purchase by new investors. Please refer to the Statement of Additional Information for the definition of "new investor." (SUITCASE ICON) FUND SUMMARY INVESTMENT GOALS PRIMARY Capital appreciation SECONDARY Current income INVESTMENT FOCUS U.S. small cap equity securities SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Attempts to identify undervalued small cap securities INVESTOR PROFILE Investors who primarily want the value of their investment to grow, but want to receive some income from their investment
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Small Cap Value Equity Fund invests at least 80% of its net assets in U.S. traded equity securities of small cap companies. U.S. traded equity securities may include listed American Depositary Receipts ("ADRs"). The Adviser considers small cap companies to be companies with market capitalizations below $3 billion. In selecting investments for the Fund, the Adviser chooses companies that it believes are undervalued in the market, relative to the industry sector and the company's own valuation history. The Adviser evaluates potential catalysts that may increase a stock's value to such an extent that the stock no longer meets the Fund's investment criteria. Additionally, all common stocks purchased for the Fund are required to pay cash dividends. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. Small cap stocks can perform differently from other segments of the equity market or the equity market as a whole and can be more volatile than stocks of larger companies. The Adviser's value investing style may be out of favor in the marketplace for various periods of time. Value investing involves purchasing securities that are undervalued in comparison to their prospects for growth or to their peers or that have historically traded below their historical value. These securities are subject to the risk that their potential values as perceived by the Adviser are never realized by the market. Because the Fund may invest in ADRs, it is subject to some of the same risks as direct investments in foreign companies. These include the risk that political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. For information about the risks involved when investing in derivatives, see "More Information About Risk." SMALL CAP VALUE EQUITY FUND PROSPECTUS 59 (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. The Fund began operating as a registered mutual fund on January 31, 1997. Performance prior to January 31, 1997 is that of the Adviser's similarly managed collective investment fund, which began operations on August 31, 1994. The collective investment fund's performance has been adjusted to reflect the fees and expenses for I Shares of the Fund. As a collective investment fund, rather than a registered mutual fund, it was not subject to the same investment and tax restrictions. If it had been, the collective investment fund's performance would have been lower. A Shares and C Shares were offered beginning on October 9, 2003 and June 6, 1997, respectively. Performance between January 31, 1997 and October 9, 2003 with respect to the A Shares and between January 31, 1997 and June 6, 1997 with respect to the C Shares is that of I Shares of the Fund, and has not been adjusted to reflect A Share or C Share expenses. If it had been, performance would have been lower. This bar chart shows changes in the performance of the Fund's C Shares from year to year.* The chart does not reflect sales charges. If sales charges had been reflected, returns would be less than those shown. (BAR CHART) 1996 34.25% 1997 31.79% 1998 -14.33% 1999 -3.67% 2000 16.68% 2001 19.87% 2002 -2.69% 2003 35.54% 2004 24.79% 2005 12.16%
BEST QUARTER WORST QUARTER 19.45% -22.14% (6/30/99) (9/30/98)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 10.08%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Russell 2000(R) Value Index. These returns reflect applicable sales charges and assumes shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only the C Shares. After-tax returns for other classes will vary.
SINCE INCEPTION OF THE REGISTERED MUTUAL A SHARES 1 YEAR 5 YEARS FUND* 10 YEARS** - ----------------------------------------------------------------- Fund Returns Before Taxes 5.77% 16.56% 12.09% 14.30% - ----------------------------------------------------------------- Russell 2000(R) Value Index (reflects no deduction for fees, expenses or taxes) 4.71% 13.55% 12.12% 13.08% - -----------------------------------------------------------------
* Since inception of the I Shares on January 31, 1997, when the Fund began operating as a registered mutual fund. ** Includes performance of the Adviser's collective investment fund.
SINCE INCEPTION OF THE REGISTERED MUTUAL C SHARES 1 YEAR 5 YEARS FUND* 10 YEARS** - ----------------------------------------------------------------- Fund Returns Before Taxes 11.26% 17.22% 11.97% 14.19% - ----------------------------------------------------------------- Fund Returns After Taxes on Distributions 7.89% 16.21% 10.84% N/A+ - ----------------------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares 11.70% 15.15% 10.20% N/A+ - ----------------------------------------------------------------- Russell 2000(R) Value Index (reflects no deduction for fees, expenses or taxes) 4.71% 13.55% 12.12% 13.08% - -----------------------------------------------------------------
* Since inception of the I Shares on January 31, 1997, when the Fund began operating as a registered mutual fund. ** Includes performance of the Adviser's collective investment fund. + It is not possible to reflect the impact of taxes on the collective investment fund's performance. SMALL CAP VALUE EQUITY FUND 60 PROSPECTUS (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Russell 2000(R) Value Index is a widely-recognized, capitalization weighted (companies with larger market capitalizations have more influence than those with smaller market capitalizations) index of companies in the Russell 2000(R) Index with lower growth rates and price-to-book ratios. The Russell 2000(R) Index is a widely-recognized, capitalization-weighted index that consists of a subset of the 3,000 largest U.S. companies. (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
A SHARES C SHARES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)* 5.75% None Maximum Deferred Sales Charge (as a percentage of net asset value)** None 1.00% Redemption Fee (as a percentage of net asset value)*** 2.00% 2.00%
* This sales charge varies depending upon how much you invest. You may buy A Shares in amounts of $1,000,000 or more at net asset value (without an initial sales charge), but if you redeem those shares within one year of your purchase, you will pay a deferred sales charge of 1.00%. See "Sales Charges." ** This sales charge is imposed if you sell C Shares within one year of your purchase. See "Sales Charges." *** This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
A SHARES C SHARES Investment Advisory Fees(1) 1.13% 1.13% Distribution and Service (12b-1) Fees(2) 0.25% 0.25% Other Expenses 0.07% 0.07% ------------ ------------------- Total Annual Operating Expenses(3) 1.45% 1.45%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) Adjusted to reflect a reduction in 12b-1 fees for A Shares effective August 1, 2005. The Fund's Distribution and Service Plans for A Shares and C Shares, respectively, authorize payment of up to 0.33% of average daily net assets of A Shares and 1.00% of average daily net assets of C Shares for distribution and shareholder services. Currently, the Board of Trustees has only approved payment of up to 0.25% of average daily net assets of A Shares. The 0.25% limitation with respect to C Shares will remain in effect only so long as the Fund is closed to new investors. (3) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: If you sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $714 $1,007 $1,322 $2,210 C Shares $248 $ 459 $ 792 $1,735
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $714 $1,007 $1,322 $2,210 C Shares $148 $ 459 $ 792 $1,735
SMALL CAP VALUE EQUITY FUND PROSPECTUS 61 - ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." - ------------------------------------------------------------- ADDITIONAL AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- Unlike the Average Annual Total Returns on page 59, the tables below reflect the Fund's results calculated without sales charges.
SINCE INCEPTION OF THE REGISTERED MUTUAL A SHARES 1 YEAR 5 YEARS FUND* 10 YEARS** Fund Returns Before Taxes 12.22% 17.96% 12.84% 14.98% Russell 2000 Value(R) Index (reflects no deduction for fees, expenses or taxes) 4.71% 13.55% 12.12% 13.08%
* Since inception of the I Shares on January 31, 1997, when the Fund began operating as a registered mutual fund. ** Includes performance of the Adviser's collective investment fund. MORE INFORMATION ABOUT RISK 62 PROSPECTUS (LIFE PRESERVER ICON) MORE INFORMATION ABOUT RISK BELOW INVESTMENT GRADE RISK Balanced Fund High yield securities, which are also known as "junk bonds," involve greater risks of default or downgrade and are more volatile than investment grade securities. High yield securities involve greater risk of default or price declines than investment grade securities due to actual or perceived changes in an issuer's credit-worthiness. In addition, issuers of high yield securities may be more susceptible than other issuers to economic downturns. High yield securities are subject to the risk that the issuer may not be able to pay interest or dividends and ultimately to repay principal upon maturity. Discontinuation of these payments could substantially adversely affect the market value of the security. High yield securities may be less liquid than higher quality investments. A security whose credit rating has been lowered may be particularly difficult to sell. DERIVATIVES RISK All Funds Derivatives may involve risks different from, and possibly greater than, those of traditional investments. A Fund may use derivatives (such as futures, options, and swaps) to attempt to achieve its investment objective and offset certain investment risks, while at the same time maintaining liquidity. These positions may be established for hedging or non-hedging purposes. Risks associated with the use of derivatives include those associated with hedging and leveraging activities: - - 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. - - A Fund experiencing losses over certain ranges in the market that exceed losses experienced by a fund that does not use derivatives. - - There may be an imperfect or no correlation between the changes in market value of the securities held by a Fund and the prices of derivatives. - - There may not be a liquid secondary market for derivatives. - - Trading restrictions or limitations may be imposed by an exchange. - - Government regulations may restrict trading in derivatives. - - The other party to an agreement (e.g., options or swaps) may default; however, in certain circumstances, such counter-party risk may be reduced by having an organization with very good credit act as intermediary. Because options premiums paid or received by a Fund are small in relation to the market value of the investments underlying the options, buying and selling put and call options can be more speculative than investing directly in securities. Credit default swaps can increase a Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. The use of derivatives may cause a Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. Total return swaps could result in losses if their reference index, security or investments do not perform as anticipated. EMERGING MARKETS RISK Balanced Fund International Equity Fund International Equity Index Fund Emerging market countries are countries that the World Bank or the United Nations considers to be emerging or developing. Most countries or regions are included in this category, except for Australia, Canada, Hong Kong, Japan, New Zealand, Singapore, the United Kingdom, the United States and most of the countries located in Western Europe. Emerging markets may be more likely to experience political turmoil or rapid changes in market or economic conditions than more developed countries. In addition, the financial stability of issuers (including governments) in emerging market countries may be more precarious than in other countries. As a result, there will tend to be an increased risk of price volatility associated with a Fund's investments in emerging market countries, which may be magnified by currency fluctuations relative to the U.S. dollar. Governments of some emerging market countries have defaulted on their bonds and may do so in the future. MORE INFORMATION ABOUT RISK PROSPECTUS 63 EQUITY RISK All Funds Equity securities include public and privately issued equity securities, common and preferred stocks, warrants, rights to subscribe to common stock and convertible securities, as well as instruments that attempt to track the price movement of equity indices. Investments in equity securities and equity derivatives in general are subject to market risks that may cause their prices to fluctuate over time. The value of securities convertible into equity securities, such as warrants or convertible debt, is also affected by prevailing interest rates, the credit quality of the issuer and any call provision. Fluctuations in the value of equity securities in which a mutual fund invests will cause a fund's net asset value to fluctuate. An investment in a portfolio of equity securities may be more suitable for long-term investors who can bear the risk of these share price fluctuations. EXCHANGE TRADED FUND RISK All Funds The Funds may purchase shares of exchange-traded funds ("ETFs") to temporarily gain exposure to a particular portion of the market while awaiting an opportunity to purchase securities directly. ETFs are investment companies that are bought and sold on a securities exchange. An ETF holds a portfolio of securities designed to track a particular market segment or index. ETFs, like mutual funds, have expenses associated with their operation, including advisory fees. When the Fund invests in an ETF, in addition to directly bearing expenses associated with its own operations, it will bear a pro rata portion of the ETF's expense. The risks of owning shares of an ETF generally reflect the risks of owning the underlying securities the EFT is designed to track, although lack of liquidity in an ETF could result in being more volatile than the underlying portfolio of securities. In addition, because of ETF expenses, compared to owning the underlying securities directly, it may be more costly to own an ETF. FIXED INCOME RISK Balanced Fund The prices of the Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, a Fund's fixed income securities will decrease in value if interest rates rise and vice versa. Long-term debt securities generally are more sensitive to changes in interest rates, usually making them more volatile than short-term debt securities and thereby increasing risk. Debt securities are also subject to credit risk, which is the possibility than an issuer will fail to make timely payments of interest or principal, or go bankrupt. The lower the ratings of such debt securities, the greater their risks. In addition, lower rated securities have higher risk characteristics, and changes in economic conditions are likely to cause issuers of these securities to be unable to meet their obligations. Debt securities are also subject to income risk, which is the possibility that falling interest rates will cause the Fund's income to decline. Income risk is generally higher for short-term bonds. FLOATING RATE LOAN RISK Balanced Fund As fixed income securities, investments in floating rate loans are subject to interest rate risk, but that risk is less because the interest rate of the loan adjusts periodically. As debt securities, investments in floating rate loans are subject to credit risk. Many floating rate loans are in unrated or lower credit rated securities. When a security is unrated, a Fund must rely more heavily on the analytical ability of the Adviser. Many floating rate loan investments share the same risks as high yield securities, although these risks are reduced when the floating rate loans are senior and secured as opposed to many high yield securities that are junior and unsecured. Floating rate securities are often subject to restrictions on resale which can result in reduced liquidity. A floating rate loan also may not be fully collateralized, although one lending institution will often be required to monitor collateral. Borrowers may repay principal faster than the scheduled due date which may result in a Fund replacing that loan with a lower-yielding security. Investment in loan participation interests may result in increased exposure to financial services sector risk. A loan may not be fully collateralized which may cause the loan to decline significantly in value, although one lending institution acting as agent for all of the lenders will generally be required to administer and manage the MORE INFORMATION ABOUT RISK 64 PROSPECTUS loan and, with respect to collateralized loans, to service or monitor the collateral. Certain portfolio managers and other personnel of the Adviser may also manage similar investment portfolios of floating rate loans for another non-investment adviser contracted affiliated business, Seix Structured Products, LLC ("SSP"). SSP is a subsidiary of SunTrust Bank and an affiliate of the Adviser, but not a client of the Adviser. In that role, this group purchases bank loans on behalf of SSP, for purposes of subsequent collateralized loan obligation ("CLO") transactions where the Adviser and its affiliate, SunTrust Capital Markets, Inc., will serve as collateral manager and as structuring agent/placement agent, respectively. The trustee and custodian of the CLO transactions are not affiliated entities of the Adviser or SunTrust Capital Markets. In addition, the Adviser serves as adviser to an account established with its affiliate, SunTrust Equity Funding, LLC for the purpose of purchasing high yield securities for subsequent sale to these same CLO transactions. Each of these transactions is subject to the approval of the independent trustee of the CLO transaction. In addition to disclosure to the trustee, all such transactions are fully disclosed to potential investors in the CLO's Offering and Disclosure documents. As a result of these multiple investment-oriented and associated relationships, there exists a potential risk that the portfolio managers may favor other adviser and non-adviser contracted businesses over a Fund, especially when allocating certain types of transactions. The Adviser has created and implemented additional policies and procedures designed to protect shareholders against such conflicts; however, there can be no absolute guarantee that a Fund will always participate in the same or similar investments or receive equal or better individual investment allocations at any given time. FOREIGN SECURITY RISK Aggressive Growth Stock Fund Balanced Fund Emerging Growth Stock Fund International Equity Fund International Equity Index Fund Large Cap Quantitative Equity Fund Large Cap Relative Value Fund Large Cap Value Equity Fund Mid-Cap Equity Fund Mid-Cap Value Equity Fund Quality Growth Stock Fund Small Cap Growth Stock Fund Small Cap Quantitative Equity Fund Small Cap Value Equity Fund Investments in securities of foreign companies or governments can be more volatile than investments in U.S. companies or governments. Political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. Diplomatic, political, or economic developments, including nationalization or appropriation, could affect investments in foreign countries. Foreign securities markets generally have less trading volume and less liquidity than U.S. markets. The value of securities denominated in foreign currencies, and of dividends from such securities, can change significantly when foreign currencies strengthen or weaken relative to the U.S. dollar. As a result, changes in the value of those currencies compared to the U.S. dollar may affect (positively or negatively) the value of a Fund's investment. Certain foreign currencies may be particularly volatile, and foreign governments may intervene in the currency markets, causing a decline in value or liquidity in a Fund's foreign currency holdings. These currency movements may happen separately from and in response to events that do not otherwise affect the value of the security in the issuer's home country. Foreign companies or governments generally are not subject to uniform accounting, auditing, and financial reporting standards comparable to those applicable to domestic U.S. companies or governments. Transaction costs are generally higher than those in the U.S. and expenses for custodial arrangements of foreign securities may be somewhat greater than typical expenses for MORE INFORMATION ABOUT FUND INVESTMENTS PROSPECTUS 65 custodial arrangements of similar U.S. securities. Some foreign governments levy withholding taxes against dividend and interest income. Although in some countries a portion of these taxes are recoverable, the non-recovered portion will reduce the income received from the securities comprising the portfolio. LARGE COMPANY RISK Aggressive Growth Stock Fund Balanced Fund Capital Appreciation Fund Emerging Growth Stock Fund International Equity Fund International Equity Index Fund Large Cap Quantitative Equity Fund Large Cap Relative Value Fund Large Cap Value Equity Fund Mid-Cap Equity Fund Mid-Cap Value Equity Fund Quality Growth Stock Fund Large cap stocks can perform differently from other segments of the equity market or the equity market as a whole. Companies with large capitalization tend to go in and out of favor based on market and economic conditions and, while they can be less volatile than companies with smaller market capitalizations, they may also be less flexible in evolving markets or unable to implement change as quickly as their smaller counterparts. Accordingly, the value of large cap stocks may not rise to the same extent as the value of small or mid-cap companies. MORTGAGE-BACKED SECURITY RISK Balanced Fund Mortgage-backed securities are fixed income securities representing an interest in a pool of underlying mortgage loans. Mortgage-backed securities are sensitive to changes in interest rates, but may respond to these changes differently from other fixed income securities due to the likelihood that a change in the general level of interest rates will impact the magnitude and timing of any prepayments of the underlying mortgage loans. As a result, it may not be possible to accurately determine in advance the actual maturity date or average life of a mortgage-backed security. The uncertainty inherent in assessing prepayment risk makes it difficult to calculate the average maturity of a portfolio including mortgage-backed securities, and therefore, to assess the volatility risk of the Fund. SMALLER COMPANY RISK All Funds Small and mid-capitalization stocks can perform differently from other segments of the equity market or the equity market as a whole. The small and mid- capitalization companies the Fund invests in may be more vulnerable to adverse business or economic events than larger, more established companies. In particular, these companies may have limited product lines, markets and financial resources, and may depend upon a relatively small management group. Therefore, small and mid-cap stocks can be more volatile than those of larger companies. These securities may be traded over-the-counter or listed on an exchange. TRACKING ERROR RISK International Equity Index Fund Factors such as Fund expenses, imperfect correlation between the Fund's investments and those of its benchmarks, rounding of share prices, changes to the benchmark, regulatory policies, and leverage, may affect its ability to achieve perfect correlation. The magnitude of any tracking error may be affected by a higher portfolio turnover rate. Because an index is just a composite of the prices of the securities it represents rather than an actual portfolio of those securities, an index will have no expenses. As a result, the Fund, which will have expenses such as taxes, custody, management fees and other operational costs, and brokerage, may not achieve its investment objective of accurately correlating to an index. (MOUNTAIN ICON) MORE INFORMATION ABOUT FUND INVESTMENTS This prospectus describes the Funds' primary strategies, and the Funds will normally invest in the types of securities described in this prospectus. However, in addition to the investments and strategies described in this prospectus, each Fund also may invest in other securities, use other strategies and engage in other investment practices. These investments and strategies, as well as those described in this prospectus, are described in detail in the Statement of Additional Information. INFORMATION ABOUT PORTFOLIO HOLDINGS 66 PROSPECTUS The investments and strategies described in this prospectus are those that we use under normal conditions. During unusual economic or market conditions, or for temporary defensive or liquidity purposes, each Fund may invest up to 100% of its assets in cash, money market instruments, repurchase agreements and short-term obligations. The Small Cap Value Equity Fund also may invest in investment grade fixed income securities and mid- to large cap common stocks that would not ordinarily be consistent with the Fund's objective. A Fund will do so only if the Adviser believes that the risk of loss outweighs the opportunity for capital gains or higher income. Of course, a Fund cannot guarantee that it will achieve its investment goal. INFORMATION ABOUT PORTFOLIO HOLDINGS A description of the Funds' policies and procedures with respect to the circumstances under which the Funds disclose their portfolio securities is available in the Statement of Additional Information. (MAGNIFIYING GLASS ICON) INVESTMENT ADVISER Trusco Capital Management, Inc., 50 Hurt Plaza, Suite 1400, Atlanta, Georgia 30303 ("Trusco" or the "Adviser"), serves as the investment adviser to the Funds. As of June 30, 2006, the Adviser had approximately $71 billion in assets under management. For the fiscal year ended March 31, 2006, the following Funds paid the Adviser advisory fees (after waivers) based on the respective Fund's average daily net assets of: Aggressive Growth Stock Fund 1.09% Balanced Fund 0.88% Capital Appreciation Fund 1.00% Emerging Growth Stock Fund 1.10% International Equity Fund 1.16% International Equity Index Fund 0.59% Large Cap Quantitative Equity Fund 0.88% Large Cap Relative Value Fund 0.84% Large Cap Value Equity Fund 0.79% Mid-Cap Equity Fund 1.04% Mid-Cap Value Equity Fund 1.06% Quality Growth Stock Fund 0.97% Small Cap Growth Stock Fund 1.11% Small Cap Value Equity Fund 1.14%
For its advisory services to the Small Cap Quantitative Equity Fund, the Adviser is entitled to receive an annual advisory fee of 1.05% based on the Fund's average daily net assets. Since August 1, 2005 the following breakpoints have been used in computing the advisory fee:
Average Daily Net Assets Discount From Full Fee First $500 million None-Full Fee Next $500 million 5% Over $1 billion 10%
Based on average daily net assets for the fiscal year ended March 31, 2006, the asset levels of the following Funds had reached a breakpoint in the advisory fee.* Had the Funds' asset levels been lower, the Adviser may have been entitled to receive maximum advisory fees as follows: Capital Appreciation Fund 0.97% International Equity Fund 1.15% Large Cap Relative Value Fund 0.85% Large Cap Value Equity Fund 0.80% Small Cap Growth Stock Fund 1.15% Small Cap Value Equity Fund 1.15%
* Fund expenses in the "Annual Fund Operating Expenses" tables shown earlier in this prospectus reflect the new advisory breakpoints. A discussion regarding the basis for the Board of Trustees' approval of the investment advisory contract with the Adviser appears in the Funds' semi-annual report to shareholders for the period ended September 30, 2005. Except for the Aggressive Growth Stock Fund and the Emerging Growth Stock Fund, the Adviser is responsible for making investment decisions for the Funds and continuously reviews, supervises and administers each Fund's respective investment program. With respect to the Aggressive Growth Stock Fund and the Emerging Growth Stock Fund, the Adviser oversees the Subadviser to ensure compliance with each Fund's investment policies and guidelines and monitors the Subadviser's adherence to its investment style. The Adviser pays the Subadviser out of the fees it receives from the Aggressive Growth Stock Fund and Emerging Growth Stock Fund. The Board of Trustees supervises the Adviser and Subadviser and establishes policies that the Adviser and Subadviser must follow in their management activities. The Adviser may use its affiliates as brokers for Fund transactions. INVESTMENT SUBADVISER PROSPECTUS 67 An investment adviser has a fiduciary obligation to its clients when the adviser has authority to vote their proxies. Under the current contractual agreement, the Adviser is authorized to vote proxies on behalf of each Fund. Information regarding the Adviser's, and thus each Fund's, Proxy Voting Policies and Procedures is provided in the Statement of Additional Information. A copy of the Funds' Proxy Voting Policies and Procedures may be obtained by contacting the STI Classic Funds at 1-888-STI-FUND, or by visiting www.sticlassicfunds.com. INVESTMENT SUBADVISER Zevenbergen Capital Investments LLC, 601 Union Street, Seattle, Washington 98101, serves as the subadviser to the Aggressive Growth Stock Fund and Emerging Growth Stock Fund and manages the portfolios of the Aggressive Growth Stock Fund and Emerging Growth Stock Fund on a day-to-day basis. The Subadviser was founded in 1987 and manages domestic growth equity assets. The firm's client base is comprised of a blend of institutional tax-exempt and taxable separately managed accounts. As a domestic growth equity manager, the Subadviser manages assets for a variety of entities, including public funds, foundations, endowments, corporations, pooled accounts, and private individuals. As of June 30, 2006, the Subadviser had approximately $1.2 billion in assets under management. The Subadviser selects, buys, and sells securities for the Aggressive Growth Stock Fund and Emerging Growth Stock Fund under the supervision of the Adviser and the Board of Trustees. The Subadviser is entitled to receive from the Adviser 0.625% of each of the Aggressive Growth Stock Fund's and Emerging Growth Stock Fund's daily net assets. PORTFOLIO MANAGERS The following individuals are primarily responsible for the day-to-day management of the Funds. Mr. Andrew Atkins has served as Equity Portfolio Analyst at Trusco since August 2000. He has co-managed the INTERNATIONAL EQUITY INDEX FUND since March 31, 2005. He has more than 6 years of investment experience. Mr. Brett Barner, CFA, has served as Managing Director of Trusco since July 2000. He has managed the SMALL CAP VALUE EQUITY FUND since its inception. He has more than 21 years of investment experience. Mr. Edward E. Best, CFA, has served as Managing Director of Trusco since June 2000. Mr. Best also serves as the Senior Quantitative Equity Analyst for Trusco. He has managed the LARGE CAP QUANTITATIVE EQUITY FUND and the SMALL CAP QUANTITATIVE EQUITY FUND since their inception. He has more than 13 years of investment experience. Mr. Chad Deakins, CFA, has served as Managing Director of Trusco since May 2000. He has co-managed the INTERNATIONAL EQUITY INDEX FUND since March 2005, after managing the Fund since February 1999. He has managed the INTERNATIONAL EQUITY FUND since May 2000. In addition, he has co-managed the MID-CAP EQUITY FUND since February 2006, after managing the Fund from September 2004 to January 2006 and co-managing the Fund from February 2003 to September 2004. He has more than 12 years of investment experience. Ms. Brooke de Boutray, CFA, has served as Managing Director, Principal, Portfolio Manager and Analyst for the Subadviser since 1992. She has co-managed the AGGRESSIVE GROWTH STOCK FUND and EMERGING GROWTH STOCK FUND since their inception. Ms. de Boutray has more than 23 years of investment experience. Mr. James P. Foster has served as Managing Director of Trusco since May 2004 and has been with Trusco since 1988. He has co-managed the SMALL CAP GROWTH STOCK FUND since June 2006. He has more than 37 years of investment experience. Mr. Jeffrey E. Markunas, CFA, has served as Managing Director of Trusco since July 2000. Mr. Markunas has managed the LARGE CAP RELATIVE VALUE FUND since its inception. He has more than 22 years of investment experience. Ms. Elizabeth G. Pola, CPA, joined Trusco in 1983 and has served as Executive Vice President and Director of Equity Research of Trusco since 2000. She has co-managed the CAPITAL APPRECIATION FUND and the BALANCED FUND (equity portion only) since December 2005. She has more than 24 years of investment experience. Mr. Robert J. Rhodes, CFA, joined Trusco in 1973 and has served as Executive Vice President and head of the PURCHASING, SELLING AND EXCHANGING FUND SHARES 68 PROSPECTUS equity funds group at Trusco since February 2000. He managed the BALANCED FUND (EQUITY PORTION ONLY) and the CAPITAL APPRECIATION FUND from June 2000 to November 2005 and has co-managed those Funds since December 2005. He has more than 33 years of investment experience. Mr. Mills Riddick, CFA, has served as Managing Director of Trusco since July 2000. He has managed the LARGE CAP VALUE EQUITY FUND since April 1995. He has more than 24 years of investment experience. Mr. John Talty, CFA, has served as Executive Vice President since joining Trusco in May 2004. He has co-managed the BALANCED FUND (FIXED INCOME PORTION ONLY) since July 2004. Prior to joining Trusco, Mr. Talty served as President and Senior Portfolio Manager of Seix Investment Advisors, Inc. from January 1993 to May 2004. He has more than 25 years of investment experience. Mr. Parker W. Thomas, Jr. has served as Vice President since joining Trusco in April 2004. He has managed the QUALITY GROWTH STOCK FUND since April 2004. Prior to joining Trusco, Mr. Thomas served as Senior Vice President, SunTrust Bank, Nashville from January 1988 to September 2002. From September 2002 to March 2004 he served as Managing Director and Portfolio Manager of Personal Asset Management, for SunTrust Banks Inc. He has more than 33 years of investment experience. Mr. Perry Troisi has served as Managing Director since joining Trusco in May 2004. He has co-managed the BALANCED FUND (FIXED INCOME PORTION ONLY), since July 2004. Prior to joining Trusco, Mr. Troisi served as Senior Portfolio Manager of Seix Investment Advisors, Inc. from November 1999 to May 2004. He has more than 20 years of investment experience. Ms. Leslie Tubbs, CFA, has served as Managing Director, Principal, Portfolio Manager and Analyst for the Subadviser since 1995. She has co-managed the AGGRESSIVE GROWTH STOCK FUND and EMERGING GROWTH STOCK FUND since their inception. She has more than 11 years of investment experience. Mr. Stuart F. Van Arsdale, CFA, has served as Managing Director of Trusco since May 2002. He has co-managed the SMALL CAP GROWTH STOCK FUND since June 2006. Prior to joining Trusco, Mr. Van Arsdale served as Director of Growth Investments for Deprince, Race & Zollo, Inc. from October 1998 to April 2002. He has more than 26 years of investment experience. Mr. Don Wordell, CFA, has served as Director of Trusco since December 2005. He has managed the MID-CAP VALUE EQUITY FUND since December 2003, after co-managing it since it began operating in November 2001. He has more than 10 years of investment experience. Mr. Scott Yuschak, CFA, has served as Vice President and Research Analyst at Trusco since February 2005. He has co-managed the MID-CAP EQUITY FUND since February 2006. Prior to joining Trusco, Mr. Yuschak served as Sector Manager and Equity Analyst at Banc One from July 2000 to February 2005. He has more than 9 years of investment experience. Ms. Nancy Zevenbergen, CFA, has served as President and Chief Investment Officer for the Subadviser since January 1987. She has co-managed the AGGRESSIVE GROWTH STOCK FUND and EMERGING GROWTH STOCK FUND since their inception. She has more than 24 years of investment experience. The Statement of Additional Information provides additional information regarding the Funds' portfolio managers' compensation, other accounts managed by the portfolio managers and the portfolio managers' ownership of securities of the Funds. (HAND SHAKE ICON) PURCHASING, SELLING AND EXCHANGING FUND SHARES This section tells you how to purchase, sell (sometimes called "redeem") and exchange A Shares and C Shares of the Funds. HOW TO PURCHASE FUND SHARES Your investment professional can assist you in opening a brokerage account that will be used for purchasing shares of STI Classic Funds. Once your securities account is established, you may buy shares of the Funds by: - - Mail - - Telephone (1-888-STI-FUND) - - Wire - - Fax (1-800-451-8377) - - Automated Clearing House ("ACH") PURCHASING, SELLING AND EXCHANGING FUND SHARES PROSPECTUS 69 The Funds do not accept cash, credit card checks, third-party checks, travelers' checks, money orders, bank starter checks, or checks drawn in a foreign currency, as payment for Fund shares. Shares of the Small Cap Value Equity Fund are no longer available for purchase by new investors. Please refer to the Statement of Additional Information for the definition of "new investor." You may also buy shares through financial institutions or intermediaries that are authorized to place transactions in Fund shares for their customers. Please contact your financial institution or intermediary directly and follow its procedures for Fund share transactions. Your financial institution or intermediary may charge a fee for its services, in addition to the fees charged by a Fund. You will also generally have to address your correspondence or questions regarding a Fund to your financial institution or intermediary. If you pay with a check or ACH transfer that does not clear or if your payment is not received in a timely manner, your purchase may be canceled. You will be responsible for any losses or expenses incurred by the Fund or transfer agent, and the Fund can redeem shares you own in this or another identically registered STI Classic Funds account as reimbursement. WHEN CAN YOU PURCHASE SHARES? You may purchase shares on any day that the New York Stock Exchange ("NYSE") is open for business (a "Business Day"). The price per share (the offering price) will be the net asset value per share ("NAV") next determined after the Funds receive your purchase order in proper form plus any applicable sales charge. Each Fund calculates its NAV once each Business Day at the regularly-scheduled close of normal trading on the NYSE (normally, 4:00 p.m., Eastern Time). So, for you to receive the current Business Day's NAV, a Fund or its authorized agent must receive your purchase order in proper form before 4:00 p.m., Eastern Time. If the NYSE closes early -- such as on days in advance of certain holidays -- the Funds will calculate NAV as of the earlier closing time. The Funds will not accept orders that request a particular day or price for the transaction or any other special conditions. YOU MAY HAVE TO TRANSMIT YOUR PURCHASE, SALE AND EXCHANGE REQUESTS TO FINANCIAL INSTITUTIONS OR INTERMEDIARIES AT AN EARLIER TIME FOR YOUR TRANSACTION TO BECOME EFFECTIVE THAT DAY. THIS ALLOWS THE FINANCIAL INSTITUTION OR INTERMEDIARY TIME TO PROCESS YOUR REQUEST AND TRANSMIT IT TO THE ADMINISTRATOR OR TRANSFER AGENT IN TIME TO MEET THE ABOVE STATED FUND CUT-OFF TIMES. FOR MORE INFORMATION ABOUT HOW TO PURCHASE, SELL OR EXCHANGE FUND SHARES, INCLUDING A SPECIFIC FINANCIAL INSTITUTION'S OR INTERMEDIARY'S INTERNAL ORDER ENTRY CUT-OFF TIME, PLEASE CONTACT YOUR FINANCIAL INSTITUTION OR INTERMEDIARY DIRECTLY. A Fund may reject any purchase order. HOW THE FUNDS CALCULATE NAV NAV is calculated by adding the total value of a Fund's investments and other assets, subtracting its liabilities and then dividing that figure by the number of outstanding shares of the Fund. In calculating NAV, each Fund generally values its investment portfolio at market price. If market prices are not readily available or the Fund reasonably believes that they are unreliable, such as in the case of a security value that has been materially affected by events occurring after the relevant market closes, a Fund is required to price those securities at fair value as determined in good faith using methods approved by the Board of Trustees. A Fund's determination of a security's fair value price often involves the consideration of a number of subjective factors, and is therefore subject to the unavoidable risk that the value that a Fund assigns to a security may be higher or lower than the security's value would be if a reliable market quotation for the security was readily available. When valuing fixed income securities with remaining maturities of more than 60 days, the Funds use the value of the security provided by pricing services. The values provided by a pricing service may be based upon market quotations for the same security, securities expected to trade in a similar manner, or a pricing matrix. When valuing fixed income securities with remaining maturities of 60 days or less, the Funds use the security's amortized cost. Amortized cost and the use of a pricing matrix in valuing fixed income securities are forms of fair value pricing. Although the Funds, except the International Equity Fund and the International Equity Index Fund, invest primarily in the stocks of companies that are traded on U.S. exchanges, there may be limited circumstances in which a Fund would price securities at fair value - for example, if the exchange on which a portfolio security is PURCHASING, SELLING AND EXCHANGING FUND SHARES 70 PROSPECTUS principally traded closed early or if trading in a particular security was halted during the day and did not resume prior to the time a Fund calculated its NAV. With respect to non-U.S. securities held by a Fund, the Fund may take factors influencing specific markets or issues into consideration in determining the fair value of a non-U.S. security. International securities markets may be open on days when the U.S. markets are closed. In such cases, the value of any international securities owned by a Fund may be significantly affected on days when investors cannot buy or sell shares. In addition, due to the difference in times between the close of the international markets and the time a Fund prices its shares, the value the Fund assigns to securities generally will not be the same as the primary markets or exchanges. In determining fair value prices, a Fund may consider the performance of securities on their primary exchanges, foreign currency appreciation/depreciation, securities market movements in the U.S., or other relevant information as related to the securities. MINIMUM/MAXIMUM PURCHASES To purchase shares for the first time, you must invest in any Fund at least:
CLASS DOLLAR AMOUNT A Shares $2,000 C Shares $5,000 ($2,000 for IRA or other tax qualified accounts)
Purchases of C Shares of a Fund requested in an amount of $1,000,000 or more will automatically be made in A Shares of that Fund. Your subsequent investments of shares of any Fund must be made in amounts of at least $1,000 or, if you pay by a statement coupon, $100. The Funds may accept investments of smaller amounts for either class of shares at its discretion. SYSTEMATIC INVESTMENT PLAN If you have a checking or savings account with a bank, you may purchase shares of either class automatically through regular deductions from your bank account. With a $500 minimum initial investment, you may begin regularly-scheduled investments of $50 or more once or twice a month. If you are buying C Shares, you should plan on investing at least $5,000 per Fund during the first two years. The Distributor may close your account if you do not meet this minimum investment requirement at the end of two years. CUSTOMER IDENTIFICATION FOREIGN INVESTORS To purchase shares of the Funds, you must be a U.S. citizen residing in the U.S. or its territories or a U.S. entity with a U.S. tax identification number. If you owned shares on July 31, 2006, you may keep your account open even if you do not reside in the U.S. or its territories, but you may not make additional purchases or exchanges. These restrictions do not apply to investors with U.S. military APO or FPO addresses. CUSTOMER IDENTIFICATION AND VERIFICATION To help the government fight the funding of terrorism and money laundering activities, federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account. When you open an account, you will be asked to provide your name, residential street address, date of birth, Social Security Number or tax identification number. You may also be asked for other information that will allow us to identify you. Entities are also required to provide additional documentation. This information will be verified to ensure the identity of all persons opening a mutual fund account. In certain instances, the Funds are required to collect documents to fulfill their legal obligation. Documents provided in connection with your application will be used solely to establish and verify a customer's identity. The Funds are required by law to reject your new account application if the required identifying information is not provided. Attempts to collect the missing information required on the application will be performed by either contacting you or, if applicable, your broker. If this information is unable to be obtained within a timeframe established in the sole discretion of the Funds, your application will be rejected. Upon receipt of your application in proper form (or upon receipt of all identifying information required on the application), your investment will be accepted and your order will be processed at the NAV next determined. PURCHASING, SELLING AND EXCHANGING FUND SHARES PROSPECTUS 71 However, the Funds reserve the right to close your account at the then-current day's price if the Funds are unable to verify your identity. Attempts to verify your identity will be performed within a timeframe established in the sole discretion of the Funds. If the Funds are unable to verify your identity, the Funds reserve the right to liquidate your account at the then-current day's price and remit proceeds to you via check. The Funds reserve the further right to hold your proceeds until your original check clears the bank. In such an instance, you may be subject to a gain or loss on Fund shares and will be subject to corresponding tax implications. ANTI-MONEY LAUNDERING PROGRAM Customer identification and verification is part of the Funds' overall obligation to deter money laundering under federal law. The Funds have adopted an anti-money laundering compliance program designed to prevent the Funds from being used for money laundering or the financing of terrorist activities. In this regard, the Funds reserve the right to (i) refuse, cancel or rescind any purchase or exchange order, (ii) freeze any account and/or suspend account services, or (iii) involuntarily redeem your account in cases of threatening conduct or suspected fraudulent or illegal activity. These actions will be taken when, in the sole discretion of Fund management, they are deemed to be in the best interest of the Funds or in cases when the Funds are requested or compelled to do so by governmental or law enforcement authority. (DOLLAR ICON) SALES CHARGES FRONT-END SALES CHARGES -- A SHARES The offering price of A Shares is the NAV next calculated after a Fund receives your request in proper form, plus the front-end sales charge. The amount of any front-end sales charge included in your offering price varies, depending on the amount of your investment:
YOUR SALES CHARGE YOUR SALES CHARGE AS A PERCENTAGE OF AS A PERCENTAGE OF IF YOUR INVESTMENT IS: OFFERING PRICE* YOUR NET INCOME Less than $50,000 5.75% 6.10% $50,000 but less than $100,000 4.75% 4.99% $100,000 but less than $250,000 3.75% 3.90% $250,000 but less than $500,000 2.50% 2.56% $500,000 but less than $1,000,000 2.00% 2.04% $1,000,000 and over None None
* The distributor may pay a percentage of the offering price as a commission to broker-dealers. While investments over $1,000,000 are not subject to a front-end sales charge, the distributor may pay dealer commissions ranging from 0.25% to 1.00%. INVESTMENTS OF $1,000,000 OR MORE. You do not pay an initial sales charge when you buy $1,000,000 or more of A Shares (excluding A Shares of STI Classic Money Market Funds) in either a single investment or through our rights of accumulation, letter of intent, or combined purchase/quantity discount programs. However, you will pay a deferred sales charge of 1.00% if you redeem any of these A Shares within one year of purchase. The deferred sales charge is calculated based on the lessor of (1) the NAV of the shares at the time of purchase or (2) NAV of the shares next calculated after the Fund receives your redemption request. The deferred sales charge does not apply to shares you purchase through reinvestment of dividends or capital gains distributions. WAIVER OF FRONT-END SALES CHARGE -- A SHARES The front-end sales charge will be waived on A Shares purchased: - - through reinvestment of dividends and distributions; - - through an account managed by an affiliate of the Adviser; - - by persons repurchasing shares they redeemed within the last 180 days (see "Repurchase of A Shares"); - - by employees, and members of their immediate family (spouse, mother, father, mother-in-law, father-in-law, and children (including step-children) under the age of 21 years), of the Adviser and its affiliates; PURCHASING, SELLING AND EXCHANGING FUND SHARES 72 PROSPECTUS - - by current STI Classic Funds shareholders reinvesting distributions from qualified employee benefit retirement plans and rollovers from individual retirement accounts (IRAs); - - by persons investing an amount less than or equal to the value of an account distribution when an account for which a bank affiliated with the Adviser acted in a fiduciary, administrative, custodial or investment advisory capacity is closed; or - - through dealers, retirement plans, asset allocation and wrap programs and financial institutions that, under their dealer agreements with the Distributor or otherwise, do not receive any portion of the front-end sales charge; or - - by Trustees of the STI Classic Funds. REPURCHASE OF A SHARES You may repurchase any amount of A Shares of any Fund at NAV (without the normal front-end sales charge), up to the limit of the value of any amount of A Shares (other than those which were purchased with reinvested dividends and distributions) that you redeemed within the past 180 days. In effect, this allows you to reacquire shares that you may have had to redeem, without re-paying the front-end sales charge. Such repurchases may be subject to special tax rules. See the section on Taxes in the Statement of Additional Information for more information. To exercise this privilege, the Funds must receive your purchase order within 180 days of your redemption. In addition, you must notify the Fund when you send in your purchase order that you are repurchasing shares. REDUCED SALES CHARGES -- A SHARES RIGHTS OF ACCUMULATION. In calculating the appropriate sales charge rate, this right allows you to add the market value (at the close of business on the day of the current purchase) of your existing holdings in any class of shares to the amount of A shares you are currently purchasing. You should retain any records necessary to substantiate the historical amounts you have invested. The Funds may amend or terminate this right at any time. Please see the Statement of Additional Information for details. LETTER OF INTENT. A Letter of Intent allows you to purchase shares over a 13-month period and receive the same sales charge as if you had purchased all the shares at the same time. The Funds will hold a certain portion of your investment in escrow until you fulfill your commitment. Please see the Statement of Additional Information for details. COMBINED PURCHASE/QUANTITY DISCOUNT PRIVILEGE. When calculating the appropriate sales charge rate, the Funds will combine same day purchases of shares of any class made by you, your spouse and your minor children (under age 21). This combination also applies to A Shares you purchase with a Letter of Intent. You can also obtain this information about sales charges, rights of accumulation and Letters of Intent on the Funds' website at www.sticlassicfunds.com. CONTINGENT DEFERRED SALES CHARGES ("CDSC") -- C SHARES You do not pay a sales charge when you purchase C Shares. The offering price of C Shares is simply the next calculated NAV. But if you sell your shares within the first year after your purchase, you will pay a CDSC equal to 1% of either (1) the NAV of the shares at the time of purchase, or (2) NAV of the shares next calculated after the Funds receive your sale request, whichever is less. The Funds will use the first-in, first-out (FIFO) method to determine the holding period. So, you never pay a CDSC on any increase in your investment above the initial offering price. The CDSC does not apply to shares you purchase through reinvestment of dividends or distributions or exchanges of C Shares of one Fund for C Shares of another Fund. WAIVER OF CDSC The CDSC will be waived if you sell your C Shares for the following reasons: - - Death or Postpurchase Disablement (as defined in Section 72(m)(7) of the Internal Revenue Code) - You are shareholder/joint shareholder or participant/beneficiary of certain retirement plans; - You die or become disabled after the account is opened; - Redemption must be made within 1 year of such death/disability; - The Funds must be notified in writing of such death/disability at time of redemption request; - The Funds must be provided with satisfactory evidence of death (death certificate) or disability PURCHASING, SELLING AND EXCHANGING FUND SHARES PROSPECTUS 73 (doctor's certificate specifically referencing disability as defined in 72(m)(7) referenced above). - - Shares purchased through dividend and capital gains reinvestment. - - Participation in the Systematic Withdrawal Plan described below: - - Withdrawal not to exceed 10% of the current balance of a Fund in a 12 month period, the 10% amount will be calculated as of the date of the initial Systematic Withdrawal Plan and recalculated annually on the 12 month anniversary date. Shares purchased through dividend or capital gains reinvestment, although not subject to the CDSC, will be included in calculating the account value and 10% limitation amount; - If the total of all Fund account withdrawals (Systematic Withdrawal Plan or otherwise) exceeds the 10% limit within the 12 month period following the initial calculation date, the entire Systematic Withdrawal Plan for the period will be subject to the applicable sales charge, in the initial year of a Systematic Withdrawal Plan, the withdrawal limitation period shall begin 12 months before the initial Systematic Withdrawal Plan payment; - To qualify for the CDSC waiver under the Systematic Withdrawal Plan a Fund account must have a minimum of $25,000 at Systematic Withdrawal Plan inception and must also reinvest dividends and capital gains distributions. - - Required mandatory minimum withdrawals made after 70 1/2 under any retirement plan qualified under IRS Code Section 401, 408 or 403(b) or resulting from the tax free return of an excess distribution to an Individual Retirement Account ("IRA"). Satisfactory qualified plan documentation to support any waiver includes employer letter (separation from services) and plan administrator certificate (certain distributions under plan requirements). - - Permitted exchanges of shares, except if shares acquired by exchange are then redeemed within the period during which a CDSC would apply to the initial shares purchased. - - Exchanges in connection with plans of Fund reorganizations such as mergers and acquisitions. To take advantage of any of these waivers, you must qualify in advance. To see if you qualify, please call your investment professional or other investment representative. These waivers are subject to change or elimination at any time at the discretion of the Funds. OFFERING PRICE OF FUND SHARES The offering price of A Shares is the NAV next calculated after the transfer agent receives your request, in proper form, plus the front-end sales charge. The offering price of C Shares is simply the next calculated NAV. You can also obtain this information about sales charges, rights of accumulation and letters of intent on the Funds' website at www.sticlassicfunds.com. HOW TO SELL YOUR FUND SHARES If you own your shares through an account with a broker or other financial institution or intermediary, contact that broker, financial institution or intermediary to sell your shares. Your broker, financial institution or intermediary may charge a fee for its services, in addition to the fees charged by the Funds. Shareholders who purchased shares directly from the Funds may sell their Fund Shares by: - Mail - Telephone (1-888-STI-FUND) - Wire - Fax (1-800-451-8377) - ACH PURCHASING, SELLING AND EXCHANGING FUND SHARES 74 PROSPECTUS A MEDALLION SIGNATURE GUARANTEE[DIAMOND SYMBOL] by a bank or other financial institution (a notarized signature is not sufficient) is required to redeem shares: - - made payable to someone other than the registered shareholder; - - sent to an address or bank account other than the address or bank account of record; or - - sent to an address or bank account of record that has been changed within the last 15 calendar days. [DIAMOND SYMBOL] MEDALLION SIGNATURE GUARANTEE: A Medallion Signature Guarantee verifies the authenticity of your signature and helps ensure that you, in fact, authorized changes to your account. A Medallion Signature Guarantee may be obtained from a domestic bank or trust company, broker, dealer, clearing agency, savings association or other financial institution participating in a Medallion Program recognized by the Securities Trading Association. Signature guarantees from financial institutions that do not reflect one of the following are not part of the program and will not be accepted. The acceptable Medallion programs are Securities Transfer Agents Medallion Program, (STAMP), Stock Exchange Medallion Program, (SEMP), or the New York Stock Exchange, Inc. Medallion Program, (NYSE MSP). Contact your local financial adviser or institution for further assistance. The sale price of each share will be the next NAV determined after the Funds receive your request less, in the case of C Shares, any applicable CDSC. REDEMPTION FEE A redemption fee of 2% of the value of the shares sold will be imposed on shares redeemed within 7 days (60 days in the case of the International Equity Fund and the International Equity Index Fund) or less after their date of purchase unless the redemption is excluded under the Redemption Fee Policy. The redemption fee is intended to limit short-term trading and to help offset costs to the Funds' remaining shareholders of that type of activity. (See "Redemption Fee Policy.") SYSTEMATIC WITHDRAWAL PLAN If you have at least $10,000 in your account, you may use the systematic withdrawal plan. Under the plan you may arrange monthly, quarterly, semi-annual or annual automatic withdrawals of at least $50 from any Fund. The proceeds of each withdrawal will be mailed to you by check or, if you have a checking or savings account with a bank, may be electronically transferred to your account. Please check with your bank. Withdrawals under the Systematic Withdrawal Plan may be subject to a CDSC unless they meet the requirements described above under "Waiver of the CDSC." RECEIVING YOUR MONEY Normally, the Funds will send your sale proceeds within five Business Days after the Funds receive your request, but a Fund may take up to seven days to pay the sale proceeds if making immediate payment would adversely affect the Fund (for example, to allow the Fund to raise capital in the case of a large redemption). Your proceeds can be wired to your bank account (subject to a fee) or sent to you by check. IF YOU RECENTLY PURCHASED YOUR SHARES BY CHECK OR THROUGH ACH, REDEMPTION PROCEEDS MAY NOT BE AVAILABLE UNTIL YOUR FUNDS HAVE CLEARED (WHICH MAY TAKE UP TO 15 CALENDAR DAYS FROM YOUR DATE OF PURCHASE). REDEMPTIONS IN KIND The Funds generally pay redemption proceeds in cash. However, under unusual conditions that make the payment of cash unwise (and for the protection of the Funds' remaining shareholders), the Funds might pay all or part of your redemption proceeds in liquid securities with a market value equal to the redemption price (redemption in kind). It is highly unlikely that your shares would ever be redeemed in kind, but if they were you would probably have to pay transaction costs to sell the securities distributed to you, as well as taxes on any capital gains from the sale as with any redemption. INVOLUNTARY SALES OF YOUR SHARES If your account balance drops below the required minimum as a result of redemptions you may be required to sell your shares. The account balance minimums are:
CLASS DOLLAR AMOUNT A Shares $2,000 $5,000 ($2,000 for IRA C Shares accounts)
But, the Funds will always give you at least 60 days written notice to give you time to add to your account and avoid the sale of your shares. PURCHASING, SELLING AND EXCHANGING FUND SHARES PROSPECTUS 75 SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES A Fund may suspend your right to sell your shares if the NYSE restricts trading, the SEC declares an emergency or for other reasons approved by the SEC. More information about this is in the Statement of Additional Information. HOW TO EXCHANGE YOUR SHARES You may exchange your shares on any Business Day by contacting the Funds or your financial institution or intermediary by mail or telephone. Exchange requests must be for an amount of at least $1,000. The exchange privilege is not intended as a vehicle for short-term trading. Excessive exchange activity may interfere with Fund management and may have an adverse effect on all shareholders. In order to limit excessive exchange activity and in other circumstances where it is in the best interests of a Fund, all Funds reserve the right to revise or terminate the exchange privilege, limit the amount or number of exchanges or reject any exchange or restrict or refuse purchases if (1) a Fund or its manager(s) believes the Fund would be harmed or unable to invest effectively, or (2) a Fund receives or anticipates orders that may dramatically affect the Fund as outlined under "Market Timing Policies and Procedures" below. IF YOU RECENTLY PURCHASED SHARES BY CHECK, OR THROUGH ACH, YOU MAY NOT BE ABLE TO EXCHANGE YOUR SHARES UNTIL YOUR FUNDS HAVE CLEARED (WHICH MAY TAKE UP TO 15 CALENDAR DAYS FROM YOUR DATE OF PURCHASE). This exchange privilege may be changed or canceled at any time upon 60 days notice. EXCHANGES When you exchange shares, you are really selling your shares of one Fund and buying shares of another STI Classic Fund. So, your sale price and purchase price will be based on the NAV next calculated after the Funds receive your exchange requests, in proper form. A redemption fee of 2% of the value of the shares sold will be imposed on shares exchanged for shares of another STI Classic Fund within 7 days (60 days in the case of the International Equity Fund and the International Equity Index Fund) or less after their date of purchase unless the redemption is excluded under the Redemption Fee Policy. The redemption fee is intended to limit short-term trading and to help offset costs to the Funds' remaining shareholders of that type of activity. (See "Redemption Fee Policy.") A SHARES You may exchange A Shares of any Fund for A Shares of any other STI Classic Fund. If you exchange shares that you purchased without a sales charge or with a lower sales charge into an STI Classic Fund with a sales charge or with a higher sales charge, the exchange is subject to a sales charge equal to the difference between the lower and higher applicable sales charges. If you exchange shares into an STI Classic Fund with the same, lower or no sales charge there is no sales charge for the exchange. The amount of your exchange must meet any initial or subsequent purchase minimums applicable to the STI Classic Fund into which you are making the exchange. C SHARES You may exchange C Shares of any Fund for C Shares of any other STI Classic Fund. For purposes of computing the CDSC applicable to C Shares, the length of time you have owned your shares will be measured from the original date of purchase and will not be affected by any exchange. TELEPHONE TRANSACTIONS Purchasing, selling and exchanging Fund shares over the telephone is extremely convenient, but not without risk. Although the Funds have certain safeguards and procedures to confirm the identity of callers and the authenticity of instructions, the Funds are not responsible for any losses or costs incurred by following telephone instructions the Funds reasonably believe to be genuine. If you or your financial institution or intermediary transact with the Funds over the telephone, you will generally bear the risk of any loss. The Funds reserve the right to modify, suspend or terminate telephone transaction privileges at any time. To redeem shares by telephone: - - redemption checks must be made payable to the registered shareholder; and - - redemption checks must be mailed to an address or wired to a bank account of record that has been associated with the shareholder account for at least 15 calendar days. MARKET TIMING POLICIES AND PROCEDURES 76 PROSPECTUS MARKET TIMING POLICIES AND PROCEDURES The Funds are intended for long-term investment purposes only and discourage shareholders from engaging in "market timing" or other types of excessive short-term trading. This frequent trading into and out of the Funds may present risks to the Funds' long-term shareholders, all of which could adversely affect shareholder returns. The risks posed by frequent trading include interfering with the efficient implementation of the Funds' investment strategies, triggering the recognition of taxable gains and losses on the sale of Fund investments, requiring the Funds to maintain higher cash balances to meet redemption requests, and experiencing increased transaction costs. A Fund that invests a significant amount of its assets in overseas markets is particularly susceptible to the risk of certain investors using a strategy known as time-zone arbitrage. Investors using this strategy attempt to take advantage of the differences in value of foreign securities that might result from events that occur between the close of the foreign securities market on which a foreign security is traded and the time at which the Fund calculates its NAV. The Funds and/or their service providers will take steps reasonably designed to detect and deter frequent trading by shareholders pursuant to the Funds' policies and procedures described in this prospectus and approved by the Funds' Board of Trustees. For purposes of applying these policies, the Funds' service providers may consider the trading history of accounts under common ownership or control. The Funds' policies and procedures include: - - Shareholders are restricted from making more than one (1) "round trip" into or out of a Fund within 14 days or more than two (2) "round trips" within any continuous 90 day period. If a shareholder exceeds either "round trip" restriction, he or she may be deemed a "Market Timer," and the Funds and/or their service providers may, at their discretion, reject any additional purchase orders. The Funds define a round trip as a purchase into a Fund by a shareholder, followed by a subsequent redemption out of the Fund. Anyone considered to be a Market Timer by the Funds, their manager(s) or a shareholder servicing agent may be notified in writing of their designation as a Market Timer. - - The Funds reserve the right to reject any purchase request by any investor or group of investors for any reason without prior notice, including, in particular, if the Funds or their Adviser reasonably believes that the trading activity would be harmful or disruptive to the Funds. - - A redemption fee of 2% of the value of the shares sold will be imposed on shares redeemed (including exchanges) within 7 days or less (60 days or less for the International Equity Fund and the International Equity Index Fund) after their date of purchase. The redemption fee proceeds will be paid to the applicable Fund to help offset costs to the Fund's remaining shareholders. The Funds will use the first-in, first-out (FIFO) method to determine the holding period. Under this method, the date of the redemption will be compared to the earliest purchase date of shares of a particular Fund held in a shareholder's account. If this holding period is less than the required holding period, the redemption fee will be assessed. The Funds and/or their service providers seek to apply these policies to the best of their abilities uniformly and in a manner they believe is consistent with the interests of the Funds' long-term shareholders. Although these policies are designed to deter frequent trading, none of these measures alone nor all of them taken together eliminate the possibility that frequent trading in the Funds will occur, particularly with respect to trades placed by shareholders that invest in the Funds through omnibus arrangements maintained by brokers, retirement plan accounts and other financial intermediaries. The Funds' and their service providers' access to information about individual shareholder transactions made through such omnibus arrangements is often unavailable or severely limited. The Funds rely in large part on the policies, ability and willingness of brokers, retirement plan accounts and other financial intermediaries who maintain omnibus arrangements to detect and deter short-term trading. Despite this reliance, the Funds cannot assure that their policies will be enforced with regard to those Fund shares held through such omnibus arrangements (which may represent a majority of Fund shares), and as a result frequent trading could adversely affect the Funds and their long-term shareholders as discussed above. In addition to the previously mentioned initiatives to discourage market timing, the Funds intend to REDEMPTION FEE POLICY PROSPECTUS 77 continually evaluate and, if practical, implement other measures to deter market timing. REDEMPTION FEE POLICY A redemption fee of 2% of the value of the shares sold will be imposed on shares redeemed (including exchanges) within 7 days or less (60 days or less for the International Equity Fund and the International Equity Index Fund) after their date of purchase. The redemption fee will be paid to the applicable Fund to help offset costs to the Fund's remaining shareholders. The Funds will use the first-in, first-out (FIFO) method to determine the holding period. Under this method, the date of the redemption will be compared to the earliest purchase date of shares of a particular Fund held in a shareholder's account. If this holding period is less than the required holding period, the redemption fee will be assessed. The redemption fee is applicable to Fund shares purchased either directly or through a financial intermediary, such as a broker-dealer. Transactions through financial intermediaries typically are placed with the Funds on an omnibus basis and include both purchase and sale transactions placed on behalf of multiple investors. For this reason, the Funds request the support from financial intermediaries of their obligation to assess the redemption fee on customer accounts and to collect and remit the proceeds to the Funds. However, due to operational requirements, the intermediaries' methods for tracking and calculating the fee may be inadequate or differ in some respects from the Funds' methods. The redemption fee may not apply to certain categories of redemptions, such as those that the Funds reasonably believes may not raise frequent trading or market timing concerns. These categories include, but are not limited to, the following: (i) accounts held through an omnibus arrangement, such as participants in certain group retirement plans (e.g., 401(k)/403(b) type participant accounts) or automatic asset allocation accounts, because information may not be available regarding beneficial owners or whose processing systems are incapable of properly applying the redemption fee to underlying shareholders; (ii) redemptions resulting from certain transfers upon the death of a shareholder; (iii) redemptions by certain pension plans as required by law or by regulatory authorities; (iv) Systematic Withdrawal Plan accounts; (v) retirement loans and withdrawals; (vi) shares sold due to the drop of an account balance below the required minimum as discussed under "Involuntary Sales of Your Shares"; and (vii) shares purchased through reinvestment of dividends or capital gains distributions. Dealers who purchase A Shares or C Shares on behalf of Market Timers, including Market Timers with shares held through an omnibus account, may not be eligible to receive any dealer commissions and also may not be eligible to receive 12b-1 fees from the original date of purchase. Further, the Funds reserve the right to refuse any purchase or exchange requests by any investor at any time. The Funds also reserve the right to modify or eliminate the redemption fee for certain categories of investors or waivers at any time. Such changes will be approved prior to implementation by the Funds' Board of Trustees. DISTRIBUTION OF FUND SHARES Each Fund has adopted a distribution plan that allows the Fund to pay distribution and service fees for the sale and distribution of its shares, and for services provided to shareholders. Because these fees are paid out of a Fund's assets continuously, over time these fees will increase the cost of your investment and may cost you more than paying other types of sales charges. While C Shares are sold without any initial sales charge, the distributor may pay at the time of sale up to 1% of the amount invested to broker-dealers and other financial intermediaries who sell C Shares. Through the distribution plan, the distributor is reimbursed for these payments, as well as other distribution related services provided by the distributor. For A Shares, each Fund's distribution plan authorizes payment of up to the amount shown under "Maximum Fee" in the table that follows. Currently, however, the Board of Trustees has only approved payment of up to the amount shown under "Current Approved Fee" in DIVIDENDS AND DISTRIBUTIONS 78 PROSPECTUS the table that follows. Fees are shown as a percentage of average daily net assets of the Fund's A Shares.
CURRENT MAXIMUM APPROVED FEE FEE ------- -------- Aggressive Growth Stock Fund 0.35% 0.30% Balanced Fund 0.28% 0.28% Capital Appreciation Fund 0.35% 0.30% Emerging Growth Stock Fund 0.35% 0.30% International Equity Fund 0.33% 0.30% International Equity Index Fund 0.35% 0.30% Large Cap Quantitative Equity Fund 0.25% 0.25% Large Cap Relative Value Fund 0.25% 0.25% Large Cap Value Equity Fund 0.33% 0.30% Mid-Cap Equity Fund 0.35% 0.30% Mid-Cap Value Equity Fund 0.35% 0.30% Quality Growth Stock Fund 0.35% 0.30% Small Cap Growth Stock Fund 0.35% 0.30% Small Cap Quantitative Equity Fund 0.35% 0.30% Small Cap Value Equity Fund 0.33% 0.25%
For C Shares the maximum distribution fee is 1.00% of the average daily net assets of each Fund. The distribution fee with respect to C Shares of the Small Cap Value Equity Fund will be limited to 0.25% of the Fund's average daily net assets for so long as the Fund remains closed to new investors. The distributor may provide financial assistance in connection with pre-approved seminars, conferences and advertising to the extent permitted by applicable state or self-regulatory agencies, such as the National Association of Securities Dealers. From its own assets, the Adviser or its affiliates may make payments based on gross sales and current assets to selected brokerage firms or institutions. The amount of these payments may be substantial. The minimum aggregate sales required for eligibility for such payments, and the factors in selecting the brokerage firms and institutions to which they will be made, are determined from time to time by the Adviser or the distributor. Furthermore, in addition to the fees that may be paid by the Funds, the Adviser or its affiliates may pay fees from its own capital resources to brokers, banks, financial advisers, retirement plan service providers and other financial intermediaries, including affiliates, for providing distribution-related or shareholder services. DIVIDENDS AND DISTRIBUTIONS Each Fund distributes its net investment income as follows: QUARTERLY Aggressive Growth Stock Fund Balanced Fund Capital Appreciation Fund Emerging Growth Stock Fund Large Cap Quantitative Equity Fund Large Cap Relative Value Fund Large Cap Value Equity Fund Mid-Cap Equity Fund Mid-Cap Value Equity Fund Quality Growth Stock Fund Small Cap Growth Stock Fund Small Cap Quantitative Equity Fund Small Cap Value Equity Fund ANNUALLY International Equity Fund International Equity Index Fund Each Fund makes distributions of its net realized capital gains, if any, at least annually. If you own Fund shares on a Fund's record date, you will be entitled to receive the distribution. You will receive dividends and distributions in the form of additional Fund shares unless you elect to receive payment in cash. To elect cash payment, you must notify the Fund in writing prior to the date of the distribution. Your election will be effective for dividends and distributions paid after the Fund receives your written notice. To cancel your election, simply send the Fund written notice. TAXES PROSPECTUS 79 TAXES PLEASE CONSULT YOUR TAX ADVISOR REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL, STATE, AND LOCAL INCOME TAXES. Below the Funds have summarized some important tax issues that affect the Funds and their shareholders. This summary is based on current tax laws, which may change. Each Fund will distribute substantially all of its net investment income and its net realized capital gains, if any, at least annually. The dividends and distributions you receive may be subject to federal, state and local taxation, depending upon your tax situation. Distributions you receive from a Fund may be taxable whether or not you reinvest them. Income distributions are generally taxable as either ordinary income or qualified dividend income. Dividends that are qualified dividend income are eligible for the reduced maximum rate to individuals of 15% (5% for individuals in lower tax brackets) to the extent that the Fund receives qualified dividend income. Capital gains distributions are generally taxable at the rates applicable to long-term capital gains. Long-term capital gains are currently taxed at a maximum rate of 15%. Absent further legislation, the maximum 15% tax rate on qualified dividend income and long-term capital gains will cease to apply to taxable years beginning after December 31, 2010. EACH SALE OR EXCHANGE OF FUND SHARES MAY BE A TAXABLE EVENT. FOR TAX PURPOSES, AN EXCHANGE OF FUND SHARES FOR SHARES OF A DIFFERENT STI CLASSIC FUND IS TREATED THE SAME AS A SALE. A transfer from one share class to another in the same STI Classic Fund should not be a taxable event. 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 you have a tax-advantaged or other retirement account you will generally not be subject to federal taxation on income and capital gain distributions until you begin receiving your distributions from your retirement account. You should consult your tax advisor regarding the rules governing your own retirement plan. The International Equity Fund and International Equity Index Fund may be able to pass along a tax credit for foreign income taxes they pay. In such event, each Fund will provide you with the information necessary to reflect such foreign taxes on your federal income tax return. MORE INFORMATION ABOUT TAXES IS IN THE STATEMENT OF ADDITIONAL INFORMATION. FINANCIAL HIGHLIGHTS 80 PROSPECTUS FINANCIAL HIGHLIGHTS The financial highlights table is intended to help you understand a Fund's financial performance for the period of the Fund's (and its predecessor's) operations. There was no financial information for the Small Cap Quantitative Equity Fund because that Fund did not begin operations until after March 31, 2006. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This financial information has been audited by PricewaterhouseCoopers LLP except the information for the year ended May 31, 2001, which has been audited by a predecessor independent accounting firm that has ceased operations. The Report of Independent Registered Public Accounting Firm for each period shown, along with the Funds' financial statements and related notes, are included in the Annual Reports to Shareholders for such periods. The 2006 Annual Report is available upon request and without charge by calling 1-888-STI-FUND or on the Funds' website at www.sticlassicfunds.com. For a Share Outstanding Throughout the Periods
NET ASSET NET REALIZED DIVIDENDS VALUE, NET AND UNREALIZED FROM NET DISTRIBUTIONS BEGINNING INVESTMENT GAINS (LOSSES) TOTAL FROM INVESTMENT FROM REALIZED OF PERIOD INCOME (LOSS) ON INVESTMENTS OPERATIONS INCOME CAPITAL GAINS --------- ------------- -------------- ---------- ------ ------------- AGGRESSIVE GROWTH STOCK FUND A SHARES Year Ended March 31, 2006....... $ 9.84 (0.10)(a) 2.42(a) 2.32 -- -- Period Ended March 31, 2005..... $ 9.99 (0.09)(a) (0.06)(a) (0.15) -- -- Period Ended May 31, 2004(b).... $10.00 (0.03)(a) 0.02(a) (0.01) -- -- C SHARES Year Ended March 31, 2006....... $ 9.78 (0.17)(a) 2.39(a) 2.22 -- -- Period Ended March 31, 2005..... $ 9.97 (0.15)(a) (0.04)(a) (0.19) -- -- Period Ended May 31, 2004(b).... $10.00 (0.04)(a) 0.01(a) (0.03) -- -- BALANCED FUND A SHARES Year Ended March 31, 2006....... $12.35 0.20 0.37 0.57 (0.19) (0.79) Period Ended March 31, 2005*.... $12.28 0.15 0.22 0.37 (0.18) (0.12) Year Ended May 31, 2004......... $11.97 0.14(a) 0.33(a) 0.47 (0.16) -- Year Ended May 31, 2003......... $12.24 0.16 (0.24) (0.08) (0.19) -- Year Ended May 31, 2002......... $13.24 0.18 (0.64) (0.46) (0.20) (0.34) Year Ended May 31, 2001......... $13.43 0.27 0.11 0.38 (0.27) (0.30) C SHARES Year Ended March 31, 2006....... $12.20 0.11 0.36 0.47 (0.10) (0.79) Period Ended March 31, 2005*.... $12.12 0.05 0.23 0.28 (0.08) (0.12) Year Ended May 31, 2004......... $11.82 0.05(a) 0.32(a) 0.37 (0.07) -- Year Ended May 31, 2003......... $12.07 0.08 (0.22) (0.14) (0.11) -- Year Ended May 31, 2002......... $13.07 0.10 (0.65) (0.55) (0.11) (0.34) Year Ended May 31, 2001......... $13.27 0.16 0.11 0.27 (0.17) (0.30) TOTAL DIVIDENDS AND DISTRIBUTIONS ------------- AGGRESSIVE GROWTH STOCK FUND A SHARES Year Ended March 31, 2006....... -- Period Ended March 31, 2005..... -- Period Ended May 31, 2004(b).... -- C SHARES Year Ended March 31, 2006....... -- Period Ended March 31, 2005..... -- Period Ended May 31, 2004(b).... -- BALANCED FUND A SHARES Year Ended March 31, 2006....... (0.98) Period Ended March 31, 2005*.... (0.30) Year Ended May 31, 2004......... (0.16) Year Ended May 31, 2003......... (0.19) Year Ended May 31, 2002......... (0.54) Year Ended May 31, 2001......... (0.57) C SHARES Year Ended March 31, 2006....... (0.89) Period Ended March 31, 2005*.... (0.20) Year Ended May 31, 2004......... (0.07) Year Ended May 31, 2003......... (0.11) Year Ended May 31, 2002......... (0.45) Year Ended May 31, 2001......... (0.47)
* Effective June 1, 2004, the Balanced Fund adopted a change in the amortization and accretion methodology on fixed income securities. (See Note 3.) The cumulative effect of this change in methodology was immaterial. + Total return excludes sales charge. Not annualized for periods less than one year. ++ Annualized for periods less than one year. +++ Ratio reflects the impact of the initial low level of average net assets associated with commencement of operations. # The Fund's total return consists of a voluntary reimbursement by the Investment Adviser and affiliates of 0.09% for a realized investment loss. Excluding this reimbursement, total return would have been 4.68% for the A Shares. There was no effect to total return in C Shares. / Not annualized for periods less than one year. (a) Per share data calculated using average shares outstanding method. (b) Commenced operations on February 23, 2004. FINANCIAL HIGHLIGHTS PROSPECTUS 81
NET ASSET NET ASSETS, VALUE, END TOTAL END OF OF PERIOD RETURN+ PERIOD (000) --------- ------- ------------ $12.16 23.58% $ 331 $ 9.84 (1.50)% $ 140 $ 9.99 (0.10)% $ 49 $12.00 22.70% $ 5,223 $ 9.78 (1.91)% $ 5,795 $ 9.97 (0.30)% $ 65 $11.94 4.77%# $ 5,811 $12.35 2.94% $ 8,693 $12.28 3.91% $ 8,902 $11.97 (0.54)% $ 8,285 $12.24 (3.57)% $ 9,020 $13.24 2.91% $ 7,834 $11.78 3.97% $30,733 $12.20 2.29% $46,026 $12.12 3.12% $65,435 $11.82 (1.15)% $67,567 $12.07 (4.33)% $74,880 $13.07 2.11% $67,824 RATIO OF EXPENSES TO RATIO OF RATIO OF AVERAGE NET ASSETS NET EXPENSES NET INVESTMENT (EXCLUDING WAIVERS, PORTFOLIO TO AVERAGE INCOME (LOSS) TO REIMBURSEMENTS TURNOVER NET ASSETS++ AVERAGE NET ASSETS++ AND EXPENSE OFFSET)++ RATE/ ------------ -------------------- --------------------- ----- 1.50% (0.94)% 1.55% 30% 1.58% (1.14)% 5.56% 42% 1.65% (1.25)% 11.29%+++ 2% 2.17% (1.63)% 2.27% 30% 2.19% (1.75)% 2.56% 42% 2.10% (1.69)% 8.78%+++ 2% 1.25% 1.44% 1.28% 133% 1.28% 1.38% 1.34% 140% 1.34% 1.18% 1.54% 116% 1.33% 1.43% 1.55% 102% 1.33% 1.46% 1.55% 95% 1.32% 1.93% 1.54% 99% 1.97% 0.72% 2.00% 133% 2.00% 0.66% 2.05% 140% 2.09% 0.42% 2.18% 116% 2.09% 0.67% 2.18% 102% 2.09% 0.71% 2.16% 95% 2.07% 1.18% 2.15% 99%
FINANCIAL HIGHLIGHTS 82 PROSPECTUS
NET ASSET NET REALIZED DIVIDENDS VALUE, NET AND UNREALIZED FROM NET DISTRIBUTIONS BEGINNING INVESTMENT GAINS (LOSSES) TOTAL FROM INVESTMENT FROM REALIZED OF PERIOD INCOME (LOSS) ON INVESTMENTS OPERATIONS INCOME CAPITAL GAINS --------- ------------- -------------- ---------- ------ ------------- CAPITAL APPRECIATION FUND A SHARES Year Ended March 31, 2006....... $11.66 (0.03)(a) 0.83(a) 0.80 -- (0.26) Period Ended March 31, 2005..... $11.82 (0.04)(a) 0.06(a) 0.02 -- (0.18) Year Ended May 31, 2004......... $10.63 (0.10)(a) 1.29(a) 1.19 -- -- Year Ended May 31, 2003......... $11.89 (0.10)(a) (1.16)(a) (1.26) -- -- Year Ended May 31, 2002......... $13.59 (0.10) (1.48) (1.58) -- (0.12) Year Ended May 31, 2001......... $16.91 (0.14) (0.38) (0.52) -- (2.80) C SHARES Year Ended March 31, 2006....... $11.04 (0.09)(a) 0.77(a) 0.68 -- (0.26) Period Ended March 31, 2005..... $11.22 (0.07)(a) 0.07(a) -- -- (0.18) Year Ended May 31, 2004......... $10.15 (0.15)(a) 1.22(a) 1.07 -- -- Year Ended May 31, 2003......... $11.40 (0.14)(a) (1.11)(a) (1.25) -- -- Year Ended May 31, 2002......... $13.09 (0.06) (1.51) (1.57) -- (0.12) Year Ended May 31, 2001......... $16.45 (0.16) (0.40) (0.56) -- (2.80) EMERGING GROWTH STOCK FUND A SHARES Year Ended March 31, 2006....... $ 9.34 (0.13)(a) 3.53(a) 3.40 -- -- Period Ended March 31, 2005..... $ 9.59 (0.11)(a) (0.14)(a) (0.25) -- -- Period Ended May 31, 2004(b).... $10.00 (0.04)(a) (0.37)(a) (0.41) -- -- C SHARES Year Ended March 31, 2006....... $ 9.29 (0.20)(a) 3.50(a) 3.30 -- -- Period Ended March 31, 2005..... $ 9.58 (0.15)(a) (0.14)(a) (0.29) -- -- Period Ended May 31, 2004(c).... $10.14 (0.05)(a) (0.51)(a) (0.56) -- -- INTERNATIONAL EQUITY FUND A SHARES Year Ended March 31, 2006....... $11.64 0.11 2.70 2.81 (0.11) -- Period Ended March 31, 2005..... $10.03 0.01 1.67 1.68 (0.07) -- Year Ended May 31, 2004......... $ 7.92 0.04(a) 2.17(a) 2.21 (0.10) -- Year Ended May 31, 2003......... $ 9.21 0.04 (1.30) (1.26) (0.03) -- Year Ended May 31, 2002......... $10.11 0.14 (1.04) (0.90) -- -- Year Ended May 31, 2001......... $12.47 (0.02) (1.23) (1.25) -- (1.11) C SHARES Year Ended March 31, 2006....... $11.01 --* 2.57 2.57 -- -- Period Ended March 31, 2005..... $ 9.49 (0.02)(a) 1.54(a) 1.52 --* -- Year Ended May 31, 2004......... $ 7.50 (0.01)(a) 2.06(a) 2.05 (0.06) -- Year Ended May 31, 2003......... $ 8.75 (0.01) (1.24) (1.25) -- -- Year Ended May 31, 2002......... $ 9.68 0.04 (0.97) (0.93) -- -- Year Ended May 31, 2001......... $12.06 (0.16) (1.11) (1.27) -- (1.11) TOTAL DIVIDENDS AND DISTRIBUTIONS ------------- CAPITAL APPRECIATION FUND A SHARES Year Ended March 31, 2006....... (0.26) Period Ended March 31, 2005..... (0.18) Year Ended May 31, 2004......... -- Year Ended May 31, 2003......... -- Year Ended May 31, 2002......... (0.12) Year Ended May 31, 2001......... (2.80) C SHARES Year Ended March 31, 2006....... (0.26) Period Ended March 31, 2005..... (0.18) Year Ended May 31, 2004......... -- Year Ended May 31, 2003......... -- Year Ended May 31, 2002......... (0.12) Year Ended May 31, 2001......... (2.80) EMERGING GROWTH STOCK FUND A SHARES Year Ended March 31, 2006....... -- Period Ended March 31, 2005..... -- Period Ended May 31, 2004(b).... -- C SHARES Year Ended March 31, 2006....... -- Period Ended March 31, 2005..... -- Period Ended May 31, 2004(c).... -- INTERNATIONAL EQUITY FUND A SHARES Year Ended March 31, 2006....... (0.11) Period Ended March 31, 2005..... (0.07) Year Ended May 31, 2004......... (0.10) Year Ended May 31, 2003......... (0.03) Year Ended May 31, 2002......... -- Year Ended May 31, 2001......... (1.11) C SHARES Year Ended March 31, 2006....... -- Period Ended March 31, 2005..... --* Year Ended May 31, 2004......... (0.06) Year Ended May 31, 2003......... -- Year Ended May 31, 2002......... -- Year Ended May 31, 2001......... (1.11)
* Amount less than $0.005. + Total return excludes sales charge. Not annualized for periods less than one year. ++ Annualized for periods less than one year. +++ Ratio reflects the impact of the initial low level of average net assets associated with commencement of operations. # The Fund had a voluntary reimbursement by the Investment Adviser and affiliates that had no effect on total returns for the period. / Not annualized for periods less than one year. (a) Per share data calculated using average shares outstanding method. (b) Commenced operations on February 23, 2004. (c) Commenced operations on February 27, 2004. FINANCIAL HIGHLIGHTS PROSPECTUS 83
NET ASSET NET ASSETS, VALUE, END TOTAL END OF OF PERIOD RETURN+ PERIOD (000) --------- ------- ------------ $12.20 6.97% $104,733 $11.66 0.15% $126,895 $11.82 11.19% $145,883 $10.63 (10.60)% $141,488 $11.89 (11.68)% $163,155 $13.59 (4.38)% $202,548 $11.46 6.27% $ 51,883 $11.04 (0.02)% $ 75,786 $11.22 10.54% $100,472 $10.15 (10.96)% $ 94,505 $11.40 (12.05)% $110,923 $13.09 (4.79)% $112,497 $12.74 36.30% $ 227 $ 9.34 (2.61)% $ 86 $ 9.59 (4.10)% $ 39 $12.59 35.52% $ 107 $ 9.29 (3.03)% $ 34 $ 9.58 (5.52)% $ 34 $14.34 24.15%# $ 11,805 $11.64 16.78% $ 8,480 $10.03 29.97% $ 7,056 $ 7.92 (13.70)% $ 6,408 $ 9.21 (8.90)% $ 5,272 $10.11 (11.13)% $ 7,517 $13.58 23.34%# $ 8,584 $11.01 16.03% $ 8,248 $ 9.49 27.32% $ 7,606 $ 7.50 (14.29)% $ 5,678 $ 8.75 (9.61)% $ 6,567 $ 9.68 (11.71)% $ 7,765 RATIO OF EXPENSES TO RATIO OF RATIO OF AVERAGE NET ASSETS NET EXPENSES NET INVESTMENT (EXCLUDING WAIVERS, PORTFOLIO TO AVERAGE INCOME (LOSS) TO REIMBURSEMENTS TURNOVER NET ASSETS++ AVERAGE NET ASSETS++ AND EXPENSE OFFSET)++ RATE/ ------------ -------------------- --------------------- ----- 1.50% (0.22)% 1.50% 74% 1.86% (0.38)% 1.90% 72% 1.88% (0.91)% 2.00% 106% 1.88% (0.98)% 2.00% 69% 1.88% (1.20)% 1.99% 75% 1.86% (0.94)% 1.99% 75% 2.07% (0.79)% 2.08% 74% 2.21% (0.74)% 2.24% 72% 2.35% (1.38)% 2.43% 106% 2.35% (1.45)% 2.45% 69% 2.35% (1.67)% 2.39% 75% 2.33% (1.41)% 2.39% 75% 1.51% (1.16)% 1.55% 107% 1.59% (1.40)% 6.91% 64% 1.65% (1.46)% 13.36%+++ 11% 2.17% (1.82)% 2.21% 107% 2.11% (1.92)% 13.65% 64% 2.11% (1.95)% 18.36%+++ 11% 1.62% 1.14% 1.63% 59% 1.72% 0.47% 1.75% 39% 1.83% 0.46% 2.06% 58% 1.83% 0.59% 2.22% 89% 1.83% (0.21)% 2.08% 102% 1.79% 0.18% 1.97% 68% 2.31% 0.51% 2.32% 59% 2.40% (0.21)% 2.45% 39% 2.53% (0.15)% 2.86% 58% 2.53% (0.17)% 3.03% 89% 2.53% (0.73)% 2.93% 102% 2.48% (0.51)% 2.57% 68%
FINANCIAL HIGHLIGHTS 84 PROSPECTUS
NET ASSET NET REALIZED DIVIDENDS VALUE, NET AND UNREALIZED FROM NET DISTRIBUTIONS BEGINNING INVESTMENT GAINS (LOSSES) TOTAL FROM INVESTMENT FROM REALIZED OF PERIOD INCOME (LOSS) ON INVESTMENTS OPERATIONS INCOME CAPITAL GAINS --------- ------------- -------------- ---------- ------ ------------- INTERNATIONAL EQUITY INDEX FUND A SHARES Year Ended March 31, 2006....... $12.69 0.25 2.87 3.12 (0.15) -- Period Ended March 31, 2005..... $10.93 0.04(a) 1.84(a) 1.88 (0.12) -- Year Ended May 31, 2004......... $ 8.28 0.07(a) 2.68(a) 2.75 (0.10) -- Year Ended May 31, 2003......... $ 9.64 0.10(a) (1.45)(a) (1.35) (0.01) -- Year Ended May 31, 2002......... $11.05 (0.02) (1.38) (1.40) (0.01) -- Year Ended May 31, 2001......... $13.80 (0.01) (2.65) (2.66) -- (0.09) C SHARES Year Ended March 31, 2006....... $12.37 0.07 2.87 2.94 (0.02) -- Period Ended March 31, 2005..... $10.69 (0.02)(a) 1.80(a) 1.78 (0.10) -- Year Ended May 31, 2004......... $ 8.10 0.02(a) 2.62(a) 2.64 (0.05) -- Year Ended May 31, 2003......... $ 9.48 0.01(a) (1.39)(a) (1.38) -- -- Year Ended May 31, 2002......... $10.93 (0.12) (1.33) (1.45) -- -- Year Ended May 31, 2001......... $13.74 (0.06) (2.66) (2.72) -- (0.09) LARGE CAP QUANTITATIVE EQUITY FUND A SHARES Year Ended March 31, 2006....... $13.18 (0.02)(a) 1.55(a) 1.53 -- (1.06) Period Ended March 31, 2005..... $12.05 (0.05)(a) 1.90(a) 1.85 -- (0.72) Period Ended May 31, 2004(b).... $11.35 (0.05)(a) 1.00(a) 0.95 -- (0.25) C SHARES Year Ended March 31, 2006....... $13.03 (0.13)(a) 1.53(a) 1.40 -- (1.06) Period Ended March 31, 2005..... $12.00 (0.13)(a) 1.88(a) 1.75 -- (0.72) Period Ended May 31, 2004(c).... $11.64 (0.11)(a) 0.72(a) 0.61 -- (0.25) LARGE CAP RELATIVE VALUE FUND A SHARES Year Ended March 31, 2006....... $16.21 0.14 1.85 1.99 (0.14) (0.70) Period Ended March 31, 2005..... $14.83 0.14 1.77 1.91 (0.15) (0.38) Year Ended May 31, 2004......... $12.31 0.12(a) 2.51(a) 2.63 (0.11) -- Year Ended May 31, 2003......... $13.91 0.11 (1.61) (1.50) (0.10) -- Year Ended May 31, 2002......... $15.17 0.06 (1.27) (1.21) (0.05) -- Year Ended May 31, 2001......... $15.65 0.04 (0.04) -- (0.05) (0.43) C SHARES Year Ended March 31, 2006....... $15.89 0.02 1.81 1.83 (0.02) (0.70) Period Ended March 31, 2005..... $14.54 0.03 1.74 1.77 (0.04) (0.38) Year Ended May 31, 2004......... $12.08 0.01(a) 2.47(a) 2.48 (0.02) -- Year Ended May 31, 2003......... $13.66 -- (1.56) (1.56) (0.02) -- Year Ended May 31, 2002......... $14.96 (0.02) (1.28) (1.30) -- -- Year Ended May 31, 2001......... $15.49 (0.05) (0.05) (0.10) -- (0.43) LARGE CAP VALUE EQUITY FUND A SHARES Year Ended March 31, 2006....... $12.56 0.19 1.26 1.45 (0.19) -- Period Ended March 31, 2005 $11.43 0.11 1.16 1.27 (0.14) -- Year Ended May 31, 2004......... $ 9.70 0.11(a) 1.73(a) 1.84 (0.11) -- Year Ended May 31, 2003......... $11.01 0.12 (1.32) (1.20) (0.11) -- Year Ended May 31, 2002......... $11.58 0.08 (0.56) (0.48) (0.09) -- Year Ended May 31, 2001......... $10.35 0.14 1.25 1.39 (0.16) -- C SHARES Year Ended March 31, 2006....... $12.43 0.09 1.25 1.34 (0.09) -- Period Ended March 31, 2005..... $11.31 0.03 1.15 1.18 (0.06) -- Year Ended May 31, 2004......... $ 9.60 0.03(a) 1.72(a) 1.75 (0.04) -- Year Ended May 31, 2003......... $10.90 0.05 (1.31) (1.26) (0.04) -- Year Ended May 31, 2002......... $11.46 -- (0.55) (0.55) (0.01) -- Year Ended May 31, 2001......... $10.24 0.04 1.26 1.30 (0.08) -- TOTAL DIVIDENDS AND DISTRIBUTIONS ------------- INTERNATIONAL EQUITY INDEX FUND A SHARES Year Ended March 31, 2006....... (0.15) Period Ended March 31, 2005..... (0.12) Year Ended May 31, 2004......... (0.10) Year Ended May 31, 2003......... (0.01) Year Ended May 31, 2002......... (0.01) Year Ended May 31, 2001......... (0.09) C SHARES Year Ended March 31, 2006....... (0.02) Period Ended March 31, 2005..... (0.10) Year Ended May 31, 2004......... (0.05) Year Ended May 31, 2003......... -- Year Ended May 31, 2002......... -- Year Ended May 31, 2001......... (0.09) LARGE CAP QUANTITATIVE EQUITY FUND A SHARES Year Ended March 31, 2006....... (1.06) Period Ended March 31, 2005..... (0.72) Period Ended May 31, 2004(b).... (0.25) C SHARES Year Ended March 31, 2006....... (1.06) Period Ended March 31, 2005..... (0.72) Period Ended May 31, 2004(c).... (0.25) LARGE CAP RELATIVE VALUE FUND A SHARES Year Ended March 31, 2006....... (0.84) Period Ended March 31, 2005..... (0.53) Year Ended May 31, 2004......... (0.11) Year Ended May 31, 2003......... (0.10) Year Ended May 31, 2002......... (0.05) Year Ended May 31, 2001......... (0.48) C SHARES Year Ended March 31, 2006....... (0.72) Period Ended March 31, 2005..... (0.42) Year Ended May 31, 2004......... (0.02) Year Ended May 31, 2003......... (0.02) Year Ended May 31, 2002......... -- Year Ended May 31, 2001......... (0.43) LARGE CAP VALUE EQUITY FUND A SHARES Year Ended March 31, 2006....... (0.19) Period Ended March 31, 2005 (0.14) Year Ended May 31, 2004......... (0.11) Year Ended May 31, 2003......... (0.11) Year Ended May 31, 2002......... (0.09) Year Ended May 31, 2001......... (0.16) C SHARES Year Ended March 31, 2006....... (0.09) Period Ended March 31, 2005..... (0.06) Year Ended May 31, 2004......... (0.04) Year Ended May 31, 2003......... (0.04) Year Ended May 31, 2002......... (0.01) Year Ended May 31, 2001......... (0.08)
+ Total return excludes sales charge. Not annualized for periods less than one year. ++ Annualized for periods less than one year. +++ Ratio reflects the impact of the initial low level of average net assets associated with commencement of operations. # The Fund had a voluntary reimbursement by the Investment Adviser and affiliates that had no effect on total returns for the period. / Not annualized for periods less than one year. (a) Per share data calculated using average shares outstanding method. (b) Commenced operations on October 8, 2003. (c) Commenced operations on October 13, 2003. FINANCIAL HIGHLIGHTS PROSPECTUS 85
NET ASSET NET ASSETS, VALUE, END TOTAL END OF OF PERIOD RETURN+ PERIOD (000) --------- ------- ------------ $15.66 24.74%# $ 8,666 $12.69 17.22% $ 7,600 $10.93 33.26% $ 15,037 $ 8.28 (14.03)% $ 9,877 $ 9.64 (12.65)% $ 3,222 $11.05 (19.31)% $ 3,451 $15.29 23.79%# $ 5,991 $12.37 16.62% $ 5,763 $10.69 32.60% $ 5,208 $ 8.10 (14.56)% $ 3,093 $ 9.48 (13.27)% $ 3,505 $10.93 (19.84)% $ 4,731 $13.65 11.90% $ 1,181 $13.18 15.54% $ 407 $12.05 8.48% $ 155 $13.37 11.11% $ 1,518 $13.03 14.76% $ 1,458 $12.00 5.34% $ 1,573 $17.36 12.50% $ 45,851 $16.21 12.86% $ 44,743 $14.83 21.45% $ 45,808 $12.31 (10.74)% $ 36,305 $13.91 (7.97)% $ 36,789 $15.17 (0.07)% $ 40,174 $17.00 11.69% $ 78,348 $15.89 12.12% $ 88,741 $14.54 20.58% $ 97,899 $12.08 (11.41)% $ 74,261 $13.66 (8.69)% $ 94,671 $14.96 (0.77)% $ 78,376 $13.82 11.61% $ 67,845 $12.56 11.18% $ 75,462 $11.43 19.10% $ 73,257 $ 9.70 (10.85)% $ 65,294 $11.01 (4.14)% $ 75,697 $11.58 13.63% $ 85,584 $13.68 10.86% $ 44,257 $12.43 10.46% $ 53,147 $11.31 18.27% $ 57,403 $ 9.60 (11.56)% $ 49,007 $10.90 (4.82)% $ 59,392 $11.46 12.85% $ 65,895 RATIO OF EXPENSES TO RATIO OF RATIO OF AVERAGE NET ASSETS NET EXPENSES NET INVESTMENT (EXCLUDING WAIVERS, PORTFOLIO TO AVERAGE INCOME (LOSS) TO REIMBURSEMENTS TURNOVER NET ASSETS++ AVERAGE NET ASSETS++ AND EXPENSE OFFSET)++ RATE/ ------------ -------------------- --------------------- ----- 1.09% 1.58% 1.12% 7% 1.36% 0.38% 1.45% 21% 1.49% 0.73% 1.61% 10% 1.49% 1.33% 1.87% 25% 1.49% (0.12)% 1.90% 35% 1.46% 0.05% 1.83% 13% 1.77% 0.94% 1.80% 7% 1.99% (0.24)% 2.12% 21% 2.14% 0.25% 2.54% 10% 2.14% 0.18% 2.82% 25% 2.14% (0.68)% 2.26% 35% 2.10% (0.61)% 2.15% 13% 1.23% (0.17)% 1.27% 432% 1.39% (0.47)% 2.37% 346% 1.55% (0.67)% 10.70%+++ 344% 2.00% (0.97)% 2.05% 432% 2.13% (1.22)% 2.39% 346% 2.30% (1.42)% 3.09% 344% 1.15% 0.90% 1.15% 55% 1.18% 0.97% 1.23% 44% 1.18% 0.84% 1.36% 51% 1.18% 0.88% 1.38% 52% 1.18% 0.44% 1.36% 68% 1.18% 0.30% 1.35% 73% 1.90% 0.15% 1.90% 55% 1.93% 0.23% 1.99% 44% 1.93% 0.09% 2.17% 51% 1.93% 0.11% 2.20% 52% 1.93% (0.29)% 2.16% 68% 1.93% (0.45)% 2.14% 73% 1.16% 1.43% 1.17% 104% 1.20% 1.18% 1.20% 87% 1.28% 1.01% 1.31% 67% 1.28% 1.29% 1.32% 46% 1.28% 0.74% 1.31% 60% 1.28% 1.31% 1.31% 77% 1.85% 0.74% 1.86% 104% 1.88% 0.49% 1.89% 87% 2.02% 0.27% 2.07% 67% 2.02% 0.55% 2.10% 46% 2.02% --% 2.05% 60% 2.01% 0.59% 2.05% 77%
FINANCIAL HIGHLIGHTS 86 PROSPECTUS
NET ASSET NET REALIZED DIVIDENDS VALUE, NET AND UNREALIZED FROM NET DISTRIBUTIONS BEGINNING INVESTMENT GAINS (LOSSES) TOTAL FROM INVESTMENT FROM REALIZED OF PERIOD INCOME (LOSS) ON INVESTMENTS OPERATIONS INCOME CAPITAL GAINS --------- ------------- -------------- ---------- ------ ------------- MID-CAP EQUITY FUND A SHARES Year Ended March 31, 2006....... $11.57 0.03 2.17 2.20 (0.03) (0.62) Period Ended March 31, 2005..... $ 9.92 0.02 1.64 1.66 (0.01) -- Year Ended May 31, 2004......... $ 8.42 0.02(a) 1.51(a) 1.53 (0.03) -- Year Ended May 31, 2003......... $ 9.47 (0.05)(a) (1.00)(a) (1.05) -- -- Year Ended May 31, 2002......... $10.64 (0.03) (1.14) (1.17) -- -- Year Ended May 31, 2001......... $13.82 (0.05) (0.62) (0.67) -- (2.51) C SHARES Year Ended March 31, 2006....... $10.81 -- 1.96 1.96 -- (0.62) Period Ended March 31, 2005..... $ 9.30 0.01 1.50 1.51 -- -- Year Ended May 31, 2004......... $ 7.92 (0.04)(a) 1.43(a) 1.39 (0.01) -- Year Ended May 31, 2003......... $ 8.97 (0.10)(a) (0.95)(a) (1.05) -- -- Year Ended May 31, 2002......... $10.14 0.02 (1.19) (1.17) -- -- Year Ended May 31, 2001......... $13.35 (0.07) (0.63) (0.70) -- (2.51) MID-CAP VALUE EQUITY FUND A SHARES Year Ended March 31, 2006....... $12.24 0.09 2.14 2.23 (0.09) (1.28) Period Ended March 31, 2005..... $10.94 0.08 1.31 1.39 (0.09) -- Period Ended May 31, 2004(b).... $ 9.39 0.02(a) 1.55(a) 1.57 (0.02) -- C SHARES Year Ended March 31, 2006....... $12.21 0.02 2.13 2.15 (0.02) (1.28) Period Ended March 31, 2005..... $10.90 0.04 1.32 1.36 (0.05) -- Year Ended May 31, 2004......... $ 8.58 (0.01)(a) 2.33(a) 2.32 --* -- Year Ended May 31, 2003......... $10.92 0.01 (2.16) (2.15) (0.01) (0.18) Period Ended May 31, 2002(c).... $10.00 (0.01) 0.93 0.92 -- -- QUALITY GROWTH STOCK FUND A SHARES Year Ended March 31, 2006....... $24.02 (0.05) 1.78 1.73 (0.08) -- Period Ended March 31, 2005..... $23.26 0.03(a) 0.77(a) 0.80 (0.04) -- Period Ended May 31, 2004(d).... $22.32 (0.10)(a) 1.04(a) 0.94 -- -- C SHARES Year Ended March 31, 2006....... $22.67 (0.11) 1.57 1.46 (0.02) -- Period Ended March 31, 2005..... $22.04 (0.09)(a) 0.72(a) 0.63 -- -- Year Ended May 31, 2004......... $19.85 (0.29)(a) 2.48(a) 2.19 -- -- Year Ended May 31, 2003......... $22.45 (0.20)(a) (2.40)(a) (2.60) -- -- Year Ended May 31, 2002......... $26.10 (0.41) (3.24) (3.65) -- -- Year Ended May 31, 2001......... $32.65 (0.36) (6.19) (6.55) -- -- TOTAL DIVIDENDS AND DISTRIBUTIONS ------------- MID-CAP EQUITY FUND A SHARES Year Ended March 31, 2006....... (0.65) Period Ended March 31, 2005..... (0.01) Year Ended May 31, 2004......... (0.03) Year Ended May 31, 2003......... -- Year Ended May 31, 2002......... -- Year Ended May 31, 2001......... (2.51) C SHARES Year Ended March 31, 2006....... (0.62) Period Ended March 31, 2005..... -- Year Ended May 31, 2004......... (0.01) Year Ended May 31, 2003......... -- Year Ended May 31, 2002......... -- Year Ended May 31, 2001......... (2.51) MID-CAP VALUE EQUITY FUND A SHARES Year Ended March 31, 2006....... (1.37) Period Ended March 31, 2005..... (0.09) Period Ended May 31, 2004(b).... (0.02) C SHARES Year Ended March 31, 2006....... (1.30) Period Ended March 31, 2005..... (0.05) Year Ended May 31, 2004......... --* Year Ended May 31, 2003......... (0.19) Period Ended May 31, 2002(c).... -- QUALITY GROWTH STOCK FUND A SHARES Year Ended March 31, 2006....... (0.08) Period Ended March 31, 2005..... (0.04) Period Ended May 31, 2004(d).... -- C SHARES Year Ended March 31, 2006....... (0.02) Period Ended March 31, 2005..... -- Year Ended May 31, 2004......... -- Year Ended May 31, 2003......... -- Year Ended May 31, 2002......... -- Year Ended May 31, 2001......... --
* Amount less than $0.005. + Total return excludes sales charge. Not annualized for periods less than one year. ++ Annualized for periods less than one year. +++ Ratio reflects the impact of the initial low level of average net assets associated with commencement of operations. / Not annualized for periods less than one year. (a) Per share data calculated using average shares outstanding method. (b) Commenced operations on October 27, 2003. (c) Commenced operations on November 30, 2001. (d) Commenced operations on October 14, 2003. FINANCIAL HIGHLIGHTS PROSPECTUS 87
NET ASSET NET ASSETS, VALUE, END TOTAL END OF OF PERIOD RETURN+ PERIOD (000) --------- ------- ------------ $13.12 19.32% $ 16,009 $11.57 16.79% $ 14,556 $ 9.92 18.16% $ 17,125 $ 8.42 (11.09)% $ 12,137 $ 9.47 (11.00)% $ 10,766 $10.64 (7.34)% $ 12,316 $12.15 18.44% $ 13,499 $10.81 16.24% $ 14,557 $ 9.30 17.51% $ 15,998 $ 7.92 (11.71)% $ 12,013 $ 8.97 (11.54)% $ 13,937 $10.14 (7.88)% $ 12,910 $13.10 19.09% $ 2,435 $12.24 12.73% $ 1,724 $10.94 16.73% $ 610 $13.06 18.47% $ 6,366 $12.21 12.47% $ 6,888 $10.90 27.06% $ 7,880 $ 8.58 (19.58)% $ 5,744 $10.92 9.24% $ 5,465 $25.67 7.21% $ 468 $24.02 3.42% $ 667 $23.26 4.21% $ 365 $24.11 6.46% $ 48,412 $22.67 2.86% $ 67,950 $22.04 11.03% $ 92,966 $19.85 (11.58)% $110,085 $22.45 (13.98)% $167,973 $26.10 (20.06)% $233,496 RATIO OF EXPENSES TO RATIO OF RATIO OF AVERAGE NET ASSETS NET EXPENSES NET INVESTMENT (EXCLUDING WAIVERS, PORTFOLIO TO AVERAGE INCOME (LOSS) TO REIMBURSEMENTS TURNOVER NET ASSETS++ AVERAGE NET ASSETS++ AND EXPENSE OFFSET)++ RATE/ ------------ -------------------- --------------------- ----- 1.47% 0.25% 1.48% 138% 1.63% 0.21% 1.68% 68% 1.68% 0.20% 1.87% 126% 1.68% (0.68)% 1.92% 144% 1.68% (0.63)% 1.89% 87% 1.66% (0.69)% 1.86% 100% 2.13% (0.42)% 2.14% 138% 2.21% (0.37)% 2.28% 68% 2.28% (0.41)% 2.54% 126% 2.28% (1.33)% 2.60% 144% 2.28% (1.23)% 2.50% 87% 2.26% (1.29)% 2.46% 100% 1.46% 0.72% 1.49% 169% 1.62% 0.74% 1.93% 117% 1.60% 0.24% 4.23% 95% 2.03% 0.13% 2.17% 169% 1.91% 0.54% 2.39% 117% 1.90% (0.11)% 2.74% 95% 1.90% 0.03% 2.85% 71% 1.89% (0.31)% 2.72% 30% 1.39% (0.11)% 1.41% 82% 1.62% 0.13% 2.00% 51% 1.65% (0.71)% 4.48%+++ 49% 2.07% (0.80)% 2.08% 82% 2.23% (0.47)% 2.28% 51% 2.31% (1.34)% 2.41% 49% 2.31% (1.07)% 2.40% 58% 2.31% (1.16)% 2.36% 69% 2.30% (1.15)% 2.34% 103%
FINANCIAL HIGHLIGHTS 88 PROSPECTUS For the Years Ended May 31, (unless otherwise indicated) For a Share Outstanding Throughout the Periods
NET ASSET NET REALIZED DIVIDENDS VALUE, NET AND UNREALIZED FROM NET DISTRIBUTIONS BEGINNING INVESTMENT GAINS (LOSSES) TOTAL FROM INVESTMENT FROM REALIZED OF PERIOD INCOME (LOSS) ON INVESTMENTS OPERATIONS INCOME CAPITAL GAINS --------- ------------- -------------- ---------- ------ ------------- SMALL CAP GROWTH STOCK FUND A SHARES Year Ended March 31, 2006....... $19.56 (0.21)(a) 5.33(a) 5.12 -- (1.66) Period Ended March 31, 2005..... $19.92 (0.14)(a) 2.23(a) 2.09 -- (2.45) Year Ended May 31, 2004......... $15.00 (0.22)(a) 5.14(a) 4.92 -- -- Year Ended May 31, 2003......... $17.12 (0.17)(a) (1.70)(a) (1.87) -- (0.25) Year Ended May 31, 2002......... $18.26 (0.17) (0.90) (1.07) -- (0.07) Year Ended May 31, 2001......... $18.27 (0.59) 2.04 1.45 -- (1.46) C SHARES Year Ended March 31, 2006....... $18.51 (0.33)(a) 5.01(a) 4.68 -- (1.66) Period Ended March 31, 2005..... $19.06 (0.23)(a) 2.13(a) 1.90 -- (2.45) Year Ended May 31, 2004......... $14.45 (0.34)(a) 4.95(a) 4.61 -- -- Year Ended May 31, 2003......... $16.62 (0.26)(a) (1.66)(a) (1.92) -- (0.25) Year Ended May 31, 2002......... $17.85 (0.02) (1.14) (1.16) -- (0.07) Year Ended May 31, 2001......... $18.00 (0.25) 1.56 1.31 -- (1.46) SMALL CAP VALUE EQUITY FUND A SHARES Year Ended March 31, 2006....... $19.75 0.06 5.36 5.42 (0.06) (4.32) Period Ended March 31, 2005..... $18.18 (0.01)(b) 3.13(a) 3.12 (0.02) (1.53) Period Ended May 31, 2004(b).... $15.75 0.03(a) 2.41(a) 2.44 (0.01) -- C SHARES Year Ended March 31, 2006....... $19.45 0.06 5.26 5.32 (0.06) (4.32) Period Ended March 31, 2005..... $17.91 (0.01)(a) 3.09(a) 3.08 (0.01) (1.53) Year Ended May 31, 2004......... $13.55 (0.10)(a) 4.46(a) 4.36 --* -- Year Ended May 31, 2003......... $14.43 (0.04) (0.84) (0.88) -- -- Year Ended May 31, 2002......... $12.15 -- 2.29 2.29 (0.01) -- Year Ended May 31, 2001......... $ 9.10 0.07 3.04 3.11 (0.06) -- TOTAL DIVIDENDS AND DISTRIBUTIONS ------------- SMALL CAP GROWTH STOCK FUND A SHARES Year Ended March 31, 2006....... (1.66) Period Ended March 31, 2005..... (2.45) Year Ended May 31, 2004......... -- Year Ended May 31, 2003......... (0.25) Year Ended May 31, 2002......... (0.07) Year Ended May 31, 2001......... (1.46) C SHARES Year Ended March 31, 2006....... (1.66) Period Ended March 31, 2005..... (2.45) Year Ended May 31, 2004......... -- Year Ended May 31, 2003......... (0.25) Year Ended May 31, 2002......... (0.07) Year Ended May 31, 2001......... (1.46) SMALL CAP VALUE EQUITY FUND A SHARES Year Ended March 31, 2006....... (4.38) Period Ended March 31, 2005..... (1.55) Period Ended May 31, 2004(b).... (0.01) C SHARES Year Ended March 31, 2006....... (4.38) Period Ended March 31, 2005..... (1.54) Year Ended May 31, 2004......... --* Year Ended May 31, 2003......... -- Year Ended May 31, 2002......... (0.01) Year Ended May 31, 2001......... (0.06)
* Amount less than $0.005. + Total return excludes sales charge. Not annualized for periods less than one year. ++ Annualized for periods less than one year. # The Fund's total return includes the effect of an asset valuation adjustment as of March 31, 2006. Excluding this effect, total return would have been 27.08% and 26.21% for the A Shares and C Shares, respectively. / Not annualized for periods less than one year. (a) Per share data calculated using average shares outstanding method. (b) Commenced operations on October 9, 2003. FINANCIAL HIGHLIGHTS PROSPECTUS 89
NET ASSET NET ASSETS, VALUE, END TOTAL END OF OF PERIOD RETURN+ PERIOD (000) --------- ------- ------------ $23.02 27.13%# $ 59,896 $19.56 10.26% $ 38,954 $19.92 32.80% $ 40,590 $15.00 (10.77)% $ 21,887 $17.12 (5.86)% $ 24,978 $18.26 7.89% $ 28,933 $21.53 26.27%# $ 36,242 $18.51 9.71% $ 35,322 $19.06 31.90% $ 40,354 $14.45 (11.40)% $ 25,601 $16.62 (6.50)% $ 29,457 $17.85 7.19% $ 26,941 $20.79 30.44% $ 5,317 $19.75 17.26% $ 4,616 $18.18 15.51% $ 4,088 $20.39 30.41% $ 45,388 $19.45 17.27% $ 43,664 $17.91 32.20% $ 46,192 $13.55 (6.10)% $ 34,064 $14.43 18.92% $ 32,708 $12.15 34.30% $ 11,167 RATIO OF EXPENSES TO RATIO OF RATIO OF AVERAGE NET ASSETS NET EXPENSES NET INVESTMENT (EXCLUDING WAIVERS, PORTFOLIO TO AVERAGE INCOME (LOSS) TO REIMBURSEMENTS TURNOVER NET ASSETS++ AVERAGE NET ASSETS++ AND EXPENSE OFFSET)++ RATE/ ------------ -------------------- --------------------- ----- 1.51% (1.00)% 1.54% 98% 1.61% (0.84)% 1.73% 70% 1.61% (1.20)% 1.88% 107% 1.61% (1.23)% 1.93% 96% 1.61% (1.37)% 1.88% 100% 1.60% (1.33)% 1.87% 112% 2.18% (1.67)% 2.18% 98% 2.22% (1.46)% 2.24% 70% 2.31% (1.90)% 2.40% 107% 2.31% (1.93)% 2.46% 96% 2.31% (2.07)% 2.41% 100% 2.29% (2.01)% 2.39% 112% 1.45% 0.22% 1.48% 58% 1.47% (0.05)% 1.61% 17% 1.55% 0.30% 2.15% 44% 1.45% 0.23% 1.70% 58% 1.50% (0.07)% 2.25% 17% 2.26% (0.64)% 2.45% 44% 2.31% (0.40)% 2.50% 29% 2.31% (0.38)% 2.52% 29% 2.30% 0.63% 2.66% 86%
[THIS PAGE INTENTIONALLY LEFT BLANK] INVESTMENT ADVISER: Trusco Capital Management, Inc. 50 Hurt Plaza, Suite 1400 Atlanta, Georgia 30303 INVESTMENT SUBADVISER: Zevenbergen Capital Investments LLC 601 Union Street, Suite 4600 Seattle, Washington 98101 (Aggressive Growth Stock Fund and Emerging Growth Stock Fund) More information about the STI Classic Funds is available without charge through the following: STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI includes detailed information about the STI Classic Funds. The SAI is on file with the SEC and is incorporated by reference into this prospectus. This means that the SAI, for legal purposes, is a part of this prospectus. ANNUAL AND SEMI-ANNUAL REPORTS: These reports list each Fund's holdings and contain information from the Funds' managers about strategies and recent market conditions and trends and their impact on Fund performance. The reports also contain detailed financial information about the Funds. TO OBTAIN AN SAI, ANNUAL OR SEMI-ANNUAL REPORT, OR MORE INFORMATION: TELEPHONE: 1-888-STI-FUND MAIL: STI Classic Funds BISYS Fund Services Limited Partnership 3435 Stelzer Road Columbus, Ohio 43219 WEBSITE: www.sticlassicfunds.com SEC: You can also obtain the SAI or the Annual and Semi-Annual reports, as well as other information about the STI Classic Funds, from the EDGAR Database on the SEC's website at http://www.sec.gov. You may review and copy documents at the SEC Public Reference Room in Washington, DC (for information on the operation of the Public Reference Room, call 202-942-8090). You may request documents by mail from the SEC, upon payment of a duplicating fee, by writing to: Securities and Exchange Commission, Public Reference Section, Washington, DC 20549-0102. You may also obtain this information, upon payment of a duplicating fee, by e-mailing the SEC at publicinfo@sec.gov. The STI Classic Funds' Investment Company Act registration number is 811-06557. STI CLASSIC FUNDS STI CLASSIC FUNDS SunTrust Retirement Services PROSPECTUS STI CLASSIC FUNDS EQUITY FUNDS Aggressive Growth Stock Fund Capital Appreciation Fund Emerging Growth Stock Fund International Equity Fund International Equity Index Fund Large Cap Quantitative Equity Fund (formerly Strategic Quantitative Equity Fund) Large Cap Relative Value Fund Large Cap Value Equity Fund Mid-Cap Equity Fund Mid-Cap Value Equity Fund Quality Growth Stock Fund Small Cap Growth Stock Fund Small Cap Value Equity Fund ASSET ALLOCATION FUNDS Balanced Fund Life Vision Aggressive Growth Fund Life Vision Conservative Fund Life Vision Growth and Income Fund Life Vision Moderate Growth Fund Life Vision Target Date 2015 Fund Life Vision Target Date 2025 Fund Life Vision Target Date 2035 Fund BOND FUNDS Core Bond Fund High Income Fund High Quality Bond Fund Intermediate Bond Fund Investment Grade Bond Fund Limited Duration Fund Limited-Term Federal Mortgage Securities Fund Seix High Yield Fund Short-Term Bond Fund Short-Term U.S. Treasury Securities Fund Strategic Income Fund Total Return Bond Fund Ultra-Short Bond Fund U.S. Government Securities Fund U.S. Government Securities Ultra-Short Bond Fund MONEY MARKET FUNDS Prime Quality Money Market Fund U.S. Government Securities Money Market Fund U.S. Treasury Money Market Fund August 1 2006 The Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense. PROSPECTUS ABOUT THIS PROSPECTUS The STI Classic Funds is a mutual fund family that offers shares in separate investment portfolios that have individual investment goals and strategies. This prospectus gives you important information about the I Shares of each Fund ("Funds") that you should know before investing. Please read this prospectus and keep it for future reference. This prospectus has been arranged into different sections so that you can easily review this important information. On the next page, there is some general information you should know about risk and return that is common to each of the Funds. For more detailed information about each Fund, please see: 2 AGGRESSIVE GROWTH STOCK FUND 5 CAPITAL APPRECIATION FUND 8 EMERGING GROWTH STOCK FUND 11 INTERNATIONAL EQUITY FUND 14 INTERNATIONAL EQUITY INDEX FUND 17 LARGE CAP QUANTITATIVE EQUITY FUND 20 LARGE CAP RELATIVE VALUE FUND 23 LARGE CAP VALUE EQUITY FUND 26 MID-CAP EQUITY FUND 29 MID-CAP VALUE EQUITY FUND 32 QUALITY GROWTH STOCK FUND 35 SMALL CAP GROWTH STOCK FUND 38 SMALL CAP VALUE EQUITY FUND 41 BALANCED FUND 44 LIFE VISION AGGRESSIVE GROWTH FUND 47 LIFE VISION CONSERVATIVE FUND 51 LIFE VISION GROWTH AND INCOME FUND 55 LIFE VISION MODERATE GROWTH FUND 59 LIFE VISION TARGET DATE 2015 FUND 62 LIFE VISION TARGET DATE 2025 FUND 65 LIFE VISION TARGET DATE 2035 FUND 68 CORE BOND FUND 71 HIGH INCOME FUND 74 HIGH QUALITY BOND FUND 77 INTERMEDIATE BOND FUND 80 INVESTMENT GRADE BOND FUND 83 LIMITED DURATION FUND 86 LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND 89 SEIX HIGH YIELD FUND 92 SHORT-TERM BOND FUND 95 SHORT-TERM U.S. TREASURY SECURITIES FUND 97 STRATEGIC INCOME FUND 100 TOTAL RETURN BOND FUND 103 ULTRA-SHORT BOND FUND 106 U.S. GOVERNMENT SECURITIES FUND 109 U.S. GOVERNMENT SECURITIES ULTRA-SHORT BOND FUND 112 PRIME QUALITY MONEY MARKET FUND 114 U.S. GOVERNMENT SECURITIES MONEY MARKET FUND 116 U.S. TREASURY MONEY MARKET FUND 118 MORE INFORMATION ABOUT RISK 124 MORE INFORMATION ABOUT FUND INVESTMENTS 124 THIRD-PARTY RATINGS 124 INFORMATION ABOUT PORTFOLIO HOLDINGS 124 INVESTMENT ADVISER 126 INVESTMENT SUBADVISER 126 PORTFOLIO MANAGERS 129 PURCHASING AND SELLING FUND SHARES 132 MARKET TIMING POLICIES AND PROCEDURES 134 DIVIDENDS AND DISTRIBUTIONS 134 TAXES 136 FINANCIAL HIGHLIGHTS INSIDE PRIVACY POLICY BACK COVER BACK HOW TO OBTAIN MORE INFORMATION COVER ABOUT THE STI CLASSIC FUNDS
- -------------------------------------------------------------------------------- (SUITCASE FUND SUMMARY ICON) (TELESCOPE INVESTMENT STRATEGY ICON) (LIFE WHAT ARE THE PRINCIPAL RISKS OF INVESTING? PRESERVER ICON) (TARGET PERFORMANCE INFORMATION ICON) (LINE WHAT IS AN INDEX/AVERAGE/OBJECTIVE? GRAPH ICON) (COIN FUND FEES AND EXPENSES ICON) (MOUNTAIN MORE INFORMATION ABOUT FUND INVESTMENTS ICON) THIRD-PARTY RATINGS (RIBBON ICON) (MAGNIFYING INVESTMENT ADVISER GLASS ICON) (HAND PURCHASING AND SELLING FUND SHARES SHAKE ICON)
- -------------------------------------------------------------------------------- AUGUST 1, 2006 PROSPECTUS 1 CUSIP/TICKER SYMBOLS
FUND NAME CLASS INCEPTION* TICKER CUSIP EQUITY FUNDS Aggressive Growth Stock Fund I Shares 2/23/04 SCATX 784767188 Capital Appreciation Fund I Shares 7/1/92 STCAX 784766867 Emerging Growth Stock Fund I Shares 2/23/04 SEGTX 784767238 International Equity Fund I Shares 12/1/95 STITX 784766388 International Equity Index Fund I Shares 6/6/94 SIEIX 784766594 Large Cap Relative Value Fund I Shares 9/26/92 CRVAX 784766198 Large Cap Quantitative Equity Fund I Shares 8/7/03 SQETX 784767527 Large Cap Value Equity Fund I Shares 2/12/93 STVTX 784766834 Mid-Cap Equity Fund I Shares 2/2/94 SAGTX 784766750 Mid-Cap Value Equity Fund I Shares 11/30/01 SMVTX 784767725 Quality Growth Stock Fund I Shares 12/11/98 STTAX 784766230 Small Cap Growth Stock Fund I Shares 10/8/98 SSCTX 784766263 Small Cap Value Equity Fund I Shares 1/31/97 SCETX 784766370 ASSET ALLOCATION FUNDS Balanced Fund I Shares 1/3/94 SBATX 784766735 Life Vision Aggressive Growth Fund I Shares 6/30/97 CVMGX 784767881 Life Vision Conservative Fund I Shares 11/6/03 SCCTX 784767485 Life Vision Growth and Income Fund I Shares 6/30/97 CLVGX 784767873 Life Vision Moderate Growth Fund I Shares 6/30/97 CLVBX 784767865 Life Vision Target Date 2015 Fund I Shares 10/12/05 LVFIX 78476A728 Life Vision Target Date 2025 Fund I Shares 10/21/05 LVTIX 78476A686 Life Vision Target Date 2035 Fund I Shares 11/2/05 LVRIX 78476A652 BOND FUNDS Core Bond Fund I Shares 10/11/04 SAMFX 78476A603 High Income Fund I Shares 10/3/01 STHTX 784767766 High Quality Bond Fund I Shares 10/29/03 SHQIX 784767519 Intermediate Bond Fund I Shares 10/11/04 SAMIX 78476A884 Investment Grade Bond Fund I Shares 7/16/92 STIGX 784766701 Limited Duration Fund I Shares 10/11/04 SAMLX 78476A405 Limited-Term Federal Mortgage Securities Fund I Shares 6/6/94 SLMTX 784766628 Seix High Yield Fund I Shares 10/11/04 SAMHX 78476A843 Short-Term Bond Fund I Shares 3/15/93 SSBTX 784766826 Short-Term U.S. Treasury Securities Fund I Shares 3/15/93 SUSTX 784766792 Strategic Income Fund I Shares 11/30/01 STICX 784767691 Total Return Bond Fund I Shares 10/15/03 STRIX 784767493 Ultra-Short Bond Fund I Shares 4/15/02 SISSX 784767642 U.S. Government Securities Fund I Shares 8/1/94 SUGTX 784766644 U.S. Government Securities Ultra-Short Bond Fund I Shares 4/11/02 SIGVX 784767634 MONEY MARKET FUNDS Prime Quality Money Market Fund I Shares 6/8/92 SQTXX 784766107 U.S. Government Securities Money Market Fund I Shares 6/8/92 STUXX 784766305 U.S. Treasury Money Market Fund I Shares 2/18/87 CUSXX 784767402
* The performance included under "Performance Information" may include the performance of other classes of the Fund and/or predecessors of the Fund. RISK/RETURN INFORMATION COMMON TO THE STI CLASSIC FUNDS Each Fund is a mutual fund. A mutual fund pools shareholders' money and, using professional investment managers, invests it in securities. Each Fund has its own investment goal and strategies for reaching that goal. The Adviser (or the Subadviser) invests Fund assets in a way that it believes will help a Fund achieve its goal. Still, investing in each Fund involves risk and there is no guarantee that a Fund will achieve its goal. The Adviser's (or the Subadviser's) judgments about the markets, the economy or companies may not anticipate actual market movements, economic conditions or company performance, and these judgments may affect the return on your investment. In fact, no matter how good a job the Adviser (or the Subadviser) does, you could lose money on your investment in a Fund, just as you could with other investments. A FUND SHARE IS NOT A BANK DEPOSIT AND IT IS NOT INSURED OR GUARANTEED BY THE FDIC OR ANY GOVERNMENT AGENCY. The value of your investment in a Fund (other than a money market fund) is based on the market prices of the securities the Fund holds. These prices change daily due to economic and other events that affect particular companies and other issuers. These price movements, sometimes called volatility, may be greater or lesser depending on the types of securities a Fund owns and the markets in which they trade. The effect on a Fund of a change in the value of a single security will depend on how widely the Fund diversifies its holdings. Each Fund's investment goal may be changed without shareholder approval. Before investing, make sure that the Fund's goal matches your own. AGGRESSIVE GROWTH STOCK FUND 2 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Long-term capital appreciation INVESTMENT FOCUS Common stocks of U.S. multi-cap growth companies SHARE PRICE VOLATILITY High PRINCIPAL INVESTMENT STRATEGY Attempts to identify securities of companies with favorable prospects for future revenue, earnings and/or cash flow growth INVESTOR PROFILE Investors who want to increase the value of their investment, but do not need income, and who are willing to accept more volatility for the possibility of higher returns
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Aggressive Growth Stock Fund invests at least 80% of its net assets in common stocks and other U.S. traded equity securities. U.S. traded equity securities may include listed American Depositary Receipts ("ADRs"). The Fund may invest in companies of any size. The Fund invests primarily in common stocks of U.S. companies that exhibit strong growth characteristics. Using a "bottom-up" approach, the Subadviser identifies companies with favorable prospects for future revenue, earnings, and/or cash flow growth. Growth "drivers" are identified for each company and become critical to the ongoing evaluation process. Industry growth dynamics, company competitive positioning, pricing flexibility, and diversified product offerings are evaluated, providing the foundation for further fundamental research to determine the weighting of the Fund's investments. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. Small and mid-cap stocks can perform differently from other segments of the equity market or the equity market as a whole and can be more volatile than stocks of larger companies. Because the Fund may invest in ADRs, it is subject to some of the same risks as direct investments in foreign companies. These include the risk that political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. For information about the risks involved when investing in derivatives, see "More Information About Risk." AGGRESSIVE GROWTH STOCK FUND PROSPECTUS 3 (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows performance of the Fund's I Shares for the last year.* (BAR CHART) 2005 7.11%
BEST QUARTER WORST QUARTER 6.60% -7.57% (12/31/05) (3/31/05)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was -0.35%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005 to those of the Russell 3000(R) Growth Index. These returns assume shareholders redeem all of their shares at the end of the period indicated.
SINCE I SHARES 1 YEAR INCEPTION* Aggressive Growth Stock Fund 7.11% 7.63% Russell 3000(R) Growth Index 5.17% 4.98%
* Since inception of the I Shares on February 23, 2004. Benchmark returns since February 29, 2004 (benchmark returns available only on a month end basis). (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Russell 3000(R) Growth Index measures the performance of those companies found in the Russell universe with higher price-to-book ratios and higher forecasted growth values. The stocks in this Index are also members of either the Russell 1000(R) Growth or the Russell 2000(R) Growth indices. AGGRESSIVE GROWTH STOCK FUND 4 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 1.10% Other Expenses 0.11% ------------------- 1.21% Total Annual Operating Expenses(2)
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $123 $384 $665 $1,466
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." CAPITAL APPRECIATION FUND PROSPECTUS 5 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Capital appreciation INVESTMENT FOCUS U.S. common stocks SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Attempts to identify companies with above average growth potential INVESTOR PROFILE Investors who want the value of their investment to grow, but do not need to receive income on their investment
(TELESCOPE ICON) INVESTMENT STRATEGY The Capital Appreciation Fund invests primarily in U.S. common stocks and other equity securities that the Adviser believes have strong business fundamentals, such as revenue growth, cash flows and earnings trends. The Adviser's strategy focuses primarily on large cap stocks but will also utilize mid-cap stocks. In selecting investments for the Fund, the Adviser chooses companies that it believes have above average growth potential. The Adviser applies proprietary models to rank stocks based on earnings trends and valuations. It then performs in-depth fundamental analysis to determine the quality and sustainability of earnings, as well as the quality of management. Risk controls are in place to assist in maintaining a portfolio that is diversified by security type and industry sector. The Adviser uses a "bottom-up" process based on individual company earnings trends and fundamentals to determine the weighting of the Fund's investments in various equity market sectors. Because companies tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. Mid-cap stocks can perform differently from other segments of the equity market or the equity market as a whole and can be more volatile than stocks of larger companies. Large cap stocks can perform differently from other segments of the equity market or the equity market as a whole. Large capitalization companies may be less flexible in evolving markets or unable to implement change as quickly as smaller capitalization companies. Accordingly, the value of large cap stocks may not rise to the same extent as the value of small or mid-cap stocks. For information about the risks involved when investing in derivatives, see "More Information About Risk." CAPITAL APPRECIATION FUND 6 PROSPECTUS (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1996 20.31% 1997 31.13% 1998 28.06% 1999 9.71% 2000 1.62% 2001 -6.49% 2002 -21.98% 2003 18.52% 2004 6.37% 2005 -1.27%
BEST QUARTER WORST QUARTER 22.93% -14.98% (12/31/98) (9/30/01)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 0.29%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the S&P 500 (R) Index. These returns assume shareholders redeem all of their shares at the end of the period indicated.
I SHARES 1 YEAR 5 YEARS 10 YEARS Capital Appreciation Fund -1.27% -1.91% 7.42% S&P 500(R) Index 4.91% 0.54% 9.07%
(LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The S&P 500(R) Index is a widely-recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index of 500 stocks designed to mimic the overall U.S. equity market's industry weightings. CAPITAL APPRECIATION FUND PROSPECTUS 7 (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.92% Other Expenses 0.07% ------------------- 0.99% Total Annual Operating Expenses(2)
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $101 $315 $547 $1,213
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." EMERGING GROWTH STOCK FUND 8 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Long-term capital appreciation INVESTMENT FOCUS Common stocks of U.S. small and mid-cap growth companies SHARE PRICE VOLATILITY High PRINCIPAL INVESTMENT STRATEGY Attempts to identify securities of small and mid-cap companies with favorable prospects for future revenue, earnings and/or cash flow growth INVESTOR PROFILE Investors who want to increase the value of their investment, but do not need income, and who are willing to accept more volatility for the possibility of higher returns
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Emerging Growth Stock Fund invests at least 80% of its net assets in common stocks and other U.S. traded equity securities. U.S. traded equity securities may include listed American Depositary Receipts ("ADRs"). The Fund invests primarily in stocks of U.S. companies with market capitalizations below $10 billion, and the Subadviser emphasizes companies with market capitalizations of $5 billion or less. In selecting investments for the Fund, the Subadviser looks for companies that exhibit strong growth characteristics. Using a "bottom-up" approach, the Subadviser identifies companies with favorable prospects for future revenue, earnings, and/or cash flow growth. Growth "drivers" are identified for each company and become critical to the ongoing evaluation process. Industry growth dynamics, company competitive positioning, pricing flexibility, and diversified product offerings are evaluated, providing the foundation for further fundamental research to determine the weighting of the Fund's investments. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. Small and mid-cap stocks can perform differently from other segments of the equity market or the equity market as a whole and can be more volatile than stocks of larger companies. Because the Fund may invest in ADRs, it is subject to some of the same risks as direct investments in foreign companies. These include the risk that political and economic events unique to a county or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. For information about the risks involved when investing in derivatives, see "More Information About Risk." EMERGING GROWTH STOCK FUND PROSPECTUS 9 (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows performance of the Fund's I Shares for the last year.* (BAR CHART) 2005 15.20%
BEST QUARTER WORST QUARTER 8.42% -11.30% (6/30/05) (9/30/04)
* The performance information above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 5.19%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005 to those of the Russell Midcap (R) Growth Index. These returns assume shareholders redeem all of their shares at the end of the period indicated.
SINCE I SHARES 1 YEAR INCEPTION* Emerging Growth Stock Fund 15.20% 7.17% Russell Midcap (R) Growth Index 12.10% 12.95%
* Since inception of the I Shares on February 23, 2004. (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Russell Midcap(R) Growth Index measures the performance of those companies in the Russell universe with higher price-to-book ratios and higher forecasted growth values. EMERGING GROWTH STOCK FUND 10 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 1.10% Other Expenses 0.11% ------------------- Total Annual Operating Expenses(2) 1.21%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $123 $384 $665 $1,466
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." INTERNATIONAL EQUITY FUND PROSPECTUS 11 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Long-term capital appreciation INVESTMENT FOCUS Foreign common stocks SHARE PRICE VOLATILITY High PRINCIPAL INVESTMENT STRATEGY Attempts to identify companies with good fundamentals or a history of consistent growth INVESTOR PROFILE Investors who want an increase in the value of their investment without regard to income, are willing to accept the increased risks of international investing for the possibility of higher returns, and want exposure to a diversified portfolio of international stocks
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the International Equity Fund invests at least 80% of its net assets in common stocks and other equity securities of foreign companies. The Fund invests primarily in developed countries, but may invest in countries with emerging markets. The Adviser applies a multi-factor model to identify stocks with positive earnings trends and attractive valuations. Fundamental analysis is used to determine those companies that are projected to have sustainability of earnings and global industry positioning. The Adviser's goal is to find companies with top management, quality products and sound financial positions, or a history of consistent growth in cash flows, sales, operating profits, returns on equity and returns on invested capital. Risk controls are in place to assist in maintaining a portfolio that is diversified by security type and industry sector and invested across multiple countries. In selecting investments for the Fund, the Adviser diversifies the Fund's investments among at least three foreign countries. Because companies tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The Fund is also subject to the risk that foreign common stocks may underperform other segments of the equity market or the equity market as a whole. Foreign securities involve special risks such as currency fluctuations, economic or financial instability, lack of timely or reliable financial information and unfavorable political or legal developments. These risks are increased for investments in emerging markets. For information about the risks involved when investing in derivatives, see "More Information About Risk." INTERNATIONAL EQUITY FUND 12 PROSPECTUS (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1996 22.08% 1997 13.35% 1998 11.22% 1999 9.47% 2000 -3.46% 2001 -17.71% 2002 -17.02% 2003 36.86% 2004 19.02% 2005 13.11%
BEST QUARTER WORST QUARTER 18.75% -19.71% (6/30/03) (9/30/02)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 10.17%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Morgan Stanley Capital International Europe, Australasia and Far East (MSCI (R) EAFE (R)) Index. These returns assume shareholders redeem all of their shares at the end of the period indicated.
I SHARES 1 YEAR 5 YEARS 10 YEARS International Equity Fund 13.11% 4.70% 7.42% MSCI(R) EAFE(R) Index 13.54% 4.55% 5.84%
(LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The MSCI(R) EAFE(R) Index is a widely-recognized, market capitalization index that measures market equity performance based upon indices from 21 foreign and developed countries. INTERNATIONAL EQUITY FUND PROSPECTUS 13 (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 1.13% Other Expenses 0.16% ----------------- Total Annual Operating Expenses(2) 1.29%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $131 $409 $708 $1,556
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." INTERNATIONAL EQUITY INDEX FUND 14 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Investment results that correspond to the performance of the MSCI(R) EAFE(R) GDP Weighted Index (Price Return) INVESTMENT FOCUS Foreign equity securities in the MSCI(R) EAFE(R)-GDP Weighted Index (Price Return) SHARE PRICE VOLATILITY High PRINCIPAL INVESTMENT STRATEGY Statistical analysis to track the MSCI(R) EAFE(R)-GDP Weighted Index (Price Return) INVESTOR PROFILE Aggressive investors who want exposure to foreign markets and are willing to accept the increased risks of foreign investing for the possibility of higher returns
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the International Equity Index Fund invests at least 80% of its net assets in equity securities of foreign companies. In selecting investments for the Fund, the Adviser chooses companies included in the MSCI (R) EAFE (R)-GDP Weighted Index (Price Return), an index of equity securities of companies located in Europe, Australasia and the Far East. While the Fund is structured to have overall investment characteristics similar to those of the Index, it selects a sample of securities within the Index using a statistical process. Therefore, the Fund will not hold all securities included in the Index. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The Fund is also subject to the risk that foreign equity securities may underperform other segments of the equity market or the equity market as a whole. Foreign securities involve special risks such as currency fluctuations, economic or financial instability, lack of timely or reliable financial information and unfavorable political or legal developments. These risks are increased for investments in emerging markets. In addition to the above mentioned risks, the Adviser may not be able to match the performance of the Fund's benchmark. For information about the risks involved when investing in derivatives, see "More Information About Risk." INTERNATIONAL EQUITY INDEX FUND PROSPECTUS 15 (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1996 6.04% 1997 8.99% 1998 30.02% 1999 30.66% 2000 -17.06% 2001 -23.47% 2002 -16.52% 2003 40.54% 2004 21.06% 2005 12.76%
BEST QUARTER WORST QUARTER 21.26% -20.53% (12/31/98) (9/30/02)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 9.79%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Morgan Stanley Capital International Europe, Australasia and Far East - Gross Domestic Product (MSCI (R) EAFE (R)-GDP) Weighted Index (Price Return). These returns assume shareholders redeem all of their shares at the end of the period indicated.
I SHARES 1 YEAR 5 YEARS 10 YEARS International Equity Index Fund 12.76% 4.15% 7.16% MSCI(R) EAFE(R)-GDP Weighted Index (Price Return) 11.15% 3.48% 5.92%
(LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The MSCI(R) EAFE(R)-GDP Weighted Index (Price Return) is a widely-recognized, market capitalization index that measures market equity performance based upon indices from 21 foreign and developed countries. The country weighting of the Index is calculated using the gross domestic product of each of the various countries and then with respect to the market capitalization of the various companies operating in each country. INTERNATIONAL EQUITY INDEX FUND 16 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.50% Other Expenses 0.17% ----------------- Total Annual Operating Expenses(2) 0.67%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $68 $214 $373 $835
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." LARGE CAP QUANTITATIVE EQUITY FUND PROSPECTUS 17 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Long-term capital appreciation INVESTMENT FOCUS U.S. common stocks of companies with positive earnings characteristics purchased at reasonable value SHARE PRICE VOLATILITY High PRINCIPAL INVESTMENT STRATEGY Attempts to identify companies with superior earnings/valuation cycle characteristics within specific market sectors INVESTOR PROFILE Investors who want to increase the value of their investment and are willing to accept more volatility for the possibility of higher returns
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Large Cap Quantitative Equity Fund invests at least 80% of its net assets in common stocks and other U.S. traded equity securities of large cap companies. U.S. traded equity securities may include listed American Depositary Receipts ("ADRs"). The Adviser considers large cap companies to be companies with market capitalizations of at least $3 billion. The Fund may also invest in small and mid-cap companies so long as the Adviser determines they have growth potential. The Fund attempts, through the use of disciplined quantitative modeling, to objectively and consistently identify those companies with the most attractive earnings growth prospects and valuation characteristics within each sector. Those characteristics vary by sector. In some sectors, attractive stocks are selected based solely upon growth characteristics. In other sectors, a combination of growth and valuation characteristics are used to identify attractive stocks. The Adviser believes that companies with higher earnings growth prospects will have more highly valued stocks. Companies producing sustained accelerating rates of earnings growth will generate increasing stock valuations. Companies producing sustained decelerating rates of earnings growth will generate decreasing stock valuations. This cycle of accelerating earnings growth with increasing stock valuation and decelerating earnings growth with decreasing stock valuation is called the earnings-valuation cycle. The Adviser uses quantitative modeling to evaluate and select the common stock of companies based on the philosophy that earnings/valuation cycles dictate stock performance, earnings/valuation cycles differ among market sectors, and diversification controls risk. Because companies tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. Large cap stocks can perform differently from other segments of the equity market or the equity market as a whole. Large capitalization companies may be less flexible in evolving markets or unable to implement change as quickly as smaller capitalization companies. Accordingly, the value of large cap stocks may not rise to the same extent as the value of small or mid-cap stocks. Small and mid-cap stocks can perform differently from other segments of the equity market or the equity market as a whole and can be more volatile than stocks of larger companies. Because the Fund may invest in ADRs, it is subject to some of the same risks as direct investments in foreign companies. These include the risk that political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. For information about the risks involved when investing in derivatives, see "More Information About Risk." LARGE CAP QUANTITATIVE EQUITY FUND 18 PROSPECTUS (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 2004 16.43% 2005 8.40%
BEST QUARTER WORST QUARTER 11.52% -3.07% (12/31/04) (9/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 3.48%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the S&P 500(R) Index. These returns assume shareholders redeem all of their shares at the end of the period indicated.
SINCE I SHARES 1 YEAR INCEPTION* Large Cap Quantitative Equity Fund 8.40% 19.16% S&P 500(R) Index 4.91% 12.90%
* Since inception of the I Shares on August 7, 2003. Benchmark returns since July 31, 2003 (benchmark returns available only on a month end basis). (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The S&P 500(R) Index is a widely-recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index of 500 stocks designed to mimic the overall U.S. equity market's industry weightings. LARGE CAP QUANTITATIVE EQUITY FUND PROSPECTUS 19 (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.85% Other Expenses 0.11% ----------------- Total Annual Operating Expenses(2) 0.96%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $98 $306 $531 $1,178
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." LARGE CAP RELATIVE VALUE FUND 20 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOALS PRIMARY Long-term capital appreciation SECONDARY Current income INVESTMENT FOCUS Equity securities SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Attempts to identify securities of companies with attractive valuation and/or above average earnings potential relative either to their sectors or the market as a whole INVESTOR PROFILE Investors who are looking for capital appreciation potential and some income with less volatility than the equity market as a whole
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Large Cap Relative Value Fund invests at least 80% of its net assets in large cap companies. The Adviser considers large cap companies to be companies with market capitalizations of at least $3 billion. The Fund invests primarily in common stocks and other U.S. traded equity securities, which may include listed American Depositary Receipts ("ADRs"). The Adviser uses sector-specific factors to highlight companies whose characteristics are currently undervalued versus market peers. The Adviser performs fundamental research to evaluate securities for the portfolio. The Adviser's approach attempts to identify a well-defined "investment thesis" (what it believes a company's prospects may be over the next 12 to 18 months) based on competitive positioning, business model, and potential catalysts and risks. The Adviser seeks securities with a positive risk/return profile, improving fundamentals and earnings outlook, and relative financial strength and flexibility. The Adviser may sell a security when the investment thesis is realized, the investment thesis breaks down, or a more attractive alternative presents itself. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The Adviser's value investing style may be out of favor in the marketplace for various periods of time. Value investing involves purchasing securities that are undervalued in comparison to their prospects for growth or to their peers or that have historically traded below their historical value. These securities are subject to the risk that their potential values as perceived by the Adviser are never realized by the market. Large cap stocks can perform differently from other segments of the equity market or the equity market as a whole. Large capitalization companies may be less flexible in evolving markets or unable to implement change as quickly as smaller capitalization companies. Accordingly, the value of large cap stocks may not rise to the same extent as the value of small or mid-cap stocks. Because the Fund may invest in ADRs, it is subject to some of the same risks as direct investments in foreign companies. These include the risk that political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. For information about the risks involved when investing in derivatives, see "More Information About Risk." LARGE CAP RELATIVE VALUE FUND PROSPECTUS 21 (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1996 19.06% 1997 27.69% 1998 18.20% 1999 14.17% 2000 1.43% 2001 -6.60% 2002 -19.64% 2003 28.14% 2004 14.23% 2005 9.59%
BEST QUARTER WORST QUARTER 17.38% -18.44% (6/30/97) (9/30/02)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 3.88%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Russell 1000 (R) Value Index, the S&P 500 (R)/ BARRA Value Index and the S&P 500 (R) Index. These returns assume shareholders redeem all of their shares at the end of the period indicated.
I SHARES 1 YEAR 5 YEARS 10 YEARS Large Cap Relative Value Fund 9.59% 3.78% 9.62% Russell 1000 (R) Value Index* 7.05% 5.28% 10.94% S&P 500(R)/BARRA Value Index 6.33% 2.53% 9.44% S&P 500 (R) Index 4.91% 0.54% 9.07%
* Effective May 1, 2006 the Fund transitioned its benchmark from the S&P 500 (R)/Barra Value Index to the Russell 1000 (R) Value Index as a result of the discontinuation of the S&P/Barra Indices. (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Russell 1000 (R) Value Index is a widely-recognized, capitalization weighted (companies with larger market capitalizations have more influence than those with smaller market capitalizations) index of companies in the Russell 1000 (R) Index. The Russell 1000 (R) Index is a widely-recognized, comprehensive large-cap index that measures the performance of the largest 1,000 companies in the Russell 3000 (R) Index. The Russell 3000 (R) Index is a widely-recognized, capitalization-weighted index that measures the performance of the 3,000 largest U.S. companies based on total market capitalization. The S&P 500(R)/BARRA Value Index is a widely-recognized index comprised of securities in the S&P 500(R) Index that have lower price-to-book ratios. The S&P 500(R) Index is a widely- recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index of 500 stocks designed to mimic the overall U.S. equity market's industry weightings. LARGE CAP RELATIVE VALUE FUND 22 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.81% Other Expenses 0.06% ----------------- Total Annual Operating Expenses(2) 0.87%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $89 $278 $482 $1,073
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." LARGE CAP VALUE EQUITY FUND PROSPECTUS 23 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOALS PRIMARY Capital appreciation SECONDARY Current income INVESTMENT FOCUS Equity securities SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Attempts to identify high dividend-paying, undervalued stocks INVESTOR PROFILE Investors who are looking for current income and capital appreciation with less volatility than the average stock fund
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Large Cap Value Equity Fund invests at least 80% of its net assets in common stocks and other U.S. traded equity securities of large cap companies. U.S. traded equity securities may include listed American Depositary Receipts ("ADRs"). The Adviser considers large cap companies to be companies with market capitalizations of at least $3 billion. In selecting investments for the Fund, the Adviser primarily chooses companies that have a history of paying regular dividends. The Adviser focuses on dividend-paying stocks that trade below their historical value. The Adviser's "bottom-up" approach to stock selection emphasizes individual stocks over economic trends using fundamental research to identify positive catalysts for change. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. Large cap stocks can perform differently from other segments of the equity market or the equity market as a whole. Large capitalization companies may be less flexible in evolving markets or unable to implement change as quickly as smaller capitalization companies. Accordingly, the value of large cap stocks may not rise to the same extent as the value of small or mid-cap stocks. The Adviser's value investing style may be out of favor in the marketplace for various periods of time. Value investing involves purchasing securities that are undervalued in comparison to their prospects for growth or to their peers or that have historically traded below their historical value. These securities are subject to the risk that their potential values as perceived by the Adviser are never realized by the market. Because the Fund may invest in ADRs, it is subject to some of the same risks as direct investments in foreign companies. These include the risk that political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. For information about the risks involved when investing in derivatives, see "More Information About Risk." LARGE CAP VALUE EQUITY FUND 24 PROSPECTUS (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. The bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1996 19.46% 1997 27.08% 1998 10.58% 1999 -2.93% 2000 10.85% 2001 -0.95% 2002 -15.47% 2003 23.64% 2004 15.08% 2005 3.70%
BEST QUARTER WORST QUARTER 15.35% -19.89% (6/30/99) (9/30/02)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 8.18%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the S&P 500 (R)/BARRA Value Index. These returns assume shareholders redeem all of their shares at the end of the period indicated.
I SHARES 1 YEAR 5 YEARS 10 YEARS Large Cap Value Equity Fund 3.70% 4.32% 8.36% Russell 1000(R) Value Index* 7.05% 5.28% 10.94% S&P 500(R)/BARRA Value Index 6.33% 2.53% 9.44%
* Effective May 1, 2006 the Fund transitioned its benchmark from the S&P 500 (R)/Barra Value Index to the Russell 1000 (R) Value Index as a result of the discontinuation of the S&P/Barra Indices. (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Russell 1000 (R) Value Index is a widely-recognized, capitalization weighted (companies with larger market capitalizations have more influence than those with smaller market capitalizations) index of companies in the Russell 1000 (R) Index. The Russell 1000 (R) Index is a widely-recognized, comprehensive large-cap index that measures the performance of the largest 1,000 companies in the Russell 3000 (R) Index. The Russell 3000 (R) Index is a widely-recognized, capitalization-weighted index that measures the performance of the 3,000 largest U.S. companies based on total market capitalization. The S&P 500(R)/BARRA Value Index is a widely-recognized index comprised of securities in the S&P 500(R) Index that have lower price-to-book ratios. The S&P 500(R) Index is a widely- recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index of 500 stocks designed to mimic the overall U.S. equity market's industry weightings. LARGE CAP VALUE EQUITY FUND PROSPECTUS 25 (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.78% Other Expenses 0.07% ----------------- Total Annual Operating Expenses(2) 0.85%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $87 $271 $471 $1,049
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." MID-CAP EQUITY FUND 26 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Capital appreciation INVESTMENT FOCUS U.S. mid-cap common stocks SHARE PRICE VOLATILITY Moderate to high PRINCIPAL INVESTMENT STRATEGY Attempts to identify companies with above average growth potential at an attractive price INVESTOR PROFILE Investors who want the value of their investment to grow and who are willing to accept more volatility for the possibility of higher returns
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Mid-Cap Equity Fund invests at least 80% of its net assets in common stocks and other U.S. traded equity securities of mid-cap companies. U.S. traded equity securities may include listed American Depositary Receipts ("ADRs"). The Adviser considers mid-cap companies to be companies with market capitalizations similar to those of companies in the Russell Midcap(R) Index. As of July 3, 2006, the market capitalization range of companies in the Russell Midcap Index was between approximately $1.59 billion and $16.44 billion. The Adviser believes that a portfolio of stocks with positive earnings characteristics purchased at a reasonable valuation will provide above average returns over time. In selecting investments for the Fund, the Adviser chooses companies that, in its opinion, offer above average stock price appreciation relative to other companies in the same economic sector. The Adviser utilizes proprietary, sector based models to rank stocks in each sector of the small and mid-cap markets. These models utilize fundamental stock characteristics such as growth rates and cash flows. The Adviser utilizes fundamental research in the creation, maintenance, and enhancement of the sector based models to reflect change in the underlying small and mid-cap markets. Risk management is utilized extensively and a critical component of the overall investment process. The strategy is diversified with generally 100 to 140 stocks in the portfolio. Each stock is generally limited to no more than two percent of the portfolio. The portfolio is managed to reduce tracking error and overall volatility to the benchmark. Because companies tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. Mid-cap stocks can perform differently from other segments of the equity market or the equity market as a whole and can be more volatile than stocks of larger companies. Because the Fund may invest in ADRs, it is subject to some of the same risks as direct investments in foreign companies. These include the risk that political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. For information about the risks involved when investing in derivatives, see "More Information About Risk." MID-CAP EQUITY FUND PROSPECTUS 27 (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1996 15.42% 1997 21.23% 1998 6.48% 1999 16.14% 2000 -2.97% 2001 2.38% 2002 -28.78% 2003 28.99% 2004 17.06% 2005 13.94%
BEST QUARTER WORST QUARTER 24.73% -19.96% (12/31/98) (9/30/98)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 3.67%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Russell Midcap (R) Index. These returns assume shareholders redeem all of their shares at the end of the period indicated.
I SHARES 1 YEAR 5 YEARS 10 YEARS Mid-Cap Equity Fund 13.94% 4.64% 7.74% Russell Midcap(R) Index 12.65% 8.45% 12.49%
(LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Russell Midcap(R) Index is a widely-recognized index that measures the performance of the 800 smallest companies in the Russell 1000(R) Index, which represent approximately 26% of the total market capitalization of the Russell 1000(R) Index. The Russell 1000(R) Index is widely-recognized comprehensive large-cap index measuring the performance of the largest 1,000 U.S. incorporated companies. Each security in the Russell 1000(R) Index is float-adjusted market capitalization-weighted to ensure investable positions. MID-CAP EQUITY FUND 28 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 1.00% Other Expenses 0.09% ----------------- Total Annual Operating Expenses(2) 1.09%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $111 $347 $601 $1,329
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." MID-CAP VALUE EQUITY FUND PROSPECTUS 29 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOALS PRIMARY Capital appreciation SECONDARY Current income INVESTMENT FOCUS U.S. mid-cap equity securities SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Attempts to identify undervalued mid-cap securities INVESTOR PROFILE Investors who primarily want the value of their investment to grow, but want to receive some income from the investment
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Mid-Cap Value Equity Fund invests at least 80% of its net assets in U.S. traded equity securities of mid-cap companies. U.S. traded equity securities may include listed American Depositary Receipts ("ADRs"). The Adviser considers mid-cap companies to be companies with market capitalizations similar to those of companies in the Russell Midcap(R) Value Index. As of July 3, 2006, the market capitalization range of companies in the Russell Midcap Value Index was between approximately $1.59 billion and $15.76 billion. In selecting investments for the Fund, the Adviser chooses common stocks that it believes are undervalued relative to their historical valuations. The Adviser buys stocks that pay a cash dividend and have a positive catalyst for change, such as management changes or new product introductions. The Adviser may sell a security when it achieves a designated target price, a company's growth prospects change, or the opportunity for a better investment arises. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. Mid-cap stocks can perform differently from other segments of the equity market or the equity market as a whole and can be more volatile than stocks of larger companies. The Adviser's value investing style may be out of favor in the marketplace for various periods of time. Value investing involves purchasing securities that are undervalued in comparison to their prospects for growth or to their peers or that have historically traded below their historical value. These securities are subject to the risk that their potential values as perceived by the Adviser are never realized by the market. Because the Fund may invest in ADRs, it is subject to some of the same risks as direct investments in foreign companies. These include the risk that political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. For information about the risks involved when investing in derivatives, see "More Information About Risk." MID-CAP VALUE EQUITY FUND 30 PROSPECTUS (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 2002 -21.26% 2003 29.51% 2004 20.21% 2005 9.46%
BEST QUARTER WORST QUARTER 17.79% -23.08% (6/30/03) (9/30/02)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 8.14%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Russell Midcap (R) Value Index. These returns assume shareholders redeem all of their shares at the end of the period indicated.
SINCE I SHARES 1 YEAR INCEPTION* Mid-Cap Value Equity Fund 9.46% 8.79% Russell Midcap(R) Value Index 12.65% 15.65%
* Since inception of the I Shares on November 30, 2001. (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Russell Midcap(R) Value Index is a widely-recognized index that measures the performance of those Russell Midcap(R) companies with lower price-to-book ratios and lower forecasted growth values. The stocks are also members of the Russell 1000(R) Value index. The Russell 1000(R) Value Index is a widely-recognized index that measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values. The Russell 1000(R) Index is a widely-recognized comprehensive large-cap index measuring the performance of the largest 1,000 U.S. incorporated companies. Each security in the Russell 1000(R) Index is float-adjusted market capitalization-weighted to ensure investable positions. MID-CAP VALUE EQUITY FUND PROSPECTUS 31 (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 1.00% Other Expenses 0.08% ----------------- Total Annual Operating Expenses(2) 1.08%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $110 $343 $595 $1,317
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." QUALITY GROWTH STOCK FUND 32 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Long-term capital growth with nominal dividend income INVESTMENT FOCUS U.S. common stocks of financially strong companies, which the Adviser believes have excellent growth prospects SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Attempts to identify companies that have above average growth potential within a universe of financially strong companies INVESTOR PROFILE Investors who want to increase the value of their investment while minimizing taxable capital gains distributions
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Quality Growth Stock Fund invests at least 80% of its net assets in common stocks and other U.S. traded equity securities. U.S. traded equity securities may include listed American Depositary Receipts ("ADRs"). The Fund invests primarily in a diversified portfolio of common stocks of financially strong U.S. growth companies. The Adviser generally invests in companies with high and stable earnings growth and/or companies with improving earnings growth. Emphasis is placed on financially strong companies (large and mid-sized) which are market leaders in their respective industry segments as demonstrated by revenue growth, market shares and levels of profitability. Many of these companies have a history of stable or rising dividend payout policies. The key elements of the Fund's philosophy are that stocks of quality companies do well over time, good fundamental analysis identifies the sustainability of a company's earnings growth rate, risk control is an active process, and a sell discipline is essential. The Fund's approach for controlling risk is to: (1) have a significant exposure to companies with stable earnings growth as well as companies whose earnings growth is more exposed to the growth of the economy as a whole; (2) to be diversified among the major industry sectors; (3) to have representation in very large, large and medium sized companies and (4) to have a diversified portfolio of stocks so as to reduce the stock market risk associated with the misfortunes of specific companies. In addition, the Adviser employs an active sell discipline to identify companies whose earnings growth rate has deteriorated or has become significantly more uncertain; and also to reduce holdings which have been so successful that they have become a major holding in the Fund. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Since it purchases common stocks, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the stock markets have moved in cycles, and the value of the Fund's common stocks may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of stocks issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. Common stocks of U.S. growth companies may underperform other segments of the equity market or the equity market as a whole. Large cap stocks can perform differently from other segments of the equity market or the equity market as a whole. Large capitalization companies may be less flexible in evolving markets or unable to implement change as quickly as smaller capitalization companies. Accordingly, the value of large cap stocks may not rise to the same extent as the value of small or mid-cap stocks. Mid-cap stocks can perform differently from other segments of the equity market or the equity market as a whole and can be more volatile than stocks of larger companies. Because the Fund may invest in ADRs, it is subject to some of the same risks as direct investments in foreign companies. These include the risk that political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. For information about the risks involved when investing in derivatives, see "More Information About Risk." QUALITY GROWTH STOCK FUND PROSPECTUS 33 (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. The Fund began operating as a registered mutual fund on December 11, 1998. Performance prior to December 11, 1998 is that of the Adviser's similarly managed collective investment fund, which began operations on December 31, 1995. The collective investment fund's performance has been adjusted to reflect the fees and expenses for I Shares of the Fund. As a collective investment fund, rather than a registered mutual fund, it was not subject to the same investment and tax restrictions. If it had been, the collective investment fund's performance would have been lower. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1996 21.00% 1997 28.79% 1998 31.73% 1999 24.74% 2000 -12.15% 2001 -18.21% 2002 -22.02% 2003 21.16% 2004 6.84% 2005 2.46%
BEST QUARTER WORST QUARTER 27.73% -16.20% (12/31/98) (9/30/02)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was -2.10%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the S&P 500 (R) Index. These returns assume shareholders redeem all of their shares at the end of the period indicated.
SINCE INCEPTION OF REGISTERED MUTUAL I SHARES 1 YEAR 5 YEARS FUND* 10 YEARS** Quality Growth Stock Fund 2.46% -3.29% -0.08% 6.65% S&P 500(R) Index 4.91% 0.54% 2.55% 9.07%
* Since inception of the I Shares on December 11, 1998, when the Fund began operating as a registered mutual fund. Benchmark returns since November 30, 1998 (benchmark returns available only on a month end basis). ** Includes performance of the Adviser's collective investment fund. (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The S&P 500(R) Index is a widely-recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index of 500 stocks designed to mimic the overall U.S. equity market's industry weightings. QUALITY GROWTH STOCK FUND 34 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.85% Other Expenses 0.15% ----------------- Total Annual Operating Expenses(2) 1.00%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your share at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $102 $318 $552 $1,225
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." SMALL CAP GROWTH STOCK FUND PROSPECTUS 35 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Long-term capital appreciation INVESTMENT FOCUS U.S. small cap common stocks of growth companies SHARE PRICE VOLATILITY High PRINCIPAL INVESTMENT STRATEGY Identifies small cap companies with above average growth potential INVESTOR PROFILE Investors who want the value of their investment to grow, but do not need current income
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Small Cap Growth Stock Fund invests at least 80% of its net assets in U.S. traded equity securities of small cap companies. U.S. traded equity securities may include listed American Depositary Receipts ("ADRs"). The Adviser considers small cap companies to be companies with market capitalizations below $3 billion. The Fund's investment philosophy is based on the premise that a portfolio of small cap stocks with positive earnings trends, reasonable valuation, and strong fundamentals will provide superior returns over time. The Adviser applies a multi-factor proprietary model to identify companies with strong current earnings growth, improving profitability, a strong balance sheet, strong current and projected business fundamentals, and priced at reasonable valuations. The Adviser then uses fundamental research to select the portfolio of stocks it believes has the best current risk/return relationship. The Adviser believes in executing a very disciplined and objective investment process and in controlling risk through a broadly diversified portfolio. Because companies tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Since it purchases common stocks, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the stock markets have moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. Small cap stocks can perform differently from other segments of the equity market or the equity market as a whole and can be more volatile than stocks of larger companies. Because the Fund may invest in ADRs, it is subject to some of the same risks as direct investments in foreign companies. These include the risk that political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. For information about the risks involved when investing in derivatives, see "More Information About Risk." SMALL CAP GROWTH STOCK FUND 36 PROSPECTUS (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1999 20.55% 2000 11.76% 2001 -0.82% 2002 -22.71% 2003 45.64% 2004 19.21% 2005 7.92%
BEST QUARTER WORST QUARTER 24.19% -22.83% (6/30/03) (9/30/01)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 2.67%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Russell 2000 (R) Growth Index. These returns assume shareholders redeem all of their shares at the end of the period indicated.
SINCE I SHARES 1 YEAR 5 YEARS INCEPTION* Small Cap Growth Stock Fund 7.92% 7.51% 15.48% Russell 2000(R) Growth Index 4.15% 2.28% 9.16%
* Since inception of the I Shares on October 8, 1998. Benchmark returns since September 30, 1998 (benchmark returns available only on a month end basis). (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Russell 2000(R) Growth Index is a widely recognized, capitalization-weighted index that measures the performance of those Russell 2000 companies with higher price-to-book ratios and higher forecasted growth values. The Russell 2000(R) Index is a widely recognized, capitalization-weighted index that measures the performance of the 2,000 smallest companies in the Russell 3000(R) Index. The Russell 3000(R) Index is a widely recognized, capitalization-weighted index that measures the performance of the 3,000 largest U.S. companies based on total market capitalization. SMALL CAP GROWTH STOCK FUND PROSPECTUS 37 (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 1.10% Other Expenses 0.07% ----------------- Total Annual Operating Expenses(2) 1.17%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $119 $372 $644 $1,420
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." 38 PROSPECTUS SMALL CAP VALUE EQUITY FUND *Shares of the Small Cap Value Equity Fund are no longer available for purchase by new investors. Please refer to the Statement of Additional Information for the definition of "new investor." (SUITCASE ICON) FUND SUMMARY INVESTMENT GOALS PRIMARY Capital appreciation SECONDARY Current income INVESTMENT FOCUS U.S. small cap equity securities SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Attempts to identify undervalued small cap securities INVESTOR PROFILE Investors who primarily want the value of their investment to grow, but want to receive some income from their investment
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Small Cap Value Equity Fund invests at least 80% of its net assets in U.S. traded equity securities of small cap companies. U.S. traded equity securities may include listed American Depositary Receipts ("ADRs"). The Adviser considers small cap companies to be companies with market capitalizations below $3 billion. In selecting investments for the Fund, the Adviser chooses companies that it believes are undervalued in the market, relative to the industry sector and the company's own valuation history. The Adviser evaluates potential catalysts that may increase a stock's value to such an extent that the stock no longer meets the Fund's investment criteria. Additionally, all common stocks purchased for the Fund are required to pay cash dividends. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. Small cap stocks can perform differently from other segments of the equity market or the equity market as a whole and can be more volatile than stocks of larger companies. The Adviser's value investing style may be out of favor in the marketplace for various periods of time. Value investing involves purchasing securities that are undervalued in comparison to their prospects for growth or to their peers or that have historically traded below their historical value. These securities are subject to the risk that their potential values as perceived by the Adviser are never realized by the market. Because the Fund may invest in ADRs, it is subject to some of the same risks as direct investments in foreign companies. These include the risk that political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. For information about the risks involved when investing in derivatives, see "More Information About Risk." SMALL CAP VALUE EQUITY FUND PROSPECTUS 39 (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. The Fund began operating as a registered mutual fund on January 31, 1997. Performance prior to January 31, 1997 is that of the Adviser's similarly managed collective investment fund, which began operations on August 31, 1994. The collective investment fund's performance has been adjusted to reflect the fees and expenses for I Shares of the Fund. As a collective investment fund, rather than a registered mutual fund, it was not subject to the same investment and tax restrictions. If it had been, the collective investment fund's performance would have been lower. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1996 34.25% 1997 32.59% 1998 -13.45% 1999 -2.72% 2000 17.96% 2001 21.21% 2002 -1.74% 2003 37.05% 2004 25.47% 2005 12.46%
BEST QUARTER WORST QUARTER 19.82% -21.99% (6/30/99) (9/30/98)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 10.27%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Russell 2000 (R) Value Index. These returns assume shareholders redeem all of their shares at the end of the period indicated.
SINCE INCEPTION OF REGISTERED MUTUAL I SHARES 1 YEAR 5 YEARS FUND* 10 YEARS** Small Cap Value Equity Fund 12.46% 18.16% 12.94% 15.07% Russell 2000(R) Value Index 4.71% 13.55% 12.12% 13.08%
* Since inception of the Fund on January 31, 1997, when the Fund began operating as a registered mutual fund. ** Includes performance of the Adviser's collective investment fund. (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Russell 2000(R) Value Index is a widely-recognized, capitalization weighted (companies with larger market capitalizations have more influence than those with smaller market capitalizations) index of companies in the Russell 2000(R) Index with lower growth rates and price-to-book ratios. The Russell 2000(R) Index is a widely-recognized, capitalization-weighted index that consists of a subset of the 3,000 largest U.S. companies. SMALL CAP VALUE EQUITY FUND 40 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 1.13% Other Expenses 0.07% ----------------- Total Annual Operating Expenses(2) 1.20%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $122 $381 $660 $1,455
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." BALANCED FUND PROSPECTUS 41 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Capital appreciation and current income INVESTMENT FOCUS PRIMARY U.S. common stocks SECONDARY Bonds SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Attempts to identify companies with improving earnings growth and bonds with moderate risk INVESTOR PROFILE Investors who want income from their investment, as well as an increase in its value
(TELESCOPE ICON) INVESTMENT STRATEGY The Balanced Fund invests in common and preferred stocks, convertible securities, government obligations, corporate bonds, and U.S. traded equity securities, including listed American Depositary Receipts ("ADRs") among other types of securities. The Fund may invest in securities of U.S. and non-U.S. issuers. The Fund may invest in floating rate loans and emerging market debt, which are generally below investment grade, high yield obligations. The Fund may also invest a portion of its assets in securities that are restricted as to resale. In selecting stocks for the Fund, the Adviser focuses on generally large cap stocks which have improving earnings and fundamentals. In selecting bonds, the Adviser seeks to minimize risk while striving to outperform selected market indices. Because companies and securities tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell derivative instruments (such as futures, options and swaps, including credit default swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk, interest rate risk and credit risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. Foreign securities involve special risks such as currency fluctuations, economic or financial instability, lack of timely or reliable financial information and unfavorable political or legal developments. These risks are increased for investments in emerging markets. Below investment grade securities (sometimes referred to as "junk bonds") involve greater risk of default or downgrade and are more volatile than investment grade securities. Below investment grade securities may also be less liquid than higher quality securities. The risks associated with floating rate loans are similar to the risks of below investment grade securities. In addition, the value of the collateral securing the loan may decline, causing a loan to be substantially unsecured. Difficulty in selling a floating rate loan may result in a loss. Borrowers may pay back principal before the scheduled due date when interest rates decline, which may require the Fund to replace a particular loan with a lower-yielding security. There may be less extensive public information available with respect to loans than for rated, registered or exchange listed securities. The Fund may assume the credit risk of the primary lender in addition to the borrower, and investments in loan assignments may involve the risks of being a lender. BALANCED FUND 42 PROSPECTUS U.S. government securities can exhibit price movements resulting from changes in interest rates. Treasury inflation protected securities ("TIPS") can also exhibit price movements as a result of changing inflation expectations and seasonal inflation patterns. Certain U.S. government securities are backed by the full faith and credit of the U.S. Government, while others are backed by the ability of the issuing entity to borrow from the U.S. Treasury or by the issuing entity's own resources. Restricted securities may increase the level of illiquidity in the Fund during any period that qualified institutional buyers become uninterested in purchasing these restricted securities. The Adviser intends to invest only in restricted securities that it believes present minimal liquidity risk. Because the Fund invests in derivatives, it is exposed to additional volatility and potential losses. Credit default swaps can increase the Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. The use of derivatives may cause the Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1996 12.13% 1997 21.14% 1998 19.55% 1999 4.66% 2000 4.79% 2001 0.23% 2002 -8.53% 2003 10.05% 2004 5.59% 2005 0.88%
BEST QUARTER WORST QUARTER 12.57% -5.97% (12/31/98) (6/30/02)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was -0.57%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of a Hybrid 60/40 Blend of the S&P 500 (R) Index and the Lehman Brothers U.S. Government/Credit Index. These returns assume shareholders redeem all of their shares at the end of the period indicated.
I SHARES 1 YEAR 5 YEARS 10 YEARS Balanced Fund 0.88% 1.45% 6.71% Hybrid 60/40 Blend of the Following Market Benchmarks 3.97% 3.10% 8.27% S&P 500(R) Index 4.91% 0.54% 9.07% Lehman Brothers U.S. Government/Credit Index 2.37% 6.11% 6.17%
(LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The S&P 500(R) Index is a widely-recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index of 500 stocks designed to mimic the overall U.S. equity market's industry weightings. The Lehman Brothers U.S. Government/Credit Index is a widely-recognized composite made up of the Lehman Brothers U.S. Government Index and the Lehman Brothers U.S. Credit Index, which include U.S. government, Treasury and agency securities, as well as high grade corporate bonds. BALANCED FUND PROSPECTUS 43 (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.85% Other Expenses 0.10% ----------------- Total Annual Operating Expenses(2) 0.95%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $97 $303 $525 $1,166
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." LIFE VISION AGGRESSIVE GROWTH FUND 44 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL High capital appreciation INVESTMENT FOCUS Equity and money market funds SHARE PRICE VOLATILITY High PRINCIPAL INVESTMENT STRATEGY Investing at least 80% of the Fund's assets in STI Classic Equity Funds INVESTOR PROFILE Investors who want the value of their investment to grow, but do not need to receive income on their investment, and are willing to be subject to the risks of equity securities
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Life Vision Aggressive Growth Fund invests at least 80% of its assets in STI Classic Funds that invest primarily in equity securities. The Fund's remaining assets may be invested in STI Classic Money Market Funds, securities issued by the U.S. Government, its agencies or instrumentalities, repurchase agreements and short-term paper. In selecting a diversified portfolio of underlying STI Classic Funds, the Adviser analyzes many factors, including the underlying STI Classic Funds' investment objectives, total return, volatility and expenses. The Fund currently plans to invest in shares of the following underlying STI Classic Funds within the percentage ranges indicated:
INVESTMENT RANGE (PERCENTAGE OF THE LIFE VISION AGGRESSIVE GROWTH ASSET CLASS FUND'S ASSETS) - ------------------------------------------------------ EQUITY FUNDS 80-100% Aggressive Growth Stock Fund Capital Appreciation Fund Emerging Growth Stock Fund International Equity Fund International Equity Index Fund Large Cap Quantitative Equity Fund Large Cap Relative Value Fund Large Cap Value Equity Fund Mid-Cap Equity Fund Mid-Cap Value Equity Fund Small Cap Growth Stock Fund Small Cap Quantitative Equity Fund Small Cap Value Equity Fund MONEY MARKET FUND 0-20% Prime Quality Money Market Fund - ------------------------------------------------------
Other STI Classic Funds may be utilized. Because companies tend to shift in relative attractiveness, the Fund holds STI Classic Funds that buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. You can obtain information about the underlying STI Classic Funds in which the Fund invests by calling 1-888-STI-FUND, or from the STI Classic Funds' website at www.sticlassicfunds.com. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? The value of an investment in the Fund is based primarily on the performance of the underlying STI Classic Funds and the allocation of the Fund's assets among them. Since it purchases equity funds, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the STI Classic Funds' securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The Fund is also subject to the risk that the Adviser's asset allocation decisions will not anticipate market trends successfully. For example, weighting common stocks too heavily during a stock market decline may result in a failure to preserve capital. Conversely, LIFE VISION AGGRESSIVE GROWTH FUND PROSPECTUS 45 investing too heavily in fixed income securities during a period of stock market appreciation may result in lower total return. The risks associated with investing in the Fund will vary depending upon how the assets are allocated among the underlying STI Classic Funds. For information about the risks involved when investing in derivatives, see "More Information About Risk." (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. The Fund began operating as a registered mutual fund on June 30, 1997. Performance prior to June 30, 1997 is that of the Adviser's similarly managed asset allocation program, which began operations on December 31, 1992. The asset allocation program's performance has been adjusted to reflect the fees and expenses for I Shares of the Fund. As an asset allocation program, rather than a registered mutual fund, it was not subject to the same investment and tax restrictions. If it had been, the asset allocation program's performance would have been lower. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1996 16.62% 1997 22.53% 1998 12.31% 1999 10.31% 2000 6.30% 2001 -6.52% 2002 -18.11% 2003 26.69% 2004 13.01% 2005 5.79%
BEST QUARTER WORST QUARTER 18.72% -16.74% (12/31/98) (9/30/02)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 3.91%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the average annual total returns of the Fund for the periods ended December 31, 2005, to those of a Hybrid 90/10 Blend of the S&P 500 (R) Index and the Citigroup 3-Month Treasury Bill Index. These returns assume shareholders redeem all of their shares at the end of the period indicated.
SINCE INCEPTION OF REGISTERED MUTUAL I SHARES 1 YEAR 5 YEARS FUND* 10 YEARS** Life Vision Aggressive Growth Fund 5.79% 3.00% 6.00% 8.12% Hybrid 90/10 Blend of the Following Market Benchmarks 4.74% 0.81% 5.64% 8.66% S&P 500(R) Index 4.91% 0.54% 5.74% 9.07% Citigroup 3-Month Treasury Bill Index 3.00% 2.21% 3.46% 3.72%
* Since Inception of the registered mutual fund on June 30, 1997. ** Includes performance of the Adviser's asset allocation program. (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The S&P 500(R) Index is a widely-recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index of 500 stocks designed to mimic the overall U.S. equity market's industry weightings. The Citigroup 3-Month Treasury Bill Index is a widely-recognized index of the 3 month U.S. Treasury bills. LIFE VISION AGGRESSIVE GROWTH FUND 46 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the fees and expenses that you may pay if you buy and hold Fund shares. The table does not reflect any of the operating costs and investment advisory fees of the underlying STI Classic Funds. The Fund and its shareholders will indirectly bear a pro rata share of the expenses of the underlying STI Classic Funds. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.10% Other Expenses 0.11% ----------------- Total Annual Operating Expenses 0.21% Fee Waivers and Expense Reimbursements(2) (0.01)% ----------------- Net Operating Expenses 0.20%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser has contractually agreed to waive fees and reimburse expenses until at least August 1, 2007 in order to keep Total Annual Operating Expenses from exceeding 0.20%. If at any point before August 1, 2009, Total Annual Operating Expenses are less than the applicable expense cap, the Adviser may retain the difference to recapture any of the prior waivers or reimbursements. In addition, the Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These voluntary waivers may be discontinued at any time. In addition to the Fund's direct expenses shown in the table above, the Fund indirectly bears a pro-rata share of the expenses of the underlying STI Classic Funds. Based on adjusted expenses of the underlying STI Classic Funds, the indirect costs on investments in underlying STI Classic Funds were 0.92%. Therefore, total annualized expenses would be 1.13% before waivers and reimbursements and 1.12% after waivers and reimbursements. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, the Fund's operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR* 3 YEARS 5 YEARS 10 YEARS $20 $67 $117 $267
* Without waivers and reimbursements, Year 1 costs would be $22. The costs including both direct Fund expenses after waivers and reimbursements and indirect expenses associated with investments in underlying STI Classic Funds would be:
1 YEAR* 3 YEARS 5 YEARS 10 YEARS $114 $358 $621 $1,374
* Without waivers and reimbursements, Year 1 costs would be $115. - ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." LIFE VISION CONSERVATIVE FUND PROSPECTUS 47 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Capital appreciation and current income INVESTMENT FOCUS PRIMARY Bond funds SECONDARY Equity funds SHARE PRICE VOLATILITY Low PRINCIPAL INVESTMENT STRATEGY Investing pursuant to an asset allocation strategy in a combination of STI Classic Bond Funds, and to a lesser extent, STI Classic Equity Funds INVESTOR PROFILE Investors who want income from their investment, as well as an increase in its value, but want to reduce risk by limiting exposure to equity securities
(TELESCOPE ICON) INVESTMENT STRATEGY The Life Vision Conservative Fund invests in STI Classic Funds that invest primarily in fixed income securities, but may invest up to 35% of the Fund's assets in STI Classic Funds that invest primarily in equity securities. The Fund's remaining assets may be invested in STI Classic Money Market Funds, securities issued by the U.S. Government, its agencies or instrumentalities, repurchase agreements and short-term paper. In selecting a diversified portfolio of underlying STI Classic Funds, the Adviser analyzes many factors, including the underlying STI Classic Funds' investment objectives, total return, volatility and expenses. The Fund currently plans to invest in shares of the following underlying STI Classic Funds within the percentage ranges indicated:
INVESTMENT RANGE (PERCENTAGE OF THE LIFE VISION CONSERVATIVE ASSET CLASS FUND'S ASSETS) - ------------------------------------------------------ BOND FUNDS 65-100% Core Bond Fund High Income Fund High Quality Bond Fund Investment Grade Bond Fund Limited-Term Federal Mortgage Securities Fund Seix Floating Rate High Income Fund Seix High Yield Fund Short-Term Bond Fund Short-Term U.S. Treasury Securities Fund Strategic Income Fund Total Return Bond Fund U.S. Government Securities Fund
INVESTMENT RANGE (PERCENTAGE OF THE LIFE VISION CONSERVATIVE ASSET CLASS FUND'S ASSETS) - ------------------------------------------------------ EQUITY FUNDS 0-35% Aggressive Growth Stock Fund Capital Appreciation Fund Emerging Growth Stock Fund International Equity Fund International Equity Index Fund Large Cap Quantitative Equity Fund Large Cap Relative Value Fund Large Cap Value Equity Fund Mid-Cap Equity Fund Mid-Cap Value Equity Fund Small Cap Growth Stock Fund Small Cap Quantitative Equity Fund Small Cap Value Equity Fund MONEY MARKET FUND 0-20% Prime Quality Money Market Fund - ------------------------------------------------------
Other STI Classic Funds may be utilized. Because securities tend to shift in relative attractiveness, the Fund holds STI Classic Funds that buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps, including credit default and total return swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk, interest rate risk and credit risk. You can obtain information about the underlying STI Classic Funds in which the Fund invests by calling 1-888-STI-FUND, or from the STI Classic Funds' website at www.sticlassicfunds.com. LIFE VISION CONSERVATIVE FUND 48 PROSPECTUS (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? The value of an investment in the Fund is based primarily on the performance of the underlying STI Classic Funds and the allocation of the Fund's assets among them. The prices of an underlying STI Classic Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, an underlying STI Classic Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower rated securities is even greater than that of higher rated securities. Also, longer-term securities generally are more volatile, so the average maturity or duration of these securities affects risk. Since it purchases equity funds, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of an underlying STI Classic Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The Fund is also subject to the risk that the Adviser's asset allocation decisions will not anticipate market trends successfully. For example, weighting common stocks too heavily during a stock market decline may result in a failure to preserve capital. Conversely, investing too heavily in fixed income securities during a period of stock market appreciation may result in lower total return. The risks associated with investing in the Fund will vary depending upon how the assets are allocated among the underlying STI Classic Funds. Because the underlying STI Classic Funds invest in derivatives, the Fund is exposed to additional volatility and potential losses. Credit default swaps can increase the Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. Total return swaps could result in losses if the reference index, security, or investments do not perform as anticipated. The use of derivatives may cause the Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. I Shares were offered beginning on November 6, 2003. I Share performance between March 11, 2003 and November 6, 2003 is that of the B Shares of the Fund, and has not been adjusted to reflect I Share expenses. If it had been, performance would have been higher. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 2004 6.09% 2005 3.19%
BEST QUARTER WORST QUARTER 3.51% -1.17% (12/31/04) (6/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 0.51%. LIFE VISION CONSERVATIVE FUND PROSPECTUS 49 - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of a Hybrid 70/20/10 Blend of the Lehman Brothers U.S. Aggregate Index, the S&P 500 (R) Index and the Citigroup 3-Month Treasury Bill Index. These returns assume shareholders redeem all of their shares at the end of the period indicated.
SINCE I SHARES 1 YEAR INCEPTION* Life Vision Conservative Fund 3.19% 6.86% Hybrid 70/20/10 Blend of the Following Market Benchmarks 3.04% 5.85% Lehman Brothers U.S. Aggregate Index 2.43% 3.31% S&P 500(R) Index 4.91% 17.01% Citigroup 3-Month Treasury Bill Index 3.00% 1.80%
* Since inception of the B Shares on March 11, 2003. Benchmark return since February 28, 2003 (benchmark returns available only on a month end basis). (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Lehman Brothers U.S. Aggregate Index is a widely-recognized index of securities that are SEC-registered, taxable, and dollar denominated. The Index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. The S&P 500(R) Index is a widely-recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index of 500 stocks designed to mimic the overall U.S. equity market's industry weightings. The Citigroup 3-Month Treasury Bill Index is a widely-recognized index of the 3-month U.S. Treasury bills. LIFE VISION CONSERVATIVE FUND 50 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the fees and expenses that you may pay if you buy and hold Fund shares. The table does not reflect any of the operating costs and investment advisory fees of the underlying STI Classic Funds. The Fund and its shareholders will indirectly bear a pro rata share of the expenses of the underlying STI Classic Funds. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.10% Other Expenses 0.45% ------- Total Annual Operating Expenses 0.55% Fee Waivers and Expense Reimbursements(2) (0.35)% ------- Net Operating Expenses 0.20%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser has contractually agreed to waive fees and reimburse expenses until at least August 1, 2007 in order to keep Total Annual Operating Expenses from exceeding 0.20%. If at any point before August 1, 2009, Total Annual Operating Expenses are less than the applicable expense cap, the Adviser may retain the difference to recapture any of the prior waivers or reimbursements. In addition, the Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These voluntary waivers may be discontinued at any time. In addition to the Fund's direct expenses shown in the table above, the Fund indirectly bears a pro-rata share of the expenses of the underlying STI Classic Funds. Based on adjusted expenses of the underlying STI Classic Funds, the indirect costs on investments in underlying STI Classic Funds were 0.45%. Therefore, total annualized expenses would be 1.00% before waivers and reimbursements and 0.65% after waivers and reimbursements. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, the Fund's operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR* 3 YEARS 5 YEARS 10 YEARS $20 $141 $273 $658
* Without waivers and reimbursements, Year 1 costs would be $56. The costs including both direct Fund expenses after waivers and reimbursements and indirect expenses associated with investments in underlying STI Classic Funds would be:
1 YEAR* 3 YEARS 5 YEARS 10 YEARS $66 $284 $520 $1,196
* Without waivers and reimbursements, Year 1 costs would be $102. - ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's estimated expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." LIFE VISION GROWTH AND INCOME FUND PROSPECTUS 51 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Long-term capital appreciation INVESTMENT FOCUS Equity and bond funds SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Investing pursuant to an asset allocation strategy in a combination of STI Classic Equity Funds and, to a lesser extent, STI Classic Bond Funds INVESTOR PROFILE Investors who want their assets to grow, but want to moderate the risks of equity securities through investment of a portion of their assets in bonds
(TELESCOPE ICON) INVESTMENT STRATEGY The Life Vision Growth and Income Fund invests at least 70% to 80% of its assets in STI Classic Funds that invest primarily in either equity securities or fixed income securities. The Fund's remaining assets may be invested in shares of underlying STI Classic Money Market Funds, securities issued by the U.S. Government, its agencies or instrumentalities, repurchase agreements and short-term paper. In selecting a diversified portfolio of underlying STI Classic Funds, the Adviser analyzes many factors, including the underlying STI Classic Funds' investment objectives, total returns, volatility and expenses. The Fund currently plans to invest in shares of the following underlying STI Classic Funds within the percentage ranges indicated:
INVESTMENT RANGE (PERCENTAGE OF THE LIFE VISION GROWTH AND INCOME ASSET CLASS FUND'S ASSETS) - ----------------------------------------------------- EQUITY FUNDS 50-80% Aggressive Growth Stock Fund Capital Appreciation Fund Emerging Growth Stock Fund International Equity Fund International Equity Index Fund Large Cap Quantitative Equity Fund Large Cap Relative Value Fund Large Cap Value Equity Fund Mid-Cap Equity Fund Mid-Cap Value Equity Fund Small Cap Growth Stock Fund Small Cap Quantitative Equity Fund Small Cap Value Equity Fund
INVESTMENT RANGE (PERCENTAGE OF THE LIFE VISION GROWTH AND INCOME ASSET CLASS FUND'S ASSETS) - ----------------------------------------------------- BOND FUNDS 20-50% Core Bond Fund High Income Fund High Quality Bond Fund Investment Grade Bond Fund Limited-Term Federal Mortgage Securities Fund Seix Floating Rate High Income Fund Seix High Yield Fund Short-Term Bond Fund Short-Term U.S. Treasury Securities Fund Strategic Income Fund Total Return Bond Fund U.S. Government Securities Fund MONEY MARKET FUND 0-20% Prime Quality Money Market Fund - -----------------------------------------------------
Other STI Classic Funds may be utilized. Because securities tend to shift in relative attractiveness, the Fund holds STI Classic Funds that buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps, including credit default and total return swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. You can obtain information about the underlying STI Classic Funds in which the Fund invests by calling 1-888-STI-FUND, or from the STI Classic Funds' website at www.sticlassicfunds.com. LIFE VISION GROWTH AND INCOME FUND 52 PROSPECTUS (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? The value of an investment in the Fund is based primarily on the performance of the underlying STI Classic Funds and the allocation of the Fund's assets among them. Since it purchases equity funds, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of an underlying STI Classic Funds' securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The prices of an underlying STI Classic Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, an underlying STI Classic Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities generally are more volatile, so the average maturity or duration of these securities affects risk. The Fund is also subject to the risk that the Adviser's asset allocation decisions will not anticipate market trends successfully. For example, weighting common stocks too heavily during a stock market decline may result in a failure to preserve capital. Conversely, investing too heavily in fixed income securities during a period of stock market appreciation may result in lower total return. The risks associated with investing in the Fund will vary depending upon how the assets are allocated among the underlying STI Classic Funds. Because the underlying STI Classic Funds invest in derivatives, the Fund is exposed to additional volatility and potential losses. Credit default swaps can increase the Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. Total return swaps could result in losses if the reference index, security, or investments do not perform as anticipated. The use of derivatives may cause the Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. The Fund began operating as a registered mutual fund on June 30, 1997. Performance prior to June 30, 1997 is that of the Adviser's similarly managed asset allocation program, which began operations on December 31, 1992. The asset allocation program's performance has been adjusted to reflect the fees and expenses for I Shares of the Fund. As an asset allocation program, rather than a registered mutual fund, it was not subject to the same investment and tax restrictions. If it had been, the asset allocation program's performance would have been lower. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1996 12.16% 1997 18.08% 1998 11.16% 1999 7.95% 2000 7.08% 2001 -2.55% 2002 -11.99% 2003 23.99% 2004 10.53% 2005 5.10%
BEST QUARTER WORST QUARTER 13.65% -12.87% (12/31/98) (9/30/02)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 2.88%. LIFE VISION GROWTH AND INCOME FUND PROSPECTUS 53 - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the average annual total returns of the Fund for the periods ended December 31, 2005, to those of a Hybrid 65/25/10 Blend of the S&P 500 (R) Index, the Lehman Brothers U.S. Aggregate Index and the Citigroup 3-Month Treasury Bill Index. These returns assume shareholders redeem all of their shares at the end of the period indicated.
SINCE INCEPTION OF REGISTERED MUTUAL I SHARES 1 YEAR 5 YEARS FUND* 10 YEARS** Life Vision Growth and Income Fund 5.10% 4.32% 6.40% 7.71% Hybrid 65/25/10 Blend of the Following Market Benchmarks 4.13% 1.77% 5.60% 7.62% S&P 500(R) Index 4.91% 0.54% 5.74% 9.07% Lehman Brothers U.S. Aggregate Index 2.43% 5.87% 6.46% 6.16% Citigroup 3-Month Treasury Bill Index 3.00% 2.21% 3.46% 3.72%
* From inception of the registered mutual fund on June 30, 1997. ** Includes performance of the Adviser's asset allocation program. (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The S&P 500(R) Index is a widely-recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index of 500 stocks designed to mimic the overall U.S. equity market's industry weightings. The Lehman Brothers U.S. Aggregate Index is a widely-recognized index of securities that are SEC-registered, taxable, and dollar denominated. The Index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. The Citigroup 3-Month Treasury Bill Index is a widely-recognized index of the 3 month U.S. Treasury bills. LIFE VISION GROWTH AND INCOME FUND 54 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the fees and expenses that you may pay if you buy and hold Fund shares. The table does not reflect any of the operating costs and investment advisory fees of the underlying STI Classic Funds. The Fund and its shareholders will indirectly bear a pro rata share of the expenses of the underlying STI Classic Funds. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.10% Other Expenses 0.09% ----------------- Total Annual Operating Expenses(2) 0.19%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser has contractually agreed to waive fees and reimburse expenses until at least August 1, 2007 in order to keep Total Annual Operating Expenses from exceeding 0.20%. If at any point before August 1, 2009, Total Annual Operating Expenses are less than the applicable expense cap, the Adviser may retain the difference to recapture any of the prior waivers or reimbursements. In addition, the Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These voluntary waivers may be discontinued at any time. In addition to the Fund's direct expenses shown in the table above, the Fund indirectly bears a pro-rata share of the costs of the underlying STI Classic Funds. Based on adjusted expenses of the underlying STI Classic Funds, the indirect costs on investments in underlying STI Classic Funds were 0.77%. Therefore, total annualized expenses would be 0.96%. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, the Fund's operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $19 $61 $107 $243
The costs including both direct Fund expenses and indirect expenses associated with investments in underlying STI Classic Funds would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $98 $306 $531 $1,178
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." LIFE VISION MODERATE GROWTH FUND PROSPECTUS 55 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Capital appreciation and current income INVESTMENT FOCUS Equity and bond funds SHARE PRICE VOLATILITY Low PRINCIPAL INVESTMENT STRATEGY Investing pursuant to an asset allocation strategy in a combination of STI Classic Equity and Bond Funds INVESTOR PROFILE Investors who want income from their investment, as well as an increase in its value, and are willing to be subject to the risks of equity securities
(TELESCOPE ICON) INVESTMENT STRATEGY The Life Vision Moderate Growth Fund principally invests in STI Classic Funds that invest primarily in equity securities and fixed income securities. The Fund's remaining assets may be invested in shares of underlying STI Classic Money Market Funds, securities issued by the U.S. Government, its agencies or instrumentalities, repurchase agreements and short-term paper. In selecting a diversified portfolio of underlying STI Classic Funds, the Adviser analyzes many factors, including the underlying STI Classic Funds' investment objectives, total returns, volatility and expenses. The Fund currently plans to invest in shares of the following underlying STI Classic Funds within the percentage ranges indicated:
INVESTMENT RANGE (PERCENTAGE OF THE LIFE VISION MODERATE GROWTH ASSET CLASS FUND'S ASSETS) - ------------------------------------------------------ EQUITY FUNDS 35-65% Aggressive Growth Stock Fund Capital Appreciation Fund Emerging Growth Stock Fund International Equity Fund International Equity Index Fund Large Cap Quantitative Equity Fund Large Cap Relative Value Fund Large Cap Value Equity Fund Mid-Cap Equity Fund Mid-Cap Value Equity Fund Small Cap Growth Stock Fund Small Cap Quantitative Equity Fund Small Cap Value Equity Fund
INVESTMENT RANGE (PERCENTAGE OF THE LIFE VISION MODERATE GROWTH ASSET CLASS FUND'S ASSETS) - ------------------------------------------------------ BOND FUNDS 35-65% Core Bond Fund High Income Fund High Quality Bond Fund Investment Grade Bond Fund Limited-Term Federal Mortgage Securities Fund Seix Floating Rate High Income Fund Seix High Yield Fund Short-Term Bond Fund Short-Term U.S. Treasury Securities Fund Strategic Income Fund Total Return Bond Fund U.S. Government Securities Fund MONEY MARKET FUND 0-20% Prime Quality Money Market Fund - ------------------------------------------------------
Other STI Classic Funds may be utilized. Because securities tend to shift in relative attractiveness, the Fund holds STI Classic Funds that buy and sell securities frequently, which may result in higher transaction costs, additional capital gains taxes and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps, including credit default and total return swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. You can obtain information about the STI Classic Funds in which the Fund invests by calling 1-888-STI-FUND, or from the STI Classic Funds' website at www.sticlassicfunds.com. LIFE VISION MODERATE GROWTH FUND 56 PROSPECTUS (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? The value of an investment in the Fund is based primarily on the performance of the underlying STI Classic Funds and the allocation of the Fund's assets among them. Since it purchases equity funds, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of an underlying STI Classic Funds' securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The prices of an underlying STI Classic Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, an underlying STI Classic Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities generally are more volatile, so the average maturity or duration of these securities affects risk. The Fund is also subject to the risk that the Adviser's asset allocation decisions will not anticipate market trends successfully. For example, weighting common stocks too heavily during a stock market decline may result in a failure to preserve capital. Conversely, investing too heavily in fixed income securities during a period of stock market appreciation may result in lower total return. The risks associated with investing in the Fund will vary depending upon how the assets are allocated among the underlying STI Classic Funds. Because the underlying STI Classic Funds invest in derivatives, the Fund is exposed to additional volatility and potential losses. Credit default swaps can increase the Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. Total return swaps could result in losses if the reference index, security, or investments do not perform as anticipated. The use of derivatives may cause the Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. The Fund began operating as a registered mutual fund on June 30, 1997. Performance prior to June 30, 1997 is that of the Adviser's similarly managed asset allocation program, which began operations on December 31, 1992. The asset allocation program's performance has been adjusted to reflect the fees and expenses for I Shares of the Fund. As an asset allocation program, rather than a registered mutual fund, it was not subject to the same investment and tax restrictions. If it had been, the asset allocation program's performance would have been lower. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1996 10.51% 1997 16.41% 1998 11.15% 1999 6.19% 2000 5.46% 2001 -1.10% 2002 -8.28% 2003 19.98% 2004 8.92% 2005 4.30%
BEST QUARTER WORST QUARTER 11.24% -9.20% (12/31/98) (9/30/02)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 1.83%. LIFE VISION MODERATE GROWTH FUND PROSPECTUS 57 - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the average annual total returns of the Fund for the periods ended December 31, 2005, to those of a Hybrid 50/40/10 Blend of the S&P 500 (R) Index, Lehman Brothers U.S. Aggregate Index and the Citigroup 3-Month Treasury Bill Index. These returns assume shareholders redeem all of their shares at the end of the period indicated.
SINCE INCEPTION OF REGISTERED MUTUAL I SHARES 1 YEAR 5 YEARS FUND* 10 YEARS** Life Vision Moderate Growth Fund 4.30% 4.34% 5.98% 7.07% Hybrid 50/40/10 Blend of the Following Market Benchmarks 3.81% 3.16% 6.18% 7.72% S&P 500(R) Index 4.91% 0.54% 5.74% 9.07% Lehman Brothers U.S. Aggregate Index 2.43% 5.87% 6.46% 6.16% Citigroup 3-Month Treasury Bill Index 3.00% 2.21% 3.46% 3.72%
* Since inception of the registered mutual fund on June 30, 1997. ** Includes performance of the Adviser's asset allocation program. (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The S&P 500(R) Index is a widely-recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index of 500 stocks designed to mimic the overall U.S. equity market's industry weightings. The Lehman Brothers U.S. Aggregate Index is a widely-recognized index of securities that are SEC-registered, taxable, and dollar denominated. The index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. The Citigroup 3-Month Treasury Bill Index is a widely-recognized index of the 3 month U.S. Treasury bills. LIFE VISION MODERATE GROWTH FUND 58 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the fees and expenses that you may pay if you buy and hold Fund shares. The table does not reflect any of the operating costs and investment advisory fees of the underlying STI Classic Funds. The Fund and its shareholders will indirectly bear a pro rata share of the expenses of the underlying STI Classic Funds. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.10% Other Expenses 0.08% ----------------- Total Annual Operating Expenses(2) 0.18%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser has contractually agreed to waive fees and reimburse expenses until at least August 1, 2007 in order to keep Total Annual Operating Expenses from exceeding 0.20%. If at any point before August 1, 2009, Total Annual Operating Expenses are less than the applicable expense cap, the Adviser may retain the difference to recapture any of the prior waivers or reimbursements. In addition, the Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These voluntary waivers may be discontinued at any time. In addition to the Fund's direct expenses shown in the table above, the Fund indirectly bears a pro-rata share of the expenses of the underlying STI Classic Funds. Based on adjusted expenses of the underlying STI Classic Funds, the indirect costs on investments in underlying STI Classic Funds were 0.64%. Therefore, total annualized expenses would be 0.82%. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, the Fund's operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $18 $58 $101 $230
The costs including both direct Fund expenses and indirect expenses associated with investments in underlying STI Classic Funds would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $84 $262 $455 $1,014
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." LIFE VISION TARGET DATE 2015 FUND PROSPECTUS 59 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL High total return INVESTMENT FOCUS Equity funds, fixed income funds, money market funds SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Investing pursuant to an asset allocation strategy in a combination of STI Classic equity, fixed income and money market funds INVESTOR PROFILE Investors who expect to retire or require income around the year 2015
(TELESCOPE ICON) INVESTMENT STRATEGY The Life Vision Target Date 2015 Fund invests in a mix of underlying STI Classic Funds representing various asset classes and sectors using an asset allocation strategy designed for investors expecting to retire or require income around the year 2015. The Adviser allocates assets among underlying STI Classic Funds using an asset allocation strategy that becomes increasingly more conservative over time. That is, the percentage of assets allocated to equity securities will tend to decrease periodically as the target date approaches, while the percentage of assets allocated to fixed income and money market securities will tend to increase. When the target asset allocation of the Fund is similar to the asset allocation of the STI Classic Life Vision Conservative Fund (within two years after the target date, i.e., 2017), it is expected that the Fund will seek to be combined with the STI Classic Life Vision Conservative Fund, and shareholders of the Fund would then become shareholders of the STI Classic Life Vision Conservative Fund. In addition to investing in underlying STI Classic Funds, the Adviser may also invest a portion of the Fund's assets in one or more ETFs to gain exposure to an asset class not represented by an underlying STI Classic Fund. The table below shows how the Adviser expects to allocate the Fund among asset classes. The table also shows the sectors within those asset classes to which the Fund will have exposure and the underlying STI Classic Funds (and ETFs, if applicable) that will be used to represent those sectors. The information represents the currently expected investment ranges of the Fund but will vary over time.
INVESTMENT RANGE (PERCENTAGE OF THE ASSET CLASS FUND'S ASSETS) - ------------------------------------------------------ EQUITY FUNDS 70-100% Aggressive Growth Stock Fund Capital Appreciation Fund Emerging Growth Stock Fund International Equity Fund International Equity Index Fund Large Cap Quantitative Equity Fund Large Cap Relative Value Fund Large Cap Value Equity Fund Mid-Cap Equity Fund Mid-Cap Value Equity Fund Small Cap Growth Stock Fund Small Cap Quantitative Equity Fund iShares Russell 2000 Value Index Fund* BOND FUNDS 0-30% Core Bond Fund High Income Fund High Quality Bond Fund Investment Grade Bond Fund Limited-Term Federal Mortgage Securities Fund Seix Floating Rate High Income Fund Seix High Yield Fund Short-Term Bond Fund Short-Term U.S. Treasury Securities Fund Strategic Income Fund Total Return Bond Fund U.S. Government Securities Fund MONEY MARKET FUND 0-20% Prime Quality Money Market Fund - ------------------------------------------------------
* iShares(R) is a registered trademark of Barclays Global Investors, N.A. ("BGI"). Neither BGI nor the iShares Russell 2000 Value Index Fund makes any representations regarding the advisability of investing in the Fund. Other STI Classic Funds may be utilized. LIFE VISION TARGET DATE 2015 FUND 60 PROSPECTUS Due to its investment strategy, the Fund holds underlying STI Classic Funds that buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities for taxable investors and lower performance. In addition, to implement its strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. You can obtain information about the underlying STI Classic Funds in which the Fund invests that are not offered in this prospectus by calling 1-888-STI-FUND or from the STI Classic Funds' website at www.sticlassicfunds.com. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? The value of an investment in the Fund is based primarily on the performance of the underlying STI Classic Funds and the allocation of the Fund's assets among them. Since it purchases equity funds, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of an underlying STI Classic Funds' securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The prices of an underlying STI Classic Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, an underlying STI Classic Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities generally are more volatile, so the average maturity or duration of these securities affects risk. The Fund is also subject to the risk that the Adviser's asset allocation decisions will not anticipate market trends successfully. For example, weighting common stocks too heavily during a stock market decline may result in a failure to preserve capital. Conversely, investing too heavily in fixed income securities during a period of stock market appreciation may result in lower total return. The risks associated with investing in the Fund will vary depending upon how the assets are allocated among the underlying STI Classic Funds. Because the underlying STI Classic Funds invest in derivatives, the Fund is exposed to additional volatility and potential losses. Credit default swaps can increase the Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. Total return swaps could result in losses if the reference index, security, or investments do not perform as anticipated. The use of derivatives may cause the Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. (TARGET ICON) PERFORMANCE INFORMATION No performance information is included because the Fund does not have performance history for a full calendar year. LIFE VISION TARGET DATE 2015 FUND PROSPECTUS 61 (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The table does not reflect any of the operating costs and investment advisory fees of the underlying STI Classic Funds. The Fund and its shareholders will indirectly bear a pro rata share of the expenses of the underlying STI Classic Funds. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees 0.10% Other Expenses(1) 0.43% ----------------- Total Annual Operating Expenses 0.53% Fee Waivers and Expense Reimbursements(2) (0.33)% ----------------- Net Operating Expenses 0.20%
(1) Other Expenses are based on estimated amounts for the current fiscal year. (2) The Adviser has contractually agreed to waive fees and reimburse expenses until at least August 1, 2007 in order to keep Total Annual Operating Expenses from exceeding 0.20%. If at any point before August 1, 2009, Total Annual Operating Expenses are less than the applicable expense cap, the Adviser may retain the difference to recapture any of the prior waivers or reimbursements. In addition, the Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These voluntary waivers may be discontinued at any time. In addition to the Fund's direct expenses shown in the table above, the Fund indirectly bears a pro-rata share of the expenses of the underlying STI Classic Funds. Based on adjusted expenses of the underlying STI Classic Funds, the indirect costs on investments in underlying STI Classic Funds were 0.76%. Therefore, total annualized expenses would be 1.29% before waivers and reimbursements and 0.96% after waivers and reimbursements. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR* 3 YEARS $20 $137
(*) Without waivers and reimbursements, Year 1 costs would be $54. The costs including both direct Fund expenses after waivers and reimbursements and indirect expenses associated with investments in underlying STI Classic Funds would be:
1 YEAR* 3 YEARS $98 $377
(*) Without waivers and reimbursements, Year 1 costs would be $131. - ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." LIFE VISION TARGET DATE 2025 FUND 62 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL High total return INVESTMENT FOCUS Equity funds, fixed income funds, money market funds SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Investing pursuant to an asset allocation strategy in a combination of STI Classic equity, fixed income and money market funds INVESTOR PROFILE Investors who expect to retire or require income around the year 2025
(TELESCOPE ICON) INVESTMENT STRATEGY The Life Vision Target Date 2025 Fund invests in a mix of underlying STI Classic Funds representing various asset classes and sectors using an asset allocation strategy designed for investors expecting to retire or require income around the year 2025. The Adviser allocates assets among underlying STI Classic Funds using an asset allocation strategy that becomes increasingly more conservative over time. That is, the percentage of assets allocated to equity securities will tend to decrease periodically as the target date approaches, while the percentage of assets allocated to fixed income and money market securities will tend to increase. When the target asset allocation of the Fund is similar to the asset allocation of the STI Classic Life Vision Conservative Fund (within two years after the target date, i.e., 2027), it is expected that the Fund will seek to be combined with the STI Classic Life Vision Conservative Fund, and shareholders of the Fund would then become shareholders of the STI Classic Life Vision Conservative Fund. In addition to investing in underlying STI Classic Funds, the Adviser may also invest a portion of the Fund's assets in one or more ETFs to gain exposure to an asset class not represented by an underlying STI Classic Fund. The table below shows how the Adviser expects to allocate the Fund among asset classes. The table also shows the sectors within those asset classes to which the Fund will have exposure and the underlying STI Classic Funds (and ETFs, if applicable) that will be used to represent those sectors. The information represents the currently expected investment ranges of the Fund but will vary over time.
INVESTMENT RANGE (PERCENTAGE OF THE ASSET CLASS FUND'S ASSETS) - ----------------------------------------------------- EQUITY FUNDS 80-100% Aggressive Growth Stock Fund Capital Appreciation Fund Emerging Growth Stock Fund International Equity Fund International Equity Index Fund Large Cap Quantitative Equity Fund Large Cap Relative Value Fund Large Cap Value Equity Fund Mid-Cap Equity Fund Mid-Cap Value Equity Fund Small Cap Growth Stock Fund Small Cap Quantitative Equity Fund iShares Russell 2000 Value Index Fund* BOND FUNDS 0-20% Core Bond Fund High Income Fund High Quality Bond Fund Investment Grade Bond Fund Limited-Term Federal Mortgage Securities Fund Seix Floating Rate High Income Fund Seix High Yield Fund Short-Term Bond Fund Short-Term U.S. Treasury Securities Fund Strategic Income Fund Total Return Bond Fund U.S. Government Securities Fund MONEY MARKET FUND 0-20% Prime Quality Money Market Fund - -----------------------------------------------------
* iShares(R) is a registered trademark of Barclays Global Investors, N.A. ("BGI"). Neither BGI nor the iShares Russell 2000 Value Index Fund makes any representations regarding the advisability of investing in the Fund. Other STI Classic Funds may be utilized. LIFE VISION TARGET DATE 2025 FUND PROSPECTUS 63 Due to its investment strategy, the Fund holds underlying STI Classic Funds that buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities for taxable investors and lower performance. In addition, to implement its strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps)to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. You can obtain information about the underlying STI Classic Funds in which the Fund invests that are not offered in this prospectus by calling 1-888-STI-FUND or from the STI Classic Funds' website at www.sticlassicfunds.com. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? The value of an investment in the Fund is based primarily on the performance of the underlying STI Classic Funds and the allocation of the Fund's assets among them. Since it purchases equity funds, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of an underlying STI Classic Funds' securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The prices of an underlying STI Classic Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, an underlying STI Classic Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities generally are more volatile, so the average maturity or duration of these securities affects risk. The Fund is also subject to the risk that the Adviser's asset allocation decisions will not anticipate market trends successfully. For example, weighting common stocks too heavily during a stock market decline may result in a failure to preserve capital. Conversely, investing too heavily in fixed income securities during a period of stock market appreciation may result in lower total return. The risks associated with investing in the Fund will vary depending upon how the assets are allocated among the underlying STI Classic Funds. Because the underlying STI Classic Funds invest in derivatives, the Fund is exposed to additional volatility and potential losses. Credit default swaps can increase the Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. Total return swaps could result in losses if the reference index, security, or investments do not perform as anticipated. The use of derivatives may cause the Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. (TARGET ICON) PERFORMANCE INFORMATION No performance information is included because the Fund does not have performance history for a full calendar year. LIFE VISION TARGET DATE 2025 FUND 64 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The table does not reflect any of the operating costs and investment advisory fees of the underlying STI Classic Funds. The Fund and its shareholders will indirectly bear a pro rata share of the expenses of the underlying STI Classic Funds. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees 0.10% Other Expenses(1) 0.47% ----------------- Total Annual Operating Expenses 0.57% Fee Waivers and Expense Reimbursements(2) (0.37)% ----------------- Net Operating Expenses 0.20%
(1) Other Expenses are based on estimated amounts for the current fiscal year. (2) The Adviser has contractually agreed to waive fees and reimburse expenses until at least August 1, 2007 in order to keep Total Annual Operating Expenses from exceeding 0.20%. If at any point before August 1, 2009, Total Annual Operating Expenses are less than the expense cap, the Adviser may retain the difference to recapture any of the prior waivers or reimbursements. In addition, the Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These voluntary waivers may be discontinued at any time. In addition to the Fund's direct expenses shown in the table above, the Fund indirectly bears a pro-rata share of the expenses of the underlying STI Classic Funds. Based on adjusted expenses of the underlying STI Classic Funds, the indirect costs on investments in underlying STI Classic Funds were 0.89%. Therefore, total annualized expenses would be 1.46% before waivers and reimbursements and 1.09% after waivers and reimbursements. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR* 3 YEARS $20 $146
* Without waivers and reimbursements, Year 1 costs would be $58. The costs including both direct Fund expenses after waivers and reimbursements and indirect expenses associated with investments in underlying STI Classic Funds would be:
1 YEAR* 3 YEARS $111 $426
* Without waivers and reimbursements, Year 1 costs would be $149. - ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." LIFE VISION TARGET DATE 2035 FUND PROSPECTUS 65 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL High total return INVESTMENT FOCUS Equity funds, fixed income funds, and money market funds SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Investing pursuant to an asset allocation strategy in a combination of STI Classic equity, fixed income and money market funds INVESTOR PROFILE Investors who expect to retire or require income around the year 2035
(TELESCOPE ICON) INVESTMENT STRATEGY The Life Vision Target Date 2035 Fund invests in a mix of underlying STI Classic Funds representing various asset classes and sectors using an asset allocation strategy designed for investors expecting to retire or require income around the year 2035. The Adviser allocates assets among underlying STI Classic Funds using an asset allocation strategy that becomes increasingly more conservative over time. That is, the percentage of assets allocated to equity securities will tend to decrease periodically as the target date approaches, while the percentage of assets allocated to fixed income and money market securities will tend to increase. When the target asset allocation of the Fund is similar to the asset allocation of the STI Classic Life Vision Conservative Fund (within two years after the target date, i.e., 2037), it is expected that the Fund will seek to be combined with the STI Classic Life Vision Conservative Fund, and shareholders of the Fund would then become shareholders of the STI Classic Life Vision Conservative Fund. In addition to investing in underlying STI Classic Funds, the Adviser may also invest a portion of the Fund's assets in one or more ETFs to gain exposure to an asset class not represented by an underlying STI Classic Fund. The table below shows how the Adviser expects to allocate the Fund among asset classes. The table also shows the sectors within those asset classes to which the Fund will have exposure and the underlying STI Classic Funds (and ETFs, if applicable) that will be used to represent those sectors. The information represents the currently expected investment ranges of the Fund but will vary over time.
INVESTMENT RANGE (PERCENTAGE OF THE ASSET CLASS FUND'S ASSETS) - ------------------------------------------------------ EQUITY FUNDS 80-100% Aggressive Growth Stock Fund Capital Appreciation Fund Emerging Growth Stock Fund International Equity Fund International Equity Index Fund Large Cap Quantitative Equity Fund Large Cap Relative Value Fund Large Cap Value Equity Fund Mid-Cap Equity Fund Mid-Cap Value Equity Fund Small Cap Growth Stock Fund Small Cap Quantitative Equity Fund iShares Russell 2000 Value Index Fund* BOND FUNDS 0-10% Core Bond Fund High Income Fund High Quality Bond Fund Investment Grade Bond Fund Limited Term Federal Mortgage Securities Fund Seix Floating Rate High Income Fund Seix High Yield Fund Short-Term Bond Fund Short-Term U.S. Treasury Securities Fund Strategic Income Fund Total Return Bond Fund U.S. Government Securities Fund MONEY MARKET FUND 0-10% Prime Quality Money Market Fund - ------------------------------------------------------
* iShares(R) is a registered trademark of Barclays Global Investors, N.A. ("BGI"). Neither BGI nor the iShares Russell 2000 Value Index Fund makes any representations regarding the advisability of investing in the Fund. Other STI Classic Funds may be utilized. LIFE VISION TARGET DATE 2035 FUND 66 PROSPECTUS Due to its investment strategy, the Fund holds underlying STI Classic Funds that buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities for taxable investors and lower performance. In addition, to implement its strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. You can obtain information about the underlying STI Classic Funds in which the Fund invests that are not offered in this prospectus by calling 1-888-STI-FUND or from the STI Classic Funds' website at www.sticlassicfunds.com. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? The risks of the Fund will directly correspond to the risks of the underlying funds in which it invests. These risks will vary depending upon how the assets are allocated among the underlying STI Classic Funds. The value of an investment in the Fund is based primarily on the performance of the underlying STI Classic Funds and the allocation of the Fund's assets among them. Since it purchases equity funds, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of an underlying STI Classic Funds' securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The prices of an underlying STI Classic Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, an underlying STI Classic Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities generally are more volatile, so the average maturity or duration of these securities affects risk. The Fund is also subject to the risk that the Adviser's asset allocation decisions will not anticipate market trends successfully. For example, weighting common stocks too heavily during a stock market decline may result in a failure to preserve capital. Conversely, investing too heavily in fixed income securities during a period of stock market appreciation may result in lower total return. The risks associated with investing in the Fund will vary depending upon how the assets are allocated among the underlying STI Classic Funds. Because the underlying STI Classic Funds invest in derivatives, the Fund is exposed to additional volatility and potential losses. Credit default swaps can increase the Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. Total return swaps could result in losses if the reference index, security, or investments do not perform as anticipated. The use of derivatives may cause the Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. (TARGET ICON) PERFORMANCE INFORMATION No performance information is included because the Fund does not have performance history for a full calendar year. LIFE VISION TARGET DATE 2035 FUND PROSPECTUS 67 (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The table does not reflect any of the operating costs and investment advisory fees of the underlying STI Classic Funds. The Fund and its shareholders will indirectly bear a pro rata share of the expenses of the underlying STI Classic Funds. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees 0.10% Other Expenses(1) 0.44% ----------------- Total Annual Operating Expenses 0.54% Fee Waivers and Expense Reimbursements(2) (0.34)% ----------------- Net Operating Expenses 0.20%
(1) Other Expenses are based on estimated amounts for the current fiscal year. (2) The Adviser has contractually agreed to waive fees and reimburse expenses until at least August 1, 2007 in order to keep Total Annual Operating Expenses from exceeding 0.20%. If at any point before August 1, 2009, Total Annual Operating Expenses are less than the applicable expense cap, the Adviser may retain the difference to recapture any of the prior waivers or reimbursements. In addition, the Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These voluntary waivers may be discontinued at any time. In addition to the Fund's direct expenses shown in the table above, the Fund indirectly bears a pro-rata share of the expenses of the underlying STI Classic Funds. Based on adjusted expenses of the underlying STI Classic Funds, the indirect costs on investments in underlying STI Classic Funds were 0.91%. Therefore, total annualized expenses would be 1.45% before waivers and reimbursements and 1.11% after waivers and reimbursements. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR* 3 YEARS $20 $139
* Without waivers and reimbursements, Year 1 costs would be $55. The costs including both direct Fund expenses after waivers and reimbursements and indirect expenses associated with investments in underlying STI Classic Funds would be:
1 YEAR* 3 YEARS $113 $426
* Without waivers and reimbursements, Year 1 costs would be $148. - ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." CORE BOND FUND 68 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Total return that consistently exceeds the total return of the broad U.S. investment grade bond market INVESTMENT FOCUS Investment grade debt securities SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Invest in fixed income securities with an emphasis on corporate and mortgage-backed securities INVESTOR PROFILE Investors who want to receive income from their investment, as well as an increase in the value of the investment
(TELESCOPE ICON) INVESTMENT STRATEGY The Core Bond Fund invests in various types of income producing debt securities including mortgage- and asset-backed securities, government and agency obligations, corporate obligations and floating rate loans. The Fund may invest in debt obligations of U.S. and non-U.S. issuers, including emerging market debt. Under normal circumstances, the Fund invests at least 80% of its net assets in fixed income securities. These securities will be chosen from the broad universe of available fixed income securities rated investment grade by at least one national securities rating agency or unrated securities that the Adviser believes are of comparable quality. The Fund may invest up to 20% of its net assets in below investment grade, high yield debt obligations. The Fund may also invest a portion of its assets in securities that are restricted as to resale. The Adviser anticipates that the Fund's modified adjusted duration will generally range from 3 to 6 years, similar to that of the Lehman Brothers Aggregate Bond Index, the Fund's comparative benchmark. In selecting investments for the Fund, the Adviser generally selects a greater weighting in obligations of domestic corporations and mortgage-backed securities relative to the Fund's comparative benchmark, and a lower relative weighting in U.S. Treasury and government agency issues. Because securities tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell derivative instruments (such as futures, options and swaps, including credit default swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate or credit risks. The Fund may count the value of certain derivatives with investment grade fixed income characteristics towards its policy to invest, under normal circumstances, at least 80% of its net assets in fixed income securities. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. Mortgage-backed investments involve risk of loss due to prepayments and, like any bond, due to default. Because of the sensitivity of mortgage-related securities to changes in interest rates, the Fund's performance may be more volatile than if it did not hold these securities. Foreign securities involve special risks such as currency fluctuations, economic or financial instability, lack of timely or reliable financial information and unfavorable political or legal developments. These risks are increased for investments in emerging markets. Below investment grade securities (sometimes referred to as "junk bonds") involve greater risk of default or downgrade and are more volatile than investment grade securities. Below investment grade securities may also be less liquid than higher quality securities. The risks associated with floating rate loans are similar to the risks of below investment grade securities. In addition, the value of the collateral securing the loan may decline, causing a loan to be substantially unsecured. Difficulty in selling a floating rate loan may result in a loss. Borrowers may pay back principal before the scheduled due date when interest rates decline, which may require the Fund to replace a particular loan with a lower-yielding security. There may be less CORE BOND FUND PROSPECTUS 69 extensive public information available with respect to loans than for rated, registered or exchange listed securities. The Fund may assume the credit risk of the primary lender in addition to the borrower, and investments in loan assignments may involve the risks of being a lender. U.S. government securities can exhibit price movements resulting from changes in interest rates. Treasury inflation protected securities ("TIPS") can also exhibit price movements as a result of changing inflation expectations and seasonal inflation patterns. Certain U.S. government securities are backed by the full faith and credit of the U.S. Government, while others are backed by the ability of the issuing entity to borrow from the U.S. Treasury or by the issuing entity's own resources. Restricted securities may increase the level of illiquidity in the Fund during any period that qualified institutional buyers become uninterested in purchasing these restricted securities. The Adviser intends to invest only in restricted securities that it believes present minimal liquidity risk. Because the Fund invests in derivatives, it is exposed to additional volatility and potential losses. Credit default swaps can increase the Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. The use of derivatives may cause the Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. The Fund began operating on October 11, 2004. Performance prior to October 11, 2004 is that of the Class I Shares of the Seix Core Bond Fund, the Fund's predecessor, which began operations on December 30, 1997. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1998 7.81% 1999 -0.53% 2000 10.40% 2001 6.83% 2002 7.58% 2003 4.82% 2004 4.59% 2005 2.13%
BEST QUARTER WORST QUARTER 4.25% -2.16% (9/30/01) (6/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was -1.02%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Lehman Brothers U.S. Aggregate Index. These returns assume shareholders redeem all of their shares at the end of the period indicated.
SINCE I SHARES* 1 YEAR 5 YEARS INCEPTION** - ---------------------------------------------------------- Core Bond Fund 2.13% 5.17% 5.43% - ---------------------------------------------------------- Lehman Brothers U.S. Aggregate Index 2.43% 5.87% 6.06% - ----------------------------------------------------------
* Performance prior to October 11, 2004 is that of the predecessor fund's Class I Shares. ** Since inception of the predecessor fund on December 30, 1997. (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Lehman Brothers U.S. Aggregate Index is a widely-recognized index of U.S. Treasury and agency securities, corporate bond issues, mortgage-backed securities, asset-backed securities and corporate mortgage-backed securities. CORE BOND FUND 70 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees 0.25% Other Expenses(1) 0.06% ----------------- Total Annual Operating Expenses(2) 0.31%
(1) Adjusted to reflect an expected change in Other Expenses for the current fiscal year. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $32 $100 $174 $393
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." HIGH INCOME FUND PROSPECTUS 71 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOALS PRIMARY High current income SECONDARY Total return INVESTMENT FOCUS High yield corporate and other debt instruments of U.S. and non-U.S. issuers SHARE PRICE VOLATILITY High PRINCIPAL INVESTMENT STRATEGY Attempts to identify lower-rated securities offering high current income of issuers generating adequate cash flow to meet their obligations INVESTOR PROFILE Investors who seek high current income and who are willing to accept greater share price volatility through investment in high yield, below investment grade debt instruments
(TELESCOPE ICON) INVESTMENT STRATEGY The High Income Fund invests primarily in a diversified portfolio of higher yielding, lower-rated income producing debt instruments, including corporate obligations, floating rate loans and other debt obligations. The Fund may invest in debt obligations of U.S. and non-U.S. issuers, including emerging market debt. The Fund will invest at least 65%, and may invest up to 100%, of its assets in securities rated below investment grade by either Moody's Investor Services, Inc. or Standard & Poor's Rating Services or in unrated securities that the Adviser believes are of comparable quality. Such securities are commonly known as "junk bonds" and offer greater risks than investment grade debt securities. The Fund may also invest a portion of its assets in securities that are restricted as to resale. In selecting securities for the Fund, the Adviser employs a research driven process designed to identify value areas within the high yield market. The Adviser seeks to identify securities which meet the following criteria: (1) industries that have strong fundamentals; (2) companies that have good business prospects and increasing credit strength; and (3) issuers with stable or growing cash flows and effective management. Because securities tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell derivative instruments (such as futures, options and swaps, including credit default swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate or credit risks. The Fund may count the value of certain derivatives with below investment grade fixed income characteristics towards its policy to invest, under normal circumstances, at least 65% of its net assets in non-investment grade fixed income securities. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. Below investment grade securities (sometimes referred to as "junk bonds") involve greater risk of default or downgrade and are more volatile than investment grade securities. Below investment grade securities may also be less liquid than higher quality securities. The risks associated with floating rate loans are similar to the risks of below investment grade securities. In addition, the value of the collateral securing the loan may decline, causing a loan to be substantially unsecured. Difficulty in selling a floating rate loan may result in a loss. Borrowers may pay back principal before the scheduled due date when interest rates decline, which may require the Fund to replace a particular loan with a lower-yielding security. There may be less extensive public information available with respect to loans than for rated, registered or exchange listed securities. The Fund may assume the credit risk of the primary lender in addition to the borrower, and investments in loan assignments may involve the risks of being a lender. Foreign securities involve special risks such as currency fluctuations, economic or financial instability, lack of HIGH INCOME FUND 72 PROSPECTUS timely or reliable financial information and unfavorable political or legal developments. These risks are increased for investments in emerging markets. Restricted securities may increase the level of illiquidity in the Fund during any period that qualified institutional buyers become uninterested in purchasing these restricted securities. The Adviser intends to invest only in restricted securities that it believes present minimal liquidity risk. Because the Fund invests in derivatives, it is exposed to additional volatility and potential losses. Credit default swaps can increase the Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. The use of derivatives may cause the Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 2002 -3.33% 2003 25.81% 2004 10.32% 2005 4.21
BEST QUARTER WORST QUARTER 8.73% -5.50% (6/30/03) (6/30/02)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 3.49%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Lehman Brothers U.S. Corporate High Yield Bond Index. These returns assume shareholders redeem all of their shares at the end of the period indicated.
SINCE I SHARES 1 YEAR INCEPTION* High Income Fund 4.21% 9.08% Lehman Brothers U.S. Corporate High Yield Bond Index 2.74% 10.62%
* Since inception of the I Shares on October 3, 2001. Benchmark returns since September 30, 2001 (benchmark returns available only on a month end basis). (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Lehman Brothers U.S. Corporate High Yield Bond Index is a widely-recognized, market value-weighted (higher market value bonds have more influence than lower market value bonds) index which covers the universe of fixed rate, non-investment grade debt. HIGH INCOME FUND PROSPECTUS 73 (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.60% Other Expenses 0.15% ----------------- Total Annual Operating Expenses(2) 0.75%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) Effective August 1, 2006, the Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses to the level shown below. These waivers may be discontinued at any time.
I SHARES High Income Fund 0.70%
- ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $77 $240 $417 $930
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." HIGH QUALITY BOND FUND 74 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Current income and price appreciation INVESTMENT FOCUS High quality fixed income securities SHARE PRICE VOLATILITY Low PRINCIPAL INVESTMENT STRATEGY Attempts to identify intermediate duration securities that offer solid return potential and yield INVESTOR PROFILE Conservative investors seeking to maximize income and yield consistent with intermediate share price volatility
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the High Quality Bond Fund invests at least 80% of its net assets in high quality fixed income securities. These securities will be primarily U.S. government, corporate and mortgage-backed securities rated A or better by at least one national securities rating agency or unrated securities that the Adviser believes are of comparable quality. The Fund may also invest in futures, options, taxable municipal securities, asset-backed securities and collateralized mortgage obligations ("CMOs"). The Fund may invest in debt securities of U.S. and non-U.S. issuers. The Adviser allocates the Fund's investments based on the Adviser's analysis of duration, yield curve structure, relative value sector and security analysis. The average duration of the Fund's portfolio will typically range from 3 to 10 years. The Adviser may retain securities if the rating of the security falls below investment grade and the Adviser deems retention of the security to be in the best interests of the Fund. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. Mortgage-backed investments involve risk of loss due to prepayments and, like any bond, due to default. Because of the sensitivity of mortgage-related securities to changes in interest rates, the Fund's performance may be more volatile than if it did not hold these securities. Foreign securities involve special risks such as currency fluctuations, economic or financial instability, lack of timely or reliable financial information and unfavorable political or legal developments. U.S. government securities can exhibit price movements resulting from changes in interest rates. Treasury inflation protected securities ("TIPS") can also exhibit price movements as a result of changing inflation expectations and seasonal inflation patterns. Certain U.S. government securities are backed by the full faith and credit of the U.S. Government, while others are backed by the ability of the issuing entity to borrow from the U.S. Treasury or by the issuing entity's own resources. For information about the risks involved when investing in derivatives, see "More Information About Risk." HIGH QUALITY BOND FUND PROSPECTUS 75 (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 2004 2.08% 2005 1.16%
BEST QUARTER WORST QUARTER 2.44% -2.48% (9/30/04) (6/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was -0.33%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Lehman Brothers U.S. Intermediate Government/ Credit A+ Index. These returns assume shareholders redeem all of their shares at the end of the period indicated.
SINCE I SHARES 1 YEAR INCEPTION* High Quality Bond Fund 1.16% 1.83% Lehman Brothers U.S. Intermediate Government/ Credit A+ Index 1.71% 1.89%
* Since inception of the I Shares on October 29, 2003. Benchmark returns since September 30, 2003 (benchmark returns available only on a month end basis). (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Lehman Brothers U.S. Intermediate Government/Credit A+ Index is a widely-recognized index which represents the intermediate portion of the Lehman Brothers Government/Credit Index. The Index consists of Treasury, Agencies and Credit securities with one year or more to maturity, and up to but not including 10 years of maturity. The underlying securities within the Index have an average credit quality of A and better. The Lehman Brothers Government/Credit Index is a widely-recognized, market-value weighted index of U.S. Treasury and agency securities, corporate bond issues and mortgaged-backed securities having maturities of 10 years or less. HIGH QUALITY BOND FUND 76 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.40% Other Expenses(2) 0.06% ----------------- Total Annual Operating Expenses(3) 0.46%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) Adjusted to reflect an expected change in Other Expenses for the current fiscal year. (3) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $47 $148 $258 $579
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." INTERMEDIATE BOND FUND PROSPECTUS 77 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Total return that consistently exceeds the total return of the broad U.S. dollar-denominated, investment grade market of intermediate-term government and corporate bonds INVESTMENT FOCUS Intermediate-term investment grade debt securities SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Invest in intermediate-term fixed income securities with an emphasis on corporate and mortgage-backed securities INVESTOR PROFILE Investors who want to receive income from their investment, as well as an increase in the value of the investment
(TELESCOPE ICON) INVESTMENT STRATEGY The Intermediate Bond Fund invests in various types of income producing debt securities including mortgage- and asset-backed securities, government and agency obligations, corporate obligations and floating rate loans. The Fund may invest in debt securities of U.S. and non-U.S. issuers, including emerging market debt. Under normal circumstances, the Fund invests at least 80% of its net assets in fixed income securities. These securities will be chosen from the broad universe of available intermediate-term fixed income securities rated investment grade by at least one national securities rating agency or unrated securities that the Adviser believes are of comparable quality. The Fund may invest up to 20% of its net assets in below investment grade, high yield debt obligations. The Fund may also invest a portion of its assets in securities that are restricted as to resale. The Adviser anticipates that the Fund will maintain an average-weighted maturity of 3 to 10 years and the Fund will be managed with a duration that is close to that of its comparative benchmark, the Lehman Brothers Intermediate Government/Credit Bond Index, which is generally between 3 to 4 years. In selecting investments for the Fund, the Adviser generally selects a greater weighting in obligations of domestic corporations and mortgage-backed securities relative to the Fund's comparative benchmark, and a lower relative weighting in U.S. Treasury and government agency issues. Because securities tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell derivative instruments (such as futures, options and swaps, including credit default swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate or credit risks. The Fund may count the value of certain derivatives with investment grade intermediate term fixed income characteristics towards its policy to invest, under normal circumstances, at least 80% of its net assets in fixed income securities. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. Mortgage-backed investments involve risk of loss due to prepayments and, like any bond, due to default. Because of the sensitivity of mortgage-related securities to changes in interest rates, the Fund's performance may be more volatile than if it did not hold these securities. Foreign securities involve special risks such as currency fluctuations, economic or financial instability, lack of timely or reliable financial information and unfavorable political or legal developments. These risks are increased for investments in emerging markets. Below investment grade securities (sometimes referred to as "junk bonds") involve greater risk of default or downgrade and are more volatile than investment grade securities. Below investment grade securities may also be less liquid than higher quality securities. The risks associated with floating rate loans are similar to the risks of below investment grade securities. In addition, the value of the collateral securing the loan may decline, causing a loan to be substantially INTERMEDIATE BOND FUND 78 PROSPECTUS unsecured. Difficulty in selling a floating rate loan may result in a loss. Borrowers may pay back principal before the scheduled due date when interest rates decline, which may require the Fund to replace a particular loan with a lower-yielding security. There may be less extensive public information available with respect to loans than for rated, registered or exchange listed securities. The Fund may assume the credit risk of the primary lender in addition to the borrower, and investments in loan assignments may involve the risks of being a lender. U.S. government securities can exhibit price movements resulting from changes in interest rates. Treasury inflation protected securities ("TIPS") can also exhibit price movements as a result of changing inflation expectations and seasonal inflation patterns. Certain U.S. government securities are backed by the full faith and credit of the U.S. Government, while others are backed by the ability of the issuing entity to borrow from the U.S. Treasury or by the issuing entity's own resources. Restricted securities may increase the level of illiquidity in the Fund during any period that qualified institutional buyers become uninterested in purchasing these restricted securities. The Adviser intends to invest only in restricted securities that it believes present minimal liquidity risk. Because the Fund invests in derivatives, it is exposed to additional volatility and potential losses. Credit default swaps can increase the Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. The use of derivatives may cause the Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. The Fund began operating on October 11, 2004. Performance prior to October 11, 2004 is that of the Class I Shares of the Seix Intermediate Bond Fund, the Fund's predecessor, which began operations on June 30, 1999. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 2000 10.19% 2001 7.03% 2002 7.18% 2003 4.03% 2004 3.69% 2005 1.38%
BEST QUARTER WORST QUARTER 4.33% -2.33% (9/30/01) (6/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was -0.40%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Lehman Brothers Intermediate Government/Credit Bond Index. These returns assume shareholders redeem all of their shares at the end of the period indicated.
SINCE I SHARES* 1 YEAR 5 YEARS INCEPTION** - ---------------------------------------------------------- Intermediate Bond Fund 1.38% 4.64% 5.30% - ---------------------------------------------------------- Lehman Brothers Intermediate Government/ Credit Bond Index 1.58% 5.50% 5.92% - ----------------------------------------------------------
* Performance prior to October 11, 2004 is that of the predecessor fund's Class I Shares. ** Since inception of the predecessor fund on June 30, 1999. (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Lehman Brothers Intermediate Government/Credit Bond Index is a widely-recognized, market-value weighted (higher market value bonds have more influence than lower market value bonds) index of U.S. Treasury and agency securities, corporate bond issues and mortgage-backed securities having maturities of 10 years or less. INTERMEDIATE BOND FUND PROSPECTUS 79 (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees 0.25% Other Expenses(1) 0.05% ----------------- Total Annual Operating Expenses(2) 0.30%
(1) Adjusted to reflect an expected change in Other Expenses for the current fiscal year. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $31 $97 $169 $381
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." INVESTMENT GRADE BOND FUND 80 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL High total return through current income and capital appreciation, while preserving the principal amount invested INVESTMENT FOCUS Investment grade U.S. government and corporate debt securities SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Attempts to identify relatively inexpensive securities in a selected market index INVESTOR PROFILE Investors who want to receive income from their investment, as well as an increase in the value of the investment
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Investment Grade Bond Fund invests at least 80% of its net assets in fixed income securities rated investment grade by at least one national securities rating agency or unrated securities that the Adviser believes are of comparable quality. The Adviser focuses on corporate debt securities, U.S. Treasury obligations, and mortgage-backed securities. The Fund may invest in debt obligations of U.S. and non-U.S. issuers. The Fund may invest up to 20% of its net assets in below investment grade, high yield debt obligations, including emerging market debt and floating rate loans. The Fund may also invest a portion of its assets in securities that are restricted as to resale. In selecting investments for the Fund, the Adviser tries to minimize risk while attempting to outperform selected market indices. Currently, the Adviser's selected index is the Lehman Brothers U.S. Government/Credit Index, a widely-recognized, unmanaged index of investment grade government and corporate debt securities. The Adviser seeks to invest more in portions of the Index that seem relatively inexpensive, and less in those that seem expensive. The Adviser allocates the Fund's investments among various market sectors based on the Adviser's analysis of historical data, yield information and credit ratings. Because securities tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell derivative instruments (such as futures, options and swaps, including credit default swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate or credit risks. The Fund may count the value of certain derivatives with investment grade fixed income characteristics towards its policy to invest, under normal circumstances, at least 80% of its net assets in investment grade fixed income securities. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. Mortgage-backed investments involve risk of loss due to prepayments and, like any bond, due to default. Because of the sensitivity of mortgage-related securities to changes in interest rates, the Fund's performance may be more volatile than if it did not hold these securities. U.S. government securities can exhibit price movements resulting from changes in interest rates. Treasury inflation protected securities ("TIPS") can also exhibit price movements as a result of changing inflation expectations and seasonal inflation patterns. Certain U.S. government securities are backed by the full faith and credit of the U.S. Government, while others are backed by the ability of the issuing entity to borrow from the U.S. Treasury or by the issuing entity's own resources. Foreign securities involve special risks such as currency fluctuations, economic or financial instability, lack of timely or reliable financial information and unfavorable political or legal developments. These risks are increased for investments in emerging markets. Below investment grade securities (sometimes referred to as "junk bonds") involve greater risk of default or downgrade and are more volatile than investment grade securities. Below investment grade securities may also be less liquid than higher quality securities. The risks associated with floating rate loans are similar to the risks of below investment grade securities. In addition, the value of the collateral securing the loan may decline, causing a loan to be substantially unsecured. Difficulty in selling a floating rate loan may INVESTMENT GRADE BOND FUND PROSPECTUS 81 result in a loss. Borrowers may pay back principal before the scheduled due date when interest rates decline, which may require the Fund to replace a particular loan with a lower-yielding security. There may be less extensive public information available with respect to loans than for rated, registered or exchange listed securities. The Fund may assume the credit risk of the primary lender in addition to the borrower, and investments in loan assignments may involve the risks of being a lender. Restricted securities may increase the level of illiquidity in the Fund during any period that qualified institutional buyers become uninterested in purchasing these restricted securities. The Adviser intends to invest only in restricted securities that it believes present minimal liquidity risk. Because the Fund invests in derivatives, it is exposed to additional volatility and potential losses. Credit default swaps can increase the Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. The use of derivatives may cause the Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1996 2.34% 1997 9.08% 1998 9.19% 1999 -1.53% 2000 6.57% 2001 9.06% 2002 7.42% 2003 3.70% 2004 4.09% 2005 2.16%
BEST QUARTER WORST QUARTER 5.39% -3.47% (9/30/98) (6/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was -0.25%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Lehman Brothers U.S. Government/Credit Index, Lehman Brothers U.S. Aggregate Index and the Lipper Intermediate Investment-Grade Debt Funds Objective. These returns assume shareholders redeem all of their shares at the end of the period indicated.
I SHARES 1 YEAR 5 YEARS 10 YEARS Investment Grade Bond Fund 2.16% 5.26% 5.15% Lehman Brothers U.S. Government/Credit Index 2.37% 6.11% 6.17% Lehman Brothers U.S. Aggregate Index 2.43% 5.87% 6.16% Lipper Intermediate Investment-Grade Debt Funds Objective 1.77% 5.27% 5.35%
(LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX/OBJECTIVE? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Lehman Brothers U.S. Government/Credit Index is a widely-recognized composite made up of the Lehman Brothers U.S. Government Index and the Lehman Brothers U.S. Credit Index, which include U.S. government, Treasury and agency securities, as well as high grade corporate bonds. The Lehman Brothers U.S. Aggregate Index is a widely-recognized index of securities that are SEC-registered, taxable, and dollar denominated. The Index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. The Lipper Intermediate Investment-Grade Debt Funds Objective is a widely-recognized, equally weighted average that invests primarily in investment grade debt issues (rated in the top four grades) with dollar-weighted average maturities of five to ten years. The number of funds in the Objective varies. INVESTMENT GRADE BOND FUND 82 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.50% Other Expenses 0.06% -------- Total Annual Operating Expenses( 2) 0.56%
(1 )Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $57 $179 $313 $701
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." LIMITED DURATION FUND PROSPECTUS 83 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Current income, while preserving liquidity and principal INVESTMENT FOCUS Short-term U.S. dollar-denominated, investment grade fixed income securities SHARE PRICE VOLATILITY Low PRINCIPAL INVESTMENT STRATEGY Attempts to identify U.S. dollar-denominated, investment grade fixed income securities that offer high current income while preserving liquidity and principal INVESTOR PROFILE Investors who want to receive income from their investment
(TELESCOPE ICON) INVESTMENT STRATEGY The Limited Duration Fund invests in U.S. dollar-denominated, investment grade fixed income securities, including corporate and bank obligations, government securities, and mortgage-and asset-backed securities of U.S. and non-U.S. issuers, rated A or better by at least one national securities rating agency or unrated securities that the Adviser believes are of comparable quality. The Fund will maintain an average credit quality of AA or Aa and all securities held in the Fund will have interest rate durations of 180 days or less. For floating rate notes, the interest rate duration will be based on the next interest rate reset date. In deciding which securities to buy and sell, the Adviser emphasizes securities that are within the targeted segment of the U.S. dollar-denominated, fixed income securities markets and will generally focus on investments that have good business prospects, credit strength, stable cash flows and effective management. The Adviser may retain securities if the rating of the security falls below investment grade and the Adviser deems retention of the security to be in the best interests of the Fund. Because securities tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying asset and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. Mortgage-backed investments involve risk of loss due to prepayments and, like any bond, due to default. Because of the sensitivity of mortgage-related securities to changes in interest rates, the Fund's performance may be more volatile than if it did not hold these securities. Foreign securities involve special risks such as economic or financial instability, lack of timely or reliable financial information and unfavorable political or legal developments. U.S. government securities can exhibit price movements resulting from changes in interest rates. Treasury inflation protected securities ("TIPS") can also exhibit price movements as a result of changing inflation expectations and seasonal inflation patterns. Certain U.S. government securities are backed by the full faith and credit of the U.S. Government, while others are backed by the ability of the issuing entity to borrow from the U.S. Treasury or by the issuing entity's own resources. For information about the risks involved when investing in derivatives, see "More Information About Risk." LIMITED DURATION FUND 84 PROSPECTUS (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. The Fund began operating on October 11, 2004. Performance prior to October 11, 2004 is that of the Class I Shares of the Seix Limited Duration Fund, the Fund's predecessor, which began operations on October 25, 2002. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 2003 0.97% 2004 1.20% 2005 3.20%
BEST QUARTER WORST QUARTER 0.97% 0.14% (12/31/05) (6/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 2.25%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Merrill 3-Month Treasury Bill Index. These returns assume shareholders redeem all of their shares at the end of the period indicated.
I SHARES* 1 YEAR SINCE INCEPTION** - ------------------------------------------------------- Limited Duration Fund 3.20% 1.72% - ------------------------------------------------------- Merrill 3-Month Treasury Bill Index 3.07% 1.84% - -------------------------------------------------------
* Performance prior to October 11, 2004 is that of the predecessor fund's Class I Shares. ** Since inception of the predecessor fund on October 25, 2002. Benchmark returns since September 30, 2002 (benchmark returns available only on a month end basis). (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Merrill 3-Month Treasury Bill Index is a widely-recognized index based on the 3 month U.S. Treasury bills. LIMITED DURATION FUND PROSPECTUS 85 (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees 0.10% Other Expenses(1) 0.06% ----------------- Total Annual Operating Expenses(2) 0.16%
(1) Adjusted to reflect an expected change in Other Expenses for the current fiscal year. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $16 $52 $90 $205
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND 86 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL High current income, while preserving capital INVESTMENT FOCUS Mortgage-backed securities SHARE PRICE VOLATILITY Low PRINCIPAL INVESTMENT STRATEGY Attempts to identify securities that are less prone to prepayment risk INVESTOR PROFILE Conservative investors who want to receive income from their investment
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Limited-Term Federal Mortgage Securities Fund invests at least 80% of its net assets in U.S. government agency mortgage-backed securities, such as Fannie Mae, GNMA and collateralized mortgage obligations. In selecting investments for the Fund, the Adviser tries to identify securities that the Adviser expects to perform well in rising and falling markets. The Adviser also attempts to reduce the risk that the underlying mortgages are prepaid by focusing on securities that it believes are less prone to this risk. For example, Fannie Mae or GNMA securities that were issued years ago may be less prone to prepayment risk because there have been many opportunities for prepayment, but few have occurred. Because securities tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. Mortgage-backed investments involve risk of loss due to prepayments and, like any bond, due to default. Because of the sensitivity of mortgage-related securities to changes in interest rates, the Fund's performance may be more volatile than if it did not hold these securities. U.S. government securities can exhibit price movements resulting from changes in interest rates. Treasury inflation protected securities ("TIPS") can also exhibit price movements as a result of changing inflation expectations and seasonal inflation patterns. Certain U.S. government securities are backed by the full faith and credit of the U.S. Government, while others are backed by the ability of the issuing entity to borrow from the U.S. Treasury or by the issuing entity's own resources. For information about the risks involved when investing in derivatives, see "More Information About Risk." LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND PROSPECTUS 87 (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1996 4.53% 1997 6.74% 1998 6.90% 1999 1.25% 2000 8.59% 2001 7.41% 2002 7.50% 2003 1.42% 2004 2.36% 2005 1.55%
BEST QUARTER WORST QUARTER 4.36% -1.70% (9/30/01) (6/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 0.79%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Merrill Lynch 1-5 Year AAA U.S. Treasuries/ Agencies Index and the Merrill Lynch 1-5 Year U.S. Treasuries Index. These returns assume shareholders redeem all of their shares at the end of the period indicated.
I SHARES 1 YEAR 5 YEARS 10 YEARS Limited-Term Federal Mortgage Securities Fund 1.55% 4.01% 4.79% Merrill Lynch 1-5 Year AAA U.S. Treasuries/ Agencies Index 1.45% 4.17% 5.11% Merrill Lynch 1-5 Year U.S. Treasuries Index 1.39% 4.07% 5.04%
(LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Merrill Lynch 1-5 Year AAA U.S. Treasuries/Agencies Index includes U.S. government and agency bonds that have a minimum issue size of $150 million. The current market value of the Index is $1.50 trillion with duration of 2.06 years and yield to maturity of 2.48%. The Merrill Lynch 1-5 Year U.S. Treasuries Index is a widely-recognized, capitalization weighted (companies with larger market capitalizations have more influence than those with smaller market capitalizations) index of U.S. Treasury securities with maturities of 1 year or greater and no more than 5 years. LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND 88 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.50% Other Expenses 0.08% ----------------- Total Annual Operating Expenses(2) 0.58%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $59 $186 $324 $726
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." SEIX HIGH YIELD FUND PROSPECTUS 89 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL PRIMARY High income SECONDARY Capital appreciation INVESTMENT FOCUS High yield corporate and other debt instruments of U.S. and non-U.S. entities SHARE PRICE VOLATILITY High PRINCIPAL INVESTMENT STRATEGY Attempts to identify lower rated, higher yielding bonds offering above average total return INVESTOR PROFILE Investors who seek above average total return
(TELESCOPE ICON) INVESTMENT STRATEGY The Seix High Yield Fund invests in various types of lower rated, higher yielding debt instruments, including corporate obligations, floating rate loans and other debt obligations. The Fund may invest in debt obligations of U.S. and non-U.S. issuers, including emerging market debt. Under normal circumstances, the Fund invests at least 80% of its net assets in high yield securities. These securities will be chosen from the broad universe of available U.S. dollar-denominated, high yield securities rated below investment grade by either Moody's Investor Services, Inc. or Standard & Poor's Rating Services or unrated securities that the Adviser believes are of comparable quality. Such securities are commonly known as "junk bonds" and offer greater risks than investment grade bonds. Although the Fund seeks to achieve its investment objective primarily through investment in high yield securities, the Fund may invest up to 20% of its net assets in investment grade securities. The Fund will be managed with a duration that is close to the Fund's comparative benchmark, the Merrill Lynch High Yield Master Index, which is generally between 3 and 6 years. The Fund may also invest a portion of its assets in securities that are restricted as to resale. In selecting securities for the Fund, the Adviser employs a research driven process designed to identify value areas within the high yield market. In deciding which securities to buy and sell, the portfolio managers will emphasize securities which are within the segment of the high yield market it has targeted for emphasis, which are "BB" and "B" rated issuers. The Adviser seeks to identify securities which meet the following criteria: (1) industries that have strong fundamentals; (2) companies that have good business prospects and increasing credit strength; and (3) issuers with stable or growing cash flows and effective management. Because securities tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell derivative instruments (such as futures, options and swaps, including credit default swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate or credit risks. The Fund may count the value of certain derivatives with below investment grade fixed income characteristics towards its policy to invest, under normal circumstances, at least 80% of its net assets in high yield corporate securities rated as non- investment grade. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. Below investment grade securities (sometimes referred to as "junk bonds") involve greater risk of default or downgrade and are more volatile than investment grade securities. Below investment grade securities may also be less liquid than higher quality securities. The risks associated with floating rate loans are similar to the risks of below investment grade securities. In addition, the value of the collateral securing the loan may decline, causing a loan to be substantially unsecured. Difficulty in selling a floating rate loan may result in a loss. Borrowers may pay back principal before the scheduled due date when interest rates decline, which may require the Fund to replace a particular loan with a lower-yielding security. There may be less extensive public information available with respect to loans than for rated, registered or exchange listed securities. The Fund may assume the credit risk of the primary lender in addition to the borrower, and investments in loan assignments may involve the risks of being a lender. Foreign securities involve special risks such as currency fluctuations, economic or financial instability, lack of timely or reliable financial information and unfavorable SEIX HIGH YIELD FUND 90 PROSPECTUS political or legal developments. These risks are increased for investments in emerging markets. Restricted securities may increase the level of illiquidity in the Fund during any period that qualified institutional buyers become uninterested in purchasing these restricted securities. The Adviser intends to invest only in restricted securities that it believes present minimal liquidity risk. Because the Fund invests in derivatives, it is exposed to additional volatility and potential losses. Credit default swaps can increase the Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. The use of derivatives may cause the Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. The Fund began operating on October 11, 2004. Performance prior to October 11, 2004 is that of the Class I Shares of the Seix High Yield Fund, the Fund's predecessor, which began operations on December 29, 2000. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 2001 11.33% 2002 6.34% 2003 15.56% 2004 8.34% 2005 2.62%
BEST QUARTER WORST QUARTER 5.78% -1.66% (3/31/01) (3/31/05)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 0.24%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Merrill Lynch High Yield Master Index. These returns assume shareholders redeem all of their shares at the end of the period indicated.
SINCE I SHARES* 1 YEAR 5 YEARS INCEPTION** Seix High Yield Fund 2.62% 8.75% 8.74% Merrill Lynch High Yield Master Index 2.83% 8.76% 9.07%
* Performance prior to October 11, 2004 is that of the predecessor fund's Class I Shares. ** Since inception of the predecessor fund on December 29, 2000. Benchmark returns since November 30, 2000 (benchmark returns available only on a month end basis). (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Merrill Lynch High Yield Master Index is a widely-recognized index of U.S. high yield corporate bond issues having maturities of at least one year. SEIX HIGH YIELD FUND PROSPECTUS 91 (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.43% Other Expenses(2) 0.06% ----------------- Total Annual Operating Expenses(3) 0.49%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) Adjusted to reflect an expected change in Other Expenses for the current fiscal year. (3) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $50 $157 $274 $616
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." SHORT-TERM BOND FUND 92 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL High current income, while preserving capital INVESTMENT FOCUS Investment grade U.S. government and corporate debt securities SHARE PRICE VOLATILITY Low PRINCIPAL INVESTMENT STRATEGY Attempts to identify securities that offer a comparably better return than similar securities for a given level of credit risk INVESTOR PROFILE Income oriented investors who are willing to accept increased risk for the possibility of returns greater than money market investing
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Short-Term Bond Fund invests at least 80% of its net assets in a diversified portfolio of short- to medium-term investment grade U.S. Treasury, corporate debt, mortgage-backed and asset-backed securities. The Fund expects that it will normally maintain an effective maturity of 3 years or less. In selecting investments for the Fund, the Adviser attempts to identify securities that offer a comparably better investment return for a given level of credit risk. For example, short-term bonds generally have better returns than money market instruments, with a fairly modest increase in credit risk and/or volatility. The Adviser manages the Fund from a total return perspective. That is, the Adviser makes day-to-day investment decisions for the Fund with a view towards maximizing returns. The Adviser analyzes yields, market sectors and credit risk in an effort to identify attractive investments with the best risk/reward trade-off. Because securities tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. The Adviser may retain securities if the rating of the security falls below investment grade and the Adviser deems retention of the security to be in the best interests of the Fund. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will lose value because of increases in interest rates. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. Mortgage-backed investments involve risk of loss due to prepayments and, like any bond, due to default. Because of the sensitivity of mortgage-related securities to changes in interest rates, the Fund's performance may be more volatile than if it did not hold these securities. U.S. government securities can exhibit price movements resulting from changes in interest rates. Treasury inflation protected securities ("TIPS") can also exhibit price movements as a result of changing inflation expectations and seasonal inflation patterns. Certain U.S. government securities are backed by the full faith and credit of the U.S. Government, while others are backed by the ability of the issuing entity to borrow from the U.S. Treasury or by the issuing entity's own resources. For information about the risks involved when investing in derivatives, see "More Information About Risk." SHORT-TERM BOND FUND PROSPECTUS 93 (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1996 3.90% 1997 6.78% 1998 6.84% 1999 0.92% 2000 7.64% 2001 7.54% 2002 2.59% 2003 2.53% 2004 0.98% 2005 1.67%
BEST QUARTER WORST QUARTER 3.86% -1.04% (9/30/01) (6/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 2.02%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Citigroup 1-3 Year Government/Credit Index. These returns assume shareholders redeem all of their shares at the end of the period indicated.
I SHARES 1 YEAR 5 YEARS 10 YEARS Short-Term Bond Fund 1.67% 3.03% 4.10% Citigroup 1-3 Year Government/Credit Index 1.82% 4.19% 5.11%
(LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Citigroup 1-3 Year Government/ Credit Index is a widely-recognized index of U.S. Treasury securities, government agency obligations, and corporate debt securities rated at least investment grade (BBB). The securities in the Index have maturities of 1 year or greater and less than 3 years. SHORT-TERM BOND FUND 94 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.40% Other Expenses 0.08% ----------------- Total Annual Operating Expenses(2) 0.48%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $49 $154 $269 $604
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." SHORT-TERM U.S. TREASURY SECURITIES FUND PROSPECTUS 95 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL High current income, while preserving capital INVESTMENT FOCUS Short-term U.S. Treasury securities SHARE PRICE VOLATILITY Low PRINCIPAL INVESTMENT STRATEGY Attempts to identify Treasury securities with maturities that offer a comparably better return potential and yield than either shorter maturity or longer maturity securities for a given level of interest rate risk INVESTOR PROFILE Income oriented investors who are willing to accept increased risk for the possibility of returns greater than money market investing
(TELESCOPE ICON) INVESTMENT STRATEGY The Short-Term U.S. Treasury Securities Fund invests exclusively in short-term U.S. Treasury securities (those with remaining maturities of 5 years or less) and shares of registered money market funds that invest in the foregoing. The Fund intends to maintain an average weighted maturity from 1 to 3 years. The Fund offers investors the opportunity to capture the advantage of investing in short-term bonds over money market instruments. Generally, short-term bonds offer a comparably better return than money market instruments, with a modest increase in interest rate risk. The Adviser manages the Fund from a total return perspective. That is, the Adviser makes day-to-day investment decisions for the Fund with a view toward maximizing total return. The Adviser tries to select those U.S. Treasury securities that offer the best risk/reward trade-off. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will lose value because of increases in interest rates. Interest rate risk is generally higher for investments with longer maturities or durations. Short-term U.S. Treasury securities may underperform other segments of the fixed income market or the fixed income market as a whole. U.S. Treasury securities are considered to be among the safest investments, however, they are not guaranteed against price movements due to changing interest rates. Treasury inflation protected securities ("TIPS") can exhibit price movements as a result of changing inflation expectations and seasonal inflation patterns. For information about the risks involved when investing in derivatives, see "More Information About Risk." (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1996 4.52% 1997 5.86% 1998 6.24% 1999 2.71% 2000 6.65% 2001 6.55% 2002 4.61% 2003 1.37% 2004 0.18% 2005 1.38%
BEST QUARTER WORST QUARTER 2.64% -0.94% (9/30/01) (6/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 0.77%. SHORT-TERM U.S. TREASURY SECURITIES FUND 96 PROSPECTUS - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Citigroup 1-3 Year Treasury Index and the Citigroup 6-Month Treasury Bill Index. These returns assume shareholders redeem all of their shares at the end of the period indicated.
I SHARES 1 YEAR 5 YEARS 10 YEARS Short-Term U.S. Treasury Securities Fund 1.38% 2.79% 3.98% Citigroup 1-3 Year Treasury Index 1.65% 3.66% 4.79% Citigroup 6-Month Treasury Bill Index 3.10% 2.59% 4.04%
(LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Citigroup 1-3 Year Treasury Index is a widely-recognized index of U.S. Treasury securities with maturities of one year or greater and less than three years. The Citigroup 6-Month Treasury Bill Index is a widely-recognized index of the 6 month U.S. Treasury bills. (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.40% Other Expenses 0.14% ----------------- Total Annual Operating Expenses(2) 0.54%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) Effective August 1, 2006, the Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses to the level shown below. These waivers may be discontinued at any time.
I SHARES Short-Term U.S. Treasury Securities Fund 0.50%
- ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $55 $173 $302 $677
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." STRATEGIC INCOME FUND PROSPECTUS 97 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOALS PRIMARY Current income SECONDARY Preservation of capital INVESTMENT FOCUS High yield corporate, government, and other debt instruments of U.S. and non-U.S. issuers SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Attempts to increase income while reducing share price volatility through diversification across three major sectors of the fixed income market INVESTOR PROFILE Investors who seek high current income with reduced risk of share price volatility
(TELESCOPE ICON) INVESTMENT STRATEGY The Strategic Income Fund invests primarily in a diversified portfolio of high yield corporate obligations, government securities, and floating rate loans. The Fund may invest in U.S. and non-U.S. debt obligations, including emerging market debt. The Fund will maintain a minimum average credit quality of BBB. The Fund will invest at least 15%, but not more than 60%, of its assets in a particular sector. The Fund may also invest a portion of its assets in securities that are restricted as to resale. In selecting corporate debt securities for the Fund, the Adviser seeks out companies with good fundamentals and performing prospects that are currently out of favor with investors. The primary basis for security selection is the potential income offered by the security relative to the Adviser's assessment of the issuer's ability to generate the cash flow required to meet its obligation. The Adviser employs a "bottom-up" approach, identifying investment opportunities based on the underlying financial and economic fundamentals of the specific issuer. Because securities tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell derivative instruments (such as futures, options and swaps, including credit default swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate or credit risks. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. Below investment grade securities (sometimes referred to as "junk bonds") involve greater risk of default or downgrade and are more volatile than investment grade securities. Below investment grade securities may also be less liquid than higher quality securities. The risks associated with floating rate loans are similar to the risks of below investment grade securities. In addition, the value of the collateral securing the loan may decline, causing a loan to be substantially unsecured. Difficulty in selling a floating rate loan may result in a loss. Borrowers may pay back principal before the scheduled due date when interest rates decline, which may require the Fund to replace a particular loan with a lower-yielding security. There may be less extensive public information available with respect to loans than for rated, registered or exchange listed securities. The Fund may assume the credit risk of the primary lender in addition to the borrower, and investments in loan assignments may involve the risks of being a lender. Foreign securities involve special risks such as currency fluctuations, economic or financial instability, lack of timely or reliable financial information and unfavorable political or legal developments. These risks are increased for investments in emerging markets. U.S. government securities can exhibit price movements resulting from changes in interest rates. Treasury inflation protected securities ("TIPS") can also exhibit STRATEGIC INCOME FUND 98 PROSPECTUS price movements as a result of changing inflation expectations and seasonal inflation patterns. Certain U.S. government securities are backed by the full faith and credit of the U.S. Government, while others are backed by the ability of the issuing entity to borrow from the U.S. Treasury or by the issuing entity's own resources. Restricted securities may increase the level of illiquidity in the Fund during any period that qualified institutional buyers become uninterested in purchasing these restricted securities. The Adviser intends to invest only in restricted securities that it believes present minimal liquidity risk. Because the Fund invests in derivatives, it is exposed to additional volatility and potential losses. Credit default swaps can increase the Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. The use of derivatives may cause the Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 2002 3.58% 2003 11.50% 2004 10.67% 2005 -1.53%
BEST QUARTER WORST QUARTER 5.89% -1.75% (12/31/04) (6/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 1.11%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of a Hybrid 34/33/33 Blend of the Merrill Lynch AAA U.S. Treasury/Agency Master Index, Merrill Lynch U.S. High Yield Master II Index and the Merrill Lynch Global Government Bond II ex U.S. Index. These returns assume shareholders redeem all of their shares at the end of the period indicated.
I SHARES 1 YEAR SINCE INCEPTION* Strategic Income Fund -1.53% 5.55% Hybrid 34/33/33 Blend of the Following Market Benchmarks 3.10% 0.27% Merrill Lynch AAA U.S. Treasury/Agency Master Index 2.66% -0.22% Merrill Lynch U.S. High Yield Master II Index 2.74% 0.23% Merrill Lynch Global Government Bond II ex U.S. Index 5.60% 0.82%
* Since inception of the I Shares on November 30, 2001. (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Merrill Lynch AAA U.S. Treasury/Agency Master Index is a widely-recognized U.S. Government index that tracks the performance of the combined U.S. Treasury and U.S. agency markets. It includes U.S. dollar-denominated, U.S. Treasury and U.S. agency bonds, issued in the U.S. domestic bond market, having at least one year remaining term to maturity, a fixed coupon schedule and a minimum amount outstanding of $1 billion for U.S. Treasuries and $150 million for U.S. agencies. The Merrill Lynch U.S. High Yield Master II Index is a widely-recognized, market-value weighted (higher market value bonds have more influence than lower market value bonds) index that tracks the performance of below investment grade STRATEGIC INCOME FUND PROSPECTUS 99 U.S. dollar-denominated corporate bonds publicly issued in the U.S. domestic market. The Merrill Lynch Global Government Bond II ex U.S. Index is a widely- recognized subset of the Merrill Lynch Global Government Bond Index including Belgian, Danish, Irish, Italian, New Zealand, Portuguese, Spanish, and Swedish returns. The Merrill Lynch Global Government Bond Index is a widely-recognized, broad-based index consisting of various maturities comprising Australian, Canadian, Dutch, French, German, Japanese, Swiss, U.K., and U.S. individual country returns. (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.60% Other Expenses 0.12% ----------------- Total Annual Operating Expenses(2) 0.72%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $74 $230 $401 $894
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." TOTAL RETURN BOND FUND 100 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Current income and price appreciation INVESTMENT FOCUS Government, corporate, and mortgage-backed debt securities, plus other opportunistic investments SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Attempts to recognize relative value in fixed income markets INVESTOR PROFILE Investors seeking diversification and attractive total returns in the fixed income market
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Total Return Bond Fund invests at least 80% of its net assets in fixed income securities. These securities will be chosen from a wide array of debt securities, primarily utilizing government, corporate and mortgage-backed securities and floating rate loans. The Fund may also invest in convertible bonds, preferred stocks, taxable municipal securities, asset-backed securities and collateralized mortgage obligations ("CMOs"). The Fund may invest in debt securities of U.S. and non-U.S. issuers, including emerging market debt. The Fund's investments may include high yield securities rated below investment grade by at least one national securities rating agency or unrated securities that the Adviser believes are of comparable quality. The Fund may also invest a portion of its assets in securities that are restricted as to resale. The Adviser allocates the Fund's investments among various market sectors based on the Adviser's analysis of duration, yield curve structure and relative value sector and security analysis. The average weighted maturity of the Fund's portfolio will typically range from 4 to 10 years. Because securities tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell derivative instruments (such as futures, options and swaps, including credit default swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate or credit risks. The Fund may count the value of certain derivatives with fixed income characteristics towards its policy to invest, under normal circumstances, at least 80% of its net assets in fixed income securities. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. Below investment grade securities (sometimes referred to as "junk bonds") involve greater risk of default or downgrade and are more volatile than investment grade securities. Below investment grade securities may also be less liquid than higher quality securities. The risks associated with floating rate loans are similar to the risks of below investment grade securities. In addition, the value of the collateral securing the loan may decline, causing a loan to be substantially unsecured. Difficulty in selling a floating rate loan may result in a loss. Borrowers may pay back principal before the scheduled due date when interest rates decline, which may require the Fund to replace a particular loan with a lower-yielding security. There may be less extensive public information available with respect to loans than for rated, registered or exchange listed securities. The Fund may assume the credit risk of the primary lender in addition to the borrower, and investments in loan assignments may involve the risks of being a lender. Foreign securities involve special risks such as currency fluctuations, economic or financial instability, lack of timely or reliable financial information and unfavorable political or legal developments. These risks are increased for investments in emerging markets. Mortgage-backed investments involve risk of loss due to prepayments and, like any bond, due to default. Because of the sensitivity of mortgage-related securities to changes in interest rates, the Fund's performance may be more volatile than if it did not hold these securities. TOTAL RETURN BOND FUND PROSPECTUS 101 U.S. government securities can exhibit price movements resulting from changes in interest rates. Treasury inflation protected securities ("TIPS") can also exhibit price movements as a result of changing inflation expectations and seasonal inflation patterns. Certain U.S. government securities are backed by the full faith and credit of the U.S. Government, while others are backed by the ability of the issuing entity to borrow from the U.S. Treasury or by the issuing entity's own resources. Restricted securities may increase the level of illiquidity in the Fund during any period that qualified institutional buyers become uninterested in purchasing these restricted securities. The Adviser intends to invest only in restricted securities that it believes present minimal liquidity risk. Because the Fund invests in derivatives, it is exposed to additional volatility and potential losses. Credit default swaps can increase the Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. The use of derivatives may cause the Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 2004 4.28% 2005 1.47%
BEST QUARTER WORST QUARTER 3.22% -3.03% (9/30/04) (6/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was -0.96%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Lehman Brothers U.S. Aggregate Index. These returns assume shareholders redeem all of their shares at the end of the period indicated.
SINCE I SHARES 1 YEAR INCEPTION* Total Return Bond Fund 1.47% 3.18% Lehman Brothers U.S. Aggregate Index 2.43% 3.14%
* Since inception of the I Shares on October 15, 2003. Benchmark return since September 30, 2003 (benchmark returns available only on a month end basis). (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Lehman Brothers U.S. Aggregate Index is a widely-recognized index of U.S. Treasury and agency securities, corporate bond issues, mortgage-backed securities, asset-backed securities and corporate mortgage-backed securities. TOTAL RETURN BOND FUND 102 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.35% Other Expenses(2) 0.11% ----------------- Total Annual Operating Expenses(3) 0.46%
(1)Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2)Adjusted to reflect the elimination of the shareholder service fee effective August 1, 2005. (3)Effective August 1, 2006, the Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses to the level shown below. These waivers may be discontinued at any time.
I SHARES Total Return Bond Fund 0.43%
- ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $47 $148 $258 $579
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." ULTRA-SHORT BOND FUND PROSPECTUS 103 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL High current income consistent with preserving capital and maintaining liquidity INVESTMENT FOCUS Short duration investment grade money market and fixed income securities SHARE PRICE VOLATILITY Low PRINCIPAL INVESTMENT STRATEGY Attempts to identify short duration securities that offer a comparably better return potential and yield than money market funds INVESTOR PROFILE Conservative investors seeking to maximize income consistent with limited share price volatility
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Ultra-Short Bond Fund invests at least 80% of its net assets in short duration, investment grade money market and fixed income securities including, but not limited to, U.S. Treasury and agency securities, obligations of supranational entities and foreign governments, domestic and foreign corporate debt obligations, taxable municipal debt securities, mortgage-backed and asset-backed securities, repurchase agreements, and other mutual funds. The Fund normally expects to maintain an average effective duration between 3 months and 1 year. Individual purchases will generally be limited to securities with an effective duration of less than 5 years. In selecting investments for the Fund, the Adviser attempts to maximize income by identifying securities that offer an acceptable yield for a given level of credit risk and maturity. The Adviser may retain securities if the rating of the security falls below investment grade and the Adviser deems retention of the security to be in the best interests of the Fund. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? The price ("NAV") of the Fund will fluctuate depending on general changes in interest rates as well as changes in the yields of the specific securities in the Fund. General (or macro) changes in interest rates may be as a result of economic developments or Federal Reserve policy while issuer specific changes in yield may be as a result of a change in creditworthiness of a particular issuer or industry. In general, the NAV of the Fund will rise when interest rates fall, and likewise, the NAV of the Fund will fall when interest rates rise. An objective of the Fund is to minimize NAV fluctuation by (a) maintaining the Fund average weighted duration between three months and one year and (b) diversifying the Fund among issuers and industries. Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. Short-term U.S. government debt securities may underperform other segments of the fixed income market or the fixed income market as a whole. Mortgage-backed investments involve risk of loss due to prepayments and, like any bond, due to default. Because of the sensitivity of mortgage-related securities to changes in interest rates, the Fund's performance may be more volatile than if it did not hold these securities. Foreign securities involve special risks such as currency fluctuations, economic or financial instability, lack of timely or reliable financial information and unfavorable political or legal developments. These risks are increased for investments in emerging markets. U.S. government securities can exhibit price movements resulting from changes in interest rates. Treasury inflation protected securities ("TIPS") can also exhibit price movements as a result of changing inflation expectations and seasonal inflation patterns. Certain U.S. government securities are backed by the full faith and credit of the U.S. Government, while others are backed by the ability of the issuing entity to borrow from the U.S. Treasury or by the issuing entity's own resources. For information about the risks involved when investing in derivatives, see "More Information About Risk." ULTRA-SHORT BOND FUND 104 PROSPECTUS (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 2003 1.16% 2004 1.22% 2005 3.00%
BEST QUARTER WORST QUARTER 0.92% -0.62% (9/30/04) (6/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 1.90%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Citigroup 6-Month Treasury Bill Index, the iMoneyNet First Tier Institutional Average and Lipper Ultra-Short Obligation Funds Average. These returns assume shareholders redeem all of their shares at the end of the period indicated.
SINCE I SHARES 1 YEAR INCEPTION* Ultra-Short Bond Fund 3.00% 2.17% Citigroup 6-Month Treasury Bill Index 3.03% 1.83% iMoneyNet, Inc. First Tier Institutional Average 2.93% 1.55% Lipper Ultra-Short Obligation Funds Average 2.54% 2.00%
* Since inception of the I Shares on April 15, 2002. Benchmark returns since March 31, 2002 (benchmark returns available only on a month end basis). (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX/AVERAGE? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Citigroup 6-Month Treasury Bill Index is a widely-recognized index of the 6 month U.S. Treasury Bills. The iMoneyNet, Inc. First Tier Institutional Average is a widely recognized composite of money market funds that invest in securities rated in the highest category by at least two recognized rating agencies. The number of funds in the Average varies. The Lipper Ultra-Short Obligation Funds Average consists of funds that invest at least 65% of their assets in investment grade debt issues, or better, and maintain a portfolio dollar-weighted average maturity between 91 days and 365 days. The number of funds in the Average varies. ULTRA-SHORT BOND FUND PROSPECTUS 105 (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.22% Other Expenses(2) 0.08% ----------------- Total Annual Operating Expenses(3) 0.30%
(1)Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2)Adjusted to reflect the elimination of the shareholder service fee effective August 1, 2005. (3)The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $31 $97 $169 $381
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." U.S. GOVERNMENT SECURITIES FUND 106 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL High current income, while preserving capital INVESTMENT FOCUS Mortgage-backed securities and U.S. Treasury obligations SHARE PRICE VOLATILITY Low to moderate PRINCIPAL INVESTMENT STRATEGY Attempts to increase income without adding undue risk INVESTOR PROFILE Conservative investors who want to receive income from their investment
(TELESCOPE ICON) INVESTMENT STRATEGY The U.S. Government Securities Fund invests at least 80% of its net assets in U.S. government debt securities, such as mortgage- backed securities and U.S. Treasury obligations. In an attempt to provide a consistently high dividend without adding undue risk, the Fund focuses its investments in mortgage-backed securities. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will lose value because of increases in interest rates. Interest rate risk is generally higher for investments with longer maturities or durations. U.S. government debt securities may underperform other segments of the fixed income market or the fixed income market as a whole. Mortgage-backed investments involve risk of loss due to prepayments and, like any bond, due to default. Because of the sensitivity of mortgage-related securities to changes in interest rates, the Fund's performance may be more volatile than if it did not hold these securities. U.S. government securities can exhibit price movements resulting from changes in interest rates. Treasury inflation protected securities ("TIPS") can also exhibit price movements as a result of changing inflation expectations and seasonal inflation patterns. Certain U.S. government securities are backed by the full faith and credit of the U.S. Government, while others are backed by the ability of the issuing entity to borrow from the U.S. Treasury or by the issuing entity's own resources. For information about the risks involved when investing in derivatives, see "More Information About Risk." U.S. GOVERNMENT SECURITIES FUND PROSPECTUS 107 (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1996 2.55% 1997 8.94% 1998 8.16% 1999 -0.97% 2000 10.98% 2001 6.92% 2002 9.68% 2003 1.30% 2004 3.42% 2005 2.02%
BEST QUARTER WORST QUARTER 4.82% -2.24% (9/30/01) (3/31/96)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was -0.61%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average total returns for the periods ended December 31, 2005, to those of the Merrill Lynch Government/Mortgage Custom Index and the Lehman Brothers Intermediate U.S. Government Bond Index. These returns assume shareholders redeem all of their shares at the end of the period indicated.
I SHARES 1 YEAR 5 YEARS 10 YEARS U.S. Government Securities Fund 2.02% 4.62% 5.23% Merrill Lynch Government/ Mortgage Custom Index 2.64% 5.47% 6.09% Lehman Brothers Intermediate U.S. Government Bond Index 1.68% 4.82% 5.50%
(LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Merrill Lynch Government/ Mortgage Custom Index is a synthetic index created by combining, at their respective market weights (i) the Merrill Lynch Government Master Index, which is a widely-recognized index comprised of U.S. Treasury securities and U.S. government agency securities with a maturity of at least 1 year; and (ii) the Merrill Lynch Mortgage Master Index, which is a widely-recognized index comprised of mortgage-backed securities including 15 and 30 year single family mortgages in addition to aggregated pooled mortgages. The Lehman Brothers Intermediate U.S. Government Bond Index is a widely-recognized, market value-weighted (higher market value bonds have more influence than lower market value bonds) index of U.S. Treasury securities, U.S. government agency obligations, and corporate debt backed by the U.S. Government, fixed-rate nonconvertible corporate debt securities, Yankee bonds, and nonconvertible debt securities issued by or guaranteed by foreign governments and agencies. All securities in the Index are rated investment grade (BBB) or higher, with maturities of at least 1 year. U.S. GOVERNMENT SECURITIES FUND 108 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.50% Other Expenses 0.07% ----------------- Total Annual Operating Expenses(2) 0.57%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $58 $183 $318 $714
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." U.S. GOVERNMENT SECURITIES ULTRA-SHORT BOND FUND PROSPECTUS 109 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL High current income consistent with preserving capital and maintaining liquidity - --------------------------------------------------------------------------------------------------------- INVESTMENT FOCUS Short duration U.S. government securities - --------------------------------------------------------------------------------------------------------- SHARE PRICE VOLATILITY Low - --------------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT STRATEGY Attempts to identify short duration U.S. government securities that offer a comparably better return potential and yield than money market funds - --------------------------------------------------------------------------------------------------------- INVESTOR PROFILE Conservative investors seeking to maximize income consistent with limited share price volatility and the relative safety of U.S. government securities - ---------------------------------------------------------------------------------------------------------
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the U.S. Government Securities Ultra-Short Bond Fund invests at least 80% of its net assets in short duration U.S. Treasury securities, U.S. agency securities, U.S. agency mortgage-backed securities, repurchase agreements, and other U.S. government securities. The Fund expects to maintain an average effective duration between 3 months and 1 year. Individual purchases will generally be limited to securities with an effective duration of less than 5 years. In selecting investments for the Fund, the Adviser attempts to maximize income by identifying securities that offer an acceptable yield for a given maturity. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? The price per share (net asset value or "NAV") of the Fund will fluctuate depending on general changes in interest rates as well as changes in the yields of the specific securities in the Fund. General (or macro) changes in interest rates may be a result of economic developments or Federal Reserve policy. In general, the NAV of the Fund will rise when interest rates fall, and likewise, the NAV of the Fund will fall when interest rates rise. An objective of the Fund is to minimize NAV fluctuation by (a) maintaining the Fund average weighted duration between three months and one year and (b) investing the Fund in U.S. government and agency securities. Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. U.S. government debt securities may underperform other segments of the fixed income market or the fixed income market as a whole. Mortgage-backed investments involve risk of loss due to prepayments and, like any bond, due to default. Because of the sensitivity of mortgage-related securities to changes in interest rates, the Fund's performance may be more volatile than if it did not hold these securities. U.S. government securities can exhibit price movements resulting from changes in interest rates. Treasury inflation protected securities ("TIPS") can also exhibit price movements as a result of changing inflation expectations and seasonal inflation patterns. Certain U.S. government securities are backed by the full faith and credit of the U.S. Government, while others are backed by the ability of the issuing entity to borrow from the U.S. Treasury or by the issuing entity's own resources. For information about the risks involved when investing in derivatives, see "More Information About Risk." U.S. GOVERNMENT SECURITIES ULTRA-SHORT BOND FUND 110 PROSPECTUS (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 2003 0.72% 2004 1.81% 2005 2.45%
BEST QUARTER WORST QUARTER 0.88% -0.13% (6/30/05) (6/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 1.92%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Citigroup 6 Month Treasury Bill Index, iMoneyNet Government Institutional Average, and Lipper Ultra-Short Obligations Funds Average. These returns assume shareholders redeem all of their shares at the end of the period indicated.
I SHARES 1 YEAR SINCE INCEPTION* U.S. Government Securities Ultra-Short Bond Fund 2.45% 2.09% Citigroup 6 Month Treasury Bill Index 3.03% 1.83% iMoneyNet, Inc. Government Institutional Average 2.79% 1.45% Lipper Ultra-Short Obligations Funds Average 2.54% 2.00%
* Since inception of the I Shares on April 11, 2002. Benchmark returns since March 31, 2002 (benchmark returns available only on a month end basis). (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX/AVERAGE? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Citigroup 6 Month Treasury Bill Index is a widely-recognized index of the 6 month U.S. Treasury Bills. An average is a composite of mutual funds with similar investment goals. The iMoneyNet, Inc. Government Institutional Average is a widely-recognized composite of money market funds that invest in U.S. Treasury bills, repurchase agreements, or securities issued by agencies of the U.S. Government. The Lipper Ultra-Short Obligations Funds Average consists of funds that invest at least 65% of their assets in investment grade debt issues, or better, and maintain a portfolio dollar-weighted average maturity between 91 days and 365 days. The number of funds in the Average varies. U.S. GOVERNMENT SECURITIES ULTRA-SHORT BOND FUND PROSPECTUS 111 (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.20% Other Expenses 0.14% ------------------------------- Total Annual Operating Expenses(2) 0.34%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) Effective August 1, 2006, the Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses to the level shown below. These waivers may be discontinued at any time.
I SHARES U.S. Government Securities Ultra-Short Bond Fund 0.28%
- ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $35 $109 $191 $431
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." PRIME QUALITY MONEY MARKET FUND 112 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL High current income, while preserving capital and liquidity INVESTMENT FOCUS Money market instruments PRINCIPAL INVESTMENT STRATEGY Attempts to identify money market instruments with the most attractive risk/return trade-off INVESTOR PROFILE Conservative investors who want to receive current income from their investment
(TELESCOPE ICON) INVESTMENT STRATEGY The Prime Quality Money Market Fund invests exclusively in high quality U.S. money market instruments and foreign money market instruments denominated in U.S. dollars. The Fund may invest a portion of its assets in securities that are restricted as to resale. In selecting investments for the Fund, the Adviser tries to increase income without adding undue risk. The Adviser analyzes maturity, yields, market sectors and credit risk. Investments are made in money market instruments with the most attractive risk/return trade-off. As a money market fund, the Fund follows strict rules about credit risk, maturity and diversification of its investments. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? An investment in the Fund is subject to income risk, which is the possibility that the Fund's yield will decline due to falling interest rates. A Fund share is not a bank deposit and is not insured or guaranteed by the FDIC or any government agency. In addition, although a money market fund seeks to keep a constant price per share of $1.00, you may lose money by investing in the Fund. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. Foreign securities involve special risks such as economic or financial instability, lack of timely or reliable financial information and unfavorable political or legal developments. Restricted securities may increase the level of illiquidity in the Fund during any period that qualified institutional buyers become uninterested in purchasing these restricted securities. The Adviser intends to invest only in restricted securities that it believes present minimal liquidity risk. (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1996 4.99% 1997 5.15% 1998 5.10% 1999 4.74% 2000 6.04% 2001 3.72% 2002 1.44% 2003 0.67% 2004 0.85% 2005 2.74%
BEST QUARTER WORST QUARTER 1.55% 0.12% (9/30/00) (3/31/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 2.10%. PRIME QUALITY MONEY MARKET FUND PROSPECTUS 113 - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the iMoneyNet, Inc. First Tier Retail Average. These returns assume shareholders redeem all of their shares at the end of the period indicated.
I SHARES 1 YEAR 5 YEARS 10 YEARS Prime Quality Money Market Fund 2.74% 1.88% 3.53% iMoneyNet, Inc. First Tier Retail Average 2.46% 1.65% 3.33%
To obtain information about the Fund's current yield, call 1-888-STI-FUND. (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN AVERAGE? ------------------------------------------------------------- An average is a composite of mutual funds with similar investment goals. The iMoneyNet, Inc. First Tier Retail Average is a widely-recognized composite of money market funds that invest in securities rated in the highest category by at least two recognized rating agencies. The number of funds in the Average varies. (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.50% Other Expenses 0.06% ----------------- Total Annual Operating Expenses(2) 0.56%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $57 $179 $313 $701
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." U.S. GOVERNMENT SECURITIES MONEY MARKET FUND 114 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL High current income, while preserving capital and liquidity INVESTMENT FOCUS U.S. Treasury and government agency securities, and repurchase agreements PRINCIPAL INVESTMENT STRATEGY Attempts to increase income without adding undue risk by analyzing yields INVESTOR PROFILE Conservative investors who want to receive current income
(TELESCOPE ICON) INVESTMENT STRATEGY The U.S. Government Securities Money Market Fund invests exclusively in U.S. Treasury obligations, obligations issued or guaranteed as to principal and interest by agencies or instrumentalities of the U.S. Government, repurchase agreements involving these securities, and shares of registered money market funds that invest in the foregoing. In selecting investments for the Fund, the Adviser tries to increase income without adding undue risk by analyzing yields. The Adviser actively manages the maturity of the Fund and its portfolio to maximize the Fund's yield based on current market interest rates and the Adviser's outlook on the market. As a money market fund, the Fund follows strict rules about credit risk, maturity and diversification of its investments. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? An investment in the Fund is subject to income risk, which is the possibility that the Fund's yield will decline due to falling interest rates. A Fund share is not a bank deposit and is not insured or guaranteed by the FDIC or any government agency. In addition, although a money market fund seeks to keep a constant price per share of $1.00, you may lose money by investing in the Fund. Although the Fund's U.S. government securities are considered to be among the safest investments, they are not guaranteed against price movements due to changing interest rates. (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1996 4.81% 1997 4.99% 1998 4.88% 1999 4.41% 2000 5.71% 2001 3.67% 2002 1.35% 2003 0.55% 2004 0.77% 2005 2.57%
BEST QUARTER WORST QUARTER 1.49% 0.10% (12/31/00) (3/31/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 1.99%. U.S. GOVERNMENT SECURITIES MONEY MARKET FUND PROSPECTUS 115 - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the iMoneyNet, Inc. Government & Agencies Retail Average. These returns assume shareholders redeem all of their shares at the end of the period indicated.
I SHARES 1 YEAR 5 YEARS 10 YEARS U.S. Government Securities Money Market Fund 2.57% 1.78% 3.36% iMoneyNet, Inc. Government & Agencies Retail Average 2.45% 1.64% 3.25%
To obtain information about the Fund's current yield, call 1-888-STI-FUND. (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN AVERAGE? ------------------------------------------------------------- An average is a composite of mutual funds with similar investment goals. The iMoneyNet, Inc. Government & Agencies Retail Average is a widely-recognized composite of all money market funds that invest in U.S. Treasury bills, repurchase agreements or securities issued by agencies of the U.S. Government. The number of funds in the Average varies. (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.55% Other Expenses 0.06% ----------------- Total Annual Operating Expenses(2) 0.61%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $62 $195 $340 $762
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." U.S. TREASURY MONEY MARKET FUND 116 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL High current income, while maintaining liquidity INVESTMENT FOCUS Money market instruments issued and guaranteed by the U.S. Treasury PRINCIPAL INVESTMENT STRATEGY Investing in U.S. Treasury obligations and repurchase agreements INVESTOR PROFILE Conservative investors who want to receive current income from their investment
(TELESCOPE ICON) INVESTMENT STRATEGY The U.S. Treasury Money Market Fund invests solely in U.S. Treasury obligations, repurchase agreements that are collateralized by obligations issued or guaranteed by the U.S. Treasury, and shares of registered money market funds that invest in the foregoing. The Fund limits its investments so as to obtain the highest investment quality rating by a nationally recognized statistical rating organization (AAAm by Standard and Poor's Corporation). As a money market fund, the Fund follows strict rules about credit risk, maturity and diversification of its investments. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? An investment in the Fund is subject to income risk, which is the possibility that the Fund's yield will decline due to falling interest rates. A Fund share is not a bank deposit and is not insured or guaranteed by the FDIC or any government agency. In addition, although a money market fund seeks to keep a constant price per share of $1.00, you may lose money by investing in the Fund. Although the Fund's U.S. Treasury securities are considered to be among the safest investments, they are not guaranteed against price movements due to changing interest rates. (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1996 4.77% 1997 4.93% 1998 4.82% 1999 4.38% 2000 5.63% 2001 3.32% 2002 1.17% 2003 0.50% 2004 0.69% 2005 2.48%
BEST QUARTER WORST QUARTER 1.46% 0.07% (12/31/00) (6/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 1.98%. U.S. TREASURY MONEY MARKET FUND PROSPECTUS 117 - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the iMoneyNet, Inc. Treasury & Repo Retail Average. These returns assume shareholders redeem all of their shares at the end of the period indicated.
I SHARES 1 YEAR 5 YEARS 10 YEARS U.S. Treasury Money Market Fund 2.48% 1.63% 3.25% iMoneyNet, Inc. Treasury & Repo Retail Average 2.39% 1.56% 3.21%
To obtain information about the Fund's current yield, call 1-888-STI-FUND. (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN AVERAGE? ------------------------------------------------------------- An average is a composite of mutual funds with similar investment goals. The iMoneyNet, Inc. Treasury & Repo Retail Average is a widely- recognized composite of money market funds that invest in U.S. Treasury bills and repurchase agreements backed by these securities. The number of funds in the Average varies. (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.54% Other Expenses 0.05% ----------------- Total Annual Operating Expenses(2) 0.59%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $60 $189 $329 $738
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." MORE INFORMATION ABOUT RISK 118 PROSPECTUS (LIFE PRESERVER ICON) MORE INFORMATION ABOUT RISK BELOW INVESTMENT GRADE RISK Balanced Fund Core Bond Fund High Income Fund Intermediate Bond Fund Investment Grade Bond Fund Life Vision Conservative Fund Life Vision Growth and Income Fund Life Vision Moderate Growth Fund Life Vision Target Date 2015 Fund Life Vision Target Date 2025 Fund Life Vision Target Date 2035 Fund Limited Duration Fund Seix High Yield Fund Short-Term Bond Fund Strategic Income Fund Total Return Bond Fund Ultra-Short Bond Fund High yield securities, which are also known as "junk bonds," involve greater risks of default or downgrade and are more volatile than investment grade securities. High yield securities involve greater risk of default or price declines than investment grade securities due to actual or perceived changes in an issuer's credit-worthiness. In addition, issuers of high yield securities may be more susceptible than other issuers to economic downturns. High yield securities are subject to the risk that the issuer may not be able to pay interest or dividends and ultimately to repay principal upon maturity. Discontinuation of these payments could substantially adversely affect the market value of the security. High yield securities may be less liquid than higher quality investments. A security whose credit rating has been lowered may be particularly difficult to sell. DERIVATIVES RISK Aggressive Growth Stock Fund Balanced Fund Capital Appreciation Fund Core Bond Fund Emerging Growth Stock Fund High Income Fund High Quality Bond Fund Intermediate Bond Fund International Equity Fund International Equity Index Fund Investment Grade Bond Fund Large Cap Quantitative Equity Fund Large Cap Relative Value Fund Large Cap Value Equity Fund Life Vision Aggressive Growth Fund Life Vision Conservative Fund Life Vision Growth and Income Fund Life Vision Moderate Growth Fund Life Vision Target Date 2015 Fund Life Vision Target Date 2025 Fund Life Vision Target Date 2035 Fund Limited Duration Fund Limited-Term Federal Mortgage Securities Fund Mid-Cap Equity Fund Mid-Cap Value Equity Fund Quality Growth Stock Fund Seix High Yield Fund Short-Term Bond Fund Short-Term U.S. Treasury Securities Fund Small Cap Growth Stock Fund Small Cap Value Equity Fund Strategic Income Fund Total Return Bond Fund Ultra-Short Bond Fund U.S. Government Securities Fund U.S. Government Securities Ultra-Short Bond Fund Derivatives may involve risks different from, and possibly greater than, those of traditional investments. A Fund may use derivatives (such as futures, options, and swaps) to attempt to achieve its investment objective and offset certain investment risks, while at the same time maintaining liquidity. These positions may be established for hedging or non-hedging purposes. Risks associated with the use of derivatives include those associated with hedging and leveraging activities: - - 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. - - A Fund experiencing losses over certain ranges in the market that exceed losses experienced by a fund that does not use derivatives. - - There may be an imperfect or no correlation between the changes in market value of the securities held by a Fund and the prices of derivatives. MORE INFORMATION ABOUT RISK PROSPECTUS 119 - - There may not be a liquid secondary market for derivatives. - - Trading restrictions or limitations may be imposed by an exchange. - - Government regulations may restrict trading in derivatives. - - The other party to an agreement (e.g., options or swaps) may default; however, in certain circumstances, such counter-party risk may be reduced by having an organization with very good credit act as intermediary. Because options premiums paid or received by a Fund are small in relation to the market value of the investments underlying the options, buying and selling put and call options can be more speculative than investing directly in securities. Credit default swaps can increase a Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. The use of derivatives may cause a Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. Total return swaps could result in losses if their reference index, security or investments do not perform as anticipated. EMERGING MARKETS RISK Balanced Fund Core Bond Fund High Income Fund Intermediate Bond Fund International Equity Fund International Equity Index Fund Investment Grade Bond Fund Life Vision Aggressive Growth Fund Life Vision Conservative Fund Life Vision Growth and Income Fund Life Vision Moderate Growth Fund Life Vision Target Date 2015 Fund Life Vision Target Date 2025 Fund Life Vision Target Date 2035 Fund Seix High Yield Fund Strategic Income Fund Total Return Bond Fund Ultra-Short Bond Fund Emerging market countries are countries that the World Bank or the United Nations considers to be emerging or developing. Most countries or regions are included in this category, except for Australia, Canada, Hong Kong, Japan, New Zealand, Singapore, the United Kingdom, the United States and most of the countries located in Western Europe. Emerging markets may be more likely to experience political turmoil or rapid changes in market or economic conditions than more developed countries. In addition, the financial stability of issuers (including governments) in emerging market countries may be more precarious than in other countries. As a result, there will tend to be an increased risk of price volatility associated with a Fund's investments in emerging market countries, which may be magnified by currency fluctuations relative to the U.S. dollar. Governments of some emerging market countries have defaulted on their bonds and may do so in the future. EQUITY RISK Aggressive Growth Stock Fund Balanced Fund Capital Appreciation Fund Emerging Growth Stock Fund International Equity Fund International Equity Index Fund Large Cap Quantitative Equity Fund Large Cap Relative Value Fund Large Cap Value Equity Fund Life Vision Aggressive Growth Fund Life Vision Conservative Fund Life Vision Growth and Income Fund Life Vision Moderate Growth Fund Life Vision Target Date 2015 Fund Life Vision Target Date 2025 Fund Life Vision Target Date 2035 Fund Mid-Cap Equity Fund Mid-Cap Value Equity Fund Quality Growth Stock Fund Small Cap Growth Stock Fund Small Cap Value Equity Fund Equity securities include public and privately issued equity securities, common and preferred stocks, warrants, rights to subscribe to common stock and convertible securities, as well as instruments that attempt to track the price movement of equity indices. Investments in equity securities and equity derivatives in general are subject to market risks that may cause their prices to fluctuate over time. The value of securities convertible into equity securities, such as warrants or MORE INFORMATION ABOUT RISK 120 PROSPECTUS convertible debt, is also affected by prevailing interest rates, the credit quality of the issuer and any call provision. Fluctuations in the value of equity securities in which a mutual fund invests will cause a fund's net asset value to fluctuate. An investment in a portfolio of equity securities may be more suitable for long-term investors who can bear the risk of these share price fluctuations. EXCHANGE TRADED FUND RISK Aggressive Growth Stock Fund Balanced Fund Capital Appreciation Fund Core Bond Fund Emerging Growth Stock Fund High Income Fund High Quality Bond Fund Intermediate Bond Fund International Equity Fund International Equity Index Fund Investment Grade Bond Fund Large Cap Quantitative Equity Fund Large Cap Relative Value Fund Large Cap Value Equity Fund Life Vision Aggressive Growth Fund Life Vision Conservative Fund Life Vision Growth and Income Fund Life Vision Moderate Growth Fund Life Vision Target Date 2015 Fund Life Vision Target Date 2025 Fund Life Vision Target Date 2035 Fund Limited Duration Fund Limited-Term Federal Mortgage Securities Fund Mid-Cap Equity Fund Mid-Cap Value Equity Fund Quality Growth Stock Fund Seix High Yield Fund Short-Term Bond Fund Short-Term U.S. Treasury Securities Fund Small Cap Growth Stock Fund Small Cap Value Equity Fund Strategic Income Fund Total Return Bond Fund Ultra-Short Bond Fund U.S. Government Securities Fund U.S. Government Securities Ultra-Short Bond Fund The Funds may purchase shares of exchange-traded funds ("ETFs") to temporarily gain exposure to a particular portion of the market while awaiting an opportunity to purchase securities directly. ETFs are investment companies that are bought and sold on a securities exchange. An ETF holds a portfolio of securities designed to track a particular market segment or index. ETFs, like mutual funds, have expenses associated with their operation, including advisory fees. When the Fund invests in an ETF, in addition to directly bearing expenses associated with its own operations, it will bear a pro rata portion of the ETF's expense. The risks of owning shares of an ETF generally reflect the risks of owning the underlying securities the ETF is designed to track, although lack of liquidity in an ETF could result in being more volatile than the underlying portfolio of securities. In addition, because of ETF expenses, compared to owning the underlying securities directly, it may be more costly to own an ETF. FIXED INCOME RISK Balanced Fund Core Bond Fund High Income Fund High Quality Bond Fund Intermediate Bond Fund Investment Grade Bond Fund Life Vision Conservative Fund Life Vision Growth and Income Fund Life Vision Moderate Growth Fund Life Vision Target Date 2015 Fund Life Vision Target Date 2025 Fund Life Vision Target Date 2035 Fund Limited Duration Fund Limited-Term Federal Mortgage Securities Fund Seix High Yield Fund Short-Term Bond Fund Short-Term U.S. Treasury Securities Fund Strategic Income Fund Total Return Bond Fund Ultra-Short Bond Fund U.S. Government Securities Fund U.S. Government Securities Ultra-Short Bond Fund The prices of a Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, a Fund's fixed income securities will decrease in value if interest rates rise and vice versa. MORE INFORMATION ABOUT RISK PROSPECTUS 121 Long-term debt securities generally are more sensitive to changes in interest rates, usually making them more volatile than short-term debt securities and thereby increasing risk. Debt securities are also subject to credit risk, which is the possibility than an issuer will fail to make timely payments of interest or principal, or go bankrupt. The lower the ratings of such debt securities, the greater their risks. In addition, lower rated securities have higher risk characteristics, and changes in economic conditions are likely to cause issuers of these securities to be unable to meet their obligations. Debt securities are also subject to income risk, which is the possibility that falling interest rates will cause a Fund's income to decline. Income risk is generally higher for short-term bonds. FLOATING RATE LOAN RISK Balanced Fund Core Bond Fund High Income Fund Intermediate Bond Fund Investment Grade Bond Fund Life Vision Conservative Fund Life Vision Growth and Income Fund Life Vision Moderate Growth Fund Life Vision Target Date Fund 2015 Life Vision Target Date Fund 2025 Life Vision Target Date Fund 2035 Seix High Yield Fund Strategic Income Fund Total Return Bond Fund As fixed income securities, investments in floating rate loans are subject to interest rate risk, but that risk is less because the interest rate of the loan adjusts periodically. As debt securities, investments in floating rate loans are subject to credit risk. Many floating rate loans are in unrated or lower credit rated securities. When a security is unrated, a Fund must rely more heavily on the analytical ability of the Adviser. Many floating rate loan investments share the same risks as high yield securities, although these risks are reduced when the floating rate loans are senior and secured as opposed to many high yield securities that are junior and unsecured. Floating rate securities are often subject to restrictions on resale which can result in reduced liquidity. A floating rate loan also may not be fully collateralized, although one lending institution will often be required to monitor collateral. Borrowers may repay principal faster than the scheduled due date which may result in a Fund replacing that loan with a lower-yielding security. Investment in loan participation interests may result in increased exposure to financial services sector risk. A loan may not be fully collateralized which may cause the loan to decline significantly in value, although one lending institution acting as agent for all of the lenders will generally be required to administer and manage the loan and, with respect to collateralized loans, to service or monitor the collateral. Certain portfolio managers and other personnel of the Adviser may also manage similar investment portfolios of floating rate loans for another non-investment adviser contracted affiliated business, Seix Structured Products, LLC ("SSP"). SSP is a subsidiary of SunTrust Bank and an affiliate of the Adviser, but not a client of the Adviser. In that role, this group purchases bank loans on behalf of SSP, for purposes of subsequent collateralized loan obligation ("CLO") transactions where the Adviser and its affiliate, SunTrust Capital Markets, Inc., will serve as collateral manager and as structuring agent/placement agent, respectively. The trustee and custodian of the CLO transactions are not affiliated entities of the Adviser or SunTrust Capital Markets. In addition, the Adviser serves as adviser to an account established with its affiliate, SunTrust Equity Funding, LLC for the purpose of purchasing high yield securities for subsequent sale to these same CLO transactions. Each of these transactions is subject to the approval of the independent trustee of the CLO transaction. In addition to disclosure to the trustee, all such transactions are fully disclosed to potential investors in the CLO's Offering and Disclosure documents. As a result of these multiple investment-oriented and associated relationships, there exists a potential risk that the portfolio managers may favor other adviser and non-adviser contracted businesses over a Fund, especially when allocating certain types of transactions. The Adviser has created and implemented additional policies and procedures designed to protect shareholders against such conflicts; however, there can be no absolute guarantee that a Fund will always participate in the same or similar investments or receive equal or better individual investment allocations at any given time. MORE INFORMATION ABOUT RISK 122 PROSPECTUS FOREIGN SECURITY RISKS Aggressive Growth Stock Fund Balanced Fund Core Bond Fund Emerging Growth Stock Fund High Income Fund High Quality Bond Fund Intermediate Bond Fund International Equity Fund International Equity Index Fund Investment Grade Bond Fund Large Cap Quantitative Equity Fund Large Cap Relative Value Fund Large Cap Value Equity Fund Life Vision Aggressive Growth Fund Life Vision Conservative Fund Life Vision Growth and Income Fund Life Vision Moderate Growth Fund Life Vision Target Date 2015 Fund Life Vision Target Date 2025 Fund Life Vision Target Date 2035 Fund Limited Duration Bond Mid-Cap Equity Fund Mid-Cap Value Equity Fund Prime Quality Money Market Fund Quality Growth Stock Fund Seix High Yield Fund Small Cap Growth Stock Fund Small Cap Value Equity Fund Strategic Income Fund Total Return Bond Fund Ultra-Short Bond Fund Investments in securities of foreign companies or governments can be more volatile than investments in U.S. companies or governments. Political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. Diplomatic, political, or economic developments, including nationalization or appropriation, could affect investments in foreign countries. Foreign securities markets generally have less trading volume and less liquidity than U.S. markets. The value of securities denominated in foreign currencies, and of dividends from such securities, can change significantly when foreign currencies strengthen or weaken relative to the U.S. dollar. As a result, changes in the value of those currencies compared to the U.S. dollar may affect (positively or negatively) the value of a Fund's investment. Certain foreign currencies may be particularly volatile, and foreign governments may intervene in the currency markets, causing a decline in value or liquidity in a Fund's foreign currency holdings. These currency movements may happen separately from and in response to events that do not otherwise affect the value of the security in the issuer's home country. Foreign companies or governments generally are not subject to uniform accounting, auditing, and financial reporting standards comparable to those applicable to domestic U.S. companies or governments. Transaction costs are generally higher than those in the U.S. and expenses for custodial arrangements of foreign securities may be somewhat greater than typical expenses for custodial arrangements of similar U.S. securities. Some foreign governments levy withholding taxes against dividend and interest income. Although in some countries a portion of these taxes are recoverable, the non-recovered portion will reduce the income received from the securities comprising the portfolio. portion of these taxes are recoverable, the non-recovered portion will reduce the income received from the securities comprising the portfolio. LARGE COMPANY RISK Aggressive Growth Stock Fund Balanced Fund Capital Appreciation Fund Emerging Growth Stock Fund International Equity Fund International Equity Index Fund Large Cap Quantitative Equity Fund Large Cap Relative Value Fund Large Cap Value Equity Fund Life Vision Aggressive Growth Fund Life Vision Conservative Fund Life Vision Growth and Income Fund Life Vision Moderate Growth Fund Life Vision Target Date 2015 Fund Life Vision Target Date 2025 Fund Life Vision Target Date 2035 Fund Mid-Cap Equity Fund Quality Growth Stock Fund Large cap stocks can perform differently from other segments of the equity market or the equity market as a whole. Companies with large capitalization tend to go MORE INFORMATION ABOUT RISK PROSPECTUS 123 in and out of favor based on market and economic conditions and, while they can be less volatile than companies with smaller market capitalizations, they may also be less flexible in evolving markets or unable to implement change as quickly as their smaller counterparts. Accordingly, the value of large cap stocks may not rise to the same extent as the value of small or mid-cap companies. MORTGAGE-BACKED SECURITY RISK Balanced Fund Core Bond Fund High Quality Bond Fund High Income Fund Intermediate Bond Fund Investment Grade Bond Fund Life Vision Conservative Fund Life Vision Growth and Income Fund Life Vision Moderate Growth Fund Life Vision Target Date 2015 Fund Life Vision Target Date 2025 Fund Life Vision Target Date 2035 Fund Limited-Term Federal Mortgage Securities Fund Seix High Yield Fund Short-Term Bond Fund Strategic Income Fund Total Return Bond Fund Ultra-Short Bond Fund U.S. Government Securities Fund U.S. Government Securities Ultra-Short Bond Fund Mortgage-backed securities are fixed income securities representing an interest in a pool of underlying mortgage loans. Mortgage-backed securities are sensitive to changes in interest rates, but may respond to these changes differently from other fixed income securities due to the likelihood that a change in the general level of interest rates will impact the magnitude and timing of any prepayments of the underlying mortgage loans. As a result, it may not be possible to accurately determine in advance the actual maturity date or average life of a mortgage-backed security. The uncertainty inherent in assessing prepayment risk makes it difficult to calculate the average maturity of a portfolio including mortgage-backed securities, and therefore, to assess the volatility risk of a Fund. SMALLER COMPANY RISK Aggressive Growth Stock Fund Balanced Fund Capital Appreciation Fund Emerging Growth Stock Fund International Equity Fund International Equity Index Fund Large Cap Quantitative Equity Fund Large Cap Relative Value Fund Large Cap Value Equity Fund Life Vision Aggressive Growth Fund Life Vision Conservative Fund Life Vision Growth and Income Fund Life Vision Moderate Growth Fund Life Vision Target Date 2015 Fund Life Vision Target Date 2025 Fund Life Vision Target Date 2035 Fund Mid-Cap Equity Fund Mid-Cap Value Equity Fund Quality Growth Stock Fund Small Cap Growth Stock Fund Small Cap Value Equity Fund Small and mid-capitalization stocks can perform differently from other segments of the equity market or the equity market as a whole. The small and mid- capitalization companies the Fund invests in may be more vulnerable to adverse business or economic events than larger, more established companies. In particular, these companies may have limited product lines, markets and financial resources, and may depend upon a relatively small management group. Therefore, small and mid-cap stocks can be more volatile than those of larger companies. These securities may be traded over-the-counter or listed on an exchange. TRACKING ERROR RISK International Equity Index Fund Life Vision Aggressive Growth Fund Life Vision Conservative Fund Life Vision Growth and Income Fund Life Vision Moderate Growth Fund Life Vision Target Date 2015 Fund Life Vision Target Date 2025 Fund Life Vision Target Date 2035 Fund Factors such as Fund expenses, imperfect correlation between the Fund's investments and those of its benchmarks, rounding of share prices, changes to the MORE INFORMATION ABOUT FUND INVESTMENTS 124 PROSPECTUS benchmark, regulatory policies, and leverage, may affect the Fund's ability to achieve perfect correlation. The magnitude of any tracking error may be affected by a higher portfolio turnover rate. Because an index is just a composite of the prices of the securities it represents rather than an actual portfolio of those securities, an index will have no expenses. As a result, the Fund, which will have expenses such as taxes, custody, management fees and other operational costs, and brokerage, may not achieve its investment objective of accurately correlating to an index. (MOUNTAIN ICON) MORE INFORMATION ABOUT FUND INVESTMENTS This prospectus describes the Funds' primary strategies, and the Funds will normally invest in the types of securities described in this prospectus. However, in addition to the investments and strategies described in this prospectus, each Fund also may invest in other securities, use other strategies and engage in other investment practices. These investments and strategies, as well as those described in this prospectus, are described in detail in the Statement of Additional Information. The investments and strategies described in this prospectus are those that the Funds use under normal conditions. During unusual economic or market conditions, or for temporary defensive or liquidity purposes, each Fund (except the Money Market Funds) may invest up to 100% of its assets in cash, money market instruments, repurchase agreements and short-term obligations. The Small Cap Value Equity Fund also may invest in investment grade fixed income securities and mid- to large cap common stocks that would not ordinarily be consistent with the Fund's objective. In addition, each Bond Fund may shorten its average weighted maturity to as little as 90 days. A Fund will do so only if the Adviser believes that the risk of loss outweighs the opportunity for capital gains or higher income. Of course, a Fund cannot guarantee that it will achieve its investment goal. (RIBBON ICON) THIRD-PARTY RATINGS The U.S. Government Securities Money Market Fund and the U.S. Treasury Money Market Fund have been rated AAAm by Standard & Poor's Rating Services and Aaa by Moody's Investor Services, Inc. The National Association of Insurance Commissioners has approved the U.S. Government Securities Money Market Fund and the U.S. Treasury Money Market Fund as eligible investments for insurance companies. INFORMATION ABOUT PORTFOLIO HOLDINGS A description of the Funds' policies and procedures with respect to the circumstances under which the Funds disclose their portfolio securities is available in the Statement of Additional Information. (MAGNIFYING GLASS ICON) INVESTMENT ADVISER Trusco Capital Management, Inc., 50 Hurt Plaza, Suite 1400, Atlanta, Georgia 30303, ("Trusco" or the "Adviser") serves as the investment adviser to the Funds. Seix Advisors, a fixed income division of Trusco Capital Management, Inc., manages the following STI Classic Funds: Core Bond Fund, High Income Fund, High Quality Bond Fund, Intermediate Bond Fund, Investment Grade Bond Fund, Limited Duration Fund, Limited-Term Federal Mortgage Securities Fund, Seix High Yield Fund, Strategic Income Fund, Total Return Bond Fund and U.S. Government Securities Fund, and is located at 10 Mountainview Road, Suite C-200, Upper Saddle River, NJ 07458. As of June 30, 2006, the Adviser had approximately $71 billion in assets under management. For the fiscal year ended March 31, 2006, the following Funds paid the Adviser advisory fees (after waivers) based on the respective Fund's average daily net assets of: Aggressive Growth Stock Fund 1.09% Balanced Fund 0.88% Capital Appreciation Fund 1.00% Core Bond Fund 0.25% Emerging Growth Stock Fund 1.10% High Income Fund 0.59% High Quality Bond Fund 0.41% Intermediate Bond Fund 0.25% International Equity Fund 1.16% International Equity Index Fund 0.59% Investment Grade Bond Fund 0.58% Large Cap Quantitative Equity Fund 0.88% Large Cap Relative Value Fund 0.84% Large Cap Value Equity Fund 0.79%
INVESTMENT ADVISER PROSPECTUS 125 Life Vision Aggressive Growth Fund 0.11% Life Vision Conservative Fund 0.00% Life Vision Growth and Income Fund 0.11% Life Vision Moderate Growth Fund 0.11% Limited Duration Fund 0.10% Limited-Term Federal Mortgage Securities Fund 0.54% Mid-Cap Equity Fund 1.04% Mid-Cap Value Equity Fund 1.06% Prime Quality Money Market Fund 0.52% Quality Growth Stock Fund 0.97% Seix High Yield Fund 0.45% Short-Term Bond Fund 0.47% Short-Term U.S. Treasury Securities Fund 0.45% Small Cap Growth Stock Fund 1.11% Small Cap Value Equity Fund 1.14% Strategic Income Fund 0.65% Total Return Bond Fund 0.38% Ultra-Short Bond Fund 0.22% U.S. Government Securities Fund 0.58% U.S. Government Securities Money Market Fund 0.55% U.S. Government Securities Ultra-Short Bond Fund 0.15% U.S. Treasury Money Market Fund 0.56%
For its advisory services to each of the Life Vision Target Date 2015 Fund, the Life Vision Target Date 2025 Fund and the Life Vision Target Date 2035 Fund, the Adviser is entitled to receive an annual advisory fee of 0.10% based on each Fund's average daily net assets. The Adviser has contractually agreed to waive fees and reimburse expenses with respect to each Life Vision Fund until at least August 1, 2007 in order to keep total annual operating expenses of each Fund from exceeding the applicable expense cap. If at any point before August 1, 2009, total annual operating expenses are less than the expense cap, the Adviser may retain the difference to recapture any of the prior waivers or reimbursements. Since August 1, 2005 the following breakpoints have been used in computing the advisory fee: EQUITY FUNDS AND BOND FUNDS
AVERAGE DAILY NET ASSETS DISCOUNT FROM FULL FEE - ------------------------ ---------------------- First $500 million None - Full Fee Next $500 million 5% Over $1 billion 10%
MONEY MARKET FUNDS
AVERAGE DAILY NET ASSETS DISCOUNT FROM FULL FEE - ------------------------ ---------------------- First $1 billion None - Full Fee Next $1.5 billion 5% Next $2.5 billion 10% Over $5 billion 20%
Based on average daily net assets for the fiscal year ended March 31, 2006, the asset levels of the following Funds had reached a breakpoint in the advisory fee.* Had the Funds' asset levels been lower, the Adviser may have been entitled to receive maximum advisory fees as follows: Capital Appreciation Fund 0.97% International Equity Fund 1.15% Large Cap Relative Value Fund 0.85% Large Cap Value Equity Fund 0.80% Prime Quality Money Market Fund 0.55% Seix High Yield Fund 0.45% Small Cap Growth Stock Fund 1.15% Small Cap Value Equity Fund 1.15% U.S. Treasury Money Market Fund 0.55%
* Fund expenses in the "Annual Fund Operating Expenses" tables shown earlier in this prospectus reflect the advisory breakpoints. A discussion regarding the basis for the Board of Trustees' approval of the investment advisory contract with the Adviser appears in the Funds' semi-annual report to shareholders for the period ended September 30, 2005. The Adviser is responsible for making investment decisions for the Funds and continuously reviews, supervises and administers each Fund's respective investment program. With respect to the Aggressive Growth Stock Fund and the Emerging Growth Stock Fund, the Adviser oversees the Subadviser to ensure compliance with each Fund's investment policies and guidelines and monitors the Subadviser's adherence to its investment style. The Adviser pays the Subadviser out of the fees it receives from the Aggressive Growth Stock Fund and Emerging Growth Stock Fund. The Board of Trustees supervises the Adviser and Subadviser and establishes policies that the Adviser and Subadviser must follow in its management activities. The Adviser may use its affiliates as brokers for Fund transactions. An investment adviser has a fiduciary obligation to its clients when the adviser has authority to vote their proxies. Under the current contractual agreement, the PORTFOLIO MANAGERS 126 PROSPECTUS Adviser is authorized to vote proxies on behalf of each Fund. Information regarding the Adviser's, and thus each Fund's, Proxy Voting Policies and Procedures is provided in the Statement of Additional Information. A copy of the Adviser's Proxy Voting Policies and Procedures may be obtained by contacting the STI Classic Funds at 1-888-STI-FUND, or by visiting www.sticlassicfunds.com. INVESTMENT SUBADVISER Zevenbergen Capital Investments LLC, 601 Union Street, Seattle, Washington 98101, serves as the Subadviser to the Aggressive Growth Stock Fund and Emerging Growth Stock Fund and manages the portfolios of the Aggressive Growth Stock Fund and Emerging Growth Stock Fund on a day-to-day basis. The Subadviser was founded in 1987 and manages domestic growth equity assets. The firm's client base is comprised of a blend of institutional tax-exempt and taxable separately managed accounts. As a domestic growth equity manager, the Subadviser manages assets for a variety of entities, including public funds, foundations, endowments, corporations, pooled accounts, and private individuals. As of June 30, 2006, the Subadviser had approximately $1.2 billion in assets under management. The Subadviser selects, buys, and sells securities for the Aggressive Growth Stock Fund and Emerging Growth Stock Fund under the supervision of the Adviser and the Board of Trustees. The Subadviser is entitled to receive from the Adviser 0.625% of each of the Aggressive Growth Stock Fund's and Emerging Growth Stock Fund's daily net assets. PORTFOLIO MANAGERS The following individuals are primarily responsible for the day-to-day management of the Funds. Mr. Andrew Atkins has served as Equity Portfolio Analyst at Trusco since August 2000. He has co-managed the INTERNATIONAL EQUITY INDEX FUND since March 31, 2005. He has more than 6 years of investment experience. Mr. Brett Barner, CFA, has served as Managing Director of Trusco since July 2000. He has managed the SMALL CAP VALUE EQUITY FUND since its inception. He has more than 21 years of investment experience. Mr. Edward E. Best, CFA, has served as Managing Director of Trusco since June 2000. Mr. Best also serves as the senior quantitative equity analyst for Trusco. He has managed the LARGE CAP QUANTITATIVE EQUITY FUND since its inception. He has more than 13 years of investment experience. Mr. Joseph Calabrese, CFA, has served as Managing Director since joining Trusco in May 2004. He has co-managed the LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND and the U.S. GOVERNMENT SECURITIES FUND since July 2004. He has also co-managed the LIMITED DURATION FUND since its inception, after serving as Portfolio Manager for the Fund's predecessor fund, the Seix Limited Duration Fund. Prior to joining Trusco, Mr. Calabrese served as Senior Portfolio Manager of Seix Investment Advisors, Inc. from May 1997 to May 2004. He has more than 19 years of investment experience. Mr. Robert W. Corner has served as Managing Director of Trusco since September 1996. He has co-managed the ULTRA-SHORT BOND FUND since July 2004, after managing the fund since its inception. Mr. Corner has also co-managed the SHORT-TERM BOND FUND since January 2003 and the U.S. GOVERNMENT SECURITIES ULTRA-SHORT BOND FUND since July 2004, after managing it since it began operating in April 2002. He has more than 19 years of investment experience. Mr. Chad Deakins, CFA, has served as Managing Director of Trusco since May 2000. He has co-managed the INTERNATIONAL EQUITY INDEX FUND since March 2005, after managing the Fund since February 1999. He has managed the INTERNATIONAL EQUITY FUND since May 2000. In addition, he has co-managed the MID-CAP EQUITY FUND since February 2006, after managing the Fund from September 2004 to January 2006 and co-managing the Fund from February 2003 to September 2004. He has more than 12 years of investment experience. Ms. Brooke de Boutray, CFA, has served as Managing Director, Principal, Portfolio Manager and Analyst for the Subadviser since 1992. She has co-managed the AGGRESSIVE GROWTH STOCK FUND and the EMERGING GROWTH STOCK FUND since their inception. She has more than 23 years of investment experience. Mr. James P. Foster has served as Managing Director of Trusco since May 2004 and has been with Trusco since 1988. He has co-managed the SMALL CAP GROWTH PORTFOLIO MANAGERS PROSPECTUS 127 STOCK FUND since June 2006. He has more than 37 years of investment experience. Mr. Alan Gayle has served as Managing Director of Trusco since July 2000 and Director of Asset Allocation since March 2006. He serves as lead manager of the LIFE VISION AGGRESSIVE GROWTH FUND, LIFE VISION CONSERVATIVE FUND, LIFE VISION GROWTH AND INCOME FUND, LIFE VISION MODERATE GROWTH FUND, LIFE VISION 2015 TARGET DATE FUND, LIFE VISION 2025 TARGET DATE FUND and the LIFE VISION 2035 TARGET DATE FUND since each Fund's inception. He has more than 29 years of investment experience. Mr. George Goudelias has served as Managing Director since joining Trusco in May 2004. He has co-managed the HIGH INCOME FUND since July 2004. He has also co-managed the SEIX HIGH YIELD FUND since its inception. Prior to joining Trusco, Mr. Goudelias served as Director of High Yield Research of Seix Investment Advisors, Inc. from February 2001 to May 2004. He has more than 20 years of investment experience. Mr. Greg Hallman has served as Vice President of Trusco since February 2006 after serving as Associate since November 1999. He has co-managed the PRIME QUALITY MONEY MARKET FUND and the U.S. TREASURY MONEY MARKET FUND since November 2004 and the U.S. GOVERNMENT SECURITIES MONEY MARKET FUND since August 2006. He has more than 7 years of investment experience. Ms. Kimberly C. Maichle, CFA, has served as Director of Trusco since February 2006 after serving as Vice President since July 1995. She has co-managed the PRIME QUALITY MONEY MARKET FUND and the U.S. TREASURY MONEY MARKET FUND since November 2004 and the U.S. GOVERNMENT SECURITIES MONEY MARKET FUND since August 2006. She has more than 16 years of investment experience. Mr. Jeffrey E. Markunas, CFA, has served as Managing Director of Trusco since July 2000. Mr. Markunas has managed the LARGE CAP RELATIVE VALUE FUND since its inception. He has more than 22 years of investment experience. Mr. Michael McEachern, CFA, has served as Managing Director since joining Trusco in May 2004. He has co-managed the HIGH INCOME FUND and the STRATEGIC INCOME FUND since July 2004. He has also co-managed the SEIX HIGH YIELD FUND since its inception, after serving as the portfolio manager for that Fund's predecessor. Prior to joining Trusco, Mr. McEachern served as Senior Portfolio Manager of Seix Investment Advisors, Inc. from June 1997 to May 2004. He has more than 21 years of investment experience. Mr. H. Rick Nelson has served as Managing Director of Trusco since March 2002. He has co-managed the SHORT-TERM U.S. TREASURY SECURITIES FUND since January 2005, the SHORT-TERM BOND FUND since January 2003, the ULTRA-SHORT BOND FUND since July 2004 and the U.S. GOVERNMENT SECURITIES ULTRA-SHORT BOND FUND since July 2004. Prior to joining Trusco, Mr. Nelson served as Senior Vice President at Wachovia Asset Management from June 1985 to March 2002. He has more than 24 years of investment experience. Mr. Brian Nold has served as a Senior High Yield Analyst since joining Trusco in May 2004. He has co-managed the HIGH INCOME FUND since August 2006. Prior to joining Trusco, Mr. Nold served as a Senior High Yield Analyst at Seix Investment Advisors, Inc. from March 2003 to May 2004. He has more than 6 years of investment experience. Ms. Elizabeth G. Pola, CFA, joined Trusco in 1983 and has served as Executive Vice President and Director of Equity Research of Trusco since 2000. She has co- managed the CAPITAL APPRECIATION FUND and the BALANCED FUND equity portion only since December 2005. She has more than 24 years of investment experience. Mr. Robert J. Rhodes, CFA, joined Trusco in 1973. Mr. Rhodes has served as Executive Vice President and head of the equity funds group at Trusco since February 2000. He managed the BALANCED FUND (equity portion only) and the CAPITAL APPRECIATION FUND from June 2000 to December 2005 and has co-managed those Funds since December 2005. He has more than 33 years of investment experience. Mr. Mills Riddick, CFA, has served as Managing Director of Trusco since July 2000. He has managed the LARGE CAP VALUE EQUITY FUND since April 1995. He has more than 24 years of investment experience. Mr. E. Dean Speer, CFA, CPA, has served as Director of Trusco since February 2006 after serving as Vice President since June 2001. He has co-managed the PRIME QUALITY MONEY MARKET FUND and the U.S. PORTFOLIO MANAGERS 128 PROSPECTUS TREASURY MONEY MARKET FUND since January 2005 and the U.S. GOVERNMENT SECURITIES MONEY MARKET FUND since August 2006. He has more than 8 years of investment experience. Mr. Chad Stephens has served as Vice President of Trusco since December 2000 and has co-managed the SHORT-TERM U.S. TREASURY SECURITIES FUND since January 2005, the ULTRA-SHORT BOND FUND since August 2006 and the U.S. GOVERNMENT SECURITIES ULTRA-SHORT BOND FUND since August 2006. He has more than 15 years of investment experience. Mr. John Talty, CFA, has served as Executive Vice President since joining Trusco in May 2004. He has co-managed the BALANCED FUND (fixed income portion only), TOTAL RETURN BOND FUND, INVESTMENT GRADE BOND FUND, LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND, and U.S. GOVERNMENT SECURITIES FUND since July 2004. He has also co-managed the CORE BOND FUND, the INTERMEDIATE BOND FUND and the LIMITED DURATION FUND since inception, after serving as Portfolio Manager for each Fund's predecessor Fund, the Seix Core Bond Fund, Seix Intermediate Bond Fund and Seix Limited Duration Fund, respectively. Prior to joining Trusco, Mr. Talty served as President and Senior Portfolio Manager of Seix Investment Advisors, Inc. from January 1993 to May 2004. He has more than 25 years of investment experience. Mr. Parker W. Thomas, Jr. has served as Vice President since joining Trusco in April 2004. He has managed the QUALITY GROWTH STOCK FUND since April 2004. Prior to joining Trusco, Mr. Thomas served as Senior Vice President, SunTrust Bank, Nashville from January 1988 to September 2002. From September 2002 to March 2004 he served as Managing Director and Portfolio Manager of Personal Asset Management, for SunTrust Banks Inc. He has more than 33 years of investment experience. Mr. Perry Troisi has served as Managing Director since joining Trusco in May 2004. He has co-managed the BALANCED FUND (fixed income portion only), HIGH QUALITY BOND FUND, TOTAL RETURN BOND FUND, and the INVESTMENT GRADE BOND FUND since July 2004. He has also co-managed the CORE BOND FUND and the INTERMEDIATE BOND FUND since their inception, after serving as a portfolio manager for each Fund's predecessor Fund, the Seix Core Bond Fund and Seix Intermediate Bond Fund, respectively. Prior to joining Trusco, Mr. Troisi served as Senior Portfolio Manager of Seix Investment Advisors, Inc. from November 1999 to May 2004. He has more than 20 years of investment experience. Ms. Leslie Tubbs, CFA, has served as Managing Director, Principal, Portfolio Manager and Analyst for the Subadviser since 1995. She has co-managed the AGGRESSIVE GROWTH STOCK FUND and the EMERGING GROWTH STOCK FUND since their inception. She has more than 11 years of investment experience. Mr. Stuart F. Van Arsdale, CFA, has served as Managing Director of Trusco since May 2002. He has co-managed the SMALL CAP GROWTH STOCK FUND since June 2006. Prior to joining Trusco, Mr. Van Arsdale served as Director of Growth Investments for Deprince, Race & Zollo, Inc. from October 1998 to April 2002. He has more than 26 years of investment experience. Mr. Adrien Webb, CFA, has served as Managing Director since joining Trusco in May 2004. He has co-managed the HIGH QUALITY BOND FUND and the STRATEGIC INCOME FUND since October 2004. Prior to joining Trusco, Mr. Webb served as Senior Portfolio Manager of Seix Investment Advisors, Inc. from May 2000 to May 2004. He has more than 11 years of investment experience. Mr. Don Wordell, CFA, has served as Director of Trusco since December 2005. He has managed the MID-CAP VALUE EQUITY FUND since December 2003, after co-managing it since its inception. He has more than 10 years of investment experience. Mr. Scott Yuschak, CFA, has served as Vice President and Research Analyst at Trusco since February 2005. He has co-managed the MID-CAP EQUITY FUND since February 2006. Prior to joining Trusco, Mr. Yuschak served as Sector Manager and Equity Analyst at Banc One from July 2000 to February 2005. He has more than 9 years of investment experience. Ms. Nancy Zevenbergen, CFA, has served as President and Chief Investment Officer for the Subadviser since January 1987. She has co-managed the AGGRESSIVE GROWTH STOCK FUND and EMERGING GROWTH STOCK FUND since their inception. She has more than 24 years of investment experience. The Statement of Additional Information provides additional information regarding the portfolio managers' PURCHASING AND SELLING FUND SHARES PROSPECTUS 129 compensation, other accounts managed by the portfolio managers, potential conflicts of interest and the portfolio managers' ownership of securities in the Funds. (HAND SHAKE ICON) PURCHASING AND SELLING FUND SHARES This section tells you how to purchase and sell (sometimes called "redeem") I Shares of the Funds. Participants in retirement plans must contact their employee benefits office or their plan's administrator for information regarding the purchase, redemption or exchange of shares. Plans may require separate documentation and the plan's policies and procedures may be different than those described in this prospectus. Participants should contact their employee benefits office or plan administrator for questions about their specific accounts. HOW TO PURCHASE FUND SHARES The Funds offer I Shares exclusively to financial institutions and intermediaries for their own accounts or for the accounts of customers for which they act as fiduciary agent, investment adviser, or custodian and which consist of: - - assets of a bona fide trust, or - - assets of a business entity possessing a tax identification number. As a result, you, as a customer of a financial institution or intermediary may purchase I Shares through accounts made with financial institutions or intermediaries. I Shares will be held of record by (in the name of) your financial institution or intermediary. Depending upon the terms of your account, however, you may have, or be given, the right to vote your I Shares. Shares of the SMALL CAP VALUE EQUITY FUND are no longer available for purchase by new investors. Please refer to the Statement of Additional Information for the definition of "new investor." WHEN CAN YOU PURCHASE SHARES? You may purchase shares on any day that the New York Stock Exchange ("NYSE") is open for business (a "Business Day"). But you may not do so for shares of the Money Market Funds on days when the Federal Reserve is closed. The price per share (the offering price) will be the net asset value per share ("NAV") next determined after the Funds receive your purchase order in proper form. Each Fund calculates its NAV once each Business Day at the regularly-scheduled close of normal trading on the NYSE (normally 4:00 p.m., Eastern Time). So, for you to receive the current Business Day's NAV for each Fund (except the Money Market Funds), a Fund or its authorized agent must receive your purchase order in proper form before 4:00 p.m., Eastern Time. If the NYSE closes early - such as on days in advance of certain holidays - the Funds will calculate NAV as of the earlier closing time. The Funds will not accept orders that request a particular day or price for the transaction or any other special conditions. Each Money Market Fund calculates its NAV once each Business Day at the regularly-scheduled close of normal trading on the NYSE (normally 4:00 p.m., Eastern Time). So, for you to be eligible to receive dividends declared on the day you submit your purchase order, a Money Market Fund or its authorized agent must receive your order in proper form before 3:00 p.m., Eastern Time and receive federal funds (readily available funds) before 6:00 p.m., Eastern Time. Otherwise, your purchase order will be effective the following Business Day, as long as each Money Market Fund receives federal funds before calculating its NAV the following day. YOU MAY HAVE TO TRANSMIT YOUR PURCHASE AND SALE REQUESTS TO YOUR FINANCIAL INSTITUTIONS OR INTERMEDIARY AT AN EARLIER TIME FOR YOUR TRANSACTION TO BECOME EFFECTIVE THAT DAY. THIS ALLOWS THE FINANCIAL INSTITUTION OR INTERMEDIARY TIME TO PROCESS YOUR REQUEST AND TRANSMIT IT TO THE TRANSFER AGENT IN TIME TO MEET THE ABOVE STATED FUND CUT-OFF TIMES. FOR MORE INFORMATION ABOUT HOW TO PURCHASE OR SELL FUND SHARES, INCLUDING A SPECIFIC FINANCIAL INSTITUTION'S OR INTERMEDIARY'S INTERNAL ORDER ENTRY CUT-OFF TIME, PLEASE CONTACT YOUR FINANCIAL INSTITUTION OR INTERMEDIARY DIRECTLY. A Fund may reject any purchase order. HOW THE FUNDS CALCULATE NAV NAV is calculated by adding the total value of a Fund's investments and other assets, subtracting its liabilities, PURCHASING AND SELLING FUND SHARES 130 PROSPECTUS and then dividing that figure by the number of outstanding shares of the Fund. In calculating NAV, each Fund (except the Money Market Funds) generally values its investment portfolio at market price. In calculating NAV for each Money Market Fund, each Fund generally values its investment portfolio using the amortized cost valuation method, which is described in detail in the Statement of Additional Information. If market prices are not readily available or the Fund reasonably believes that market prices or amortized cost valuation method are unreliable, such as in the case of a security value that has been materially affected by events occurring after the relevant market closes, a Fund is required to price those securities at fair value as determined in good faith using methods approved by the Board of Trustees. A Fund's determination of a security's fair value price often involves the consideration of a number of subjective factors, and is therefore subject to the unavoidable risk that the value that a Fund assigns to a security may be higher or lower than the security's value would be if a reliable market quotation for the security was readily available. Although the Equity Funds, except the International Equity Fund and International Equity Index Fund invest primarily in the stocks of U.S. companies that are traded on U.S. exchanges, there may be limited circumstances in which a Fund would price securities at fair value - for example, if the exchange on which a portfolio security is principally traded closed early or if a trading in a particular security was halted during the day and did not resume prior to the time a Fund calculated its NAV. When valuing fixed income securities with remaining maturities of more than 60 days, the Funds use the value of the security provided by pricing services. The values provided by a pricing service may be based upon market quotations for the same security, securities expected to trade in a similar manner, or a pricing matrix. When valuing fixed income securities with remaining maturities of 60 days or less, the Funds use the security's amortized cost. Amortized cost and the use of a pricing matrix in valuing fixed income securities are forms of fair value pricing. With respect to non-U.S. securities held by a Fund, the Fund may take factors influencing specific markets or issues into consideration in determining the fair value of a non-U.S. security. International securities markets may be open on days when the U.S. markets are closed. In such cases, the value of any international securities owned by a Fund may be significantly affected on days when investors cannot buy or sell shares. In addition, due to the difference in times between the close of the international markets and the time a Fund prices its shares, the value the Fund assigns to securities generally will not be the same as the primary markets or exchanges. In determining fair value prices, a Fund may consider the performance of securities on their primary exchanges, foreign currency appreciation/depreciation, securities market movements in the U.S., or other relevant information as related to the securities. IN-KIND PURCHASES Payment for shares of a Fund may, in the discretion of the Adviser, be made in the form of securities that are permissible investments for such Fund. In connection with an in-kind securities payment, a Fund will require, among other things, that the securities (a) meet the investment objectives and policies of the Fund; (b) are acquired for investment and not for resale; (c) are liquid securities that are not restricted as to transfer either by law or liquidity of markets; (d) have a value that is readily ascertainable (e.g., by a listing on a nationally recognized securities exchange); and (e) are valued on the day of purchase in accordance with the pricing methods used by the Fund. For further information about this form of payment, please call 1-888-STI-FUND. CUSTOMER IDENTIFICATION FOREIGN INVESTORS The Funds do not generally accept investments in I Shares by non-U.S. citizens or entities. CUSTOMER IDENTIFICATION AND VERIFICATION To help the government fight the funding of terrorism and money laundering activities, federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account. When you open an account, you will be asked to provide your name, residential street address, date of birth, Social Security number or tax identification number. You may also be asked for other information that will allow us to identify you. Entities are also PURCHASING AND SELLING FUND SHARES PROSPECTUS 131 required to provide additional documentation. This information will be verified to ensure the identity of all persons opening a mutual fund account. In certain instances, the Funds are required to collect documents to fulfill their legal obligation. Documents provided in connection with your application will be used solely to establish and verify a customer's identity. The Funds are required by law to reject your new account application if the required identifying information is not provided. Attempts to collect the missing information required on the application will be performed by either contacting you or, if applicable, your broker. If this information is unable to be obtained within a timeframe established in the sole discretion of the Funds your application will be rejected. Upon receipt of your application in proper form (or upon receipt of all identifying information required on the application), your investment will be accepted and your order will be processed at the NAV next-determined. However, the Funds reserve the right to close your account at the then-current day's price if the Funds are unable to verify your identity. Attempts to verify your identity will be performed within a timeframe established in the sole discretion of the Funds. If the Funds are unable to verify your identity, the Funds reserve the right to liquidate your account at the then-current day's price and remit proceeds to you via check. The Funds reserve the further right to hold your proceeds until your original check clears the bank. In such an instance, you may be subject to a gain or loss on Fund shares and will be subject to corresponding tax implications. ANTI-MONEY LAUNDERING PROGRAM Customer identification and verification is part of the Funds' overall obligation to deter money laundering under federal law. The Funds have adopted an anti-money laundering compliance program designed to prevent the Funds from being used for money laundering or the financing of terrorist activities. In this regard, the Funds reserve the right to (i) refuse, cancel or rescind any purchase or exchange order, (ii) freeze any account and/or suspend account services, or (iii) involuntarily redeem your account in cases of threatening conduct or suspected fraudulent or illegal activity. These actions will be taken when, in the sole discretion of Fund management, they are deemed to be in the best interest of the Funds or in cases when the Funds are requested or compelled to do so by governmental or law enforcement authority. HOW TO SELL YOUR FUND SHARES You may sell your shares on any Business Day by contacting your financial institution or intermediary. Your financial institution or intermediary will give you information about how to sell your shares including any specific cut-off times required. Holders of I Shares may sell shares by following the procedures established when they opened their account or accounts with the Funds or with their financial institution or intermediary. The sale price of each share will be the NAV next determined after the Funds receive your request, in proper form. Redemption orders must be received by the Money Market Funds on any Business Day before 3:00 p.m., Eastern Time. Orders received after this time will be executed the following Business Day. A MEDALLION SIGNATURE GUARANTEE] by a bank or other financial institution (a notarized signature is not sufficient) is required to redeem shares: - - made payable to someone other than the registered shareholder; - - sent to an address or bank account other than the address or bank account of record; or - - sent to an address or bank account of record that has been changed within the last 15 calendar days. Other documentation may be required depending on the registration of the account. MARKET TIMING POLICIES AND PROCEDURES 132 PROSPECTUS ] MEDALLION SIGNATURE GUARANTEE: A Medallion Signature Guarantee verifies the authenticity of your signature and helps ensure that changes to your account are in fact authorized by you. A Medallion Signature Guarantee may be obtained from a domestic bank or trust company, broker, dealer, clearing agency, savings association or other financial institution participating in a Medallion Program recognized by the Securities Trading Association. Signature guarantees from financial institutions that do not reflect one of the following are not part of the program and will not be accepted. The acceptable Medallion programs are Securities Transfer Agents Medallion Program, (STAMP), Stock Exchange Medallion Program, (SEMP), or the New York Stock Exchange, Inc. Medallion Program, (NYSE MSP). Contact your local financial adviser for further assistance. RECEIVING YOUR MONEY Normally, the Funds will send your sale proceeds within five Business Days after the Fund receive your request, but a Fund may take up to seven days to pay the sale proceeds if making immediate payment would adversely affect the Fund (for example, to allow the Fund to raise capital in the case of a large redemption). Your proceeds can be wired to your bank account (subject to a fee) or sent to you by check. If you recently purchased your shares by check through ACH, redemption proceeds may not be available until your funds have cleared (which may take up to 15 calendar days). REDEMPTIONS IN KIND The Funds generally pay redemption proceeds in cash. However, under unusual conditions that make the payment of cash unwise (and for the protection of the Funds' remaining shareholders), the Funds might pay all or part of your redemption proceeds in liquid securities with a market value equal to the redemption price (redemption in kind). It is highly unlikely that your shares would ever be redeemed in kind, but if they were you would probably have to pay transaction costs to sell the securities distributed to you, as well as taxes on any capital gains from the sale as with any redemption. SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES A Fund may suspend your right to sell your shares if the NYSE restricts trading, the SEC declares an emergency or for other reasons approved by the SEC. More information about this is in the Statement of Additional Information. TELEPHONE TRANSACTIONS Purchasing and selling Fund shares over the telephone is extremely convenient, but not without risk. Although the Funds have certain safeguards and procedures to confirm the identity of callers and the authenticity of instructions, the Funds are not responsible for any losses or costs incurred by following telephone instructions the Funds reasonably believe to be genuine. If you or your financial institution or intermediary transact with the Funds over the telephone, you will generally bear the risk of any loss. The Funds reserve the right to modify, suspend or terminate telephone transaction privileges at any time. To redeem shares by telephone: - - redemption checks must be made payable to the registered shareholder; and - - redemption checks must be mailed to an address or wired to a bank account of record that has been associated with the shareholder account for at least 15 calendar days. MARKET TIMING POLICIES AND PROCEDURES For All Funds Except the Money Market Funds The Funds are intended for long-term investment purposes only and discourage shareholders from engaging in "market timing" or other types of excessive short-term trading. This frequent trading into and out of the Funds may present risks to the Funds' long-term shareholders, all of which could adversely affect shareholder returns. The risks posed by frequent trading include interfering with the efficient implementation of the Funds' investment strategies, triggering the recognition of taxable gains and losses on the sale of Fund investments, requiring the Funds to maintain higher cash balances to meet redemption requests, and experiencing increased transaction costs. A Fund that invests a significant amount of its assets in overseas markets is particularly susceptible to the risk of certain investors using a strategy known as time-zone arbitrage. Investors using this strategy attempt to take advantage of the differences in value of foreign securities that might result from events that occur between the close of the foreign securities market on which a foreign MARKET TIMING POLICIES AND PROCEDURES PROSPECTUS 133 security is traded and the time at which the Fund calculates its NAV. The Funds and/or their service providers will take steps reasonably designed to detect and deter frequent trading by shareholders pursuant to the Funds' policies and procedures described in this prospectus and approved by the Funds' Board of Trustees. For purposes of applying these policies, the Funds' service providers may consider the trading history of accounts under common ownership or control. The Funds' policies and procedures include: - - Shareholders are restricted from making more than one (1) "round trip" into or out of a Fund within 14 days or more than two (2) "round trips" within any continuous 90 day period. If a shareholder exceeds either "round trip" restriction, he or she may be deemed a "Market Timer," and the Funds and/or their service providers may, at their discretion, reject any additional purchase orders. The Funds define a round trip as a purchase into a Fund by a shareholder, followed by a subsequent redemption out of the Fund. Anyone considered to be a Market Timer by the Funds, their manager(s) or a shareholder servicing agent may be notified in writing of their designation as a Market Timer. - - The Funds reserve the right to reject any purchase request by any investor or group of investors for any reason without prior notice, including, in particular, if the Funds or their Adviser reasonably believes that the trading activity would be harmful or disruptive to the Funds. The Funds and/or their service providers seek to apply these policies to the best of their abilities uniformly and in a manner they believe is consistent with the interests of the Funds' long-term shareholders. Although these policies are designed to deter frequent trading, none of these measures alone nor all of them taken together eliminate the possibility that frequent trading in the Funds will occur, particularly with respect to trades placed by shareholders that invest in the Funds through omnibus arrangements maintained by brokers, retirement plan accounts and other financial intermediaries. The Funds' and their service providers' access to information about individual shareholder transactions made through such omnibus arrangements is often unavailable or severely limited. The Funds rely in large part on the policies, ability and willingness of brokers, retirement plan accounts and other financial intermediaries who maintain omnibus arrangements to detect and deter short-term trading. Despite this reliance, the Funds cannot assure that their policies will be enforced with regard to those Fund shares held through such omnibus arrangements (which may represent a majority of Fund shares), and as a result frequent trading could adversely affect the Funds and their long-term shareholders as discussed above. In addition to the previously mentioned initiatives to discourage market timing, the Funds intend to continually evaluate and, if practical, implement other measures to deter market timing. For the Money Market Funds The Money Market Funds seek to provide a high degree of liquidity, current income and a stable net asset value of $1.00 per share. The Money Market Funds are designed to serve as short-term cash equivalent investments for shareholders and, therefore, expect shareholders to engage in frequent purchases and redemptions. Because of the inherently liquid nature of the Money Market Funds' investments, and money market instruments in general, and the Money Market Funds' intended purpose to serve as short-term investment vehicles for shareholders, the Adviser has informed the Board of Trustees that it believes that it would not be in shareholders' best interests to place any limitations on the frequency of shareholder purchases and redemptions into and out of the Money Market Funds. As a result, the Board has not adopted a Money Market Fund policy or procedures with respect to frequent purchases and redemptions. DISTRIBUTION OF FUND SHARES The distributor may provide financial assistance in connection with pre-approved seminars, conferences and advertising to the extent permitted by applicable state or self-regulatory agencies, such as the National Association of Securities Dealers. From its own assets, the Adviser or its affiliates may make payments based on gross sales and current assets to selected brokerage firms or institutions. The amount of these payments may be substantial. The minimum aggregate sales required for eligibility for such payments, and the factors in selecting the brokerage firms and institutions to which they will be made, are determined from time to time by the Adviser. DIVIDENDS AND DISTRIBUTIONS 134 PROSPECTUS Furthermore, in addition to the fees that may be paid by the Funds, the Adviser or its affiliates may pay fees from its own capital resources to brokers, banks, financial advisers, retirement plan service providers and other financial intermediaries, including affiliates, for providing distribution-related or shareholder services. DIVIDENDS AND DISTRIBUTIONS Each Equity Fund distributes its net investment income as follows: QUARTERLY - ------------------------------------------------------------- Aggressive Growth Stock Fund Balanced Fund Capital Appreciation Fund Emerging Growth Stock Fund Large Cap Quantitative Equity Fund Large Cap Relative Value Fund Large Cap Value Equity Fund Life Vision Aggressive Growth Fund Life Vision Conservative Fund Life Vision Growth and Income Fund Life Vision Moderate Growth Fund Life Vision Target Date 2015 Fund Life Vision Target Date 2025 Fund Life Vision Target Date 2035 Fund Mid-Cap Equity Fund Mid-Cap Value Equity Fund Small Cap Growth Stock Fund Small Cap Value Equity Fund Quality Growth Stock Fund ANNUALLY - ------------------------------------------------------------- International Equity Fund International Equity Index Fund The Bond and Money Market Funds declare dividends daily and pay these dividends monthly. Each Fund makes distributions of its net realized capital gains, if any, at least annually. If you own Fund shares on a Fund's record date, you will be entitled to receive the distribution. You will receive dividends and distributions in the form of additional Fund shares unless you elect to receive payment in cash. To elect cash payment, you must notify the Funds in writing prior to the date of the distribution. Your election will be effective for dividends and distributions paid after the Funds receive your written notice. To cancel your election, simply send the Funds written notice. TAXES PLEASE CONSULT YOUR TAX ADVISOR REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL, STATE AND LOCAL INCOME TAXES. Below the Funds have summarized some important tax issues that affect the Funds and their shareholders. This summary is based on current tax laws, which may change. Dividends and distributions will accumulate on a tax-deferred basis if you are investing through an employer-sponsored retirement or savings plan that qualifies for tax-exempt treatment under federal income tax laws. Generally, you will not owe taxes on these distributions until you begin withdrawals from the plan. Redemptions of fund shares resulting in withdrawals from the plan are subject to special tax rules and may be subject to a penalty tax in the case of premature withdrawals. You should consult your plan administrator, your plan's Summary Plan Description, and/or your tax advisor about the tax consequences of plan withdrawals. MORE INFORMATION ABOUT TAXES IS IN THE STATEMENT OF ADDITIONAL INFORMATION. PROSPECTUS 135 [THIS PAGE INTENTIONALLY LEFT BLANK] FINANCIAL HIGHLIGHTS 136 PROSPECTUS FINANCIAL HIGHLIGHTS The financial highlights table is intended to help you understand a Fund's financial performance for the period of the Fund's (and its predecessor's) operations. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This financial information has been audited by PricewaterhouseCoopers LLP, except the information for each of the three years (or periods) ended October 31, 2003 for the Core Bond, Intermediate Bond, Limited Duration and Seix High Yield Funds and the information for the year ended May 31, 2001 for all other Funds, which has been audited by predecessor independent accounting firms, one of which has ceased operations. The Reports of the Independent Registered Public Accounting Firm for each period shown, along with the Funds' financial statements and related notes, are included in the Annual Reports to Shareholders for such periods. The 2006 Annual Report is available upon request and without charge by calling 1-888-STI-FUND or on the Funds' website at www.sticlassicfunds.com.
NET ASSET NET REALIZED DIVIDENDS VALUE, NET AND UNREALIZED FROM NET DISTRIBUTIONS BEGINNING INVESTMENT GAINS (LOSSES) TOTAL FROM INVESTMENT FROM REALIZED OF PERIOD INCOME (LOSS) ON INVESTMENTS OPERATIONS INCOME CAPITAL GAINS --------- ------------- -------------- ---------- ------ ------------- AGGRESSIVE GROWTH STOCK FUND I SHARES Year Ended March 31, 2006....... $ 9.89 (0.07)(a) 2.42(a) 2.35 --* -- Period Ended March 31, 2005..... $10.00 (0.06)(a) (0.05)(a) (0.11) -- -- Period Ended May 31, 2004(b).... $10.00 (0.02)(a) 0.02(a) -- -- -- CAPITAL APPRECIATION FUND I SHARES Year Ended March 31, 2006....... $12.22 0.03(a) 0.86(a) 0.89 (0.02) (0.26) Period Ended March 31, 2005..... $12.33 0.03(a) 0.07(a) 0.10 (0.03) (0.18) Year Ended May 31, 2004......... $11.02 (0.03)(a) 1.34(a) 1.31 -- -- Year Ended May 31, 2003......... $12.24 (0.03)(a) (1.19)(a) (1.22) -- -- Year Ended May 31, 2002......... $13.89 -- (1.53) (1.53) -- (0.12) Year Ended May 31, 2001......... $17.12 (0.05) (0.38) (0.43) -- (2.80) EMERGING GROWTH STOCK FUND I SHARES Year Ended March 31, 2006....... $ 9.38 (0.09)(a) 3.54(a) 3.45 -- -- Period Ended March 31, 2005..... $ 9.60 (0.08)(a) (0.14)(a) (0.22) -- -- Period Ended May 31, 2004(b).... $10.00 (0.03)(a) (0.37)(a) (0.40) -- -- INTERNATIONAL EQUITY FUND I SHARES Year Ended March 31, 2006....... $11.77 0.16 2.72 2.88 (0.16) -- Period Ended March 31, 2005..... $10.15 0.06 1.67 1.73 (0.11) -- Year Ended May 31, 2004......... $ 8.00 0.10(a) 2.19(a) 2.29 (0.14) -- Year Ended May 31, 2003......... $ 9.31 0.07 (1.32) (1.25) (0.06) -- Year Ended May 31, 2002......... $10.19 0.19 (1.07) (0.88) -- -- Year Ended May 31, 2001......... $12.56 -- (1.22) (1.22) (0.04) (1.11) TOTAL DIVIDENDS AND DISTRIBUTIONS ------------- AGGRESSIVE GROWTH STOCK FUND I SHARES Year Ended March 31, 2006....... --* Period Ended March 31, 2005..... -- Period Ended May 31, 2004(b).... -- CAPITAL APPRECIATION FUND I SHARES Year Ended March 31, 2006....... (0.28) Period Ended March 31, 2005..... (0.21) Year Ended May 31, 2004......... -- Year Ended May 31, 2003......... -- Year Ended May 31, 2002......... (0.12) Year Ended May 31, 2001......... (2.80) EMERGING GROWTH STOCK FUND I SHARES Year Ended March 31, 2006....... -- Period Ended March 31, 2005..... -- Period Ended May 31, 2004(b).... -- INTERNATIONAL EQUITY FUND I SHARES Year Ended March 31, 2006....... (0.16) Period Ended March 31, 2005..... (0.11) Year Ended May 31, 2004......... (0.14) Year Ended May 31, 2003......... (0.06) Year Ended May 31, 2002......... -- Year Ended May 31, 2001......... (1.15)
* Amount less than $0.005. + Not annualized for periods less than one year. ++ Annualized for periods less than one year. # The Fund had a voluntary reimbursement by the Investment Adviser and affiliates that had no effect on total returns for the period. (a) Per share data calculated using average shares outstanding method. (b) Commenced operations on February 23, 2004. FINANCIAL HIGHLIGHTS PROSPECTUS 137
NET ASSETS, NET ASSET VALUE, TOTAL END OF END OF PERIOD RETURN+ PERIOD (000) ------------- ------- ------------ $12.24 23.77% $ 254,412 $ 9.89 (1.10)% $ 58,988 $10.00 --% $ 20,501 $12.83 7.33% $1,296,236 $12.22 0.76% $1,493,213 $12.33 11.89% $1,248,636 $11.02 (9.97)% $1,090,549 $12.24 (11.06)% $1,204,445 $13.89 (3.74)% $1,177,933 $12.83 36.78% $ 48,369 $ 9.38 (2.29)% $ 20,494 $ 9.60 (4.00)% $ 12,891 $14.49 24.47%# $ 926,845 $11.77 17.09% $ 480,731 $10.15 28.64% $ 332,180 $ 8.00 (13.40)% $ 191,041 $ 9.31 (8.64)% $ 252,991 $10.19 (10.79)% $ 208,120 RATIO OF EXPENSES RATIO OF NET TO AVERAGE NET RATIO OF NET INVESTMENT INCOME ASSETS (EXCLUDING EXPENSES TO (LOSS) TO AVERAGE WAIVERS, REIMBURSEMENTS PORTFOLIO AVERAGE NET ASSETS++ NET ASSETS++ AND EXPENSE OFFSET)++ TURNOVER RATE+ -------------------- ------------ --------------------- -------------- 1.19% (0.61)% 1.23% 30% 1.22% (0.79)% 1.45% 42% 1.22% (0.74)% 1.61% 2% 1.06% 0.22% 1.07% 74% 1.19% 0.31% 1.21% 72% 1.23% (0.25)% 1.24% 106% 1.22% (0.32)% 1.24% 69% 1.22% (0.54)% 1.24% 75% 1.21% (0.29)% 1.24% 75% 1.20% (0.84)% 1.24% 107% 1.23% (1.03)% 1.51% 64% 1.22% (1.04)% 1.69% 11% 1.31% 1.40% 1.32% 59% 1.38% 0.85% 1.38% 39% 1.41% 1.08% 1.41% 58% 1.46% 0.83% 1.46% 89% 1.48% 0.48% 1.48% 102% 1.45% 0.50% 1.45% 68%
FINANCIAL HIGHLIGHTS 138 PROSPECTUS
NET ASSET NET REALIZED DIVIDENDS VALUE, NET AND UNREALIZED FROM NET DISTRIBUTIONS BEGINNING INVESTMENT GAINS (LOSSES) TOTAL FROM INVESTMENT FROM REALIZED OF PERIOD INCOME (LOSS) ON INVESTMENTS OPERATIONS INCOME CAPITAL GAINS --------- ------------- -------------- ---------- ------ ------------- INTERNATIONAL EQUITY INDEX FUND I SHARES Year Ended March 31, 2006....... $12.83 0.25 2.94 3.19 (0.21) -- Period Ended March 31, 2005..... $11.11 0.08(a) 1.88(a) 1.96 (0.24) -- Year Ended May 31, 2004......... $ 8.39 0.14(a) 2.71(a) 2.85 (0.13) -- Year Ended May 31, 2003......... $ 9.76 0.10(a) (1.43)(a) (1.33) (0.04) -- Year Ended May 31, 2002......... $11.18 0.04 (1.43) (1.39) (0.03) -- Year Ended May 31, 2001......... $13.97 0.06 (2.69) (2.63) (0.07) (0.09) LARGE CAP QUANTITATIVE EQUITY FUND I SHARES Year Ended March 31, 2006....... $13.25 0.01(a) 1.55(a) 1.56 --** (1.06) Period Ended March 31, 2005..... $12.08 (0.02)(a) 1.91(a) 1.89 -- (0.72) Period Ended May 31, 2004(b).... $10.00 (0.02)(a) 2.35(a) 2.33 -- (0.25) LARGE CAP RELATIVE VALUE FUND I SHARES Year Ended March 31, 2006....... $16.07 0.18 1.83 2.01 (0.18) (0.70) Period Ended March 31, 2005..... $14.72 0.17 1.74 1.91 (0.18) (0.38) Year Ended May 31, 2004......... $12.21 0.14(a) 2.50(a) 2.64 (0.13) -- Year Ended May 31, 2003......... $13.80 0.13 (1.60) (1.47) (0.12) -- Year Ended May 31, 2002......... $15.05 0.09 (1.26) (1.17) (0.08) -- Year Ended May 31, 2001......... $15.53 0.07 (0.04) 0.03 (0.08) (0.43) LARGE CAP VALUE EQUITY FUND I SHARES Year Ended March 31, 2006....... $12.59 0.23 1.26 1.49 (0.23) -- Period Ended March 31, 2005..... $11.47 0.15 1.15 1.30 (0.18) -- Year Ended May 31, 2004......... $ 9.73 0.15(a) 1.74(a) 1.89 (0.15) -- Year Ended May 31, 2003......... $11.05 0.15 (1.33) (1.18) (0.14) -- Year Ended May 31, 2002......... $11.61 0.12 (0.56) (0.44) (0.12) -- Year Ended May 31, 2001......... $10.38 0.19 1.24 1.43 (0.20) -- MID-CAP EQUITY FUND I SHARES Year Ended March 31, 2006....... $12.03 0.07 2.26 2.33 (0.07) (0.62) Period Ended March 31, 2005..... $10.32 0.07 1.70 1.77 (0.06) -- Year Ended May 31, 2004......... $ 8.74 0.06(a) 1.57(a) 1.63 (0.05) -- Year Ended May 31, 2003......... $ 9.79 (0.03)(a) (1.02)(a)* (1.05)* -- -- Year Ended May 31, 2002......... $10.95 0.01 (1.17) (1.16) -- -- Year Ended May 31, 2001......... $14.10 (0.03) (0.61) (0.64) -- (2.51) MID-CAP VALUE EQUITY FUND I SHARES Year Ended March 31, 2006....... $12.27 0.13 2.15 2.28 (0.13) (1.28) Period Ended March 31, 2005..... $10.95 0.11 1.33 1.44 (0.12) -- Year Ended May 31, 2004......... $ 8.62 0.05(a) 2.33(a) 2.38 (0.05) -- Year Ended May 31, 2003......... $10.95 0.05 (2.16) (2.11) (0.04) (0.18) Period Ended May 31, 2002(c).... $10.00 0.02 0.94 0.96 (0.01) -- TOTAL DIVIDENDS AND DISTRIBUTIONS ------------- INTERNATIONAL EQUITY INDEX FUND I SHARES Year Ended March 31, 2006....... (0.21) Period Ended March 31, 2005..... (0.24) Year Ended May 31, 2004......... (0.13) Year Ended May 31, 2003......... (0.04) Year Ended May 31, 2002......... (0.03) Year Ended May 31, 2001......... (0.16) LARGE CAP QUANTITATIVE EQUITY FUND I SHARES Year Ended March 31, 2006....... (1.06) Period Ended March 31, 2005..... (0.72) Period Ended May 31, 2004(b).... (0.25) LARGE CAP RELATIVE VALUE FUND I SHARES Year Ended March 31, 2006....... (0.88) Period Ended March 31, 2005..... (0.56) Year Ended May 31, 2004......... (0.13) Year Ended May 31, 2003......... (0.12) Year Ended May 31, 2002......... (0.08) Year Ended May 31, 2001......... (0.51) LARGE CAP VALUE EQUITY FUND I SHARES Year Ended March 31, 2006....... (0.23) Period Ended March 31, 2005..... (0.18) Year Ended May 31, 2004......... (0.15) Year Ended May 31, 2003......... (0.14) Year Ended May 31, 2002......... (0.12) Year Ended May 31, 2001......... (0.20) MID-CAP EQUITY FUND I SHARES Year Ended March 31, 2006....... (0.69) Period Ended March 31, 2005..... (0.06) Year Ended May 31, 2004......... (0.05) Year Ended May 31, 2003......... -- Year Ended May 31, 2002......... -- Year Ended May 31, 2001......... (2.51) MID-CAP VALUE EQUITY FUND I SHARES Year Ended March 31, 2006....... (1.41) Period Ended March 31, 2005..... (0.12) Year Ended May 31, 2004......... (0.05) Year Ended May 31, 2003......... (0.22) Period Ended May 31, 2002(c).... (0.01)
+ Not annualized for periods less than one year. ++ Annualized for periods less than one year. # The Fund had a voluntary reimbursement by the Investment Adviser and affiliates that had no effect on total returns for the period. (a) Per share data calculated using average shares outstanding method. (b) Commenced operations on August 7, 2003. (c) Commenced operations on November 30, 2001. * Includes redemption fees of $0.01. ** Amount less than $0.005. FINANCIAL HIGHLIGHTS PROSPECTUS 139
NET ASSETS, NET ASSET VALUE, TOTAL END OF END OF PERIOD RETURN+ PERIOD (000) ------------- ------- ------------ $15.81 25.06%# $ 774,008 $12.83 17.68% $ 517,993 $11.11 34.07% $ 351,163 $ 8.39 (13.63)% $ 248,770 $ 9.76 (12.43)% $ 287,944 $11.18 (18.90)% $ 236,862 $13.75 12.17% $ 284,727 $13.25 15.84% $ 93,204 $12.08 23.43% $ 66,812 $17.20 12.76% $1,396,362 $16.07 12.98% $1,010,717 $14.72 21.76% $ 782,665 $12.21 (10.58)% $ 598,862 $13.80 (7.80)% $ 792,557 $15.05 0.11% $ 867,664 $13.85 11.93% $ 766,547 $12.59 11.42% $ 792,677 $11.47 19.58% $ 715,928 $ 9.73 (10.54)% $ 681,899 $11.05 (3.68)% $ 686,014 $11.61 14.09% $ 704,842 $13.67 19.68% $ 410,459 $12.03 17.17% $ 214,660 $10.32 18.70% $ 177,128 $ 8.74 (10.73)% $ 118,092 $ 9.79 (10.59)% $ 171,813 $10.95 (6.92)% $ 156,111 $13.14 19.49% $ 243,534 $12.27 13.25% $ 209,088 $10.95 27.71% $ 147,185 $ 8.62 (19.05)% $ 99,854 $10.95 9.65% $ 174,859 RATIO OF EXPENSES RATIO OF NET TO AVERAGE NET RATIO OF NET INVESTMENT INCOME ASSETS (EXCLUDING EXPENSES TO TO AVERAGE WAIVERS, REIMBURSEMENTS PORTFOLIO AVERAGE NET ASSETS++ NET ASSETS++ AND EXPENSE OFFSET)++ TURNOVER RATE+ -------------------- ------------ --------------------- -------------- 0.76% 1.84% 0.78% 7% 0.97% 0.81% 1.06% 21% 0.98% 1.38% 1.07% 10% 1.03% 1.26% 1.12% 25% 1.04% 0.63% 1.12% 35% 1.06% 0.40% 1.09% 13% 0.99% 0.07% 1.02% 432% 1.11% (0.19)% 1.26% 346% 1.13% (0.22)% 1.33% 344% 0.90% 1.15% 0.90% 55% 0.96% 1.23% 0.96% 44% 1.00% 1.03% 1.00% 51% 0.99% 1.05% 0.99% 52% 0.99% 0.63% 0.99% 68% 0.99% 0.49% 0.99% 73% 0.85% 1.74% 0.86% 104% 0.86% 1.52% 0.86% 87% 0.90% 1.40% 0.90% 67% 0.89% 1.68% 0.89% 46% 0.90% 1.13% 0.90% 60% 0.90% 1.70% 0.90% 77% 1.12% 0.63% 1.13% 138% 1.20% 0.64% 1.22% 68% 1.23% 0.64% 1.26% 126% 1.22% (0.31)% 1.25% 144% 1.22% (0.18)% 1.24% 87% 1.21% (0.24)% 1.25% 100% 1.13% 1.03% 1.16% 169% 1.22% 1.19% 1.32% 117% 1.26% 0.53% 1.36% 95% 1.25% 0.63% 1.35% 71% 1.27% 0.29% 1.37% 30%
FINANCIAL HIGHLIGHTS 140 PROSPECTUS
NET ASSET NET REALIZED DIVIDENDS VALUE, NET AND UNREALIZED FROM NET DISTRIBUTIONS BEGINNING INVESTMENT GAINS (LOSSES) TOTAL FROM INVESTMENT FROM REALIZED OF PERIOD INCOME (LOSS) ON INVESTMENTS OPERATIONS INCOME CAPITAL GAINS --------- ------------- -------------- ---------- ------ ------------- QUALITY GROWTH STOCK FUND I SHARES Year Ended March 31, 2006....... $24.14 -- 1.82 1.82 (0.13) -- Period Ended March 31, 2005..... $23.31 0.10(a) 0.77(a) 0.87 (0.04) -- Year Ended May 31, 2004......... $20.78 (0.06)(a) 2.59(a) 2.53 -- -- Year Ended May 31, 2003......... $23.25 --(a) (2.47)(a) (2.47) -- -- Year Ended May 31, 2002......... $26.74 (0.02) (3.47) (3.49) -- -- Year Ended May 31, 2001......... $33.10 (0.03) (6.33) (6.36) -- -- SMALL CAP GROWTH STOCK FUND I SHARES Year Ended March 31, 2006....... $19.99 (0.14)(a) 5.46(a) 5.32 -- (1.66) Period Ended March 31, 2005..... $20.25 (0.08)(a) 2.27(a) 2.19 -- (2.45) Year Ended May 31, 2004......... $15.19 (0.16)(a) 5.22(a) 5.06 -- -- Year Ended May 31, 2003......... $17.28 (0.12)(a) (1.72)(a) (1.84) -- (0.25) Year Ended May 31, 2002......... $18.37 -- (1.02) (1.02) -- (0.07) Year Ended May 31, 2001......... $18.30 (0.18) 1.71 1.53 -- (1.46) SMALL CAP VALUE EQUITY FUND I SHARES Year Ended March 31, 2006....... $19.86 0.10 5.39 5.49 (0.10) (4.32) Period Ended March 31, 2005..... $18.26 0.04(a) 3.15(a) 3.19 (0.06) (1.53) Year Ended May 31, 2004......... $13.73 0.06(a) 4.53(a) 4.59 (0.06) -- Year Ended May 31, 2003......... $14.54 0.08 (0.82) (0.74) (0.07) -- Year Ended May 31, 2002......... $12.21 0.08 2.35 2.43 (0.10) -- Year Ended May 31, 2001......... $ 9.13 0.17 3.07 3.24 (0.16) -- TOTAL DIVIDENDS AND DISTRIBUTIONS ------------- QUALITY GROWTH STOCK FUND I SHARES Year Ended March 31, 2006....... (0.13) Period Ended March 31, 2005..... (0.04) Year Ended May 31, 2004......... -- Year Ended May 31, 2003......... -- Year Ended May 31, 2002......... -- Year Ended May 31, 2001......... -- SMALL CAP GROWTH STOCK FUND I SHARES Year Ended March 31, 2006....... (1.66) Period Ended March 31, 2005..... (2.45) Year Ended May 31, 2004......... -- Year Ended May 31, 2003......... (0.25) Year Ended May 31, 2002......... (0.07) Year Ended May 31, 2001......... (1.46) SMALL CAP VALUE EQUITY FUND I SHARES Year Ended March 31, 2006....... (4.42) Period Ended March 31, 2005..... (1.59) Year Ended May 31, 2004......... (0.06) Year Ended May 31, 2003......... (0.07) Year Ended May 31, 2002......... (0.10) Year Ended May 31, 2001......... (0.16)
+ Not annualized for periods less than one year. ++ Annualized for periods less than one year. (a) Per share data calculated using average shares outstanding method. FINANCIAL HIGHLIGHTS PROSPECTUS 141
NET ASSETS, NET ASSET VALUE, TOTAL END OF END OF PERIOD RETURN+ PERIOD (000) ------------- ------- ------------ $25.83 7.54% $ 74,481 $24.14 3.74% $ 98,982 $23.31 12.18% $ 144,732 $20.78 (10.62)% $ 198,429 $23.25 (13.05)% $ 244,707 $26.74 (19.21)% $ 460,311 $23.65 27.55% $1,641,681 $19.99 10.60% $ 940,775 $20.25 33.31% $ 789,650 $15.19 (10.50)% $ 567,714 $17.28 (5.55)% $ 593,211 $18.37 8.33% $ 508,857 $20.93 30.70% $ 762,709 $19.86 17.57% $ 726,904 $18.26 33.56% $ 682,567 $13.73 (5.09)% $ 518,468 $14.54 20.06% $ 614,199 $12.21 35.90% $ 401,900 RATIO OF EXPENSES RATIO OF NET TO AVERAGE NET RATIO OF NET INVESTMENT INCOME ASSETS (EXCLUDING EXPENSES TO TO AVERAGE WAIVERS, REIMBURSEMENTS PORTFOLIO AVERAGE NET ASSETS++ NET ASSETS++ AND EXPENSE OFFSET)++ TURNOVER RATE -------------------- ------------ --------------------- ------------- 1.07% 0.21% 1.08% 82% 1.22% 0.52% 1.25% 51% 1.25% (0.28)% 1.25% 49% 1.24% (0.01)% 1.24% 58% 1.24% (0.10)% 1.24% 69% 1.24% (0.10)% 1.25% 103% 1.17% (0.66)% 1.18% 98% 1.22% (0.46)% 1.22% 70% 1.25% (0.83)% 1.25% 107% 1.24% (0.87)% 1.24% 96% 1.25% (1.01)% 1.25% 100% 1.24% (0.95)% 1.25% 112% 1.20% 0.48% 1.20% 58% 1.21% 0.22% 1.21% 17% 1.25% 0.38% 1.25% 44% 1.24% 0.64% 1.24% 29% 1.25% 0.67% 1.25% 29% 1.25% 1.72% 1.25% 86%
FINANCIAL HIGHLIGHTS 142 PROSPECTUS
NET ASSET NET REALIZED DIVIDENDS VALUE, NET AND UNREALIZED FROM NET DISTRIBUTIONS BEGINNING INVESTMENT GAINS (LOSSES) TOTAL FROM INVESTMENT FROM REALIZED OF PERIOD INCOME (LOSS) ON INVESTMENTS OPERATIONS INCOME CAPITAL GAINS --------- ------------- -------------- ---------- ------ ------------- BALANCED FUND I SHARES Year Ended March 31, 2006....... $12.29 0.24 0.37 0.61 (0.23) (0.79) Period Ended March 31, 2005**... $12.23 0.18 0.21 0.39 (0.21) (0.12) Year Ended May 31, 2004......... $11.92 0.18(a) 0.32(a) 0.50 (0.19) -- Year Ended May 31, 2003......... $12.18 0.20 (0.23) (0.03) (0.23) -- Year Ended May 31, 2002......... $13.18 0.23 (0.65) (0.42) (0.24) (0.34) Year Ended May 31, 2001......... $13.37 0.30 0.12 0.42 (0.31) (0.30) LIFE VISION AGGRESSIVE GROWTH FUND(B) I SHARES Year Ended March 31, 2006....... $11.07 0.14 1.38 1.52 (0.14) (0.13) Period Ended March 31, 2005..... $10.25 0.12 0.82 0.94 (0.12) -- Year Ended May 31, 2004......... $ 8.55 0.04(a) 1.70(a) 1.74 (0.04)* -- Year Ended May 31, 2003......... $ 9.57 0.03 (1.02) (0.99) (0.03) -- Year Ended May 31, 2002......... $10.31 0.02 (0.74) (0.72) (0.02) -- Year Ended May 31, 2001......... $11.61 0.11 0.23 0.34 (0.12) (1.52) LIFE VISION CONSERVATIVE FUND(B) I SHARES Year Ended March 31, 2006....... $11.09 0.37 0.17 0.54 (0.36) (0.06) Period Ended March 31, 2005..... $10.87 0.28 0.28 0.56 (0.30) (0.04) Period Ended May 31, 2004(c).... $10.71 0.15(a) 0.14(a) 0.29 (0.13) -- LIFE VISION GROWTH AND INCOME FUND(B) I SHARES Year Ended March 31, 2006....... $11.41 0.23 1.02 1.25 (0.23) -- Period Ended March 31, 2005..... $10.76 0.16 0.67 0.83 (0.18) -- Year Ended May 31, 2004......... $ 9.33 0.14(a) 1.43(a) 1.57 (0.14) -- Year Ended May 31, 2003......... $ 9.98 0.13 (0.65) (0.52) (0.13) -- Year Ended May 31, 2002......... $10.42 0.12 (0.43) (0.31) (0.13) -- Year Ended May 31, 2001......... $10.50 0.24 0.40 0.64 (0.25) (0.47) LIFE VISION MODERATE GROWTH FUND(B) I SHARES Year Ended March 31, 2006....... $10.49 0.29 0.59 0.88 (0.28) (0.24) Period Ended March 31, 2005..... $10.06 0.20 0.50 0.70 (0.22) (0.05) Year Ended May 31, 2004......... $ 9.02 0.16(a) 1.04(a) 1.20 (0.16) -- Year Ended May 31, 2003......... $ 9.40 0.16 (0.38) (0.22) (0.16) -- Year Ended May 31, 2002......... $ 9.73 0.17 (0.32) (0.15) (0.18) -- Year Ended May 31, 2001......... $10.61 0.32 0.20 0.52 (0.34) (1.06) TOTAL DIVIDENDS AND DISTRIBUTIONS ------------- BALANCED FUND I SHARES Year Ended March 31, 2006....... (1.02) Period Ended March 31, 2005**... (0.33) Year Ended May 31, 2004......... (0.19) Year Ended May 31, 2003......... (0.23) Year Ended May 31, 2002......... (0.58) Year Ended May 31, 2001......... (0.61) LIFE VISION AGGRESSIVE GROWTH FUND(B) I SHARES Year Ended March 31, 2006....... (0.27) Period Ended March 31, 2005..... (0.12) Year Ended May 31, 2004......... (0.04)* Year Ended May 31, 2003......... (0.03) Year Ended May 31, 2002......... (0.02) Year Ended May 31, 2001......... (1.64) LIFE VISION CONSERVATIVE FUND(B) I SHARES Year Ended March 31, 2006....... (0.42) Period Ended March 31, 2005..... (0.34) Period Ended May 31, 2004(c).... (0.13) LIFE VISION GROWTH AND INCOME FUND(B) I SHARES Year Ended March 31, 2006....... (0.23) Period Ended March 31, 2005..... (0.18) Year Ended May 31, 2004......... (0.14) Year Ended May 31, 2003......... (0.13) Year Ended May 31, 2002......... (0.13) Year Ended May 31, 2001......... (0.72) LIFE VISION MODERATE GROWTH FUND(B) I SHARES Year Ended March 31, 2006....... (0.52) Period Ended March 31, 2005..... (0.27) Year Ended May 31, 2004......... (0.16) Year Ended May 31, 2003......... (0.16) Year Ended May 31, 2002......... (0.18) Year Ended May 31, 2001......... (1.40)
+ Not annualized for periods less than one year. ++ Annualized for periods less than one year. +++ Ratio reflects the impact of the initial low level of average net assets associated with commencement of operations. # The Fund's total return consists of a voluntary reimbursement by the Investment Adviser and affiliates of 0.09% for a realized investment loss. Excluding this reimbursement, total return would have been 5.01%. (a) Per share data calculated using average shares outstanding method. (b) The Life Vision Funds and its shareholders indirectly bear a pro rata share of the expenses of the underlying STI Classic Funds. The expense ratios do not include such expenses. (c) Commenced operations on November 6, 2003. * Includes return of capital of $0.003. ** Effective June 1, 2004, the Balanced Fund adopted a change in the amortization and accretion methodology on fixed income securities. The cumulative effect of this change in methodology was immaterial. FINANCIAL HIGHLIGHTS PROSPECTUS 143
NET ASSETS, NET ASSET VALUE, TOTAL END OF END OF PERIOD RETURN+ PERIOD (000) ------------- ------- ------------ $11.88 5.10% $ 69,616 $12.29 3.14%# $195,680 $12.23 4.24% $244,042 $11.92 (0.14)% $228,475 $12.18 (3.29)% $241,604 $13.18 3.24% $209,316 $12.32 13.90% $ 52,765 $11.07 9.15% $ 43,283 $10.25 20.34% $ 38,468 $ 8.55 (10.36)% $ 28,681 $ 9.57 (6.96)% $ 34,398 $10.31 3.07% $ 23,936 $11.21 4.96% $ 3,066 $11.09 5.18% $ 414 $10.87 2.68% $ 30 $12.43 11.05% $ 97,964 $11.41 7.77% $ 87,520 $10.76 16.92% $ 75,083 $ 9.33 (5.16)% $ 59,449 $ 9.98 (2.97)% $ 77,395 $10.42 6.31% $ 37,550 $10.85 8.48% $158,301 $10.49 6.98% $132,522 $10.06 13.35% $121,659 $ 9.02 (2.21)% $ 93,722 $ 9.40 (1.52)% $ 88,592 $ 9.73 5.28% $ 73,429 RATIO OF EXPENSES RATIO OF NET TO AVERAGE NET RATIO OF NET INVESTMENT INCOME ASSETS (EXCLUDING EXPENSES TO TO AVERAGE WAIVERS, REIMBURSEMENTS PORTFOLIO AVERAGE NET ASSETS++ NET ASSETS++ AND EXPENSE OFFSET)++ TURNOVER RATE -------------------- ------------ --------------------- ------------- 0.97% 1.73% 0.99% 133% 0.99% 1.68% 1.02% 140% 1.02% 1.50% 1.05% 116% 1.02% 1.74% 1.05% 102% 1.02% 1.78% 1.05% 95% 1.01% 2.24% 1.05% 99% 0.21% 1.30% 0.26% 31% 0.21% 1.32% 0.34% 29% 0.25% 0.39% 0.39% 44% 0.25% 0.33% 0.40% 50% 0.25% 0.17% 0.41% 101% 0.25% 1.05% 0.43% 202% 0.20% 3.58% 0.56% 29% 0.17% 3.29% 1.52% 121% 0.25% 2.41% 85.33%+++ 138% 0.19% 1.96% 0.24% 34% 0.22% 1.82% 0.33% 59% 0.25% 1.38% 0.36% 97% 0.25% 1.46% 0.37% 139% 0.25% 1.25% 0.39% 166% 0.25% 2.41% 0.39% 286% 0.18% 2.63% 0.22% 34% 0.21% 2.32% 0.32% 83% 0.25% 1.65% 0.36% 109% 0.25% 1.87% 0.36% 101% 0.25% 1.81% 0.36% 202% 0.25% 3.04% 0.37% 247%
FINANCIAL HIGHLIGHTS 144 PROSPECTUS
NET ASSET NET REALIZED DIVIDENDS TOTAL VALUE, NET AND UNREALIZED FROM NET DISTRIBUTIONS DIVIDENDS BEGINNING INVESTMENT GAINS (LOSSES) TOTAL FROM INVESTMENT FROM REALIZED AND OF PERIOD INCOME (LOSS) ON INVESTMENTS OPERATIONS INCOME CAPITAL GAINS DISTRIBUTIONS --------- ------------- -------------- ---------- ------ ------------- ------------- LIFE VISION TARGET DATE 2015 FUND(A) I SHARES Period Ended March 31, 2006(b).............. $10.00 0.17 0.82 0.99 (0.13) -- (0.13) LIFE VISION TARGET DATE 2025 FUND(A) I SHARES Period Ended March 31, 2006(c).............. $10.00 0.13 1.10 1.23 (0.12) -- (0.12) LIFE VISION TARGET DATE 2035 FUND(A) I SHARES Period Ended March 31, 2006(d).............. $10.00 0.13 0.88 1.01 (0.12) -- (0.12)
+ Not annualized for periods less than one year. ++ Annualized for periods less than one year. +++ Ratio reflects the impact of the initial low level of average net assets associated with commencement of operations. (a) The Life Vision Funds and its shareholders indirectly bear a pro rata share of the expenses of the underlying STI Classic Funds. The expense ratios do not include such expenses. (b) Commenced operations on October 12, 2005. (c) Commenced operations on October 21, 2005. (d) Commenced operations on November 2, 2005. FINANCIAL HIGHLIGHTS PROSPECTUS 145
NET ASSETS, NET ASSET VALUE, TOTAL END OF END OF PERIOD RETURN+ PERIOD (000) ------------- ------- ------------ $10.86 9.94% $ 270 $11.11 12.33% $1,110 $10.89 10.14% $ 590 RATIO OF EXPENSES RATIO OF NET TO AVERAGE NET RATIO OF NET INVESTMENT INCOME ASSETS (EXCLUDING EXPENSES TO (LOSS) TO AVERAGE WAIVERS, REIMBURSEMENTS PORTFOLIO AVERAGE NET ASSETS++ NET ASSETS++ AND EXPENSE OFFSET)++ TURNOVER RATE+ -------------------- ------------ --------------------- -------------- 0.20% 2.71% 13.92%+++ 25% 0.20% 2.28% 11.64%+++ 17% 0.20% 2.45% 10.98%+++ 40%
FINANCIAL HIGHLIGHTS 146 PROSPECTUS
NET ASSET NET REALIZED DIVIDENDS VALUE, NET AND UNREALIZED FROM NET DISTRIBUTIONS BEGINNING INVESTMENT GAINS (LOSSES) TOTAL FROM INVESTMENT FROM REALIZED OF PERIOD INCOME (LOSS) ON INVESTMENTS OPERATIONS INCOME CAPITAL GAINS --------- ------------- -------------- ---------- ------ ------------- CORE BOND FUND I SHARES Year Ended March 31, 2006.......... $10.12 0.41 (0.24) 0.17 (0.42) (0.01) Period Ended March 31, 2005........ $10.30 0.15 (0.14) 0.01 (0.14) (0.05) Year Ended October 31, 2004*....... $10.31 0.31 0.23 0.54 (0.32) (0.23) Year Ended October 31, 2003........ $10.00 0.30 0.35 0.65 (0.34) -- Year Ended October 31, 2002........ $10.34 0.42 (0.29) 0.13 (0.42) (0.05) Year Ended October 31, 2001........ $ 9.66 0.59 0.70 1.29 (0.61) -- HIGH INCOME FUND I SHARES Year Ended March 31, 2006.......... $ 7.38 0.55 (0.03) 0.52 (0.55) (0.38) Period Ended March 31, 2005**...... $ 7.38 0.46 0.21 0.67 (0.46) (0.21) Year Ended May 31, 2004............ $ 7.16 0.62(a) 0.22(a) 0.84 (0.62) -- Year Ended May 31, 2003............ $ 7.25 0.61 (0.09) 0.52 (0.61) -- Period Ended May 31, 2002(b)....... $ 7.37 0.39 (0.12) 0.27 (0.39) -- HIGH QUALITY BOND FUND I SHARES Year Ended March 31, 2006.......... $ 9.85 0.37 (0.22) 0.15 (0.35) -- Period Ended March 31, 2005**...... $ 9.84 0.21 0.02 0.23 (0.21) (0.01) Period Ended May 31, 2004 (c)...... $10.00 0.12(a) (0.16)(a) (0.04) (0.12) -- INTERMEDIATE BOND FUND I SHARES Year Ended March 31, 2006.......... $10.08 0.38 (0.21) 0.17 (0.39) (0.01) Period Ended March 31, 2005........ $10.37 0.14 (0.21) (0.07) (0.14) (0.08) Year Ended October 31, 2004*....... $10.23 0.34 0.14 0.48 (0.34) -- Year Ended October 31, 2003........ $10.12 0.37 0.15 0.52 (0.41) -- Year Ended October 31, 2002........ $10.63 0.47 (0.23) 0.24 (0.50) (0.25) Year Ended October 31, 2001........ $ 9.96 0.57 0.68 1.25 (0.58) -- TOTAL DIVIDENDS AND DISTRIBUTIONS ------------- CORE BOND FUND I SHARES Year Ended March 31, 2006.......... (0.43) Period Ended March 31, 2005........ (0.19) Year Ended October 31, 2004*....... (0.55) Year Ended October 31, 2003........ (0.34) Year Ended October 31, 2002........ (0.47) Year Ended October 31, 2001........ (0.61) HIGH INCOME FUND I SHARES Year Ended March 31, 2006.......... (0.93) Period Ended March 31, 2005**...... (0.67) Year Ended May 31, 2004............ (0.62) Year Ended May 31, 2003............ (0.61) Period Ended May 31, 2002(b)....... (0.39) HIGH QUALITY BOND FUND I SHARES Year Ended March 31, 2006.......... (0.35) Period Ended March 31, 2005**...... (0.22) Period Ended May 31, 2004 (c)...... (0.12) INTERMEDIATE BOND FUND I SHARES Year Ended March 31, 2006.......... (0.40) Period Ended March 31, 2005........ (0.22) Year Ended October 31, 2004*....... (0.34) Year Ended October 31, 2003........ (0.41) Year Ended October 31, 2002........ (0.75) Year Ended October 31, 2001........ (0.58)
+ Not annualized for periods less than one year. ++ Annualized for periods less than one year. (a) Per share data calculated using average shares method. (b) Commenced operations on October 3, 2001. (c) Commenced operations on October 27, 2003. * Effective November 1, 2003, these Funds adopted a change in the amortization and accretion methodology on fixed income securities. The cumulative effect of this change in methodology was immaterial. ** Effective June 1, 2004, these Funds adopted a change in the amortization and accretion methodology on fixed income securities. The cumulative effect of this change in methodology was immaterial to all Funds except for the Fund noted below:
CHANGE TO RATIO OF NET INVESTMENT CHANGE TO NET INCOME TO AVERAGE CHANGE TO NET REALIZED AND NET ASSETS INVESTMENT UNREALIZED GAINS ------------------ INCOME PER SHARE (LOSSES) PER SHARE I SHARES ---------------- ------------------ ------------------ High Quality Bond Fund...................................... $0.01 $(0.01) 0.11%
FINANCIAL HIGHLIGHTS PROSPECTUS 147
NET ASSETS, NET ASSET VALUE, TOTAL END OF END OF PERIOD RETURN+ PERIOD (000) ------------- ------- ------------ $ 9.86 1.68% $497,730 $10.12 0.09% $176,537 $10.30 5.49% $ 56,019 $10.31 6.58% $ 33,662 $10.00 1.38% $ 80,727 $10.34 13.82% $ 52,034 $ 6.97 7.53% $ 36,764 $ 7.38 9.31% $ 51,318 $ 7.38 11.94% $ 71,314 $ 7.16 8.19% $100,852 $ 7.25 3.70% $ 28,767 $ 9.65 1.52% $ 48,908 $ 9.85 2.30% $ 38,535 $ 9.84 (0.37)% $ 25,506 $ 9.85 1.76% $ 78,187 $10.08 (0.75)% $ 47,981 $10.37 4.73% $ 35,848 $10.23 5.16% $ 28,689 $10.12 2.47% $ 40,284 $10.63 12.87% $ 26,192 RATIO OF EXPENSES RATIO OF NET TO AVERAGE NET RATIO OF NET INVESTMENT INCOME ASSETS (EXCLUDING EXPENSES TO TO AVERAGE WAIVERS, REIMBURSEMENTS PORTFOLIO AVERAGE NET ASSETS++ NET ASSETS++ AND EXPENSE OFFSET)++ TURNOVER RATE+ -------------------- ------------ --------------------- -------------- 0.29% 4.01% 0.29% 236% 0.37% 3.12% 0.37% 150% 0.45% 3.03% 0.59% 330% 0.45% 3.10% 0.51% 463% 0.45% 4.08% 0.70% 502% 0.45% 5.85% 0.70% 492% 0.72% 7.64% 0.82% 208% 0.73% 7.47% 0.87% 191% 0.76% 8.27% 0.91% 49% 0.78% 8.95% 0.93% 20% 0.82% 8.27% 0.97% 59% 0.40% 3.69% 0.47% 91% 0.66% 2.51% 0.90% 290% 0.65% 2.09% 0.92% 31% 0.31% 3.88% 0.31% 154% 0.29% 3.25% 0.29% 94% 0.45% 3.25% 0.59% 130% 0.45% 3.42% 0.56% 277% 0.45% 4.63% 0.73% 237% 0.45% 5.50% 0.76% 431%
FINANCIAL HIGHLIGHTS 148 PROSPECTUS
NET ASSET NET REALIZED DIVIDENDS VALUE, NET AND UNREALIZED FROM NET BEGINNING INVESTMENT GAINS (LOSSES) TOTAL FROM INVESTMENT OF PERIOD INCOME (LOSS) ON INVESTMENTS OPERATIONS INCOME --------- ------------- -------------- ---------- ------ INVESTMENT GRADE BOND FUND I SHARES Year Ended March 31, 2006............. $10.51 0.42 (0.11) 0.31 (0.42) Period Ended March 31, 2005**......... $10.31 0.29 0.19 0.48 (0.28) Year Ended May 31, 2004............... $10.94 0.35(a) (0.60)(a) (0.25) (0.38) Year Ended May 31, 2003............... $10.24 0.40 0.76 1.16 (0.46) Year Ended May 31, 2002............... $10.23 0.51 0.01 0.52 (0.51) Year Ended May 31, 2001............... $ 9.58 0.61 0.65 1.26 (0.61) LIMITED DURATION FUND I SHARES Year Ended March 31, 2006............. $ 9.98 0.35 0.02 0.37 (0.36) Period Ended March 31, 2005........... $ 9.98 0.08 -- 0.08 (0.08) Year Ended October 31, 2004***........ $ 9.98 0.11 -- 0.11 (0.11) Year Ended October 31, 2003........... $10.00 0.11 (0.02) 0.09 (0.11) Period Ended October 31, 2002(b)...... $10.00 --* -- --* --* LIMITED-TERM FEDERAL MORTGAGE SECURITIES FUND I SHARES Year Ended March 31, 2006............. $10.09 0.35 (0.15) 0.20 (0.41) Period Ended March 31, 2005**......... $10.18 0.31 (0.08) 0.23 (0.32) Year Ended May 31, 2004............... $10.59 0.24(a) (0.36)(a) (0.12) (0.29) Year Ended May 31, 2003............... $10.31 0.29(a) 0.42(a) 0.71 (0.42) Year Ended May 31, 2002............... $10.01 0.43 0.32 0.75 (0.43) Year Ended May 31, 2001............... $ 9.62 0.55 0.39 0.94 (0.55) SEIX HIGH YIELD FUND I SHARES Year Ended March 31, 2006............. $10.94 0.68 (0.10) 0.58 (0.68) Period Ended March 31, 2005........... $11.42 0.29 (0.35) (0.06) (0.29) Year Ended October 31, 2004***........ $11.09 0.72 0.35 1.07 (0.72) Year Ended October 31, 2003........... $10.17 0.68 0.92 1.60 (0.68) Year Ended October 31, 2002........... $10.40 0.63 (0.20) 0.43 (0.63) Period Ended October 31, 2001(c)...... $10.00 0.64 0.36 1.00 (0.60) TOTAL DISTRIBUTIONS DIVIDENDS FROM REALIZED AND CAPITAL GAINS DISTRIBUTIONS ------------- ------------- INVESTMENT GRADE BOND FUND I SHARES Year Ended March 31, 2006............. -- (0.42) Period Ended March 31, 2005**......... -- (0.28) Year Ended May 31, 2004............... -- (0.38) Year Ended May 31, 2003............... -- (0.46) Year Ended May 31, 2002............... -- (0.51) Year Ended May 31, 2001............... -- (0.61) LIMITED DURATION FUND I SHARES Year Ended March 31, 2006............. -- (0.36) Period Ended March 31, 2005........... --* (0.08) Year Ended October 31, 2004***........ -- (0.11) Year Ended October 31, 2003........... -- (0.11) Period Ended October 31, 2002(b)...... -- --* LIMITED-TERM FEDERAL MORTGAGE SECURITIES F I SHARES Year Ended March 31, 2006............. -- (0.41) Period Ended March 31, 2005**......... -- (0.32) Year Ended May 31, 2004............... -- (0.29) Year Ended May 31, 2003............... (0.01) (0.43) Year Ended May 31, 2002............... (0.02) (0.45) Year Ended May 31, 2001............... -- (0.55) SEIX HIGH YIELD FUND I SHARES Year Ended March 31, 2006............. (0.15) (0.83) Period Ended March 31, 2005........... (0.13) (0.42) Year Ended October 31, 2004***........ (0.02) (0.74) Year Ended October 31, 2003........... -- (0.68) Year Ended October 31, 2002........... (0.03) (0.66) Period Ended October 31, 2001(c)...... -- (0.60)
+ Not annualized for periods less than one year. ++ Annualized for periods less than one year. (a) Per share data calculated using average shares outstanding method. (b) Commenced operations on October 25, 2002. (c) Commenced operations on December 29, 2000. (d) Amounts are not meaningful due to the short period of operations. * Amount less than $0.005. ** Effective June 1, 2004, these Funds adopted a change in the amortization and accretion methodology on fixed income securities. The cumulative effect of this change in methodology is noted below:
CHANGE TO RATIO OF NET INVESTMENT CHANGE TO NET INCOME TO AVERAGE CHANGE TO NET REALIZED AND NET ASSETS INVESTMENT UNREALIZED GAINS ------------------ INCOME PER SHARE (LOSSES) PER SHARE I SHARES ---------------- ------------------ ------------------ Investment Grade Bond Fund.................................. $0.01 $(0.01) 0.18% Limited-Term Federal Mortgage Securities Fund............... 0.04 (0.04) 0.47%
*** Effective November 1, 2003, these Funds adopted a change in the amortization and accretion methodology on fixed income securities. The cumulative effect of this change in methodology was immaterial to all Funds except for the Fund noted below:
CHANGE TO RATIO OF NET INVESTMENT CHANGE TO NET INCOME TO CHANGE TO REALIZED AND AVERAGE NET ASSETS NET INVESTMENT UNREALIZED GAINS ------------------ INCOME PER SHARE (LOSSES) PER SHARE I SHARES ---------------- ------------------ ------------------ Seix High Yield Fund....................................... $0.01 $(0.01) 0.06%
FINANCIAL HIGHLIGHTS PROSPECTUS 149
NET ASSETS, NET ASSET VALUE, TOTAL END OF END OF PERIOD RETURN+ PERIOD (000) ------------- ------- ------------ $10.40 2.94% $ 480,024 $10.51 4.71% $ 602,995 $10.31 (2.31)% $ 578,345 $10.94 11.61% $ 821,342 $10.24 5.18% $ 886,471 $10.23 13.55% $ 860,073 $ 9.99 3.73% $ 58,887 $ 9.98 0.84% $ 83,315 $ 9.98 1.09% $ 129,259 $ 9.98 0.92% $ 146,513 $10.00 --(d) $ 12,298 $ 9.88 2.04% $ 369,991 $10.09 2.26% $ 407,543 $10.18 (1.10)% $ 435,446 $10.59 6.99% $ 320,718 $10.31 7.53% $ 164,624 $10.01 10.02% $ 107,674 $10.69 5.37% $1,217,679 $10.94 (0.53)% $1,391,879 $11.42 9.97% $1,689,327 $11.09 16.10% $1,057,993 $10.17 4.21% $ 82,017 $10.40 10.14% $ 4,641 RATIO OF EXPENSES RATIO OF NET TO AVERAGE NET RATIO OF NET INVESTMENT INCOME ASSETS (EXCLUDING EXPENSES TO TO AVERAGE WAIVERS, REIMBURSEMENTS PORTFOLIO AVERAGE NET ASSETS++ NET ASSETS++ AND EXPENSE OFFSET)++ TURNOVER RATE+ -------------------- ------------ --------------------- -------------- 0.65% 3.91% 0.65% 171% 0.78% 3.31% 0.80% 268% 0.82% 3.29% 0.84% 119% 0.81% 3.92% 0.83% 137% 0.81% 4.81% 0.83% 123% 0.81% 6.17% 0.84% 131% 0.15% 3.39% 0.15% 94% 0.16% 2.12% 0.16% 12% 0.20% 1.04% 0.26% 101% 0.20% 1.10% 0.26% 244% --(d) --(d) --(d) --(d) 0.61% 3.41% 0.63% 81% 0.66% 3.60% 0.71% 41% 0.70% 2.32% 0.75% 146% 0.70% 2.79% 0.75% 117% 0.70% 3.72% 0.75% 410% 0.70% 5.62% 0.76% 532% 0.49% 6.20% 0.50% 95% 0.51% 6.22% 0.57% 42% 0.55% 6.48% 0.64% 73% 0.55% 6.67% 0.67% 108% 0.55% 6.80% 1.07% 97% 0.55% 7.33% 3.98% 466%
FINANCIAL HIGHLIGHTS 150 PROSPECTUS
NET ASSET NET REALIZED DIVIDENDS VALUE, NET AND UNREALIZED FROM NET DISTRIBUTIONS BEGINNING INVESTMENT GAINS (LOSSES) TOTAL FROM INVESTMENT FROM REALIZED OF PERIOD INCOME (LOSS) ON INVESTMENTS OPERATIONS INCOME CAPITAL GAINS --------- ------------- -------------- ---------- ------ ------------- SHORT-TERM BOND FUND I SHARES Year Ended March 31, 2006....... $ 9.73 0.32 (0.01) 0.31 (0.33) -- Period Ended March 31, 2005*.... $ 9.84 0.20 (0.11) 0.09 (0.20) -- Year Ended May 31, 2004......... $10.04 0.24(a) (0.19)(a) 0.05 (0.25) -- Year Ended May 31, 2003......... $10.01 0.33 0.03 0.36 (0.33) -- Year Ended May 31, 2002......... $10.04 0.46 (0.03) 0.43 (0.46) -- Year Ended May 31, 2001......... $ 9.65 0.56 0.39 0.95 (0.56) -- SHORT-TERM U.S. TREASURY SECURITIES FUND I SHARES Year Ended March 31, 2006....... $ 9.91 0.28 (0.11) 0.17 (0.28) -- Period Ended March 31, 2005*.... $10.11 0.14 (0.11) 0.03 (0.14) (0.09) Year Ended May 31, 2004......... $10.36 0.14(a) (0.13)(a) 0.01 (0.14) (0.12) Year Ended May 31, 2003......... $10.20 0.22 0.22 0.44 (0.22) (0.06) Year Ended May 31, 2002......... $10.13 0.37 0.10 0.47 (0.37) (0.03) Year Ended May 31, 2001......... $ 9.85 0.49 0.28 0.77 (0.49) -- STRATEGIC INCOME FUND I SHARES Year Ended March 31, 2006....... $10.24 0.43(a) (0.41)(a) 0.02 (0.44) (0.18) Period Ended March 31, 2005*.... $ 9.81 0.39(a) 0.49(a) 0.88 (0.39) (0.06) Year Ended May 31, 2004......... $ 9.99 0.55(a) (0.14)(a) 0.41 (0.53) (0.06) Year Ended May 31, 2003......... $ 9.80 0.61 0.20 0.81 (0.62) -- Period Ended May 31, 2002(b).... $10.00 0.27 (0.20) 0.07 (0.27) -- TOTAL RETURN BOND FUND I SHARES Year Ended March 31, 2006....... $ 9.97 0.38 (0.25) 0.13 (0.40) -- Period Ended March 31, 2005*.... $ 9.81 0.31 0.16 0.47 (0.31) -- Period Ended May 31, 2004(c).... $10.00 0.19(a) (0.18)(a) 0.01 (0.20) -- TOTAL DIVIDENDS AND DISTRIBUTIONS ------------- SHORT-TERM BOND FUND I SHARES Year Ended March 31, 2006....... (0.33) Period Ended March 31, 2005*.... (0.20) Year Ended May 31, 2004......... (0.25) Year Ended May 31, 2003......... (0.33) Year Ended May 31, 2002......... (0.46) Year Ended May 31, 2001......... (0.56) SHORT-TERM U.S. TREASURY SECURITIES FUND I SHARES Year Ended March 31, 2006....... (0.28) Period Ended March 31, 2005*.... (0.23) Year Ended May 31, 2004......... (0.26) Year Ended May 31, 2003......... (0.28) Year Ended May 31, 2002......... (0.40) Year Ended May 31, 2001......... (0.49) STRATEGIC INCOME FUND I SHARES Year Ended March 31, 2006....... (0.62) Period Ended March 31, 2005*.... (0.45) Year Ended May 31, 2004......... (0.59) Year Ended May 31, 2003......... (0.62) Period Ended May 31, 2002(b).... (0.27) TOTAL RETURN BOND FUND I SHARES Year Ended March 31, 2006....... (0.40) Period Ended March 31, 2005*.... (0.31) Period Ended May 31, 2004(c).... (0.20)
+ Not annualized for periods less than one year. ++ Annualized for periods less than one year. (a) Per share data calculated using average shares outstanding method. (b) Commenced operations on November 30, 2001. (c) Commenced operations on October 15, 2003. * Effective June 1, 2004, these Funds adopted a change in the amortization and accretion methodology on fixed income securities. The cumulative effect of this change in methodology was immaterial to all Funds except for the Funds noted below:
CHANGE TO RATIO OF NET INVESTMENT CHANGE TO NET INCOME TO AVERAGE CHANGE TO NET REALIZED AND NET ASSETS INVESTMENT UNREALIZED GAINS ------------------ INCOME PER SHARE (LOSSES) PER SHARE I SHARES ---------------- ------------------ ------------------ Short-Term Bond Fund........................................ $0.01 $(0.01) 0.08% Strategic Income Fund....................................... 0.01 (0.01) 0.22% Total Return Bond Fund...................................... 0.01 (0.01) 0.20%
FINANCIAL HIGHLIGHTS PROSPECTUS 151
NET ASSETS, NET ASSET VALUE, TOTAL END OF END OF PERIOD RETURN+ PERIOD (000) ------------- ------- ------------ $ 9.71 3.24% $281,282 $ 9.73 0.96% $288,502 $ 9.84 0.45% $282,188 $10.04 3.70% $302,708 $10.01 4.29% $305,884 $10.04 10.13% $215,458 $ 9.80 1.70% $ 54,991 $ 9.91 0.35% $ 69,935 $10.11 0.11% $ 92,371 $10.36 4.31% $121,617 $10.20 4.69% $107,169 $10.13 8.02% $ 88,398 $ 9.64 0.19% $243,102 $10.24 9.10% $196,921 $ 9.81 4.15% $ 98,570 $ 9.99 8.73% $ 61,906 $ 9.80 0.74% $ 43,717 $ 9.70 1.31% $ 61,966 $ 9.97 4.86% $ 57,761 $ 9.81 0.03% $ 15,553 RATIO OF EXPENSES RATIO OF NET TO AVERAGE NET RATIO OF NET INVESTMENT INCOME ASSETS (EXCLUDING EXPENSES TO TO AVERAGE WAIVERS, REIMBURSEMENTS PORTFOLIO AVERAGE NET ASSETS++ NET ASSETS++ AND EXPENSE OFFSET)++ TURNOVER RATE+ -------------------- ------------ --------------------- -------------- 0.55% 3.32% 0.57% 94% 0.66% 2.48% 0.71% 64% 0.70% 2.42% 0.75% 66% 0.70% 3.34% 0.75% 89% 0.70% 4.48% 0.75% 142% 0.70% 5.71% 0.76% 87% 0.58% 2.79% 0.63% 151% 0.65% 1.68% 0.71% 82% 0.70% 1.36% 0.76% 131% 0.69% 2.07% 0.75% 140% 0.70% 3.57% 0.76% 117% 0.71% 4.95% 0.78% 87% 0.76% 4.35% 0.79% 317% 0.86% 4.55% 0.96% 305% 0.90% 5.53% 1.00% 95% 0.91% 6.39% 1.01% 52% 0.94% 6.07% 1.04% 43% 0.52% 3.88% 0.55% 231% 0.58% 3.42% 0.74% 308% 0.56% 3.05% 0.90% 121%
FINANCIAL HIGHLIGHTS 152 PROSPECTUS
NET ASSET NET REALIZED DIVIDENDS VALUE, NET AND UNREALIZED FROM NET DISTRIBUTIONS BEGINNING INVESTMENT GAINS (LOSSES) TOTAL FROM INVESTMENT FROM REALIZED OF PERIOD INCOME (LOSS) ON INVESTMENTS OPERATIONS INCOME CAPITAL GAINS --------- ------------- -------------- ---------- ------ ------------- ULTRA-SHORT BOND FUND(1) I SHARES Year Ended March 31, 2006.......... $10.00 0.36 (0.04) 0.32 (0.36) -- Period Ended March 31, 2005**...... $10.05 0.15 (0.05) 0.10 (0.15) -- Year Ended May 31, 2004............ $10.10 0.15(a) (0.05)(a) 0.10 (0.15) -- Year Ended May 31, 2003............ $10.00 0.20 0.10 0.30 (0.20) --* Period Ended May 31, 2002(b)....... $10.00 0.05 -- 0.05 (0.05) -- U.S. GOVERNMENT SECURITIES FUND I SHARES Year Ended March 31, 2006.......... $10.42 0.37 (0.20) 0.17 (0.40) -- Period Ended March 31, 2005**...... $10.35 0.29 0.09 0.38 (0.31) -- Year Ended May 31, 2004............ $10.93 0.31(a) (0.50)(a) (0.19) (0.35) (0.04) Year Ended May 31, 2003............ $10.47 0.44 0.51 0.95 (0.46) (0.03) Year Ended May 31, 2002............ $10.38 0.54 0.26 0.80 (0.54) (0.17) Year Ended May 31, 2001............ $ 9.86 0.58 0.52 1.10 (0.58) -- U.S. GOVERNMENT SECURITIES ULTRA-SHORT BOND FUND(1) I SHARES Year Ended March 31, 2006.......... $ 9.90 0.36 (0.06) 0.30 (0.35) -- Period Ended March 31, 2005**...... $ 9.95 0.20 (0.05) 0.15 (0.20) -- Year Ended May 31, 2004............ $10.00 0.15(a) (0.05)(a) 0.10 (0.15) -- Year Ended May 31, 2003............ $ 9.95 0.20 0.06 0.26 (0.20) (0.01) Period Ended May 31, 2002(c)....... $ 9.95 0.05 -- 0.05 (0.05) -- TOTAL DIVIDENDS AND DISTRIBUTIONS ------------- ULTRA-SHORT BOND FUND(1) I SHARES Year Ended March 31, 2006.......... (0.36) Period Ended March 31, 2005**...... (0.15) Year Ended May 31, 2004............ (0.15) Year Ended May 31, 2003............ (0.20) Period Ended May 31, 2002(b)....... (0.05) U.S. GOVERNMENT SECURITIES FUND I SHARES Year Ended March 31, 2006.......... (0.40) Period Ended March 31, 2005**...... (0.31) Year Ended May 31, 2004............ (0.39) Year Ended May 31, 2003............ (0.49) Year Ended May 31, 2002............ (0.71) Year Ended May 31, 2001............ (0.58) U.S. GOVERNMENT SECURITIES ULTRA-SHORT I SHARES Year Ended March 31, 2006.......... (0.35) Period Ended March 31, 2005**...... (0.20) Year Ended May 31, 2004............ (0.15) Year Ended May 31, 2003............ (0.21) Period Ended May 31, 2002(c)....... (0.05)
+ Not annualized for periods less than one year. ++ Annualized for periods less than one year. (1) Financial Highlights per share amounts for the U.S. Government Securities Ultra-Short Bond Fund and the Ultra-Short Bond Fund have been restated for a 4.974874:1 reverse stock split and 5:1 reverse stock split, respectively, which occurred on April 1, 2005, for the periods ended March 31, 2005, May 31, 2004, May 31, 2003 and May 31, 2002. (a) Per share data calculated using average shares outstanding method. (b) Commenced operations on April 15, 2002. (c) Commenced operations on April 11, 2002. * Amount less than $0.005. ** Effective June 1, 2004, these Funds adopted a change in the amortization and accretion methodology on fixed income securities. The cumulative effect of this change in methodology was immaterial to all Funds except for the Funds noted below:
CHANGE TO RATIO OF NET INVESTMENT CHANGE TO NET INCOME TO CHANGE TO REALIZED AND AVERAGE NET ASSETS NET INVESTMENT UNREALIZED GAINS ------------------ INCOME PER SHARE (LOSSES) PER SHARE I SHARES ---------------- ------------------ ------------------ U.S. Government Securities Fund............................ $0.02 $(0.02) 0.23% U.S. Government Securities Ultra-Short Bond Fund(1)........ 0.05 (0.05) 0.24%
FINANCIAL HIGHLIGHTS PROSPECTUS 153
NET ASSETS, NET ASSET VALUE, TOTAL END OF END OF PERIOD RETURN+ PERIOD (000) ------------- ------- ------------ $ 9.96 3.23% $245,257 $10.00 1.22% $ 74,259 $10.05 1.01% $112,453 $10.10 3.16% $146,590 $10.00 0.30% $ 33,730 $10.19 1.66% $316,475 $10.42 3.74% $319,058 $10.35 (1.77)% $298,997 $10.93 9.25% $258,585 $10.47 7.90% $168,609 $10.38 11.41% $148,666 $ 9.85 3.12% $ 42,616 $ 9.90 1.36% $ 49,623 $ 9.95 1.01% $ 77,360 $10.00 2.80% $ 95,277 $ 9.95 0.32% $ 28,138 RATIO OF EXPENSES RATIO OF NET TO AVERAGE NET RATIO OF NET INVESTMENT INCOME ASSETS (EXCLUDING EXPENSES TO TO AVERAGE WAIVERS, REIMBURSEMENTS PORTFOLIO AVERAGE NET ASSETS++ NET ASSETS++ AND EXPENSE OFFSET)++ TURNOVER RATE+ -------------------- ------------ --------------------- -------------- 0.30% 3.61% 0.37% 114% 0.31% 1.89% 0.81% 44% 0.31% 1.50% 0.86% 83% 0.31% 1.84% 0.86% 56% 0.36% 2.44% 0.91% 30% 0.65% 3.63% 0.65% 118% 0.77% 3.41% 0.80% 64% 0.81% 2.95% 0.84% 240% 0.81% 4.00% 0.84% 150% 0.82% 5.09% 0.85% 262% 0.81% 5.66% 0.85% 207% 0.29% 3.41% 0.47% 126% 0.18% 2.02% 0.71% 42% 0.24% 1.25% 0.77% 109% 0.23% 1.76% 0.76% 87% 0.30% 2.42% 0.83% 34%
FINANCIAL HIGHLIGHTS 154 PROSPECTUS
NET ASSET DIVIDENDS VALUE, NET NET REALIZED FROM NET DISTRIBUTIONS BEGINNING INVESTMENT GAIN (LOSS) TOTAL FROM INVESTMENT FROM REALIZED OF PERIOD INCOME ON INVESTMENTS OPERATIONS INCOME CAPITAL GAINS --------- ------ -------------- ---------- ------ ------------- PRIME QUALITY MONEY MARKET FUND I SHARES Year Ended March 31, 2006....... $1.00 0.03 -- 0.03 (0.03) -- Period Ended March 31, 2005**... $1.00 0.01 -- 0.01 (0.01) -- Year Ended May 31, 2004......... $1.00 0.01 -- 0.01 (0.01) --* Year Ended May 31, 2003......... $1.00 0.01 -- 0.01 (0.01) --* Year Ended May 31, 2002......... $1.00 0.02 -- 0.02 (0.02) -- Year Ended May 31, 2001......... $1.00 0.06 -- 0.06 (0.06) -- U.S. GOVERNMENT SECURITIES MONEY MARKET FUND I SHARES Year Ended March 31, 2006....... $1.00 0.03 -- 0.03 (0.03) -- Period Ended March 31, 2005**... $1.00 0.01 -- 0.01 (0.01) -- Year Ended May 31, 2004......... $1.00 --* -- --* --* -- Year Ended May 31, 2003......... $1.00 0.01 -- 0.01 (0.01) -- Year Ended May 31, 2002......... $1.00 0.02 -- 0.02 (0.02) -- Year Ended May 31, 2001......... $1.00 0.05 -- 0.05 (0.05) -- U.S. TREASURY MONEY MARKET FUND I SHARES Year Ended March 31, 2006....... $1.00 0.03 -- 0.03 (0.03) -- Period Ended March 31, 2005**... $1.00 0.01 -- 0.01 (0.01) -- Year Ended May 31, 2004......... $1.00 --* -- --* --* --* Year Ended May 31, 2003......... $1.00 0.01 -- 0.01 (0.01) --* Year Ended May 31, 2002......... $1.00 0.02 -- 0.02 (0.02) -- Year Ended May 31, 2001......... $1.00 0.05 -- 0.05 (0.05) -- TOTAL DIVIDENDS AND DISTRIBUTIONS ------------- PRIME QUALITY MONEY MARKET FUND I SHARES Year Ended March 31, 2006....... (0.03) Period Ended March 31, 2005**... (0.01) Year Ended May 31, 2004......... (0.01) Year Ended May 31, 2003......... (0.01) Year Ended May 31, 2002......... (0.02) Year Ended May 31, 2001......... (0.06) U.S. GOVERNMENT SECURITIES MONEY MARKET FUND I SHARES Year Ended March 31, 2006....... (0.03) Period Ended March 31, 2005**... (0.01) Year Ended May 31, 2004......... --* Year Ended May 31, 2003......... (0.01) Year Ended May 31, 2002......... (0.02) Year Ended May 31, 2001......... (0.05) U.S. TREASURY MONEY MARKET FUND I SHARES Year Ended March 31, 2006....... (0.03) Period Ended March 31, 2005**... (0.01) Year Ended May 31, 2004......... --* Year Ended May 31, 2003......... (0.01) Year Ended May 31, 2002......... (0.02) Year Ended May 31, 2001......... (0.05)
+ Not annualized for periods less than one year. ++ Annualized for periods less than one year. * Amount less than $0.005 per share. ** Effective June 1, 2004, these Funds adopted a change in the amortization and accretion methodology on fixed income securities. The cumulative effect of this change in methodology was immaterial to all Funds. FINANCIAL HIGHLIGHTS PROSPECTUS 155
NET ASSETS, NET ASSET VALUE, TOTAL END OF END OF PERIOD RETURN+ PERIOD (000) ------------- ------- ------------ $1.00 3.25% $2,976,881 $1.00 1.13% $3,173,794 $1.00 0.52% $3,477,598 $1.00 1.17% $4,284,266 $1.00 2.29% $3,907,203 $1.00 5.75% $3,728,371 $1.00 3.07% $ 413,893 $1.00 1.03% $ 517,253 $1.00 0.43% $ 615,324 $1.00 1.01% $ 992,560 $1.00 2.25% $ 997,759 $1.00 5.56% $ 805,285 $1.00 2.99% $1,650,172 $1.00 0.99% $1,407,783 $1.00 0.37% $1,233,565 $1.00 0.88% $1,080,779 $1.00 1.96% $ 871,946 $1.00 5.36% $ 733,768 RATIO OF EXPENSES RATIO OF NET TO AVERAGE NET RATIO OF NET INVESTMENT INCOME ASSETS (EXCLUDING EXPENSES TO (LOSS) TO AVERAGE WAIVERS, REIMBURSEMENTS AVERAGE NET ASSETS++ NET ASSETS++ AND EXPENSE OFFSET)++ -------------------- ------------ --------------------- 0.58% 3.19% 0.61% 0.60% 1.34% 0.71% 0.63% 0.52% 0.74% 0.63% 1.14% 0.74% 0.63% 2.22% 0.74% 0.63% 5.57% 0.75% 0.62% 2.99% 0.65% 0.62% 1.24% 0.71% 0.66% 0.43% 0.75% 0.65% 1.00% 0.74% 0.66% 2.17% 0.75% 0.65% 5.29% 0.75% 0.60% 2.98% 0.63% 0.62% 1.19% 0.71% 0.66% 0.32% 0.75% 0.65% 0.81% 0.74% 0.65% 1.90% 0.74% 0.66% 5.23% 0.76%
[THIS PAGE INTENTIONALLY LEFT BLANK] [THIS PAGE INTENTIONALLY LEFT BLANK] [THIS PAGE INTENTIONALLY LEFT BLANK] INVESTMENT ADVISER: Trusco Capital Management, Inc. 50 Hurt Plaza, Suite 1400 Atlanta, Georgia 30303 INVESTMENT SUBADVISER: Zevenbergen Capital Investments LLC 601 Union Street, Suite 4600 Seattle, Washington 98101 (Aggressive Growth Stock Fund and Emerging Growth Stock Fund) More information about the STI Classic Funds is available without charge through the following: STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI includes detailed information about the STI Classic Funds. The SAI is on file with the SEC and is incorporated by reference into this prospectus. This means that the SAI, for legal purposes, is a part of this prospectus. ANNUAL AND SEMI-ANNUAL REPORTS: These reports list each Fund's holdings and contain information from the Funds' managers about strategies and recent market conditions and trends and their impact on Fund performance. The reports also contain detailed financial information about the Funds. TO OBTAIN AN SAI, ANNUAL OR SEMI-ANNUAL REPORT, OR MORE INFORMATION: TELEPHONE: 1-888-STI-FUND MAIL: STI Classic Funds BISYS Fund Services Limited Partnership 3435 Stelzer Road Columbus, Ohio 43219 WEBSITE: www.sticlassicfunds.com SEC: You can also obtain the SAI or the Annual and Semi-Annual reports, as well as other information about the STI Classic Funds, from the EDGAR Database on the SEC's website at http://www.sec.gov. You may review and copy documents at the SEC Public Reference Room in Washington, DC (for information on the operation of the Public Reference Room, call 202-942-8090). You may request documents by mail from the SEC, upon payment of a duplicating fee, by writing to: Securities and Exchange Commission, Public Reference Section, Washington, DC 20549-0102. You may also obtain this information, upon payment of a duplicating fee, by e-mailing the SEC at publicinfo@sec.gov. The STI Classic Funds' Investment Company Act registration number is 811-06557. STI CLASSIC FUNDS PU-IRS-0806 STI CLASSIC FUNDS A Shares C Shares PROSPECTUS STI CLASSIC MONEY MARKET FUNDS Prime Quality Money Market Fund Tax-Exempt Money Market Fund U.S. Government Securities Money Market Fund U.S. Treasury Money Market Fund Virginia Tax-Free Money Market Fund Investment Adviser: Trusco Capital Management, Inc. (the "Adviser") August 1, 2006 The Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense. PROSPECTUS ABOUT THIS PROSPECTUS The STI Classic Funds is a mutual fund family that offers shares in separate investment portfolios that have individual investment goals and strategies. This prospectus gives you important information about the A Shares and C Shares of the Money Market Funds ("Funds") that you should know before investing. Please read this prospectus and keep it for future reference. This prospectus has been arranged into different sections so that you can easily review this important information. On the next page, there is some general information you should know about risk and return that is common to each of the Funds. For more detailed information about each Fund, please see: 2 PRIME QUALITY MONEY MARKET FUND 5 TAX-EXEMPT MONEY MARKET FUND 7 U.S. GOVERNMENT SECURITIES MONEY MARKET FUND 9 U.S. TREASURY MONEY MARKET FUND 11 VIRGINIA TAX-FREE MONEY MARKET FUND 13 MORE INFORMATION ABOUT RISK 13 MORE INFORMATION ABOUT FUND INVESTMENTS 14 THIRD-PARTY RATINGS 14 INVESTMENT ADVISER 14 PORTFOLIO MANAGERS 15 PURCHASING, SELLING AND EXCHANGING FUND SHARES 20 MARKET TIMING POLICIES AND PROCEDURES 21 DIVIDENDS AND DISTRIBUTIONS 21 TAXES 24 FINANCIAL HIGHLIGHTS INSIDE PRIVACY POLICY BACK COVER BACK HOW TO OBTAIN MORE INFORMATION COVER ABOUT THE STI CLASSIC FUNDS
- -------------------------------------------------------------------------------- (SUITCASE FUND SUMMARY ICON) (TELESCOPE INVESTMENT STRATEGY ICON) (LIFE WHAT ARE THE PRINCIPAL RISKS OF INVESTING? PRESERVER ICON) (TARGET PERFORMANCE INFORMATION ICON) (LINE WHAT IS AN AVERAGE? GRAPH ICON) (COIN FUND FEES AND EXPENSES ICON) (MOUNTAIN MORE INFORMATION ABOUT FUND INVESTMENTS ICON) (RIBBON THIRD-PARTY RATINGS ICON) (MAGNIFYING INVESTMENT ADVISER GLASS ICON) (HAND PURCHASING, SELLING AND EXCHANGING SHAKE FUND SHARES ICON) (DOLLAR SALES CHARGES ICON)
- -------------------------------------------------------------------------------- AUGUST 1, 2006 PROSPECTUS 1 CUSIP/TICKER SYMBOLS
FUND NAME CLASS INCEPTION TICKER CUSIP Prime Quality Money Market Fund A Shares 6/8/92 SQIXX 784766206 Prime Quality Money Market Fund C Shares 10/4/99 SQFXX 784767774 Tax-Exempt Money Market Fund A Shares 6/8/92 SEIXX 784766602 U.S. Government Securities Money Market Fund A Shares 6/8/92 SUIXX 784766404 U.S. Treasury Money Market Fund A Shares 11/12/03 SATXX 784767287 Virginia Tax-Free Money Market Fund A Shares 5/5/93 CIAXX 784767600
RISK/RETURN INFORMATION COMMON TO THE STI CLASSIC FUNDS Each Fund is a mutual fund. A mutual fund pools shareholders' money and, using professional investment managers, invests it in securities. Each Fund has its own investment goal and strategies for reaching that goal. The Adviser invests Fund assets in a way that it believes will help a Fund achieve its goal. Still, investing in each Fund involves risk and there is no guarantee that a Fund will achieve its goal. The Adviser's judgments about the markets, the economy or companies may not anticipate actual market movements, economic conditions or company performance, and these judgments may affect the return on your investment. In fact, no matter how good a job the Adviser does, you could lose money on your investment in the Fund, just as you could with other investments. A FUND SHARE IS NOT A BANK DEPOSIT AND IT IS NOT INSURED OR GUARANTEED BY THE FDIC OR ANY GOVERNMENT AGENCY. Each Fund's investment goal may be changed without shareholder approval. Before investing, make sure that the Fund's goal matches your own. PRIME QUALITY MONEY MARKET FUND 2 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL High current income, while preserving capital and liquidity INVESTMENT FOCUS Money market instruments PRINCIPAL INVESTMENT STRATEGY Attempts to identify money market instruments with the most attractive risk/return trade-off INVESTOR PROFILE Conservative investors who want to receive current income from their investment
(TELESCOPE ICON) INVESTMENT STRATEGY The Prime Quality Money Market Fund invests exclusively in high quality U.S. money market instruments and foreign money market instruments denominated in U.S. dollars. The Fund may invest a portion of its assets in securities that are restricted as to resale. In selecting investments for the Fund, the Adviser tries to increase income without adding undue risk. The Adviser analyzes maturity, yields, market sectors and credit risk. Investments are made in money market instruments with the most attractive risk/return trade-off. As a money market fund, the Fund follows strict rules about credit risk, maturity and diversification of its investments. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? An investment in the Fund is subject to income risk, which is the possibility that the Fund's yield will decline due to falling interest rates. A Fund share is not a bank deposit and is not insured or guaranteed by the FDIC or any government agency. In addition, although a money market fund seeks to keep a constant price per share of $1.00, you may lose money by investing in the Fund. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. Foreign securities involve special risks such as economic or financial instability, lack of timely or reliable financial information and unfavorable political or legal developments. Restricted securities may increase the level of illiquidity in the Fund during any period that qualified institutional buyers become uninterested in purchasing these restricted securities. The Adviser intends to invest only in restricted securities that it believes present minimal liquidity risk. PRIME QUALITY MONEY MARKET FUND PROSPECTUS 3 (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's A Shares from year to year.* (BAR CHART) 1996 4.82% 1997 4.97% 1998 4.92% 1999 4.56% 2000 5.86% 2001 3.54% 2002 1.26% 2003 0.49% 2004 0.66% 2005 2.55%
BEST QUARTER WORST QUARTER 1.51% 0.07% (9/30/00) (3/31/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 2.03%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the iMoneyNet, Inc. First Tier Retail Average. These returns reflect applicable sales charges and assumes shareholders redeem all of their shares at the end of the period indicated.
A SHARES 1 YEAR 5 YEARS 10 YEARS Prime Quality Money Market Fund 2.55% 1.69% 3.35% iMoneyNet, Inc. First Tier Retail Average 2.46% 1.65% 3.33%
C SHARES 1 YEAR 5 YEARS SINCE INCEPTION* Prime Quality Money Market Fund 1.51% 1.35% 2.04% iMoneyNet, Inc. First Tier Retail Average 2.46% 1.65% 2.41%
* Since inception of the C Shares on October 4, 1999. Benchmark returns since September 30, 1999 (benchmark returns available only on a month end basis). To obtain information about the Fund's current yield, call 1-888-STI-FUND. (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN AVERAGE? ------------------------------------------------------------- An average is a composite of mutual funds with similar investment goals. The iMoneyNet, Inc. First Tier Retail Average is a widely-recognized composite of money market funds that invest in securities rated in the highest category by at least two of the recognized rating agencies. The number of funds in the Average varies. PRIME QUALITY MONEY MARKET FUND 4 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
A SHARES C SHARES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None None Maximum Deferred Sales Charge (as a percentage of net asset value)* None 1.00%
* A 1% sales charge is imposed if you sell C Shares within one year of your purchase. See "Sales Charges." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
A SHARES C SHARES Investment Advisory Fees(1) 0.50% 0.50% Distribution and Service (12b-1) Fees 0.15%(2) 0.25% Other Expenses 0.06% 0.06% ------ ------ Total Annual Operating Expenses(3) 0.71% 0.81%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) Adjusted to reflect a reduction in 12b-1 fees effective August 1, 2005. The Fund's Distribution and Service Plan for A Shares authorizes payment of up to 0.20% of average daily net assets of A Shares for distribution and shareholder services. Currently, the Board of Trustees has only approved payment of up to 0.15% of average daily net assets. (3) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: If you sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $ 73 $227 $395 $ 883 C Shares $183 $259 $450 $1,002
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $73 $227 $395 $ 883 C Shares $83 $259 $450 $1,002
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." TAX-EXEMPT MONEY MARKET FUND PROSPECTUS 5 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL High current interest income exempt from federal income taxes, while preserving capital and liquidity INVESTMENT FOCUS Municipal money market instruments PRINCIPAL INVESTMENT STRATEGY Attempts to increase income without added risk by analyzing credit quality INVESTOR PROFILE Conservative investors who want to receive current tax-exempt income from their investment
(TELESCOPE ICON) INVESTMENT STRATEGY The Tax-Exempt Money Market Fund invests substantially all of its net assets in money market instruments issued by municipalities and issuers that pay income exempt from regular federal income taxes. In addition, the Fund may invest up to 20% of its net assets in securities subject to the alternative minimum tax. The Fund may invest a portion of its assets in securities that are restricted as to resale. In selecting investments for the Fund, the Adviser analyzes the credit quality and structure of each security to minimize risk. The Adviser actively manages the Fund's average maturity based on current interest rates and the Adviser's outlook of the market. As a money market fund, the Fund follows strict rules about credit risk, maturity and diversification of its investments. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? An investment in the Fund is subject to income risk, which is the possibility that the Fund's yield will decline due to falling interest rates. A Fund share is not a bank deposit and is not insured or guaranteed by the FDIC or any government agency. In addition, although a money market fund seeks to keep a constant price per share of $1.00, you may lose money by investing in the Fund. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. There may be economic or political changes that impact the ability of municipal issuers to repay principal and to make interest payments on municipal securities. Changes in the financial condition or credit rating of municipal issuers also may adversely affect the value of the Fund's securities. Restricted securities may increase the level of illiquidity in the Fund during any period that qualified institutional buyers become uninterested in purchasing these restricted securities. The Adviser intends to invest only in restricted securities that it believes present minimal liquidity risk. (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's A Shares from year to year.* (BAR CHART) 1996 2.94% 1997 3.11% 1998 2.90% 1999 2.69% 2000 3.57% 2001 2.13% 2002 0.79% 2003 0.42% 2004 0.63% 2005 1.80%
BEST QUARTER WORST QUARTER 0.95% 0.05% (6/30/00) (9/30/03)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 1.34%. TAX-EXEMPT MONEY MARKET FUND 6 PROSPECTUS - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the iMoneyNet, Inc. Tax-Free Retail Average. These returns reflect applicable sales charges and assumes shareholders redeem all of their shares at the end of the period indicated.
A SHARES 1 YEAR 5 YEARS 10 YEARS Tax-Exempt Money Market Fund 1.80% 1.15% 2.09% iMoneyNet, Inc. Tax-Free Retail Average 1.74% 1.15% 2.04%
To obtain information about the Fund's current yield, call 1-888-STI-FUND. (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN AVERAGE? ------------------------------------------------------------- An average is a composite of mutual funds with similar investment goals. The iMoneyNet, Inc. Tax-Free Retail Average is a widely-recognized composite of money market funds that invest in short-term municipal securities, the income of which is exempt from federal taxation. The number of funds in the Average varies. (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
A SHARES Investment Advisory Fees(1) 0.44% Distribution and Service (12b-1) Fees 0.15% Other Expenses 0.06% ----------------- Total Annual Operating Expenses(2) 0.65%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $66 $208 $362 $810
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." U.S. GOVERNMENT SECURITIES MONEY MARKET FUND PROSPECTUS 7 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL High current income, while preserving capital and liquidity INVESTMENT FOCUS U.S. Treasury and government agency securities, and repurchase agreements PRINCIPAL INVESTMENT STRATEGY Attempts to increase income without adding undue risk by analyzing yields INVESTOR PROFILE Conservative investors who want to receive current income
(TELESCOPE ICON) INVESTMENT STRATEGY The U.S. Government Securities Money Market Fund invests exclusively in U.S. Treasury obligations, obligations issued or guaranteed as to principal and interest by agencies or instrumentalities of the U.S. Government, repurchase agreements involving these securities, and shares of registered money market funds that invest in the foregoing. In selecting investments for the Fund, the Adviser tries to increase income without adding undue risk by analyzing yields. The Adviser actively manages the maturity of the Fund and its portfolio to maximize the Fund's yield based on current market interest rates and the Adviser's outlook on the market. As a money market fund, the Fund follows strict rules about credit risk, maturity and diversification of its investments. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? An investment in the Fund is subject to income risk, which is the possibility that the Fund's yield will decline due to falling interest rates. A Fund share is not a bank deposit and is not insured or guaranteed by the FDIC or any government agency. In addition, although a money market fund seeks to keep a constant price per share of $1.00, you may lose money by investing in the Fund. Although the Fund's U.S. government securities are considered to be among the safest investments, they are not guaranteed against price movements due to changing interest rates. (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's A Shares from year to year.* (BAR CHART) 1996 4.66% 1997 4.85% 1998 4.73% 1999 4.26% 2000 5.56% 2001 3.52% 2002 1.20% 2003 0.40% 2004 0.61% 2005 2.41%
BEST QUARTER WORST QUARTER 1.46% 0.06% (12/31/00) (9/30/03)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 1.91%. U.S. GOVERNMENT SECURITIES MONEY MARKET FUND 8 PROSPECTUS - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the iMoneyNet, Inc. Government & Agencies Retail Average. These returns reflect applicable sales charges and assumes shareholders redeem all of their shares at the end of the period indicated.
A SHARES 1 YEAR 5 YEARS 10 YEARS U.S. Government Securities Money Market Fund 2.41% 1.62% 3.21% iMoneyNet, Inc. Government & Agencies Retail Average 2.45% 1.64% 3.25%
To obtain information about the Fund's current yield, call 1-888-STI-FUND. (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN AVERAGE? ------------------------------------------------------------- An average is a composite of mutual funds with similar investment goals. The iMoneyNet, Inc. Government & Agencies Retail Average is a widely-recognized composite of money market funds that invest in U.S. Treasury bills, repurchase agreements or securities issued by agencies of the U.S. Government. The number of funds in the Average varies. (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
A SHARES Investment Advisory Fees(1) 0.55% Distribution and Service (12b-1) Fees(2) 0.15% Other Expenses 0.06% ----------------- Total Annual Operating Expenses(3) 0.76%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) Adjusted to reflect a reduction in 12b-1 fees effective August 1, 2005. The Fund's Distribution and Service Plan for A Shares authorizes payment of up to 0.17% of average daily net assets of A Shares for distribution and shareholder services. Currently, the Board of Trustees has only approved payment of up to 0.15% of average daily net assets. (3) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $78 $243 $422 $942
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." U.S. TREASURY MONEY MARKET FUND PROSPECTUS 9 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL High current income, while maintaining liquidity INVESTMENT FOCUS Money market instruments issued and guaranteed by the U.S. Treasury PRINCIPAL INVESTMENT STRATEGY Investing in U.S. Treasury obligations and repurchase agreements INVESTOR PROFILE Conservative investors who want to receive current income from their investment
(TELESCOPE ICON) INVESTMENT STRATEGY The U.S. Treasury Money Market Fund invests solely in U.S. Treasury obligations, repurchase agreements that are collateralized by obligations issued or guaranteed by the U.S. Treasury, and shares of registered money market funds that invest in the foregoing. The Fund limits its investments so as to obtain the highest investment quality rating by a nationally recognized statistical rating organization (AAAm by Standard and Poor's Corporation). As a money market fund, the Fund follows strict rules about credit risk, maturity and diversification of its investments. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? An investment in the Fund is subject to income risk, which is the possibility that the Fund's yield will decline due to falling interest rates. A Fund share is not a bank deposit and is not insured or guaranteed by the FDIC or any government agency. In addition, although a money market fund seeks to keep a constant price per share of $1.00, you may lose money by investing in the Fund. Although the Fund's U.S. Treasury securities are considered to be among the safest investments, they are not guaranteed against price movements due to changing interest rates. (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's A Shares from year to year.* (BAR CHART) 2004 0.57% 2005 2.34%
BEST QUARTER WORST QUARTER 0.78% 0.05% (12/31/05) (6/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 1.91%. U.S. TREASURY MONEY MARKET FUND 10 PROSPECTUS - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the iMoneyNet, Inc. Treasury & Repo Retail Average. These returns reflect applicable sales charges and assumes shareholders redeem all of their shares at the end of the period indicated.
SINCE A SHARES 1 YEAR INCEPTION* U.S. Treasury Money Market Fund 2.34% 1.39% iMoneyNet, Inc. Treasury & Repo Retail Average 2.39% 1.38%
* Since inception of the A Shares on November 12, 2003. Benchmark returns since October 31, 2003 (benchmark returns available only on a month end basis). To obtain information about the Fund's current yield, call 1-888-STI-FUND. (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN AVERAGE? ------------------------------------------------------------- An average is a composite of mutual funds with similar investment goals. The iMoneyNet, Inc. Treasury & Repo Retail Average is a widely- recognized composite of money market funds that invest in U.S. Treasury bills and repurchase agreements backed by these securities. The number of funds in the Average varies. (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
A SHARES Investment Advisory Fees(1) 0.54% Distribution and Service (12b-1) Fees 0.15% Other Expenses 0.05% ----------------- Total Annual Operating Expenses(2) 0.74%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $76 $237 $411 $918
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." VIRGINIA TAX-FREE MONEY MARKET FUND PROSPECTUS 11 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL High current income exempt from federal and Virginia income taxes, while preserving capital and liquidity INVESTMENT FOCUS Virginia municipal money market instruments PRINCIPAL INVESTMENT STRATEGY Attempts to increase income without added risk by analyzing credit quality INVESTOR PROFILE Virginia residents who want to receive current income exempt from federal and state income taxes
(TELESCOPE ICON) INVESTMENT STRATEGY The Virginia Tax-Free Money Market Fund invests substantially all of its assets in money market instruments issued by municipalities and issuers that pay income exempt from federal and Virginia income taxes. Issuers of these securities can be located in Virginia, Puerto Rico and other U.S. territories and possessions. In addition, the Fund may invest up to 20% of its net assets in securities subject to the alternative minimum tax. The Fund may invest a portion of its assets in securities that are restricted as to resale. In selecting investments for the Fund, the Adviser analyzes the credit quality and structure of each security to minimize risk. The Adviser actively manages the Fund's average maturity based on current interest rates and the Adviser's outlook of the market. As a money market fund, the Fund follows strict rules about credit risk, maturity and diversification of its investments. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? An investment in the Fund is subject to income risk, which is the possibility that the Fund's yield will decline due to falling interest rates. A Fund share is not a bank deposit and is not insured or guaranteed by the FDIC or any government agency. In addition, although a money market fund seeks to keep a constant price per share of $1.00, you may lose money by investing in the Fund. The Fund's concentration of investments in securities of issuers located in Virginia subjects the Fund to economic and government policies within Virginia. There may be economic or political changes that impact the ability of municipal issuers to repay principal and to make interest payments on municipal securities. Changes in the financial condition or credit rating of municipal issuers also may adversely affect the value of the Fund's securities. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. Restricted securities may increase the level of illiquidity in the Fund during any period that qualified institutional buyers become uninterested in purchasing these restricted securities. The Adviser intends to invest only in restricted securities that it believes present minimal liquidity risk. (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. This bar chart shows changes in the performance of the Fund's A Shares from year to year.* (BAR CHART) 1996 2.88 1997 3.07 1998 2.92 1999 2.71 2000 3.55 2001 2.14 2002 0.79 2003 0.45 2004 0.62 2005 1.83
BEST QUARTER WORST QUARTER 0.93% 0.06% (12/31/00) (9/30/03)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 1.34%. VIRGINIA TAX-FREE MONEY MARKET FUND 12 PROSPECTUS - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the iMoneyNet, Inc. Tax-Free Retail Average. These returns reflect applicable sales charges and assumes shareholders redeem all of their shares at the end of the period indicated.
A SHARES 1 YEAR 5 YEARS 10 YEARS Virginia Tax-Free Money Market Fund 1.83% 1.16% 2.09% iMoneyNet, Inc. Tax-Free Retail Average 1.74% 1.15% 2.04%
To obtain information about the Fund's current yield, call 1-888-STI-FUND. (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN AVERAGE? ------------------------------------------------------------- An average is a composite of mutual funds with similar investment goals. The iMoneyNet, Inc. Tax-Free Retail Average is a widely-recognized composite of money market funds that invest in short-term municipal securities, the income of which is exempt from federal taxation. The number of funds in the Average varies. (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
A SHARES Investment Advisory Fees 0.40% Distribution and Service (12b-1) Fees(1) 0.15% Other Expenses 0.06% ----------------- Total Annual Operating Expenses(2) 0.61%
(1) Adjusted to reflect a reduction in 12b-1 fees effective August 1, 2005. The Fund's Distribution and Service Plan for A Shares authorizes payment of up to 0.20% of average daily net assets of A Shares for distribution and shareholder services. Currently, the Board of Trustees has only approved payment of up to 0.15% of average daily net assets. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $62 $195 $340 $762
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." MORE INFORMATION ABOUT RISK PROSPECTUS 13 (LIFE PRESERVER ICON) MORE INFORMATION ABOUT RISK FIXED INCOME RISK Tax-Exempt Money Market Fund Virginia Tax-Free Money Market Fund The market value of fixed income investments changes in response to interest rate changes and other factors. During periods of falling interest rates, the values of outstanding fixed income securities generally rise. Moreover, while securities with longer maturities tend to produce higher yields, the prices of longer maturity securities are also subject to greater market fluctuations as a result of changes in interest rates. In addition to these fundamental risks, different types of fixed income securities may be subject to the following additional risks: MUNICIPAL ISSUER RISK Tax-Exempt Money Market Fund Virginia Tax-Free Money Market Fund There may be economic or political changes that impact the ability of municipal issuers to repay principal and to make interest payments on municipal securities. Changes to the financial condition or credit rating of municipal issuers may also adversely affect the value of a Fund's municipal securities. Constitutional or legislative limits on borrowing by municipal issuers may result in reduced supplies of municipal securities. Moreover, certain municipal securities are backed only by a municipal issuer's ability to levy and collect taxes. In addition, a Fund's concentration of investments in issuers located in a single state makes the Fund more susceptible to adverse political or economic developments affecting that state. The Fund also may be riskier than mutual funds that buy securities of issuers in numerous states. REGIONAL RISK Virginia Tax-Free Money Market Fund To the extent that the Fund's investments are concentrated in a specific geographic region, the Fund may be subject to political and other developments affecting that region. Regional economies are often closely interrelated, and political and economic developments affecting one region, country or state often affect other regions, countries or states, thus subjecting the Fund to additional risks. CREDIT RISK Prime Quality Money Market Fund Tax-Exempt Money Market Fund Virginia Tax-Free Money Market Fund The possibility that an issuer will be unable to make timely payments of either principal or interest. FOREIGN SECURITY RISK Prime Quality Money Market Fund Investments in securities of foreign companies or governments can be more volatile than investments in U.S. companies or governments. Diplomatic, political, or economic developments, including nationalization or appropriation, could affect investments in foreign countries. Foreign securities markets generally have less trading volume and less liquidity than U.S. markets. Foreign companies or governments generally are not subject to uniform accounting, auditing, and financial reporting standards comparable to those applicable to domestic U.S. companies or governments. Transaction costs are generally higher than those in the U.S. and expenses for custodial arrangements of foreign securities may be somewhat greater than typical expenses for custodial arrangements of similar U.S. securities. Some foreign governments levy withholding taxes against dividend and interest income. Although in some countries a portion of these taxes are recoverable, the non-recovered portion will reduce the income received from the securities comprising the portfolio. (MOUNTAIN ICON) MORE INFORMATION ABOUT FUND INVESTMENTS This prospectus describes the Funds' primary strategies, and the Funds will normally invest in the types of securities described in this prospectus. However, in addition to the investments and strategies described in this prospectus, each Fund also may invest in other securities, use other strategies and engage in other investment practices. These investments and strategies, as well as those described in this prospectus, are described in detail in the Statement of Additional Information. Of course, a Fund cannot guarantee that it will achieve its investment goal. THIRD-PARTY RATINGS 14 PROSPECTUS (RIBBON ICON) THIRD-PARTY RATINGS The U.S. Government Securities Money Market Fund and the U.S. Treasury Money Market Fund have been rated AAAm by Standard & Poor's Rating Services and Aaa by Moody's Investor Services, Inc. The National Association of Insurance Commissioners has approved the U.S. Government Securities Money Market Fund and the U.S. Treasury Money Market Fund as eligible investments for insurance companies. INFORMATION ABOUT PORTFOLIO HOLDINGS A description of the Funds' policies and procedures with respect to the circumstances under which the Funds disclose their portfolio securities is available in the Statement of Additional Information. (MAGNIFIYING GLASS ICON) INVESTMENT ADVISER Trusco Capital Management, Inc., 50 Hurt Plaza, Suite 1400, Atlanta, Georgia 30303 ("Trusco" or the "Adviser"), serves as the investment adviser to the Funds. As of June 30, 2006, the Adviser had approximately $71 billion in assets under management. For the fiscal year ended March 31, 2006, the Funds paid the Adviser advisory fees (after waivers) based on the respective Fund's average daily net assets of: Prime Quality Money Market Fund 0.52% Tax-Exempt Money Market Fund 0.45% U.S. Government Securities Money Market Fund 0.56% U.S. Treasury Money Market Fund 0.55% Virginia Tax-Free Money Market Fund 0.40%
Since August 1, 2005 the following breakpoints have been used in computing the advisory fee:
AVERAGE DAILY NET ASSETS DISCOUNT FROM FULL FEE - ------------------------ ---------------------- First $1 billion None-Full Fee Next $1.5 billion 5% Next $2.5 billion 10% Over $5 billion 20%
Based on average daily net assets for the fiscal year ended March 31, 2006, the asset levels of the following Funds had reached a breakpoint in the advisory fee.* Had the Funds' asset levels been lower, the Adviser may have been entitled to receive maximum advisory fees as follows: Prime Quality Money Market Fund 0.55% Tax-Exempt Money Market Fund 0.45% U.S. Treasury Money Market Fund 0.55%
* Fund expenses in the "Annual Fund Operating Expenses" tables shown earlier in this prospectus reflect the advisory breakpoints. A discussion regarding the basis for the Board of Trustees' approval of the investment advisory contract with the Adviser appears in the Funds' semi-annual report to shareholders for the period ended September 30, 2005. The Adviser makes investment decisions for the Funds and continuously reviews, supervises and administers each Fund's respective investment program. The Board of Trustees supervises the Adviser and establishes policies that the Adviser must follow in its management activities. The Adviser may use its affiliates as brokers for Fund transactions. An investment adviser has a fiduciary obligation to its clients when the adviser has authority to vote their proxies. Under the current contractual agreement, the Adviser is authorized to vote proxies on behalf of each Fund. Information regarding the Adviser's, and thus each Fund's, Proxy Voting Policies and Procedures is provided in the Statement of Additional Information. A copy of the Funds' Proxy Voting Policies and Procedures may be obtained by contacting the STI Classic Funds at 1-888-STI-FUND, or by visiting www.sticlassicfunds.com. PORTFOLIO MANAGERS The following individuals are primarily responsible for the day-to-day management of the Funds. Mr. Robert S. Bowman, CFA, has served as Managing Director of Trusco since January 1999. He has managed the VIRGINIA TAX-FREE MONEY MARKET FUND since May 1995 and the TAX-EXEMPT MONEY MARKET FUND since July 2000. He has more than 15 years of investment experience. Mr. Greg Hallman has served as Vice President of Trusco since February 2006 after serving as Associate since November 1999. He has co-managed the PRIME QUALITY MONEY MARKET FUND and the U.S. TREASURY MONEY MARKET FUND since November 2004 and the U.S. GOVERNMENT SECURITIES MONEY MARKET FUND PURCHASING, SELLING AND EXCHANGING FUND SHARES PROSPECTUS 15 since August 2006. He has more than 7 years of investment experience. Ms. Kimberly C. Maichle, CFA, has served as Director of Trusco since February 2006 after serving as Vice President since July 1995. She has co-managed the PRIME QUALITY MONEY MARKET FUND and the U.S. TREASURY MONEY MARKET FUND since November 2004 and the U.S. GOVERNMENT SECURITIES MONEY MARKET FUND since August 2006. She has more than 17 years of investment experience. Mr. E. Dean Speer, CFA, CPA, has served as Director of Trusco since February 2006 after serving as Vice President since June 2001. He has co-managed the PRIME QUALITY MONEY MARKET FUND and the U.S. TREASURY MONEY MARKET FUND since January 2005 and the U.S. GOVERNMENT SECURITIES MONEY MARKET FUND since August 2006. He has more than 8 years of investment experience. The Statement of Additional Information provides additional information regarding the Funds' portfolio managers' compensation, other accounts managed by the portfolio managers and the portfolio managers' ownership of securities of the Funds. (HAND SHAKE ICON) PURCHASING, SELLING AND EXCHANGING FUND SHARES This section tells you how to purchase, sell (sometimes called "redeem") and exchange A Shares and C Shares of the Funds. C Shares of the Prime Quality Money Market Fund are available only through exchanges of C Shares of other STI Classic Funds. C Shares of the Prime Quality Money Market Fund (i) are subject to a 1% contingent deferred sales charge ("CDSC") if you redeem your shares within one year of the date you purchased the original STI Classic Fund C Shares and (ii) have higher annual expenses than A Shares of the Prime Quality Money Market Fund. HOW TO PURCHASE FUND SHARES You may purchase shares of the Funds through financial institutions or intermediaries that are authorized to place transactions in Fund shares for their customers. Please contact your financial institution or intermediary directly and follow its procedures for fund share transactions. Your financial institution or intermediary may charge a fee for its services, in addition to the fees charged by a Fund. You will also generally have to address your correspondence or questions regarding a Fund to your financial institution or intermediary. Your investment professional can assist you in opening a brokerage account that will be used for purchasing shares of STI Classic Funds. Shareholders who purchased shares directly from the Funds may purchase additional Fund shares by: - - Mail - - Telephone (1-888-STI-FUND) - - Wire - - Fax (1-800-451-8377) - - Automated Clearing House ("ACH") The Funds do not accept cash, credit card checks, third-party checks, travelers' checks, money orders, bank starter checks, or checks drawn in a foreign currency, as payment for Fund shares. If you pay with a check or ACH transfer that does not clear or if your payment is not received in a timely manner, your purchase may be canceled. You will be responsible for any losses or expenses incurred by the Fund or transfer agent, and the Fund can redeem shares you own in this or another identically registered STI Classic Funds account as reimbursement. WHEN CAN YOU PURCHASE SHARES? You may purchase shares on any day that the New York Stock Exchange ("NYSE") and the Federal Reserve are open for business (a "Business Day"). The price per share (the offering price) will be the net asset value per share ("NAV") next determined after the Funds receive your purchase order in proper form. Each Fund calculates its NAV once each Business Day at the regularly-scheduled close of normal trading on the NYSE (normally 4:00 p.m., Eastern Time.) So, for you to be eligible to receive dividends declared on the day you submit your purchase order, a Fund or its authorized agent must receive your order in proper form before 10:30 a.m., Eastern Time for the Tax-Exempt Money Market Fund and Virginia Tax-Free Money Market Fund or before 3:00 p.m., Eastern Time for the Prime Quality Money Market Fund, U.S. Government Securities Money Market Fund and U.S. Treasury Money Market Fund. If the NYSE closes early - such as on days in advance of certain holidays - the Funds will calculate NAV as of the earlier closing PURCHASING, SELLING AND EXCHANGING FUND SHARES 16 PROSPECTUS time. The Funds will not accept orders that request a particular day or price for the transaction or any other special conditions. Also each Fund must receive federal funds (readily available funds) before 6:00 p.m., Eastern Time. Otherwise, your purchase order will be effective the following Business Day, as long as each Fund receives federal funds before the Funds calculate their NAV the following day. YOU MAY HAVE TO TRANSMIT YOUR PURCHASE, SALE AND EXCHANGE REQUESTS TO YOUR FINANCIAL INSTITUTION OR INTERMEDIARY AT AN EARLIER TIME FOR YOUR TRANSACTION TO BECOME EFFECTIVE THAT DAY. THIS ALLOWS THE FINANCIAL INSTITUTION OR INTERMEDIARY TIME TO PROCESS YOUR REQUEST AND TRANSMIT IT TO THE TRANSFER AGENT IN TIME TO MEET THE ABOVE STATED FUND CUT-OFF TIMES. FOR MORE INFORMATION ABOUT HOW TO PURCHASE, SELL OR EXCHANGE FUND SHARES, INCLUDING SPECIFIC FINANCIAL INSTITUTION'S OR INTERMEDIARY'S INTERNAL ORDER ENTRY CUT-OFF TIMES, PLEASE CONTACT YOUR FINANCIAL INSTITUTION DIRECTLY. A Fund may reject any purchase order. HOW THE FUNDS CALCULATE NAV NAV is calculated by adding the total value of a Fund's investments and other assets, subtracting its liabilities and then dividing that figure by the number of outstanding shares of the Fund. In calculating NAV, each Fund generally values its investment portfolio using the amortized cost valuation method, which is described in detail in the Statement of Additional Information. If the Adviser determines in good faith that this method is unreliable during certain market conditions or for other reasons, a Fund may value its portfolio at market price or at fair value as determined in good faith using methods approved by the Board of Trustees. Each Fund expects its NAV to remain constant at $1.00 per share, although the Fund cannot guarantee this. Each Fund expects its NAV to remain constant at $1.00 per share, although the Fund cannot guarantee this. MINIMUM PURCHASES To purchase A Shares for the first time, you must invest at least $2,000 in any Fund. Purchases of C Shares of the Prime Quality Money Market Fund requested in an amount of $1,000,000 or more will automatically be made in A Shares of that Fund. Your subsequent investments in any Fund must be made in amounts of at least $1,000 or, if you pay by a statement coupon, $100. A Fund may accept investments of smaller amounts at its discretion. SYSTEMATIC INVESTMENT PLAN If you have a checking or savings account with a bank, you may purchase A Shares automatically through regular deductions from your bank account. With a $500 minimum initial investment, you may begin regularly-scheduled investments of $50 or more once or twice a month. The Distributor may close your account if you do not meet this minimum investment requirement at the end of two years. CUSTOMER IDENTIFICATION FOREIGN INVESTORS To purchase shares of the Funds, you must be a U.S. citizen residing in the U.S. or its territories or a U.S. entity with a U.S. tax identification number. If you owned shares on July 31, 2006, you may keep your account open even if you do not reside in the U.S. or its territories, but you may not make additional purchases or exchanges. These restrictions do not apply to investors with U.S. military APO or FPO addresses. CUSTOMER IDENTIFICATION AND VERIFICATION To help the government fight the funding of terrorism and money laundering activities, federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account. When you open an account, you will be asked to provide your name, residential street address, date of birth, Social Security number or tax identification number. You may also be asked for other information that will allow us to identify you. Entities are also required to provide additional documentation. This information will be verified to ensure the identity of all persons opening a mutual fund account. In certain instances, the Funds are required to collect documents to fulfill its legal obligation. Documents provided in connection with your application will be used solely to establish and verify a customer's identity. PURCHASING, SELLING AND EXCHANGING FUND SHARES PROSPECTUS 17 The Funds are required by law to reject your new account application if the required identifying information is not provided. Attempts to collect the missing information required on the application will be performed by either contacting you or, if applicable, your broker. If this information is unable to be obtained within a timeframe established in the sole discretion of the Funds, your application will be rejected. Upon receipt of your application in proper form (or upon receipt of all identifying information required on the application), your investment will be accepted and your order will be processed at the NAV next-determined. However, the Funds reserve the right to close your account at the then-current day's price if the Funds are unable to verify your identity. Attempts to verify your identity will be performed within a timeframe established in the sole discretion of the Funds. If the Funds are unable to verify your identity, the Funds reserve the right to liquidate your account at the then-current day's price and remit proceeds to you via check. The Funds reserve the further right to hold your proceeds until your original check clears the bank. In such an instance, you may be subject to a gain or loss on Fund shares and will be subject to corresponding tax implications. ANTI-MONEY LAUNDERING PROGRAM Customer identification and verification is part of the Funds' overall obligation to deter money laundering under federal Law. The Funds have adopted an anti-money laundering compliance program designed to prevent the Funds from being used for money laundering or the financing of terrorist activities. In this regard, the Funds reserve the right to (i) refuse, cancel or rescind any purchase or exchange order, (ii) freeze any account and/or suspend account services, or (iii) involuntarily redeem your account in cases of threatening conduct or suspected fraudulent or illegal activity. These actions will be taken when, in the sole discretion of Fund management, they are deemed to be in the best interest of the Funds or in cases when the Funds are requested or compelled to do so by governmental or law enforcement authority. (DOLLAR ICON) SALES CHARGES CONTINGENT DEFERRED SALES CHARGES (CDSC) - C SHARES You do not pay a sales charge when you purchase C Shares. The offering price of C Shares is simply the next calculated NAV. But if you sell your shares within the first year after your purchase, you will pay a CDSC equal to 1% of either (1) the NAV of the shares at the time of purchase, or (2) NAV of the shares next calculated after the Fund receives your sale request, whichever is less. The Fund will use the first-in, first-out (FIFO) method to determine the holding period. So, you never pay a deferred sales charge on any increase in your investment above the initial offering price. The sales charge does not apply to shares you purchase through reinvestment of dividends or distributions or to exchanges of C Shares of one Fund for C Shares of another Fund. WAIVER OF CDSC The CDSC will be waived if you sell your C Shares for the following reasons: - - Death or Postpurchase Disablement (as defined in Section 72(m)(7) of the Internal Revenue Code) - You are shareholder/joint shareholder or participant/beneficiary of certain retirement plans; - You die or become disabled after the account is opened; - Redemption must be made within 1 year of such death/disability; - The Fund must be notified in writing of such death/disability at time of redemption request; - The Fund must be provided with satisfactory evidence of death (death certificate) or disability (doctor's certificate specifically referencing disability as defined in 72(m)(7) referenced above). - - Shares purchased through dividend and capital gains reinvestment. - - Participation in the Systematic Withdrawal Plan described below: - Withdrawal not to exceed 10% of the current balance of a Fund in a 12 month period, the 10% amount will be calculated as of the date of the initial Systematic Withdrawal Plan and recalculated PURCHASING, SELLING AND EXCHANGING FUND SHARES 18 PROSPECTUS annually on the 12 month anniversary date. Shares purchased through dividend or capital gains reinvestment, although not subject to the CDSC, will be included in calculating the account value and 10% limitation amount; - If the total of all Fund account withdrawals (Systematic Withdrawal Plan or otherwise) exceeds the 10% limit within the 12 month period following the initial calculation date, the entire Systematic Withdrawal Plan for the period will be subject to the applicable sales charge, in the initial year of a Systematic Withdrawal Plan, the withdrawal limitation period shall begin 12 months before the initial Systematic Withdrawal Plan payment; - To qualify for the CDSC waiver under the Systematic Withdrawal Plan a Fund account must have a minimum of $25,000 at Systematic Withdrawal Plan inception and must also reinvest dividends and capital gains distributions. - - Required mandatory minimum withdrawals made after 70 1/2 under any retirement plan qualified under IRS Code Section 401, 408 or 403(b) or resulting from the tax free return of an excess distribution to an Individual Retirement Account (IRA). Satisfactory qualified plan documentation to support any waiver includes employer letter (separation from services) and plan administrator certificate (certain distributions under plan requirements). - - Permitted exchanges of shares, except if shares acquired by exchange are then redeemed within the period during which a CDSC would apply to the initial shares purchased. - - Exchanges in connection with plans of Fund reorganizations such as mergers and acquisitions. To take advantage of any of these waivers, you must qualify in advance. To see if you qualify, please call your investment professional or other investment representative. These waivers are subject to change or elimination at any time at the discretion of the Funds. OFFERING PRICE OF FUND SHARES The offering price of A Shares and C Shares is the NAV next calculated after the transfer agent receives your request in proper form. You can also obtain this information about sales charges, rights of accumulation and letters of intent on the Funds' website at www.sticlassicfunds.com. HOW TO SELL YOUR FUND SHARES If you own your shares through an account with a broker or other financial institution or intermediary, contact that broker, financial institution or intermediary to sell your shares. Shareholders who purchased shares directly from the Funds may sell their Fund Shares by: - - Mail - - Telephone (1-888-STI-FUND) - - Wire - - Fax (1-800-451-8377) - - ACH A MEDALLION SIGNATURE GUARANTEE] by a bank or other financial institution (a notarized signature is not sufficient) is required to redeem shares: - - made payable to someone other than the registered shareholder; - - sent to an address or bank account other than the address or bank account of record; or - - sent to an address or bank account of record that has been changed within the last 15 calendar days. ] MEDALLION SIGNATURE GUARANTEE: A Medallion Signature Guarantee verifies the authenticity of your signature and helps ensure that changes to your account are in fact authorized by you. A Medallion Signature Guarantee may be obtained from a domestic bank or trust company, broker, dealer, clearing agency, savings association or other financial institution participating in a Medallion Program recognized by the Securities Trading Association. Signature guarantees from financial institutions that do not reflect one of the following are not part of the program and will not be accepted. The acceptable Medallion programs are Securities Transfer Agents Medallion Program, (STAMP), Stock Exchange Medallion Program, (SEMP), or the New York Stock Exchange, Inc. Medallion Program, (NYSE MSP). Contact your local financial adviser for further assistance. PURCHASING, SELLING AND EXCHANGING FUND SHARES PROSPECTUS 19 The sale price of each share will be the next NAV determined after the Funds receive your request less, in the case of C Shares of the Prime Quality Money Market Fund, any applicable CDSC. Redemption orders must be received by the Funds on any Business Day before 10:30 a.m., Eastern Time for the Tax-Exempt Money Market Fund and Virginia Tax-Free Money Market Fund or 3:00 p.m., Eastern Time for the Prime Quality Money Market Fund, U.S. Government Securities Money Market Fund and U.S. Treasury Money Market Fund. Orders received after these times will be executed the following Business Day. SYSTEMATIC WITHDRAWAL PLAN If you have at least $10,000 in your account, you may use the systematic withdrawal plan. Under the plan you may arrange monthly, quarterly, semi-annual or annual automatic withdrawals of at least $50 from any Fund. The proceeds of each withdrawal will be mailed to you by check or, if you have a checking or savings account with a bank, may be electronically transferred to your account. Please check with your bank. Withdrawals under the Systematic Withdrawal Plan may be subject to a CDSC unless they meet the requirements described above under "Waiver of the CDSC." RECEIVING YOUR MONEY Normally, the Funds will send your sale proceeds within five Business Days after the Funds receive your request, but a Fund may take up to seven days to pay the sale proceeds if making immediate payment would adversely affect the Fund (for example, to allow the Fund to raise capital in the case of a large redemption). Your proceeds can be wired to your bank account (subject to a fee) or sent to you by check. IF YOU RECENTLY PURCHASED YOUR SHARES BY CHECK OR THROUGH ACH, REDEMPTION PROCEEDS MAY NOT BE AVAILABLE UNTIL YOUR FUNDS HAVE CLEARED (WHICH MAY TAKE UP TO 15 CALENDAR DAYS FROM YOUR DATE OF PURCHASE). REDEMPTIONS IN KIND The Funds generally pay redemption proceeds in cash. However, under unusual conditions that make the payment of cash unwise (and for the protection of the Funds' remaining shareholders), the Funds might pay all or part of your redemption proceeds in liquid securities with a market value equal to the redemption price (redemption in kind). It is highly unlikely that your shares would ever be redeemed in kind, but if they were you would probably have to pay transaction costs to sell the securities distributed to you, as well as taxes on any capital gains from the sale as with any redemption. INVOLUNTARY SALES OF YOUR SHARES If your account balance drops below the required $2,000 as a result of redemptions, you may be required to sell your shares. But, the Funds will always give you at least 60 days written notice to give you time to add to your account and avoid the sale of your shares. SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES A Fund may suspend your right to sell your shares if the NYSE restricts trading, the SEC declares an emergency or for other reasons approved by the SEC. More information about this is in the Statement of Additional Information. HOW TO EXCHANGE YOUR SHARES You may exchange your shares on any Business Day by contacting the Funds or your financial institution or intermediary by mail or telephone. Exchange requests must be for an amount of at least $1,000. The exchange privilege is not intended as a vehicle for short-term trading. Excessive exchange activity may interfere with Fund management and may have an adverse effect on all shareholders. In order to limit excessive exchange activity and in other circumstances where it is in the best interests of a Fund, all Funds reserve the right to revise or terminate the exchange privilege, limit the amount or number of exchanges or reject any exchange or restrict or refuse purchases if (1) a Fund or its manager(s) believes the Fund would be harmed or unable to invest effectively, or (2) a Fund receives or anticipates orders that may dramatically affect the Fund as outlined under "Market Timing Policies and Procedures" below. IF YOU RECENTLY PURCHASED SHARES BY CHECK OR THROUGH ACH, YOU MAY NOT BE ABLE TO EXCHANGE YOUR SHARES UNTIL YOUR FUNDS HAVE CLEARED (WHICH MAY TAKE UP TO 15 CALENDAR DAYS FROM YOUR DATE OF PURCHASE). This exchange privilege may be changed or canceled at any time upon 60 days notice. MARKET TIMING POLICIES AND PROCEDURES 20 PROSPECTUS EXCHANGES When you exchange shares, you are really selling your shares of one Fund and buying shares of another STI Classic Fund. So, your sale price and purchase price will be based on the NAV next calculated after the Funds receive your exchange request in proper form. A SHARES You may exchange A Shares of any Fund for A Shares of any other STI Classic Fund. If you exchange shares that you purchased without a sales charge or with a lower sales charge into an STI Classic Fund with a sales charge or with a higher sales charge, the exchange is subject to a sales charge equal to the difference between the lower and higher applicable sales charges. If you exchange shares into an STI Classic Fund with the same, lower or no sales charge there is no sales charge for the exchange. The amount of your exchange must meet any initial or subsequent purchase minimums applicable to the STI Classic Fund into which you are making the exchange. C SHARES You may exchange C Shares of any Fund for C Shares of any other STI Classic Fund. For purposes of computing the CDSC applicable to C Shares, the length of time you have owned your shares will be measured from the original date of purchase and will not be affected by any exchange. TELEPHONE TRANSACTIONS Purchasing, selling and exchanging Fund shares over the telephone is extremely convenient, but not without risk. Although the Funds have certain safeguards and procedures to confirm the identity of callers and the authenticity of instructions, the Funds are not responsible for any losses or costs incurred by following telephone instructions the Funds reasonably believe to be genuine. If you or your financial institution or intermediary transact with the Funds over the telephone, you will generally bear the risk of any loss. The Funds reserve the right to modify, suspend or terminate telephone transaction privileges at any time. To redeem shares by telephone: - - redemption checks must be made payable to the registered shareholder; and - - redemption checks must be mailed to an address or wired to a bank account of record that has been associated with the shareholder account for at least 15 calendar days. MARKET TIMING POLICIES AND PROCEDURES Each Fund is a money market fund and seeks to provide a high degree of liquidity, current income and a stable net asset value of $1.00 per share. Each Fund is designed to serve as a short-term cash equivalent investment for shareholders and, therefore, expects shareholders to engage in frequent purchases and redemptions. Because of the inherently liquid nature of each Fund's investments, and money market instruments in general, and each Fund's intended purpose to serve as a short-term investment vehicle for shareholders, the Adviser has informed the Board of Trustees that it believes that it would not be in shareholders' best interests to place any limitations on the frequency of shareholder purchases and redemptions into and out of a Fund. As a result, the Board has not adopted a Fund policy or procedures with respect to frequent purchases and redemptions. DISTRIBUTION OF FUND SHARES Each Fund has adopted a distribution plan that allows the Fund to pay distribution and service fees for the sale and distribution of its shares, and for services provided to shareholders. Because these fees are paid out of a Fund's assets continuously, over time these fees will increase the cost of your investment and may cost you more than paying other types of sales charges. For A Shares, each Fund's distribution plan authorizes payment of up to the amount shown under "Maximum Fee" in the table that follows. Currently, however, the Board of Trustees has only approved payment of up to the amount shown under "Current Approved Fee" in DIVIDENDS, DISTRIBUTIONS AND TAXES PROSPECTUS 21 the table that follows. Fees are shown as a percentage of the average daily net assets of A Shares.
CURRENT MAXIMUM FEE APPROVED FEE Prime Quality Money Market Fund 0.20% 0.15% Tax-Exempt Money Market Fund 0.15% 0.15% U.S. Government Securities Money Market Fund 0.17% 0.15% U.S. Treasury Money Market Fund 0.15% 0.15% Virginia Tax-Free Money Market Fund 0.20% 0.15%
For C Shares of the Prime Quality Money Market Fund, the maximum distribution fee is 0.25% of the average daily net assets of the Fund's C Shares. The distributor may provide financial assistance in connection with pre-approved seminars, conferences and advertising to the extent permitted by applicable state or self-regulatory agencies, such as the National Association of Securities Dealers. From its own assets, the Adviser or its affiliates may make payments based on gross sales and current assets to selected brokerage firms or institutions. The amount of these payments may be substantial. The minimum aggregate sales required for eligibility for such payments, and the factors in selecting the brokerage firms and institutions to which they will be made, are determined from time to time by the Adviser. Furthermore, in addition to the fees that may be paid by the Funds, the Adviser or its affiliates may pay fees from its own capital resources to brokers, banks, financial advisers, retirement plan service providers and other financial intermediaries, including affiliates, for providing distribution-related or shareholder services. DIVIDENDS AND DISTRIBUTIONS Each Fund declares dividends daily and pays these dividends monthly. Each Fund makes distributions of its net realized capital gains, if any, at least annually. If you own Fund shares on a Fund's record date, you will be entitled to receive the distribution. You will receive dividends and distributions in the form of additional Fund shares unless you elect to receive payment in cash. To elect cash payment, you must notify the Fund in writing prior to the date of the distribution. Your election will be effective for dividends and distributions paid after the Fund receives your written notice. To cancel your election, simply send the Fund written notice. TAXES PLEASE CONSULT YOUR TAX ADVISOR REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL, STATE AND LOCAL INCOME TAXES. Below the Funds have summarized some important tax issues that affect the Funds and their shareholders. This summary is based on current tax laws, which may change. Each Fund will distribute substantially all of its net investment income and its net realized capital gains, if any, at least annually. The dividends and distributions you receive may be subject to federal, state and local taxation, depending upon your tax situation. Distributions you receive from a Fund may be taxable whether or not you reinvest them. Income distributions are generally taxable at ordinary income tax rates and will not qualify for the reduced rates applicable to qualified dividend income. Each Fund will inform you of the amount of your ordinary income dividends. EACH SALE OR EXCHANGE OF FUND SHARES MAY BE A TAXABLE EVENT; HOWEVER, BECAUSE THE FUND EXPECTS TO MAINTAIN A STABLE $1.00 NET ASSET VALUE PER SHARE, YOU SHOULD NOT EXPECT TO REALIZE ANY GAIN OR LOSS ON THE SALE OR EXCHANGE OF YOUR FUND SHARES. A TRANSFER FROM ONE SHARE CLASS TO ANOTHER SHARE CLASS IN THE SAME STI CLASSIC FUND SHOULD NOT BE A TAXABLE EVENT. If you have a tax-advantaged or other retirement account you will generally not be subject to federal taxation on income and capital gain distributions until you begin receiving your distributions from your retirement account. You should consult your tax advisor regarding the rules governing your own retirement plan. The Tax-Exempt Money Market Fund and Virginia Tax-Free Money Market Fund intend to distribute federally tax-exempt income. Both of these Funds may invest a DIVIDENDS, DISTRIBUTIONS AND TAXES 22 PROSPECTUS portion of their assets in securities that generate taxable income for federal or state income taxes. Income exempt from federal tax may be subject to state and local taxes. Any capital gains distributed by the Funds may be taxable. The Prime Quality Money Market Fund, the U.S. Government Securities Money Market Fund and the U.S. Treasury Money Market Fund expect to distribute primarily ordinary income. In addition, a significant portion of each of these three Funds' distributions may represent interest earned on U.S. obligations. Many states grant tax-free status to dividends paid from interest earned on direct obligations of the U.S. Government, subject to certain limitations. MORE INFORMATION ABOUT TAXES IS IN THE STATEMENT OF ADDITIONAL INFORMATION. PROSPECTUS 23 [THIS PAGE INTENTIONALLY LEFT BLANK] FINANCIAL HIGHLIGHTS 24 PROSPECTUS FINANCIAL HIGHLIGHTS The financial highlights table is intended to help you understand a Fund's financial performance for the period of the Fund's (and its predecessor's) operations. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This financial information has been audited by PricewaterhouseCoopers LLP except the information for the year ended May 31, 2001 which has been audited by a predecessor independent accounting firm that has ceased operations. The Report of the Independent Registered Public Accounting Firm for each period shown, along with the Funds' financial statements and related notes, are included in the Annual Reports to Shareholders for such periods. The 2006 Annual Report is available upon request and without charge by calling 1-888-STI-FUND or on the Funds' website at www.sticlassicfunds.com. For a Share Outstanding Throughout the Period
NET ASSET NET REALIZED DIVIDENDS DISTRIBUTION VALUE, NET GAIN (LOSS) FROM NET FROM BEGINNING INVESTMENT ON TOTAL FROM INVESTMENT REALIZED OF PERIOD INCOME INVESTMENTS OPERATIONS INCOME CAPITAL GAINS --------- ------ ----------- ---------- ------ ------------- PRIME QUALITY MONEY MARKET FUND A SHARES Year Ended March 31, 2006....... $1.00 0.03 -- 0.03 (0.03) -- Period Ended March 31, 2005**... $1.00 0.01 -- 0.01 (0.01) -- Year Ended May 31, 2004......... $1.00 --* -- --* --* --* Year Ended May 31, 2003......... $1.00 0.01 -- 0.01 (0.01) --* Year Ended May 31, 2002......... $1.00 0.02 -- 0.02 (0.02) -- Year Ended May 31, 2001......... $1.00 0.05 -- 0.05 (0.05) -- C SHARES Year Ended March 31, 2006....... $1.00 0.03 -- 0.03 (0.03) -- Period Ended March 31, 2005**... $1.00 0.01 -- 0.01 (0.01) -- Year Ended May 31, 2004......... $1.00 --* -- --* --* --* Year Ended May 31, 2003......... $1.00 0.01 -- 0.01 (0.01) --* Year Ended May 31, 2002......... $1.00 0.01 -- 0.01 (0.01) -- Year Ended May 31, 2001......... $1.00 0.05 -- 0.05 (0.05) -- TAX-EXEMPT MONEY MARKET FUND A SHARES Year Ended March 31, 2006....... $1.00 0.02 -- 0.02 (0.02) --* Period Ended March 31, 2005**... $1.00 0.01 -- 0.01 (0.01) --* Year Ended May 31, 2004......... $1.00 --* -- --* --* --* Year Ended May 31, 2003......... $1.00 0.01 -- 0.01 (0.01) --* Year Ended May 31, 2002......... $1.00 0.01 -- 0.01 (0.01) --* Year Ended May 31, 2001......... $1.00 0.03 -- 0.03 (0.03) -- U.S. GOVERNMENT SECURITIES MONEY MARKET FUND A SHARES Year Ended March 31, 2006....... $1.00 0.03 -- 0.03 (0.03) -- Period Ended March 31, 2005**... $1.00 0.01 -- 0.01 (0.01) -- Year Ended May 31, 2004......... $1.00 --* -- --* --* -- Year Ended May 31, 2003......... $1.00 0.01 -- 0.01 (0.01) -- Year Ended May 31, 2002......... $1.00 0.02 -- 0.02 (0.02) -- Year Ended May 31, 2001......... $1.00 0.05 -- 0.05 (0.05) -- U.S. TREASURY MONEY MARKET FUND A SHARES Year Ended March 31, 2006....... $1.00 0.03 -- 0.03 (0.03) -- Period Ended March 31, 2005**... $1.00 0.01 -- 0.01 (0.01) -- Period Ended May 31, 2004(a).... $1.00 --* -- --* --* --* VIRGINIA TAX-FREE MONEY MARKET FUND A SHARES Year Ended March 31, 2006....... $1.00 0.02 -- 0.02 (0.02) --* Period Ended March 31, 2005**... $1.00 0.01 -- 0.01 (0.01) --* Year Ended May 31, 2004......... $1.00 --* -- --* --* --* Year Ended May 31, 2003......... $1.00 0.01 -- 0.01 (0.01) --* Year Ended May 31, 2002......... $1.00 0.01 -- 0.01 (0.01) --* Year Ended May 31, 2001......... $1.00 0.03 -- 0.03 (0.03) -- TOTAL DIVIDENDS AND DISTRIBUTIONS ------------- PRIME QUALITY MONEY MARKET FUND A SHARES Year Ended March 31, 2006....... (0.03) Period Ended March 31, 2005**... (0.01) Year Ended May 31, 2004......... --* Year Ended May 31, 2003......... (0.01) Year Ended May 31, 2002......... (0.02) Year Ended May 31, 2001......... (0.05) C SHARES Year Ended March 31, 2006....... (0.03) Period Ended March 31, 2005**... (0.01) Year Ended May 31, 2004......... --* Year Ended May 31, 2003......... (0.01) Year Ended May 31, 2002......... (0.01) Year Ended May 31, 2001......... (0.05) TAX-EXEMPT MONEY MARKET FUND A SHARES Year Ended March 31, 2006....... (0.02) Period Ended March 31, 2005**... (0.01) Year Ended May 31, 2004......... --* Year Ended May 31, 2003......... (0.01) Year Ended May 31, 2002......... (0.01) Year Ended May 31, 2001......... (0.03) U.S. GOVERNMENT SECURITIES MONEY MARKET FUND A SHARES Year Ended March 31, 2006....... (0.03) Period Ended March 31, 2005**... (0.01) Year Ended May 31, 2004......... --* Year Ended May 31, 2003......... (0.01) Year Ended May 31, 2002......... (0.02) Year Ended May 31, 2001......... (0.05) U.S. TREASURY MONEY MARKET FUND A SHARES Year Ended March 31, 2006....... (0.03) Period Ended March 31, 2005**... (0.01) Period Ended May 31, 2004(a).... --* VIRGINIA TAX-FREE MONEY MARKET FUND A SHARES Year Ended March 31, 2006....... (0.02) Period Ended March 31, 2005**... (0.01) Year Ended May 31, 2004......... --* Year Ended May 31, 2003......... (0.01) Year Ended May 31, 2002......... (0.01) Year Ended May 31, 2001......... (0.03)
+ Total return excludes sales charge. Not annualized for periods less than one year. ++ Annualized for periods less than one year. +++ Ratio reflects the impact of the initial low level of average net assets associated with commencement of operations. * Amount represents less than $0.005 per share. ** Effective June 1, 2004, the Funds adopted a change in the amortization and accretion methodology on fixed income securities. The cumulative effect of this change in methodology was immaterial to all Funds. (a) Commenced operations on November 12, 2003. FINANCIAL HIGHLIGHTS PROSPECTUS 25
RATIO OF EXPENSES TO AVERAGE RATIO OF NET NET ASSETS NET ASSETS, RATIO OF NET INVESTMENT INCOME (EXCLUDING WAIVERS, NET ASSET VALUE, TOTAL END OF EXPENSES TO TO AVERAGE REIMBURSEMENTS AND END OF PERIOD RETURN+ PERIOD (000) AVERAGE NET ASSETS++ NET ASSETS++ EXPENSE OFFSET)++ ------------- ------- ------------ -------------------- ------------ ----------------- $1.00 3.08% $4,011,561 0.74% 3.16% 0.76% $1.00 0.96% $2,124,606 0.80% 1.17% 0.91% $1.00 0.34% $1,851,615 0.81% 0.34% 0.95% $1.00 0.98% $1,925,521 0.81% 0.96% 0.94% $1.00 2.11% $1,887,033 0.81% 2.09% 0.94% $1.00 5.57% $1,927,309 0.80% 5.36% 0.95% $1.00 3.01% $ 3,991 0.82% 2.81% 1.10% $1.00 0.94% $ 10,093 0.83% 0.99% 1.48% $1.00 0.22% $ 25,444 0.93% 0.21% 1.59% $1.00 0.54% $ 14,633 1.25% 0.53% 1.62% $1.00 1.36% $ 12,302 1.54% 1.04% 1.70% $1.00 4.75% $ 4,051 1.53% 4.54% 1.92% $1.00 2.12% $ 671,164 0.65% 2.10% 0.68% $1.00 0.78% $ 402,333 0.65% 0.92% 0.75% $1.00 0.35% $ 274,543 0.67% 0.34% 0.80% $1.00 0.68% $ 239,451 0.67% 0.67% 0.79% $1.00 1.26% $ 218,048 0.67% 1.25% 0.80% $1.00 3.35% $ 256,894 0.67% 3.22% 0.80% $1.00 2.91% $ 253,648 0.77% 2.91% 0.80% $1.00 0.89% $ 230,041 0.78% 1.06% 0.88% $1.00 0.28% $ 234,100 0.80% 0.28% 0.92% $1.00 0.86% $ 250,246 0.80% 0.86% 0.92% $1.00 2.11% $ 210,004 0.80% 2.02% 0.92% $1.00 5.41% $ 158,087 0.79% 5.14% 0.93% $1.00 2.84% $ 12,366 0.75% 3.12% 0.76% $1.00 0.88% $ 303 0.75% 0.97% 1.48% $1.00 0.15% $ 401 0.75% 0.21% 3.17%+++ $1.00 2.16% $ 303,752 0.62% 2.12% 0.68% $1.00 0.77% $ 197,380 0.66% 0.92% 0.86% $1.00 0.38% $ 118,339 0.67% 0.34% 0.90% $1.00 0.67% $ 96,325 0.67% 0.66% 0.90% $1.00 1.27% $ 99,141 0.67% 1.22% 0.90% $1.00 3.35% $ 93,004 0.66% 3.28% 0.91%
[THIS PAGE INTENTIONALLY LEFT BLANK] [THIS PAGE INTENTIONALLY LEFT BLANK] [THIS PAGE INTENTIONALLY LEFT BLANK] INVESTMENT ADVISER: Trusco Capital Management, Inc. 50 Hurt Plaza, Suite 1400 Atlanta, Georgia 30303 More information about the STI Classic Funds is available without charge through the following: STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI includes detailed information about the STI Classic Funds. The SAI is on file with the SEC and is incorporated by reference into this prospectus. This means that the SAI, for legal purposes, is a part of this prospectus. ANNUAL AND SEMI-ANNUAL REPORTS: These reports list each Fund's holdings and contain information from the Funds' managers about strategies and recent market conditions and trends and their impact on Fund performance. The reports also contain detailed financial information about the Funds. TO OBTAIN AN SAI, ANNUAL OR SEMI-ANNUAL REPORT, OR MORE INFORMATION: TELEPHONE: 1-888-STI-FUND MAIL: STI Classic Funds BISYS Fund Services Limited Partnership 3435 Stelzer Road Columbus, Ohio 43219 WEBSITE: www.sticlassicfunds.com SEC: You can also obtain the SAI or the Annual and Semi-Annual reports, as well as other information about the STI Classic Funds, from the EDGAR Database on the SEC's website at http://www.sec.gov. You may review and copy documents at the SEC Public Reference Room in Washington, DC (for information on the operation of the Public Reference Room, call 202-942-8090). You may request documents by mail from the SEC, upon payment of a duplicating fee, by writing to: Securities and Exchange Commission, Public Reference Section, Washington, DC 20549-0102. You may also obtain this information, upon payment of a duplicating fee, by e-mailing the SEC at publicinfo@sec.gov. The STI Classic Funds' Investment Company Act registration number is 811-06557. STI CLASSIC FUNDS 317105/08-06 PU-ACMM-0806 STI CLASSIC FUNDS A Shares B Shares C Shares PROSPECTUS STI CLASSIC LIFE VISION FUNDS Life Vision Aggressive Growth Fund Life Vision Conservative Fund Life Vision Growth and Income Fund Life Vision Moderate Growth Fund Life Vision Target Date 2015 Fund Life Vision Target Date 2025 Fund Life Vision Target Date 2035 Fund Investment Adviser: Trusco Capital Management, Inc. (the "Adviser") August 1, 2006 The Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense. PROSPECTUS ABOUT THIS PROSPECTUS The STI Classic Funds is a mutual fund family that offers shares in separate investment portfolios that have individual investment goals and strategies. This prospectus gives you important information about the A Shares and C Shares of each Life Vision Fund ("Funds") and B Shares of the Life Vision Aggressive Growth Fund, the Life Vision Conservative Fund, the Life Vision Growth and Income Fund, and the Life Vision Moderate Growth Fund that you should know before investing. Each Fund invests in a combination of other STI Classic Funds (underlying STI Classic Funds). Please read this prospectus and keep it for future reference. A Shares, B Shares and C Shares have different expenses and other characteristics, allowing you to choose the class that best suits your needs. You should consider the amount you want to invest, how long you plan to invest, and whether you plan to make additional investments. B Shares are closed to purchase by new investors and existing shareholders. Existing shareholders, however, may continue to reinvest dividends and capital gain distributions in B Shares of any Fund and exchange B Shares of any Fund for B Shares of any other Fund. A SHARES - - Front-end sales charge - - 12b-1 fees - - $2,000 minimum initial investment B SHARES - - Contingent deferred sales charge - - Higher 12b-1 fees - - Automatically convert to A Shares after eight years C SHARES - - Contingent deferred sales charge - - Higher 12b-1 fees - - $5,000 minimum initial investment This prospectus has been arranged into different sections so that you can easily review this important information. On the next page, there is some general information you should know about risk and return that is common to each of the Funds. For more detailed information about each Fund, please see: 2 LIFE VISION AGGRESSIVE GROWTH FUND 7 LIFE VISION CONSERVATIVE FUND 12 LIFE VISION GROWTH AND INCOME FUND 17 LIFE VISION MODERATE GROWTH FUND 22 LIFE VISION TARGET DATE 2015 FUND 26 LIFE VISION TARGET DATE 2025 FUND 30 LIFE VISION TARGET DATE 2035 FUND 34 MORE INFORMATION ABOUT RISK 37 MORE INFORMATION ABOUT FUND INVESTMENTS 38 INVESTMENT ADVISER 38 PORTFOLIO MANAGERS 39 PURCHASING, SELLING AND EXCHANGING FUND SHARES 46 MARKET TIMING POLICIES AND PROCEDURES 47 REDEMPTION FEE POLICY 49 DIVIDENDS AND DISTRIBUTIONS 49 TAXES 50 FINANCIAL HIGHLIGHTS INSIDE PRIVACY POLICY BACK COVER BACK HOW TO OBTAIN MORE INFORMATION COVER ABOUT THE STI CLASSIC FUNDS
- -------------------------------------------------------------------------------- (SUITCASE FUND SUMMARY ICON) (TELESCOPE INVESTMENT STRATEGY ICON) (LIFE WHAT ARE THE PRINCIPAL RISKS OF INVESTING? PRESERVER ICON) (TARGET PERFORMANCE INFORMATION ICON) (LINE WHAT IS AN INDEX? GRAPH ICON) (COIN FUND FEES AND EXPENSES ICON) (MOUNTAIN MORE INFORMATION ABOUT FUND INVESTMENTS ICON) (MAGNIFYING INVESTMENT ADVISER GLASS ICON) (HAND PURCHASING, SELLING AND EXCHANGING SHAKE FUND SHARES ICON)
- -------------------------------------------------------------------------------- AUGUST 1, 2006 PROSPECTUS 1 CUSIP/TICKER SYMBOLS
FUND NAME CLASS INCEPTION* TICKER CUSIP Life Vision Aggressive Growth Fund A Shares 10/16/03 SLAAX 784767360 Life Vision Aggressive Growth Fund B Shares 3/11/03 SLABX 784767576 Life Vision Aggressive Growth Fund C Shares 4/4/05 CLVLX 78476A769 Life Vision Conservative Fund A Shares 11/11/03 SVCAX 784767337 Life Vision Conservative Fund B Shares 3/11/03 SCCBX 784767543 Life Vision Conservative Fund C Shares 4/4/05 SCCLX 78476A751 Life Vision Growth and Income Fund A Shares 11/05/03 SGIAX 784767352 Life Vision Growth and Income Fund B Shares 3/11/03 SGIBX 784767568 Life Vision Growth and Income Fund C Shares 4/6/05 SGILX 78476A744 Life Vision Moderate Growth Fund A Shares 10/10/03 SVMAX 784767345 Life Vision Moderate Growth Fund B Shares 3/11/03 SVGBX 784767550 Life Vision Moderate Growth Fund C Shares 4/6/05 SVGLX 78476A736 Life Vision Target Date 2015 Fund A Shares -- LVFAX 78476A710 Life Vision Target Date 2015 Fund C Shares -- LVFCX 78476A694 Life Vision Target Date 2025 Fund A Shares 7/12/06 LVTAX 78476A678 Life Vision Target Date 2025 Fund C Shares -- LVTCX 78476A660 Life Vision Target Date 2035 Fund A Shares 5/4/06 LVRAX 78476A645 Life Vision Target Date 2035 Fund C Shares -- LVRCX 78476A637
* The performance included under "Performance Information" may include the performance of other classes of the Fund and/or predecessors of the Fund. RISK/RETURN INFORMATION COMMON TO THE STI CLASSIC FUNDS Each Fund is a mutual fund. A mutual fund pools shareholders' money and, using professional investment managers, invests it in securities. Each Fund has its own investment goal and strategies for reaching that goal. The Adviser invests Fund assets in a way that it believes will help a Fund achieve its goal. Still, investing in each Fund involves risk and there is no guarantee that a Fund will achieve its goal. The Adviser's judgments about the markets, the economy or companies may not anticipate actual market movements, economic conditions or company performance, and these judgments may affect the return on your investment. In fact, no matter how good a job the Adviser does, you could lose money on your investment in a Fund, just as you could with other investments. A FUND SHARE IS NOT A BANK DEPOSIT AND IT IS NOT INSURED OR GUARANTEED BY THE FDIC OR ANY GOVERNMENT AGENCY. The value of your investment in a Fund is based on the market prices of the securities the Fund holds. These prices change daily due to economic and other events that affect particular companies and other issuers. These price movements, sometimes called volatility, may be greater or lesser depending on the types of securities a Fund owns and the markets in which they trade. The effect on a Fund of a change in the value of a single security will depend on how widely the Fund diversifies its holdings. Each Fund's investment goal may be changed without shareholder approval. Before investing, make sure that the Fund's goal matches your own. LIFE VISION AGGRESSIVE GROWTH FUND 2 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL High capital appreciation INVESTMENT FOCUS Equity and money market funds SHARE PRICE VOLATILITY High PRINCIPAL INVESTMENT STRATEGY Investing at least 80% of the Fund's assets in STI Classic Equity Funds INVESTOR PROFILE Investors who want the value of their investment to grow, but do not need to receive income on their investment, and are willing to be subject to the risks of equity securities
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Life Vision Aggressive Growth Fund invests at least 80% of its assets in STI Classic Funds that invest primarily in equity securities. The Fund's remaining assets may be invested in STI Classic Money Market Funds, securities issued by the U.S. Government, its agencies or instrumentalities, repurchase agreements and short-term paper. In selecting a diversified portfolio of underlying STI Classic Funds, the Adviser analyzes many factors, including the underlying STI Classic Funds' investment objectives, total return, volatility and expenses. The Fund currently plans to invest in shares of the following underlying STI Classic Funds within the percentage ranges indicated:
INVESTMENT RANGE (PERCENTAGE OF THE LIFE VISION AGGRESSIVE ASSET CLASS GROWTH FUND'S ASSETS) EQUITY FUNDS 80-100% Aggressive Growth Stock Fund Capital Appreciation Fund Emerging Growth Stock Fund International Equity Fund International Equity Index Fund Large Cap Quantitative Equity Fund Large Cap Relative Value Fund Large Cap Value Equity Fund Mid-Cap Equity Fund Mid-Cap Value Equity Fund Small Cap Growth Stock Fund Small Cap Quantitative Equity Fund Small Cap Value Equity Fund MONEY MARKET FUND 0-20% Prime Quality Money Market Fund
Other STI Classic Funds may be utilized. Because companies tend to shift in relative attractiveness, the Fund holds STI Classic Funds that buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. You can obtain information about the underlying STI Classic Funds in which the Fund invests by calling 1-888-STI-FUND, or from the STI Classic Funds' website at www.sticlassicfunds.com. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? The value of an investment in the Fund is based primarily on the performance of the underlying STI Classic Funds and the allocation of the Fund's assets among them. Since it purchases equity funds, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the STI Classic Funds' securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. LIFE VISION AGGRESSIVE GROWTH FUND PROSPECTUS 3 The Fund is also subject to the risk that the Adviser's asset allocation decisions will not anticipate market trends successfully. For example, weighting common stocks too heavily during a stock market decline may result in a failure to preserve capital. Conversely, investing too heavily in fixed income securities during a period of stock market appreciation may result in lower total return. The risks associated with investing in the Fund will vary depending upon how the assets are allocated among the underlying STI Classic Funds. For information about the risks involved when investing in derivatives, see "More Information About Risk." (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in this Life Vision Fund. The Fund's past performance does not indicate how the Fund will perform in the future. The Fund began operating as a registered mutual fund on June 30, 1997. Performance prior to June 30, 1997 is that of the Adviser's similarly managed asset allocation program. The asset allocation program's performance has been adjusted to reflect the fees and expenses for I Shares of the Fund. As an asset allocation program, rather than a registered mutual fund, it was not subject to the same investment and tax restrictions. If it had been, the asset allocation program's performance would have been lower. B Shares commenced operations on March 11, 2003, A Shares commenced operations October 16, 2003 and C Shares commenced operations on April 4, 2005. Performance between June 30, 1997 and October 16, 2003 is that of I Shares of the Fund, and has not been adjusted to reflect expenses associated with other classes. If it had been, performance would have been lower. This bar chart shows changes in the performance of the Fund's A Shares from year to year.* The chart does not reflect sales charges. If sales charges had been reflected, returns would be less than those shown. (BAR CHART) 1996 16.62% 1997 22.53% 1998 12.31% 1999 10.31% 2000 6.30% 2001 -6.52% 2002 -18.11% 2003 26.55% 2004 12.72% 2005 5.40%
BEST QUARTER WORST QUARTER 18.72% -16.74% (12/31/98) (9/30/02)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 3.78%. LIFE VISION AGGRESSIVE GROWTH FUND 4 PROSPECTUS - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the average annual total returns of the Fund's shares for the periods ended December 31, 2005, to those of a Hybrid 90/10 Blend of the S&P 500 (R) Index and the Citigroup 3-Month Treasury Bill Index. These returns reflect applicable sales charges and assume shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only the A Shares. After-tax returns for other classes will vary.
SINCE INCEPTION OF THE REGISTERED A SHARES 1 YEAR 5 YEARS MUTUAL FUND* 10 YEARS** Fund Returns Before Taxes -0.70% 1.64% 5.17% 7.40% Fund Returns After Taxes on Distributions -1.11% 1.47% 4.06% N/A+ Fund Returns After Taxes on Distributions and Sale of Fund Shares -0.14% 1.34% 3.91% N/A+ Hybrid 90/10 Blend of the Following Market Benchmarks (reflects no deduction for fees, expenses or taxes) 4.74% 0.81% 5.64% 8.66% S&P 500(R) Index (reflects no deduction for fees, expenses or taxes) 4.91% 0.54% 5.74% 9.07% Citigroup 3-Month Treasury Bill Index (reflects no deduction for fees, expenses or taxes) 3.00% 2.21% 3.46% 3.72%
* Since inception of the I Shares on June 30, 1997, when the Fund began operating as a registered mutual fund. ** Includes performance of the Adviser's asset allocation program. + It is not possible to reflect the impact of taxes on the Adviser's asset allocation program's performance.
SINCE INCEPTION OF THE REGISTERED B SHARES 1 YEAR 5 YEARS MUTUAL FUND* 10 YEARS** Fund Returns Before Taxes 0.01% 2.20% 5.73% 7.88% Hybrid 90/10 Blend of the Following Market Benchmarks (reflects no deduction for fees, expenses or taxes) 4.74% 0.81% 5.64% 8.66% S&P 500(R) Index (reflects no deduction for fees, expenses or taxes) 4.91% 0.54% 5.74% 9.07% Citigroup 3-Month Treasury Bill Index (reflects no deduction for fees, expenses or taxes) 3.00% 2.21% 3.46% 3.72%
* Since inception of the I Shares on June 30, 1997, when the Fund began operating as a registered mutual fund. ** Includes performance of the Adviser's asset allocation program. LIFE VISION AGGRESSIVE GROWTH FUND PROSPECTUS 5 (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The S&P 500(R) Index is a widely-recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index of 500 stocks designed to mimic the overall U.S. equity market's industry weightings. The Citigroup 3-Month Treasury Bill Index is a widely-recognized index of the 3 month U.S. Treasury bills. (COIN ICON) FUND FEES AND EXPENSES This table describes the fees and expenses that you may pay if you buy and hold Fund shares. The table does not reflect any of the operating costs and investment advisory fees of the underlying STI Classic Funds. The Fund and its shareholders will indirectly bear a pro rata share of the expenses of the underlying STI Classic Funds. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
A SHARES B SHARES C SHARES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)* 5.75% None None Maximum Contingent Deferred Sales Charge (as a percentage of original purchase price) None 5.00%** 1.00%*** Redemption Fee (as a percentage of net asset value)**** 2.00% 2.00% 2.00%
* This sales charge varies depending upon how much you invest. You may buy A Shares in amounts of $1,000,000 or more at net asset value (without an initial sales charge), but if you redeem those shares within one year of your purchase, you will pay a deferred sales charge of 1.00%. See "Sales Charges." ** This sales charge is imposed if you sell B Shares within five years of your purchase. See "Sales Charges." *** This sales charge is imposed if you sell C Shares within one year of your purchase. See "Sales Charges." **** This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
A SHARES B SHARES C SHARES Investment Advisory Fees(1) 0.10% 0.10% 0.10% Distribution and Service (12b-1) Fees 0.30%(2) 0.75% 1.00% Other Expenses 0.11% 0.11% 0.11% ------------ ------------ ------------ Total Annual Operating Expenses 0.51% 0.96% 1.21% Fee Waivers and Expense Reimbursements(3) (0.01)% (0.01)% (0.01)% ------------ ------------ ------------ Net Operating Expenses 0.50% 0.95% 1.20%
(1 )Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Fund's Distribution and Service Plan for A Shares authorizes payment of up to 0.35% of average daily net assets of A Shares for distribution and shareholder services. Currently, the Board of Trustees has only approved payment of up to 0.30% of average daily net assets. (3) The Adviser has contractually agreed to waive fees and reimburse expenses until at least August 1, 2007 in order to keep Total Annual Operating Expenses from exceeding 0.50%, 0.95% and 1.20% for A Shares, B Shares and C Shares, respectively. If at any point before August 1, 2009, Total Annual Operating Expenses are less than the applicable expense cap, the Adviser may retain the difference to recapture any of the prior waivers or reimbursements. In addition, the Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These voluntary waivers may be discontinued at any time. In addition to the Fund's direct expenses shown in the table above, the Fund indirectly bears a pro-rata share of the expenses of the underlying STI Classic Funds. Based on adjusted expenses of the underlying STI Classic Funds, the indirect costs on investments in underlying STI Classic Funds were 0.92%. Therefore, total annualized expenses would be 1.43%, 1.88% and 2.13% for A Shares, B Shares and C Shares, respectively, before waivers and reimbursements and would be 1.42%, 1.87% and 2.12% for A Shares, B Shares and C Shares, respectively, after waivers and reimbursements. LIFE VISION AGGRESSIVE GROWTH FUND 6 PROSPECTUS - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, the Fund's operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: If you sell your shares at the end of the period:
1 YEAR* 3 YEARS 5 YEARS 10 YEARS A Shares $623 $ 728 $ 843 $1,178 B Shares $597 $ 705 $ 730 $1,049 C Shares $222 $ 383 $ 664 $1,465 *Without waivers and reimbursements, Year 1 costs would be: A Shares $624 B Shares $598 C Shares $223
If you do not sell your shares at the end of the period:
1 YEAR* 3 YEARS 5 YEARS 10 YEARS A Shares $623 $ 728 $ 843 $1,178 B Shares $ 97 $ 305 $ 530 $1,049 C Shares $122 $ 383 $ 664 $1,465 *Without waivers and reimbursements, Year 1 costs would be: A Shares $624 B Shares $ 98 C Shares $123
The costs including both direct Fund expenses after waivers and reimbursements and indirect expenses associated with investments in underlying STI Classic Funds would be: If you sell your shares at the end of the period:
1 YEAR* 3 YEARS 5 YEARS 10 YEARS A Shares $711 $1,000 $1,311 $2,189 B Shares $690 $ 990 $1,215 $2,083 C Shares $315 $ 666 $1,143 $2,461 *Without waivers and reimbursements, Year 1 costs would be: A Shares $712 B Shares $691 C Shares $316
If you do not sell your shares at the end of the period:
1 YEAR* 3 YEARS 5 YEARS 10 YEARS A Shares $711 $1,000 $1,311 $2,189 B Shares $190 $ 590 $1,015 $2,083 C Shares $215 $ 666 $1,143 $2,461 *Without waivers and reimbursements, Year 1 costs would be: A Shares $712 B Shares $191 C Shares $216
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." - ------------------------------------------------------------- ADDITIONAL AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- Unlike the Average Annual Total Returns on page 4 the table below reflects the Fund's results calculated without sales charges.
SINCE INCEPTION OF THE REGISTERED A SHARES 1 YEAR 5 YEARS MUTUAL FUND* 10 YEARS** Fund Returns Before Taxes 5.40% 2.85% 5.90% 8.04% Fund Returns After Taxes on Distributions 4.96% 2.68% 4.79% N/A+ Fund Returns After Taxes on Distributions and Sale of Fund Shares 3.85% 2.38% 4.55% N/A+ Hybrid of 90/10 Blend of the Following Market Benchmarks (reflect no deduction for fees, expenses or taxes) 4.74% 0.81% 5.64% 8.66% S&P 500(R) Index (reflect no deduction for fees, expenses or taxes) 4.91% 0.54% 5.74% 9.07% Citigroup 3-Month Treasury Bill Index (reflect no deduction for fees, expenses or taxes) 3.00% 2.21% 3.46% 3.72%
* Since inception of the I Shares on June 30, 1997, when the Fund began operating as a registered mutual fund. ** Includes performance of the Adviser's asset allocation program. + It is not possible to reflect the impact of taxes on the Adviser's asset allocation program's performance. LIFE VISION CONSERVATIVE FUND PROSPECTUS 7 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Capital appreciation and current income INVESTMENT FOCUS PRIMARY Bond funds SECONDARY Equity funds SHARE PRICE VOLATILITY Low PRINCIPAL INVESTMENT STRATEGY Investing pursuant to an asset allocation strategy in a combination of STI Classic Bond Funds, and to a lesser extent, STI Classic Equity Funds INVESTOR PROFILE Investors who want income from their investment, as well as an increase in its value, but want to reduce risk by limiting exposure to equity securities
(TELESCOPE ICON) INVESTMENT STRATEGY The Life Vision Conservative Fund invests in STI Classic Funds that invest primarily in fixed income securities, but may invest up to 35% of the Fund's assets in STI Classic Funds that invest primarily in equity securities. The Fund's remaining assets may be invested in STI Classic Money Market Funds, securities issued by the U.S. Government, its agencies or instrumentalities, repurchase agreements and short-term paper. In selecting a diversified portfolio of underlying STI Classic Funds, the Adviser analyzes many factors, including the underlying STI Classic Funds' investment objectives, total return, volatility and expenses. The Fund currently plans to invest in shares of the following underlying STI Classic Funds within the percentage ranges indicated:
INVESTMENT RANGE (PERCENTAGE OF THE LIFE VISION CONSERVATIVE ASSET CLASS FUND'S ASSETS) BOND FUNDS 65-100% Core Bond Fund High Income Fund High Quality Bond Fund Investment Grade Bond Fund Limited-Term Federal Mortgage Securities Fund Seix Floating Rate High Income Fund Seix High Yield Fund Short-Term Bond Fund Short-Term U.S. Treasury Securities Fund Strategic Income Fund Total Return Bond Fund U.S. Government Securities Fund
INVESTMENT RANGE (PERCENTAGE OF THE LIFE VISION CONSERVATIVE ASSET CLASS FUND'S ASSETS) EQUITY FUNDS 0-35% Aggressive Growth Stock Fund Capital Appreciation Fund Emerging Growth Stock Fund International Equity Fund International Equity Index Fund Large Cap Quantitative Equity Fund Large Cap Relative Value Fund Large Cap Value Equity Fund Mid-Cap Equity Fund Mid-Cap Value Equity Fund Small Cap Growth Stock Fund Small Cap Quantitative Equity Fund Small Cap Value Equity Fund MONEY MARKET FUND 0-20% Prime Quality Money Market Fund
Other STI Classic Funds may be utilized. Because securities tend to shift in relative attractiveness, the Fund holds STI Classic Funds that buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps, including credit default and total return swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk, interest rate risk and credit risk. LIFE VISION CONSERVATIVE FUND 8 PROSPECTUS You can obtain information about the underlying STI Classic Funds in which the Fund invests by calling 1-888-STI-FUND, or from the STI Classic Funds' website at www.sticlassicfunds.com. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? The value of an investment in the Fund is based primarily on the performance of the underlying STI Classic Funds and the allocation of the Fund's assets among them. The prices of an underlying STI Classic Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, an underlying STI Classic Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower rated securities is even greater than that of higher rated securities. Also, longer-term securities generally are more volatile, so the average maturity or duration of these securities affects risk. Since it purchases equity funds, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of an underlying STI Classic Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The Fund is also subject to the risk that the Adviser's asset allocation decisions will not anticipate market trends successfully. For example, weighting common stocks too heavily during a stock market decline may result in a failure to preserve capital. Conversely, investing too heavily in fixed income securities during a period of stock market appreciation may result in lower total return. The risks associated with investing in the Fund will vary depending upon how the assets are allocated among the underlying STI Classic Funds. Because the underlying STI Classic Funds invest in derivatives, the Fund is exposed to additional volatility and potential losses. Credit default swaps can increase the Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. Total return swaps could result in losses if the reference index, security, or investments do not perform as anticipated. The use of derivatives may cause the Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. B Shares commenced operations on March 11, 2003, A Shares commenced operations on November 11, 2003 and C Shares commenced operations on April 4, 2005. A Share performance between March 11, 2003 and November 11, 2003 is that of the B Shares of the Fund, and has not been adjusted to reflect A Share expenses. If it had been, performance would have been lower. This bar chart shows changes in the performance of the Fund's A Shares from year to year.* The chart does not reflect sales charges. If sales charges had been reflected, returns would be less than those shown. (BAR CHART) 2004 5.71% 2005 2.87%
Worst Best Quarter Quarter 3.40% -1.29% (12/31/04) (6/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 0.45%. LIFE VISION CONSERVATIVE FUND PROSPECTUS 9 - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the average annual total return for the Fund's shares for the periods ended December 31, 2005, to those of the Hybrid 70/20/10 Blend of the Lehman Brothers U.S. Aggregate Index, S&P 500(R) Index and the Citigroup 3-month Treasury Bill Index. These returns reflect applicable sales charges and assume shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only the A Shares. After-tax returns for other classes will vary.
SINCE A SHARES 1 YEAR INCEPTION* Fund Returns Before Taxes -2.02% 4.77% Fund Returns After Taxes on Distributions -3.10% 3.92% Fund Returns After Taxes on Distributions and Sale of Fund Shares -1.28% 3.60% Hybrid 70/20/10 Blend of the Following Market Benchmarks (reflects no deduction for fees, expenses or taxes) 3.04% 5.85% Lehman Brothers U.S. Aggregate Index (reflects no deduction for fees, expenses or taxes) 2.43% 3.31% S&P 500 Index (reflects no deduction for fees, expenses or taxes) 4.91% 17.01% Citigroup 3-Month Treasury Bill Index (reflects no deduction for fees, expenses or taxes) 3.00% 1.80%
* Since inception of the B Shares on March 11, 2003. Benchmark returns since February 28, 2003 (benchmark returns available only on a month-end basis).
SINCE B SHARES 1 YEAR INCEPTION* Fund Returns Before Taxes -2.57% 4.95% Hybrid 70/20/10 Blend of the Following Market Benchmarks (reflects no deduction for fees, expenses or taxes) 3.04% 5.85% Lehman Brothers U.S. Aggregate Index (reflects no deduction for fees, expenses or taxes) 2.43% 3.31% S&P(R) Index (reflects no deduction for fees, expenses or taxes) 4.91% 17.01% Citigroup 3-Month Treasury Bill Index (reflects no deduction for fees, expenses or taxes) 3.00% 1.80%
* Since inception of the B Shares on March 11, 2003. Benchmark returns since February 28, 2003 (benchmark returns available only on a month-end basis). (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Lehman Brothers U.S. Aggregate Index is a widely-recognized index of securities that are SEC-registered, taxable, and dollar denominated. The Index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. The S&P(R) 500 Index is a widely-recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index of 500 stocks designed to mimic the overall U.S. equity market's industry weightings. The Citigroup 3-Month Treasury Bill Index is a widely-recognized index of the 3 month U.S. Treasury bills. LIFE VISION CONSERVATIVE FUND 10 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the fees and expenses that you may pay if you buy and hold Fund shares. The table does not reflect any of the operating costs and investment advisory fees of the underlying STI Classic Funds. The Fund and its shareholders will indirectly bear a pro rata share of the expenses of the underlying STI Classic Funds. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
A SHARES B SHARES C SHARES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)* 4.75% None None Maximum Contingent Deferred Sales Charge (as a percentage of original purchase price) None 5.00%** 1.00%*** Redemption Fee (as a percentage of net asset value)**** 2.00% 2.00% 2.00%
* This sales charge varies depending upon how much you invest. You may buy A Shares in amounts of $1,000,000 or more at net asset value (without an initial sales charge), but if you redeem those shares within one year of your purchase, you will pay a deferred sales charge of 1.00%. See "Sales Charges." ** This sales charge is imposed if you sell B Shares within five years of your purchase. See "Sales Charges." *** This sales charge is imposed if you sell C Shares within one year of your purchase. See "Sales Charges." **** This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
A SHARES B SHARES C SHARES Investment Advisory Fees(1) 0.10% 0.10% 0.10% Distribution and Service (12b-1) Fees 0.30%(2) 0.75% 1.00% Other Expenses 0.45% 0.45% 0.45% --------- --------- --------- Total Annual Operating Expenses 0.85% 1.30% 1.55% Fee Waivers and Expense Reimbursements(3) (0.35)% (0.35)% (0.35)% --------- --------- --------- Net Operating Expenses 0.50% 0.95% 1.20%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Fund's Distribution and Service Plan for A Shares authorizes payment of up to 0.35% of average daily net assets of A Shares for distribution and shareholder services. Currently, the Board of Trustees has only approved payment of up to 0.30% of average daily net assets. (3) The Adviser has contractually agreed to waive fees and reimburse expenses until at least August 1, 2007 in order to keep Total Annual Operating Expenses from exceeding 0.50%, 0.95% and 1.20% for A Shares, B Shares and C Shares, respectively. If at any point before August 1, 2009, Total Annual Operating Expenses are less than the applicable expense cap, the Adviser may retain the difference to recapture any of the prior waivers or reimbursements. In addition, the Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These voluntary waivers may be discontinued at any time. In addition to the Fund's direct expenses shown in the table above, the Fund indirectly bears a pro-rata share of the expenses of the underlying STI Classic Funds. Based on adjusted expenses of the underlying STI Classic Funds, the indirect costs on investments in underlying STI Classic Funds were 0.45%. Therefore, total annualized expenses would be 1.30%, 1.75% and 2.00% for A Shares, B Shares and C Shares, respectively, before waivers and reimbursements and would be 0.95%, 1.40% and 1.65% for A Shares, B Shares and C Shares, respectively, after waivers and reimbursements. LIFE VISION CONSERVATIVE FUND PROSPECTUS 11 - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, the Fund's operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: If you sell your shares at the end of the period:
1 YEAR* 3 YEARS 5 YEARS 10 YEARS A Shares $524 $700 $ 891 $1,443 B Shares $597 $778 $ 879 $1,413 C Shares $222 $455 $ 812 $1,816 *Without waivers and reimbursements, Year 1 costs would be: A Shares $558 B Shares $632 C Shares $258
If you do not sell your shares at the end of the period:
1 YEAR* 3 YEARS 5 YEARS 10 YEARS A Shares $524 $700 $ 891 $1,443 B Shares $ 97 $378 $ 679 $1,413 C Shares $122 $455 $ 812 $1,816 *Without waivers and reimbursements, Year 1 costs would be: A Shares $558 B Shares $132 C Shares $158
The costs including both direct Fund expenses after waivers and reimbursements and indirect expenses associated with investments in underlying STI Classic Funds would be: If you sell your shares at the end of the period:
1 YEAR* 3 YEARS 5 YEARS 10 YEARS A Shares $567 $835 $1,122 $1,939 B Shares $643 $917 $1,116 $1,915 C Shares $268 $594 $1,045 $2,299 *Without waivers and reimbursements, Year 1 costs would be: A Shares $601 B Shares $678 C Shares $303
If you do not sell your shares at the end of the period:
1 YEAR* 3 YEARS 5 YEARS 10 YEARS A Shares $567 $835 $1,122 $1,939 B Shares $143 $517 $ 916 $1,915 C Shares $168 $594 $1,045 $2,299 *Without waivers and reimbursements, Year 1 costs would be: A Shares $601 B Shares $178 C Shares $203
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's estimated expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." - ------------------------------------------------------------- ADDITIONAL AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- Unlike the Average Annual Total Returns on page 9, the table below reflects the Fund's results calculated without sales charges.
SINCE A SHARES 1 YEAR INCEPTION* Fund Returns Before Taxes 2.87% 6.61% Fund Returns After Taxes on Distributions 1.74% 5.74% Fund Returns After Taxes on Distributions and Sale of Fund Shares 1.90% 5.17% Hybrid of 70/20/10 Blend of the Following Market Benchmarks (reflect no deduction for fees, expenses or taxes) 3.04% 5.85% Lehman Brothers U.S. Aggregate Index (reflects no deduction for fees, expenses or taxes) 2.43% 3.31% S&P 500(R) Index (reflect no deduction for fees, expenses or taxes) 4.91% 17.01% Citigroup 3-Month Treasury Bill Index (reflect no deduction for fees, expenses or taxes) 3.00% 1.80%
* Since inception of the B Shares on March 11, 2003. Benchmark returns since February 28, 2003 (benchmark returns available only on a month-end basis). LIFE VISION GROWTH AND INCOME FUND 12 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Long-term capital appreciation INVESTMENT FOCUS Equity and bond funds SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Investing pursuant to an asset allocation strategy in a combination of STI Classic Equity Funds and, to a lesser extent, STI Classic Bond Funds INVESTOR PROFILE Investors who want their assets to grow, but want to moderate the risks of equity securities through investment of a portion of their assets in bonds
(TELESCOPE ICON) INVESTMENT STRATEGY The Life Vision Growth and Income Fund invests at least 70% to 80% of its assets in STI Classic Funds that invest primarily in either equity securities or fixed income securities. The Fund's remaining assets may be invested in shares of underlying STI Classic Money Market Funds, securities issued by the U.S. Government, its agencies or instrumentalities, repurchase agreements and short-term paper. In selecting a diversified portfolio of underlying STI Classic Funds, the Adviser analyzes many factors, including the underlying STI Classic Funds' investment objectives, total returns, volatility and expenses. The Fund currently plans to invest in shares of the following underlying STI Classic Funds within the percentage ranges indicated:
INVESTMENT RANGE (PERCENTAGE OF THE LIFE VISION GROWTH AND ASSET CLASS INCOME FUND'S ASSETS) EQUITY FUNDS 50-80% Aggressive Growth Stock Fund Capital Appreciation Fund Emerging Growth Stock Fund International Equity Fund International Equity Index Fund Large Cap Quantitative Equity Fund Large Cap Relative Value Fund Large Cap Value Equity Fund Mid-Cap Equity Fund Mid-Cap Value Equity Fund Small Cap Growth Stock Fund Small Cap Quantitative Equity Fund Small Cap Value Equity Fund
INVESTMENT RANGE (PERCENTAGE OF THE LIFE VISION GROWTH AND ASSET CLASS INCOME FUND'S ASSETS) BOND FUNDS 20-50% Core Bond Fund High Income Fund High Quality Bond Fund Investment Grade Bond Fund Limited-Term Federal Mortgage Securities Fund Seix Floating Rate High Income Fund Seix High Yield Fund Short-Term Bond Fund Short-Term U.S. Treasury Securities Fund Strategic Income Fund Total Return Bond Fund U.S. Government Securities Fund MONEY MARKET FUND 0-20% Prime Quality Money Market Fund
Other STI Classic Funds may be utilized. Because securities tend to shift in relative attractiveness, the Fund holds STI Classic Funds that buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps, including credit default and total return swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. You can obtain information about the underlying STI Classic Funds in which the Fund invests by calling 1-888-STI-FUND, or from the STI Classic Funds' website at www.sticlassicfunds.com. LIFE VISION GROWTH AND INCOME FUND PROSPECTUS 13 (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? The value of an investment in the Fund is based primarily on the performance of the underlying STI Classic Funds and the allocation of the Fund's assets among them. Since it purchases equity funds, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of an underlying STI Classic Funds' securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The prices of an underlying STI Classic Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, an underlying STI Classic Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities generally are more volatile, so the average maturity or duration of these securities affects risk. The Fund is also subject to the risk that the Adviser's asset allocation decisions will not anticipate market trends successfully. For example, weighting common stocks too heavily during a stock market decline may result in a failure to preserve capital. Conversely, investing too heavily in fixed income securities during a period of stock market appreciation may result in lower total return. The risks associated with investing in the Fund will vary depending upon how the assets are allocated among the underlying STI Classic Funds. Because the underlying STI Classic Funds invest in derivatives, the Fund is exposed to additional volatility and potential losses. Credit default swaps can increase the Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. Total return swaps could result in losses if the reference index, security, or investments do not perform as anticipated. The use of derivatives may cause the Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. The Fund began operating as a registered mutual fund on June 30, 1997. Performance prior to June 30, 1997 is that of the Adviser's similarly managed asset allocation program. The asset allocation program's performance has been adjusted to reflect the fees and expenses for I Shares of the Fund. As an asset allocation program, rather than a registered mutual fund, it was not subject to the same investment and tax restrictions. If it had been, the asset allocation program's performance would have been lower. B Shares commenced operations on March 11, 2003, A Shares commenced operations on November 5, 2003 and C Shares commenced operations on April 6, 2005. Performance between June 30, 1997 and November 5, 2003 is that of I Shares of the Fund, and has not been adjusted to reflect expenses associated with other classes. If it had been, performance would have been lower. This bar chart shows changes in the performance of the Fund's A Shares from year to year.* The chart does not reflect sales charges. If sales charges had been reflected, returns would be less than those shown. (BAR CHART) 1996 12.16% 1997 18.08% 1998 11.16% 1999 7.95% 2000 7.08% 2001 -2.55% 2002 -11.99% 2003 23.98% 2004 10.14% 2005 4.78%
BEST QUARTER WORST QUARTER 13.65% -12.87% (12/31/98) (9/30/02)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 2.74%. LIFE VISION GROWTH AND INCOME FUND 14 PROSPECTUS - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the average annual total returns of the Fund's Shares for the periods ended December 31, 2005, to those of a Hybrid 65/25/10 Blend of the S&P 500 (R) Index, Lehman Brothers U.S. Aggregate Index and the Citigroup 3-Month Treasury Bill Index. These returns reflect applicable sales charges and assume shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only the A Shares. After-tax returns for other classes will vary.
SINCE INCEPTION OF THE REGISTERED A SHARES 1 YEAR 5 YEARS MUTUAL FUND* 10 YEARS** Fund Returns Before Taxes -1.28% 2.94% 5.58% 7.01% Fund Returns After Taxes on Distributions -1.74% 2.50% 4.26% N/A+ Fund Returns After Taxes on Distributions and Sale of Fund Shares -0.75% 2.27% 4.04% N/A+ Hybrid 65/25/10 Blend of the Following Market Benchmarks (reflects no deductions for fees, expenses or taxes) 4.13% 1.77% 5.60% 7.62% S&P 500(R) Index (reflects no deductions for fees, expenses or taxes) 4.91% 0.54% 5.74% 9.07% Lehman Brothers U.S. Aggregate Index (reflects no deductions for fees, expenses or taxes) 2.43% 5.87% 6.46% 6.16% Citigroup 3-Month Treasury Bill Index (reflects no deductions for fees, expenses or taxes) 3.00% 2.21% 3.46% 3.72%
* Since inception of the I Shares on June 30, 1997, when the Fund began operating as a registered mutual fund. ** Includes performance of the Adviser's asset allocation program. + It is not possible to reflect the impact of taxes on the Adviser's asset allocation program's performance.
SINCE INCEPTION OF THE REGISTERED B SHARES 1 YEAR 5 YEARS MUTUAL FUND* 10 YEARS** - ---------------------------------------------------------------------- Fund Returns Before Taxes -0.69% 3.55% 6.14% 7.50% Hybrid 65/25/10 Blend of the Following Market Benchmarks (reflects no deductions for fees, expenses or taxes) 4.13% 1.77% 5.60% 7.62% S&P 500(R) Index (reflects no deductions for fees, expenses or taxes) 4.91% 0.54% 5.74% 9.07% Lehman Brothers U.S. Aggregate Index (reflects no deductions for fees, expenses or taxes) 2.43% 5.87% 6.46% 6.16% Citigroup 3-Month Treasury Bill Index (reflects no deductions for fees, expenses or taxes) 3.00% 2.21% 3.46% 3.72%
* Since inception of the I Shares on June 30, 1997, when the Fund began operating as a registered mutual fund. ** Includes performance of the Adviser's asset allocation program. LIFE VISION GROWTH AND INCOME FUND PROSPECTUS 15 (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The S&P 500(R) Index is a widely-recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index of 500 stocks designed to mimic the overall U.S. equity market's industry weightings. The Lehman Brothers U.S. Aggregate Index is a widely-recognized index of securities that are SEC-registered, taxable, and dollar denominated. The Index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. The Citigroup 3-Month Treasury Bill Index is a widely-recognized index of the 3 month U.S. Treasury bills. (COIN ICON) FUND FEES AND EXPENSES This table describes the fees and expenses that you may pay if you buy and hold Fund shares. The table does not reflect any of the operating costs and investment advisory fees of the underlying STI Classic Funds. The Fund and its shareholders will indirectly bear a pro rata share of the expenses of the underlying STI Classic Funds. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
A SHARES B SHARES C SHARES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)* 5.75% None None Maximum Contingent Deferred Sales Charge (as a percentage of original purchase price) None 5.00%** 1.00%*** Redemption Fee (as a percentage of net asset value)**** 2.00% 2.00% 2.00%
* This sales charge varies depending upon how much you invest. You may buy A Shares in amounts of $1,000,000 or more at net asset value (without an initial sales charge), but if you redeem those shares within one year of your purchase, you will pay a deferred sales charge of 1.00%. See "Sales Charges." ** This sales charge is imposed if you sell B Shares within five years of your purchase. See "Sales Charges." *** This sales charge is imposed if you sell C Shares within one year of your purchase. See "Sales Charges." **** This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
A SHARES B SHARES C SHARES Investment Advisory Fees(1) 0.10% 0.10% 0.10% Distribution and Service (12b-1) Fees 0.30%(2) 0.75% 1.00% Other Expenses 0.09% 0.09% 0.09% --------- --------- --------- Total Annual Operating Expenses(3) 0.49%() 0.94% 1.19%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Fund's Distribution and Service Plan for A Shares authorizes payment of up to 0.35% of average daily net assets of A Shares for distribution and shareholder services. Currently, the Board of Trustees has only approved payment of up to 0.30% of average daily net assets. (3) The Adviser has contractually agreed to waive fees and reimburse expenses until at least August 1, 2007 in order to keep Total Annual Operating Expenses from exceeding 0.50%, 0.95% and 1.20% for A Shares, B Shares and C Shares, respectively. If at any point before August 1, 2009, Total Annual Operating Expenses are less than the applicable expense cap, the Adviser may retain the difference to recapture any of the prior waivers or reimbursements. In addition, the Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These voluntary waivers may be discontinued at any time. In addition to the Fund's direct expenses shown in the table above, the Fund indirectly bears a pro-rata share of the expenses of the underlying STI Classic Funds. Based on adjusted expenses of the underlying STI Classic Funds, the indirect costs on investments in underlying STI Classic Funds were 0.77%. Therefore, total annualized expenses would be 1.26%, 1.71% and 1.96% for A Shares, B Shares and C Shares, respectively. LIFE VISION GROWTH AND INCOME FUND 16 PROSPECTUS - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, the Fund's operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: If you sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $622 $ 723 $ 833 $1,156 B Shares $596 $ 700 $ 720 $1,026 C Shares $221 $ 378 $ 654 $1,443
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $622 $ 723 $ 833 $1,156 B Shares $ 96 $ 300 $ 520 $1,026 C Shares $121 $ 378 $ 654 $1,443
The costs including both direct Fund expenses and indirect expenses associated with investments in underlying STI Classic Funds would be: If you sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $696 $ 952 $1,227 $2,010 B Shares $674 $ 939 $1,128 $1,900 C Shares $299 $ 615 $1,057 $2,285
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $696 $ 952 $1,227 $2,010 B Shares $174 $ 539 $ 928 $1,900 C Shares $199 $ 615 $1,057 $2,285
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." - ------------------------------------------------------------- ADDITIONAL AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- Unlike the Average Annual Total Returns on page 14, the table below reflects the Fund's results calculated without sales charges.
SINCE INCEPTION OF THE REGISTERED A SHARES 1 YEAR 5 YEARS MUTUAL FUND* 10 YEARS** Fund Returns Before Taxes 4.78% 4.18% 6.31% 7.64% Fund Returns After Taxes on Distributions 4.29% 3.72% 4.98% N/A+ Fund Returns After Taxes on Distributions and Sale of Fund Shares 3.20% 3.33% 4.69% N/A+ Hybrid 65/25/10 Blend of the Following Market Benchmarks (reflects no deductions for fees, expenses or taxes) 4.13% 1.77% 5.60% 7.62% S&P 500(R) Index (reflects no deductions for fees, expenses or taxes) 4.91% 0.54% 5.74% 9.07% Lehman Brothers U.S. Aggregate Index (reflects no deductions for fees, expenses or taxes) 2.43% 5.87% 6.46% 6.16% Citigroup 3-Month Treasury Bill Index (reflects no deductions for fees, expenses or taxes) 3.00% 2.21% 3.46% 3.72%
* Since inception of the I Shares on June 30, 1997, when the Fund began operating as a registered mutual fund. ** Includes performance of the Adviser's asset allocation program. + It is not possible to reflect the impact of taxes on the Adviser's asset allocation program's performance. LIFE VISION MODERATE GROWTH FUND PROSPECTUS 17 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Capital appreciation and current income INVESTMENT FOCUS Equity and bond funds SHARE PRICE VOLATILITY Low PRINCIPAL INVESTMENT STRATEGY Investing pursuant to an asset allocation strategy in a combination of STI Classic Equity and Bond Funds INVESTOR PROFILE Investors who want income from their investment, as well as an increase in its value, and are willing to be subject to the risks of equity securities
(TELESCOPE ICON) INVESTMENT STRATEGY The Life Vision Moderate Growth Fund principally invests in STI Classic Funds that invest primarily in equity securities and fixed income securities. The Fund's remaining assets may be invested in shares of underlying STI Classic Money Market Funds, securities issued by the U.S. Government, its agencies or instrumentalities, repurchase agreements and short-term paper. In selecting a diversified portfolio of underlying STI Classic Funds, the Adviser analyzes many factors, including the underlying STI Classic Funds' investment objectives, total returns, volatility and expenses. The Fund currently plans to invest in shares of the following underlying STI Classic Funds within the percentage ranges indicated:
INVESTMENT RANGE (PERCENTAGE OF THE LIFE VISION MODERATE ASSET CLASS GROWTH FUND'S ASSETS) EQUITY FUNDS 35-65% Aggressive Growth Stock Fund Capital Appreciation Fund Emerging Growth Stock Fund International Equity Fund International Equity Index Fund Large Cap Quantitative Equity Fund Large Cap Relative Value Fund Large Cap Value Equity Fund Mid-Cap Equity Fund Mid-Cap Value Equity Fund Small Cap Growth Stock Fund Small Cap Quantitative Equity Fund Small Cap Value Equity Fund
INVESTMENT RANGE (PERCENTAGE OF THE LIFE VISION MODERATE ASSET CLASS GROWTH FUND'S ASSETS) BOND FUNDS 35-65% Core Bond Fund High Income Fund High Quality Bond Fund Investment Grade Bond Fund Limited-Term Federal Mortgage Securities Fund Seix Floating Rate High Income Fund Seix High Yield Fund Short-Term Bond Fund Short-Term U.S. Treasury Securities Fund Strategic Income Fund Total Return Bond Fund U.S. Government Securities Fund MONEY MARKET FUND 0-20% Prime Quality Money Market Fund
Other STI Classic Funds may be utilized. Because securities tend to shift in relative attractiveness, the Fund holds STI Classic Funds that buy and sell securities frequently, which may result in higher transaction costs, additional capital gains taxes and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps, including credit default and total return swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. You can obtain information about the STI Classic Funds in which the Fund invests by calling 1-888-STI-FUND, or from the STI Classic Funds' website at www.sticlassicfunds.com. LIFE VISION MODERATE GROWTH FUND 18 PROSPECTUS (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? The value of an investment in the Fund is based primarily on the performance of the underlying STI Classic Funds and the allocation of the Fund's assets among them. Since it purchases equity funds, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of an underlying STI Classic Funds' securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The prices of an underlying STI Classic Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, an underlying STI Classic Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities generally are more volatile, so the average maturity or duration of these securities affects risk. The Fund is also subject to the risk that the Adviser's asset allocation decisions will not anticipate market trends successfully. For example, weighting common stocks too heavily during a stock market decline may result in a failure to preserve capital. Conversely, investing too heavily in fixed income securities during a period of stock market appreciation may result in lower total return. The risks associated with investing in the Fund will vary depending upon how the assets are allocated among the underlying STI Classic Funds. Because the underlying STI Classic Funds invest in derivatives, the Fund is exposed to additional volatility and potential losses. Credit default swaps can increase the Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. Total return swaps could result in losses if the reference index, security, or investments do not perform as anticipated. The use of derivatives may cause the Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. The Fund began operating as a registered mutual fund on June 30, 1997. Performance prior to June 30, 1997 is that of the Adviser's similarly managed asset allocation program. The asset allocation program's performance has been adjusted to reflect the fees and expenses for I Shares of the Fund. As an asset allocation program, rather than a registered mutual fund, it was not subject to the same investment and tax restrictions. If it had been, the asset allocation program's performance would have been lower. B Shares commenced operations on March 11, 2003, A Shares commenced operations on October 10, 2003 and C Shares commenced operations on April 6, 2005. Performance between June 30, 1997 and October 10, 2003 is that of I Shares of the Fund, and has not been adjusted to reflect expenses associated with other classes. If it had been, performance would have been lower. This bar chart shows changes in the performance of the Fund's A Shares from year to year.* This chart does not reflect sales charges. If sales charges had been reflected, returns would be less than those shown. (BAR CHART) 1996 10.51% 1997 16.41% 1998 11.15% 1999 6.19% 2000 5.46% 2001 -1.10% 2002 -8.28% 2003 19.97% 2004 8.57% 2005 4.05%
BEST QUARTER WORST QUARTER 11.24% -9.20% (12/31/98) (9/30/02)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 1.76%. LIFE VISION MODERATE GROWTH FUND PROSPECTUS 19 - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the average annual total returns of the Fund's shares for the periods ended December 31, 2005, to those of a Hybrid 50/40/10 Blend of the S&P 500 (R) Index, Lehman Brothers U.S. Aggregate Index and the Citigroup 3-Month Treasury Bill Index. These returns reflect applicable sales charges and assume shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only the A Shares. After-tax returns for other classes will vary.
SINCE INCEPTION OF THE REGISTERED A SHARES 1 YEAR 5 YEARS MUTUAL FUND* 10 YEARS** - --------------------------------------------------------------------- Fund Returns Before Taxes -1.95% 2.99% 5.18% 6.37% Fund Returns After Taxes on Distributions -3.12% 2.21% 3.58% N/A+ Fund Returns After Taxes on Distributions and Sale of Fund Shares -0.93% 2.12% 3.56% N/A+ Hybrid 50/40/10 Blend of the Following Market Benchmarks (reflects no deduction for fees, expenses or taxes) 3.81% 3.16% 6.18% 7.72% S&P 500(R) Index (reflects no deduction for fees, expenses or taxes) 4.91% 0.54% 5.74% 9.07%
SINCE INCEPTION OF THE REGISTERED A SHARES 1 YEAR 5 YEARS MUTUAL FUND* 10 YEARS** - --------------------------------------------------------------------- Lehman Brothers U.S. Aggregate Index (reflects no deduction for fees, expenses or taxes) 2.43% 5.87% 6.46% 6.16% Citigroup 3-Month Treasury Bill Index (reflects no deduction for fees, expenses or taxes) 3.00% 2.21% 3.46% 3.72%
* Since inception of the I Shares on June 30, 1997, when the Fund began operating as a registered mutual fund. ** Includes performance of the Adviser's asset allocation program. + It is not possible to reflect the impact of taxes on the Adviser's asset allocation program's performance.
SINCE INCEPTION OF THE REGISTERED B SHARES 1 YEAR 5 YEARS MUTUAL FUND* 10 YEARS** - --------------------------------------------------------------------- Fund Returns Before Taxes -1.39% 3.56% 5.73% 6.85% Hybrid 50/40/10 Blend of the Following Market Benchmarks (reflects no deduction for fees, expenses or taxes) 3.81% 3.16% 6.18% 7.72% S&P 500(R) Index (reflects no deduction for fees, expenses or taxes) 4.91% 0.54% 5.74% 9.07% Lehman Brothers U.S. Aggregate Index (reflects no deduction for fees, expenses or taxes) 2.43% 5.87% 6.46% 6.16% Citigroup 3-Month Treasury Bill Index (reflects no deduction for fees, expenses or taxes) 3.00% 2.21% 3.46% 3.72%
* Since inception of the I Shares on June 30, 1997, when the Fund began operating as a registered mutual fund. ** Includes performance of the Adviser's asset allocation program. LIFE VISION MODERATE GROWTH FUND 20 PROSPECTUS (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The S&P 500(R) Index is a widely-recognized, market value-weighted (higher market value stocks have more influence than lower market value stocks) index of 500 stocks designed to mimic the overall U.S. equity market's industry weightings. The Lehman Brothers U.S. Aggregate Index is a widely-recognized index of securities that are SEC-registered, taxable, and dollar denominated. The index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. The Citigroup 3-Month Treasury Bill Index is a widely-recognized index of the 3 month U.S. Treasury bills. (COIN ICON) FUND FEES AND EXPENSES This table describes the fees and expenses that you may pay if you buy and hold Fund shares. The table does not reflect any of the operating costs and investment advisory fees of the underlying STI Classic Funds. The Fund and its shareholders will indirectly bear a pro rata share of the expenses of the underlying STI Classic Funds. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
A SHARES B SHARES C SHARES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)* 5.75% None None Maximum Contingent Deferred Sales Charge (as a percentage of original purchase price) None 5.00%** 1.00%*** Redemption Fee (as a percentage of net asset value)**** 2.00% 2.00% 2.00%
* This sales charge varies depending upon how much you invest. You may buy A Shares in amounts of $1,000,000 or more at net asset value (without an initial sales charge), but if you redeem those shares within one year of your purchase, you will pay a deferred sales charge of 1.00%. See "Sales Charges." ** This sales charge is imposed if you sell B Shares within five years of your purchase. See "Sales Charges." *** This sales charge is imposed if you sell C Shares within one year of your purchase. See "Sales Charges." **** This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
A SHARES B SHARES C SHARES Investment Advisory Fees(1) 0.10% 0.10% 0.10% Distribution and Service (12b-1) Fees 0.30%(2) 0.75% 1.00% Other Expenses 0.08% 0.08% 0.08% ------------ ------------ ------------ Total Annual Operating Expenses(3) 0.48%() 0.93% 1.18%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Fund's Distribution and Service Plan for A Shares authorizes payment of up to 0.35% of average daily net assets of A Shares for distribution and shareholder services. Currently, the Board of Trustees has only approved payment of up to 0.30% of average daily net assets. (3) The Adviser has contractually agreed to waive fees and reimburse expenses until at least August 1, 2007 in order to keep Total Annual Operating Expenses from exceeding 0.50%, 0.95% and 1.20% for A Shares, B Shares and C Shares, respectively. If at any point before August 1, 2009, Total Annual Operating Expenses are less than the applicable expense cap, the Adviser may return the difference to recapture any of the prior waivers or reimbursements. In addition, the Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These voluntary waivers may be discontinued at any time. In addition to the Fund's direct expenses shown in the table above, the Fund indirectly bears a pro-rata share of the expenses of the underlying STI Classic Funds. Based on adjusted expenses of the underlying STI Classic Funds, the indirect costs on investments in underlying STI Classic Funds were 0.64%. Therefore, total annualized expenses would be 1.12%, 1.57% and 1.82% for A Shares, B Shares and C Shares, respectively. LIFE VISION MODERATE GROWTH FUND PROSPECTUS 21 - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, the Fund's operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: If you sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $621 $720 $ 828 $1,144 B Shares $595 $696 $ 715 $1,015 C Shares $220 $375 $ 649 $1,432
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $621 $720 $ 828 $1,144 B Shares $ 95 $296 $ 515 $1,015 C Shares $120 $375 $ 649 $1,432
The costs including both direct Fund expenses and indirect expenses associated with investments in underlying STI Classic Funds would be: If you sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $683 $911 $1,156 $1,860 B Shares $660 $896 $1,055 $1,747 C Shares $285 $573 $ 985 $2,137
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS A Shares $683 $911 $1,156 $1,860 B Shares $160 $496 $ 855 $1,747 C Shares $185 $573 $ 985 $2,137
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." - ------------------------------------------------------------- ADDITIONAL AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- Unlike the Average Annual Total Returns on page 19, the table below reflects the Fund's results calculated without sales charges.
SINCE INCEPTION OF THE REGISTERED A SHARES 1 YEAR 5 YEARS MUTUAL FUND* 10 YEARS** Fund Returns Before Taxes 4.05% 4.22% 5.91% 7.01% Fund Returns After Taxes on Distributions 2.81% 3.42% 4.30% N/A+ Fund Returns After Taxes on Distributions and Sale of Fund Shares 2.99% 3.17% 4.21% N/A+ Hybrid of 65/26/10 Blend of the Following Market Benchmarks (reflect no deduction for fees, expenses or taxes) 3.81% 3.16% 6.18% 7.72% S&P 500(R) Index (reflect no deduction for fees, expenses or taxes) 4.91% 0.54% 5.74% 9.07% Lehman Brothers U.S. Aggregate Index (reflects no deduction for fees, expenses or taxes) 2.43% 5.87% 6.46% 6.16% Citigroup 3-Month Treasury Bill Index (reflect no deduction for fees, expenses or taxes) 3.00% 2.21% 3.46% 3.72%
* Since inception of the I Shares on June 30, 1997, when the Fund began operating as a registered mutual fund. ** Includes performance of the Adviser's asset allocation program. + It is not possible to reflect the impact of taxes on the Adviser's asset allocation program's performance. LIFE VISION TARGET DATE 2015 FUND 22 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL High total return INVESTMENT FOCUS Equity funds, fixed income funds, money market funds SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Investing pursuant to an asset allocation strategy in a combination of STI Classic equity, fixed income and money market funds INVESTOR PROFILE Investors who expect to retire or require income around the year 2015
(TELESCOPE ICON) INVESTMENT STRATEGY The Life Vision Target Date 2015 Fund invests in a mix of underlying STI Classic Funds representing various asset classes and sectors using an asset allocation strategy designed for investors expecting to retire or require income around the year 2015. The Adviser allocates assets among underlying STI Classic Funds using an asset allocation strategy that becomes increasingly more conservative over time. That is, the percentage of assets allocated to equity securities will tend to decrease periodically as the target date approaches, while the percentage of assets allocated to fixed income and money market securities will tend to increase. When the target asset allocation of the Fund is similar to the asset allocation of the STI Classic Life Vision Conservative Fund (within two years after the target date, i.e., 2017), it is expected that the Fund will seek to be combined with the STI Classic Life Vision Conservative Fund, and shareholders of the Fund would then become shareholders of the STI Classic Life Vision Conservative Fund. In addition to investing in underlying STI Classic Funds, the Adviser may also invest a portion of the Fund's assets in one or more ETFs to gain exposure to an asset class not represented by an underlying STI Classic Fund. The table below shows how the Adviser expects to allocate the Fund among asset classes. The table also shows the sectors within those asset classes to which the Fund will have exposure and the underlying STI Classic Funds (and ETFs, if applicable) that will be used to represent those sectors. The information represents the currently expected investment ranges of the Fund but will vary over time.
INVESTMENT RANGE (PERCENTAGE OF THE ASSET CLASS 2015 FUND'S ASSETS) - ---------------------------------------------------------- EQUITY FUNDS 70-100% Aggressive Growth Stock Fund Capital Appreciation Fund Emerging Growth Stock Fund International Equity Fund International Equity Index Fund Large Cap Quantitative Equity Fund Large Cap Relative Value Fund Large Cap Value Equity Fund Mid-Cap Equity Fund Mid-Cap Value Equity Fund Small Cap Growth Stock Fund Small Cap Quantitative Equity Fund iShares Russell 2000 Value Index Fund* - ---------------------------------------------------------- BOND FUNDS 0-30% Core Bond Fund High Income Fund High Quality Bond Fund Investment Grade Bond Fund Limited-Term Federal Mortgage Securities Fund Seix Floating Rate High Income Fund Seix High Yield Fund Short-Term Bond Fund Short-Term U.S. Treasury Securities Fund Strategic Income Fund Total Return Bond Fund U.S. Government Securities Fund - ---------------------------------------------------------- MONEY MARKET FUND 0-20% Prime Quality Money Market Fund - ----------------------------------------------------------
* iShares (R) is a registered trademark of Barclays Global Investors, N.A. ("BGI"). Neither BGI nor the iShares Russell 2000 Value Index Fund makes any representations regarding the advisability of investing in the Fund. Other STI Classic Funds may be utilized. Due to its investment strategy, the Fund holds underlying STI Classic Funds that buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities for taxable investors and lower performance. In addition, to implement its LIFE VISION TARGET DATE 2015 FUND PROSPECTUS 23 strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps)to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. You can obtain information about the underlying STI Classic Funds in which the Fund invests that are not offered in this prospectus by calling 1-888-STI-FUND or from the STI Classic Funds' website at www.sticlassicfunds.com. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? The value of an investment in the Fund is based primarily on the performance of the underlying STI Classic Funds and the allocation of the Fund's assets among them. Since it purchases equity funds, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of an underlying STI Classic Funds' securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The prices of an underlying STI Classic Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, an underlying STI Classic Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities generally are more volatile, so the average maturity or duration of these securities affects risk. The Fund is also subject to the risk that the Adviser's asset allocation decisions will not anticipate market trends successfully. For example, weighting common stocks too heavily during a stock market decline may result in a failure to preserve capital. Conversely, investing too heavily in fixed income securities during a period of stock market appreciation may result in lower total return. The risks associated with investing in the Fund will vary depending upon how the assets are allocated among the underlying STI Classic Funds. Because the underlying STI Classic Funds invest in derivatives, the Fund is exposed to additional volatility and potential losses. Credit default swaps can increase the Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. Total return swaps could result in losses if the reference index, security, or investments do not perform as anticipated. The use of derivatives may cause the Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. (TARGET ICON) PERFORMANCE INFORMATION No performance information is included because the Fund does not have performance history for a full calendar year. LIFE VISION TARGET DATE 2015 FUND 24 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The table does not reflect any of the operating costs and investment advisory fees of the underlying STI Classic Funds. The Fund and its shareholders will indirectly bear a pro rata share of the expenses of the underlying STI Classic Funds. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
A SHARES C SHARES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)* 5.75% None Maximum Deferred Sales Charge (as a percentage of net asset value)** None 1.00% Redemption Fee (as a percentage of net asset value)*** 2.00% 2.00%
* This sales charge varies depending upon how much you invest. You may buy A Shares in amounts of $1,000,000 or more at net asset value (without an initial sales charge), but if you redeem those shares within one year of your purchase, you will pay a deferred sales charge of 1.00%. See "Sales Charges." ** This sales charge is imposed if you sell C Shares within one year of your purchase. See "Sales Charges." *** This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
A SHARES C SHARES Investment Advisory Fees 0.10% 0.10% Distribution and Service (12b-1) Fees 0.30%(1) 1.00% Other Expenses(2) 0.43% 0.43% ------------ ------------ Total Annual Operating Expenses 0.83% 1.53% Fee Waivers and Expense Reimbursements(3) (0.33)% (0.33)% ------------ ------------ Net Operating Expenses 0.50% 1.20%
(1) The Fund's distribution and service plan for A Shares authorizes payment of up to 35% of average daily net assets of A Shares for distribution and shareholder services. Currently, the Board of Trustees has only approved payment of up to 0.30% of average daily net assets. (2) Other Expenses are based on estimated amounts for the current fiscal year. (3) The Adviser has contractually agreed to waive fees and reimburse expenses until at least August 1, 2007 in order to keep Total Annual Operating Expenses from exceeding 0.50% and 1.20% for A Shares and C Shares, respectively. If at any point before August 1, 2009, Total Annual Operating Expenses are less than the applicable expense cap, the Adviser may retain the difference to recapture any of the prior waivers or reimbursements. In addition, the Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These voluntary waivers may be discontinued at any time. In addition to the Fund's direct expenses shown in the table above, the Fund indirectly bears a pro-rata share of the expenses of the underlying STI Classic Funds. Based on adjusted expenses of the underlying STI Classic Funds, the indirect costs on investments in underlying STI Classic Funds were 0.76%. Therefore, total annualized expenses would be 1.59% and 2.29% for A Shares and C Shares, respectively, before waivers and reimbursements and would be 1.26% and 1.96% for A Shares and C Shares, respectively, after waivers and reimbursements. LIFE VISION TARGET DATE 2015 FUND PROSPECTUS 25 - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: If you sell your shares at the end of the period:
1 YEAR* 3 YEARS A Shares $623 $ 794 C Shares $222 $ 451 *Without waivers and reimbursements, Year 1 costs would be: A Shares $655 C Shares $256
If you do not sell your shares at the end of the period:
1 YEAR* 3 YEARS A Shares $623 $ 794 C Shares $122 $ 451 *Without waivers and reimbursements, Year 1 costs would be: A Shares $655 C Shares $156
The costs including both direct Fund expenses after waivers and indirect expenses associated with investments in underlying STI Classic Funds would be: If you sell your shares at the end of the period:
1 YEAR* 3 YEARS A Shares $696 $1,018 C Shares $299 $ 684 *Without waivers and reimbursements, Year 1 costs would be: A Shares $727 C Shares $332
If you do not sell your shares at the end of the period:
1 YEAR* 3 YEARS A Shares $696 $1,018 C Shares $199 $ 684 *Without waivers and reimbursements, Year 1 costs would be: A Shares $727 C Shares $232
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The 2015 Fund's expenses in the table above are shown as a percentage of the 2015 Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." LIFE VISION TARGET DATE 2025 FUND 26 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL High total return INVESTMENT FOCUS Equity funds, fixed income funds, money market funds SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Investing pursuant to an asset allocation strategy in a combination of STI Classic equity, fixed income and money market funds INVESTOR PROFILE Investors who expect to retire or require income around the year 2025
(TELESCOPE ICON) INVESTMENT STRATEGY The Life Vision Target Date 2025 Fund invests in a mix of underlying STI Classic Funds representing various asset classes and sectors using an asset allocation strategy designed for investors expecting to retire or require income around the year 2025. The Adviser allocates assets among underlying STI Classic Funds using an asset allocation strategy that becomes increasingly more conservative over time. That is, the percentage of assets allocated to equity securities will tend to decrease periodically as the target date approaches, while the percentage of assets allocated to fixed income and money market securities will tend to increase. When the target asset allocation of the Fund is similar to the asset allocation of the STI Classic Life Vision Conservative Fund (within two years after the target date, i.e., 2027), it is expected that the Fund will seek to be combined with the STI Classic Life Vision Conservative Fund, and shareholders of the Fund would then become shareholders of the STI Classic Life Vision Conservative Fund. In addition to investing in underlying STI Classic Funds, the Adviser may also invest a portion of the Fund's assets in one or more ETFs to gain exposure to an asset class not represented by an underlying STI Classic Fund. The table below shows how the Adviser expects to allocate the Fund among asset classes. The table also shows the sectors within those asset classes to which the Fund will have exposure and the underlying STI Classic Funds (and ETFs, if applicable) that will be used to represent those sectors. The information represents the currently expected investment ranges of the Fund but will vary over time.
INVESTMENT RANGE (PERCENTAGE OF THE ASSET CLASS 2025 FUND'S ASSETS) - ---------------------------------------------------------- EQUITY FUNDS 80-100% Aggressive Growth Stock Fund Capital Appreciation Fund Emerging Growth Stock Fund International Equity Fund International Equity Index Fund Large Cap Quantitative Equity Fund Large Cap Relative Value Fund Large Cap Value Equity Fund Mid-Cap Equity Fund Mid-Cap Value Equity Fund Small Cap Growth Stock Fund Small Cap Quantitative Equity Fund iShares Russell 2000 Value Index Fund* - ---------------------------------------------------------- BOND FUNDS 0-20% Core Bond Fund High Income Fund High Quality Bond Fund Investment Grade Bond Fund Limited-Term Federal Mortgage Securities Fund Seix Floating Rate High Income Fund Seix High Yield Fund Short-Term Bond Fund Short-Term U.S. Treasury Securities Fund Strategic Income Fund Total Return Bond Fund U.S. Government Securities Fund - ---------------------------------------------------------- MONEY MARKET FUND 0-20% Prime Quality Money Market Fund - ----------------------------------------------------------
* iShares(R) is a registered trademark of Barclays Global Investors, N.A. ("BGI"). Neither BGI nor the iShares Russell 2000 Value Index Fund makes any representations regarding the advisability of investing in the Fund. Other STI Classic Funds may be utilized. LIFE VISION TARGET DATE 2025 FUND PROSPECTUS 27 Due to its investment strategy, the Fund holds underlying STI Classic Funds that buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities for taxable investors and lower performance. In addition, to implement its strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps)to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. You can obtain information about the underlying STI Classic Funds in which the Fund invests that are not offered in this prospectus by calling 1-888-STI-FUND or from the STI Classic Funds' website at www.sticlassicfunds.com. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? The value of an investment in the Fund is based primarily on the performance of the underlying STI Classic Funds and the allocation of the Fund's assets among them. Since it purchases equity funds, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of an underlying STI Classic Funds' securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The prices of an underlying STI Classic Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, an underlying STI Classic Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities generally are more volatile, so the average maturity or duration of these securities affects risk. The Fund is also subject to the risk that the Adviser's asset allocation decisions will not anticipate market trends successfully. For example, weighting common stocks too heavily during a stock market decline may result in a failure to preserve capital. Conversely, investing too heavily in fixed income securities during a period of stock market appreciation may result in lower total return. The risks associated with investing in the Fund will vary depending upon how the assets are allocated among the underlying STI Classic Funds. Because the underlying STI Classic Funds invest in derivatives, the Fund is exposed to additional volatility and potential losses. Credit default swaps can increase the Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. Total return swaps could result in losses if the reference index, security, or investments do not perform as anticipated. The use of derivatives may cause the Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. (TARGET ICON) PERFORMANCE INFORMATION No performance information is included because the Fund does not have performance history for a full calendar year. LIFE VISION TARGET DATE 2025 FUND 28 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the 2025 Fund's fees and expenses that you may pay if you buy and hold Fund shares. The table does not reflect any of the operating costs and investment advisory fees of the underlying STI Classic Funds. The Fund and its shareholders will indirectly bear a pro rata share of the expenses of the underlying STI Classic Funds. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
A SHARES C SHARES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)* 5.75% None Maximum Deferred Sales Charge (as a percentage of net asset value)** None 1.00% Redemption Fee (as a percentage of net asset value)*** 2.00% 2.00%
* This sales charge varies depending upon how much you invest. You may buy A Shares in amounts of $1,000,000 or more at net asset value (without an initial sales charge), but if you redeem those shares within one year of your purchase, you will pay a deferred sales charge of 1.00%. See "Sales Charges." ** This sales charge is imposed if you sell C Shares within one year of your purchase. See "Sales Charges." *** This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
A SHARES C SHARES Investment Advisory Fees 0.10% 0.10% Distribution and Service (12b-1) Fees 0.30%(1) 1.00% Other Expenses(2) 0.47% 0.47% ------ ------ Total Annual Operating Expenses 0.87% 1.57% Fee Waivers and Expense Reimbursements(3) (0.37)% (0.37)% ------ ------ Net Operating Expenses 0.50% 1.20%
(1) The Fund's distribution and service plan for A Shares authorizes payment of up to 0.35% of average daily net assets of A Shares for distribution and shareholder services. Currently, the Board of Trustees has only approved payment of up to 0.30% of average daily net assets. (2) Other Expenses are based on estimated amounts for the current fiscal year. (3) The Adviser has contractually agreed to waive fees and reimburse expenses until at least August 1, 2007 in order to keep Total Annual Operating Expenses from exceeding 0.50% and 1.20% for A Shares and C Shares, respectively. If at any point before August 1, 2009, Total Annual Operating Expenses are less than the applicable expense cap, the Adviser may retain the difference to recapture any of the prior waivers or reimbursements. In addition, the Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These voluntary waivers may be discontinued at any time. In addition to the Fund's direct expenses shown in the table above, the Fund indirectly bears a pro-rata share of the expenses of the underlying STI Classic Funds. Based on adjusted expenses of the underlying STI Classic Funds, the indirect costs on investments in underlying STI Classic Funds were 0.89%. Therefore, total annualized expenses would be 1.76% and 2.46% for A Shares and C Shares, respectively, before waivers and reimbursements and would be 1.39% and 2.09% for A Shares and C Shares, respectively, after waivers and reimbursements. LIFE VISION TARGET DATE 2025 FUND PROSPECTUS 29 - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: If you sell your shares at the end of the period:
1 YEAR* 3 YEARS A Shares $623 $ 802 C Shares $222 $ 459 *Without waivers and reimbursements, Year 1 costs would be: A Shares $659 C Shares $260
If you do not sell your shares at the end of the period:
1 YEAR* 3 YEARS A Shares $623 $ 802 C Shares $122 $ 459 *Without waivers and reimbursements, Year 1 costs would be: A Shares $659 C Shares $160
The costs including both direct Fund expenses after waivers and reimbursements and indirect expenses associated with investments in underlying STI Classic Funds would be: If you sell your shares at the end of the period:
1 YEAR* 3 YEARS A Shares $708 $1,063 C Shares $312 $ 731 *Without waivers and reimbursements, Year 1 costs would be: A Shares $744 C Shares $349
If you do not sell your shares at the end of the period:
1 YEAR* 3 YEARS A Shares $708 $1,063 C Shares $212 $ 731 *Without waivers and reimbursements, Year 1 costs would be: A Shares $744 C Shares $249
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." LIFE VISION TARGET DATE 2035 FUND 30 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL High total return INVESTMENT FOCUS Equity funds, fixed income funds, and money market funds SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Investing pursuant to an asset allocation strategy in a combination of STI Classic equity, fixed income and money market funds INVESTOR PROFILE Investors who expect to retire or require income around the year 2035
(TELESCOPE ICON) INVESTMENT STRATEGY The Life Vision Target Date 2035 Fund invests in a mix of underlying STI Classic Funds representing various asset classes and sectors using an asset allocation strategy designed for investors expecting to retire or require income around the year 2035. The Adviser allocates assets among underlying STI Classic Funds using an asset allocation strategy that becomes increasingly more conservative over time. That is, the percentage of assets allocated to equity securities will tend to decrease periodically as the target date approaches, while the percentage of assets allocated to fixed income and money market securities will tend to increase. When the target asset allocation of the Fund is similar to the asset allocation of the STI Classic Life Vision Conservative Fund (within two years after the target date, i.e., 2037), it is expected that the Fund will seek to be combined with the STI Classic Life Vision Conservative Fund, and shareholders of the Fund would then become shareholders of the STI Classic Life Vision Conservative Fund. In addition to investing in underlying STI Classic Funds, the Adviser may also invest a portion of the Fund's assets in one or more ETFs to gain exposure to an asset class not represented by an underlying STI Classic Fund. The table below shows how the Adviser expects to allocate the Fund among asset classes. The table also shows the sectors within those asset classes to which the Fund will have exposure and the underlying STI Classic Funds (and ETFs, if applicable) that will be used to represent those sectors. The information represents the currently expected investment ranges of the Fund but will vary over time.
INVESTMENT RANGE (PERCENTAGE OF THE ASSET CLASS 2035 FUND'S ASSETS) - ---------------------------------------------------------- EQUITY FUNDS 80-100% Aggressive Growth Stock Fund Capital Appreciation Fund Emerging Growth Stock Fund International Equity Fund International Equity Index Fund Large Cap Quantitative Equity Fund Large Cap Relative Value Fund Large Cap Value Equity Fund Mid-Cap Equity Fund Mid-Cap Value Equity Fund Small Cap Growth Stock Fund Small Cap Quantitative Equity Fund iShares Russell 2000 Value Index Fund* - ---------------------------------------------------------- BOND FUNDS 0-10% Core Bond Fund High Income Fund High Quality Bond Fund Investment Grade Bond Fund Limited-Term Federal Mortgage Securities Fund Seix Floating Rate High Income Fund Seix High Yield Fund Short-Term Bond Fund Short-Term U.S. Treasury Securities Fund Strategic Income Fund Total Return Bond Fund U.S. Government Securities Fund - ---------------------------------------------------------- MONEY MARKET FUND Prime Quality Money Market Fund 0-10% - ----------------------------------------------------------
* iShares(R) is a registered trademark of Barclays Global Investors, N.A. ("BGI"). Neither BGI nor the iShares Russell 2000 Value Index Fund makes any representations regarding the advisability of investing in the Fund. Other STI Classic Funds may be utilized. LIFE VISION TARGET DATE 2035 FUND PROSPECTUS 31 Due to its investment strategy, the Fund holds underlying STI Classic Funds that buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities for taxable investors and lower performance. In addition, to implement its strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps)to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. You can obtain information about the underlying STI Classic Funds in which the Fund invests that are not offered in this prospectus by calling 1-888-STI-FUND or from the STI Classic Funds' website at www.sticlassicfunds.com. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? The risks of the Fund will directly correspond to the risks of the underlying funds in which it invests. These risks will vary depending upon how the assets are allocated among the underlying STI Classic Funds. The value of an investment in the Fund is based primarily on the performance of the underlying STI Classic Funds and the allocation of the Fund's assets among them. Since it purchases equity funds, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of an underlying STI Classic Funds' securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The prices of an underlying STI Classic Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, an underlying STI Classic Fund's fixed income securities will decrease in value if interest rates rise and vice versa, and the volatility of lower-rated securities is even greater than that of higher-rated securities. Also, longer-term securities generally are more volatile, so the average maturity or duration of these securities affects risk. The Fund is also subject to the risk that the Adviser's asset allocation decisions will not anticipate market trends successfully. For example, weighting common stocks too heavily during a stock market decline may result in a failure to preserve capital. Conversely, investing too heavily in fixed income securities during a period of stock market appreciation may result in lower total return. The risks associated with investing in the Fund will vary depending upon how the assets are allocated among the underlying STI Classic Funds. Because the underlying STI Classic Funds invest in derivatives, the Fund is exposed to additional volatility and potential losses. Credit default swaps can increase the Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. Total return swaps could result in losses if the reference index, security, or investments do not perform as anticipated. The use of derivatives may cause the Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. (TARGET ICON) PERFORMANCE INFORMATION No performance information is included because the Fund does not have performance history for a full calendar year. LIFE VISION TARGET DATE 2035 FUND 32 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The table does not reflect any of the operating costs and investment advisory fees of the underlying STI Classic Funds. The Fund and its shareholders will indirectly bear a pro rata share of the expenses of the underlying STI Classic Funds. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
A SHARES C SHARES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)* 5.75% None Maximum Deferred Sales Charge (as a percentage of net assets)** None 1.00% Redemption Fee (as a percentage of net asset value)*** 2.00% 2.00%
* This sales charge varies depending upon how much you invest. You may buy A Shares in amounts of $1,000,000 or more at net asset value (without an initial sales charge), but if you redeem those shares within one year of your purchase, you will pay a deferred sales charge of 1.00%. See "Sales Charges." ** This sales charge is imposed if you sell C Shares within one year of your purchase. See "Sales Charges." *** This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
A SHARES C SHARES Investment Advisory Fees 0.10% 0.10% Distribution and Service (12b-1) Fees 0.30%(1) 1.00% Other Expenses(2) 0.44% 0.44% ------------ ------------ Total Annual Operating Expenses() 0.84%() 1.54% Fee Waivers and Expense Reimbursements(3) (0.34)% (0.34)% ------------ ------------ Net Operating Expenses 0.50% 1.20%
(1) The Fund's distribution and service plan for A Shares authorizes payment of up to 0.35% of average daily net assets of A Shares for distribution and shareholder services. Currently, the Board of Trustees has only approved payment of up to 0.30% of average daily net assets. (2) Other Expenses are based on estimated amounts for the current fiscal year. (3) The Adviser has contractually agreed to waive fees and reimburse expenses until at least August 1, 2007 in order to keep Total Annual Operating Expenses from exceeding 0.50% and 1.20% for A Shares and C Shares, respectively. If at any point before August 1, 2009, Total Annual Operating Expenses are less than the applicable expense cap, the Adviser may retain the difference to recapture any of the prior waivers or reimbursements. In addition, the Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These voluntary waivers may be discontinued at any time. In addition to the Fund's direct expenses shown in the table above, the Fund indirectly bears a pro-rata share of the expenses of the underlying STI Classic Funds. Based on adjusted expenses of the underlying STI Classic Funds, the indirect costs on investments in underlying STI Classic Funds were 0.91%. Therefore, total annualized expenses would be 1.75% and 2.45% for A Shares, and C Shares, respectively, before waivers and reimbursements and would be 1.41% and 2.11% for A Shares, B Shares and C Shares, respectively, after waivers and reimbursements. LIFE VISION TARGET DATE 2035 FUND PROSPECTUS 33 - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: If you sell your shares at the end of the period:
1 YEAR* 3 YEARS A Shares $623 $ 796 C Shares $222 $ 453 *Without waivers and reimbursements, Year 1 costs would be: A Shares $656 C Shares $257
If you do not sell your shares at the end of the period:
1 YEAR* 3 YEARS A Shares $623 $ 796 C Shares $122 $ 453 *Without waivers and reimbursements, Year 1 costs would be: A Shares $656 C Shares $157
The costs including both direct Fund expenses after waivers and reimbursements and indirect expenses associated with investments in underlying STI Classic Funds would be: If you sell your shares at the end of the period:
1 YEAR* 3 YEARS A Shares $710 $1,063 C Shares $314 $ 731 *Without waivers and reimbursements, Year 1 costs would be: A Shares $743 C Shares $348
If you do not sell your shares at the end of the period:
1 YEAR* 3 YEARS A Shares $710 $1,063 C Shares $214 $ 731 *Without waivers and reimbursements, Year 1 costs would be: A Shares $743 C Shares $248
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." MORE INFORMATION ABOUT RISK 34 PROSPECTUS (LIFE PRESERVER ICON) MORE INFORMATION ABOUT RISK BELOW INVESTMENT GRADE RISK Life Vision Conservative Fund Life Vision Growth and Income Fund Life Vision Moderate Growth Fund Life Vision Target Date 2015 Fund Life Vision Target Date 2025 Fund Life Vision Target Date 2035 Fund High yield securities, which are also known as "junk bonds," involve greater risks of default or downgrade and are more volatile than investment grade securities. High yield securities involve greater risk of default or price declines than investment grade securities due to actual or perceived changes in an issuer's credit-worthiness. In addition, issuers of high yield securities may be more susceptible than other issuers to economic downturns. High yield securities are subject to the risk that the issuer may not be able to pay interest or dividends and ultimately to repay principal upon maturity. Discontinuation of these payments could substantially adversely affect the market value of the security. High yield securities may be less liquid than higher quality investments. A security whose credit rating has been lowered may be particularly difficult to sell. DERIVATIVES RISK All Funds Derivatives may involve risks different from, and possibly greater than, those of traditional investments. A Fund may use derivatives (such as futures, options, and swaps) to attempt to achieve its investment objective and offset certain investment risks, while at the same time maintaining liquidity. These positions may be established for hedging or non-hedging purposes. Risks associated with the use of derivatives include those associated with hedging and leveraging activities: - - 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. - - The Fund experiencing losses over certain ranges in the market that exceed losses experienced by a fund that does not use derivatives. - - 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 derivatives. - - There may not be a liquid secondary market for derivatives. - - Trading restrictions or limitations may be imposed by an exchange. - - Government regulations may restrict trading in derivatives. - - The other party to an agreement (e.g., options or swaps) may default; however, in certain circumstances, such counter-party risk may be reduced by having an organization with very good credit act as intermediary. Because options premiums paid or received by the Funds are small in relation to the market value of the investments underlying the options, buying and selling put and call options can be more speculative than investing directly in securities. Credit default swaps can increase a Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. The use of derivatives may cause a Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. EMERGING MARKETS RISK All Funds Emerging market countries are countries that the World Bank or the United Nations considers to be emerging or developing. Most countries or regions are included in this category, except for Australia, Canada, Hong Kong, Japan, New Zealand, Singapore, the United Kingdom, the United States and most of the countries located in Western Europe. Emerging markets may be more likely to experience political turmoil or rapid changes in market or economic conditions than more developed countries. In addition, the financial stability of issuers (including governments) in emerging market countries may be more precarious than in other countries. As a result, there will tend to be an increased risk of price volatility associated with investments in emerging market countries, which may be magnified by currency MORE INFORMATION ABOUT RISK PROSPECTUS 35 fluctuations relative to the U.S. dollar. Governments of some emerging market countries have defaulted on their bonds and may do so in the future. EQUITY RISK All Funds Equity securities include public and privately issued equity securities, common and preferred stocks, warrants, rights to subscribe to common stock and convertible securities, as well as instruments that attempt to track the price movement of equity indices. Investments in equity securities and equity derivatives in general are subject to market risks that may cause their prices to fluctuate over time. The value of securities convertible into equity securities, such as warrants or convertible debt, is also affected by prevailing interest rates, the credit quality of the issuer and any call provision. Fluctuations in the value of equity securities in which a mutual fund invests will cause a fund's net asset value to fluctuate. An investment in a portfolio of equity securities may be more suitable for long-term investors who can bear the risk of these share price fluctuations. EXCHANGE TRADED FUND RISK All Funds The Funds may purchase shares of exchange-traded funds ("ETFs") to temporarily gain exposure to a particular portion of the market while awaiting an opportunity to purchase securities directly. ETFs are investment companies that are bought and sold on a securities exchange. An ETF holds a portfolio of securities designed to track a particular market segment or index. ETFs, like mutual funds, have expenses associated with their operation, including advisory fees. When a Fund invests in an ETF, in addition to directly bearing expenses associated with its own operations, it will bear a pro rata portion of the ETF's expense. The risks of owning shares of an ETF generally reflect the risks of owning the underlying securities the ETF is designed to track, although lack of liquidity in an ETF could result in being more volatile than the underlying portfolio of securities. In addition, because of ETF expenses, compared to owning the underlying securities directly, it may be more costly to own an ETF. FIXED INCOME RISK Life Vision Conservative Fund Life Vision Growth and Income Fund Life Vision Moderate Growth Fund Life Vision Target Date 2015 Fund Life Vision Target Date 2025 Fund Life Vision Target Date 2035 Fund The prices of fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, fixed income securities will decrease in value if interest rates rise and vice versa. Long-term debt securities generally are more sensitive to changes in interest rates, usually making them more volatile than short-term debt securities and thereby increasing risk. Debt securities are also subject to credit risk, which is the possibility than an issuer will fail to make timely payments of interest or principal, or go bankrupt. The lower the ratings of such debt securities, the greater their risks. In addition, lower rated securities have higher risk characteristics, and changes in economic conditions are likely to cause issuers of these securities to be unable to meet their obligations. Debt securities are also subject to income risk, which is the possibility that falling interest rates will cause income to decline. Income risk is generally higher for short-term bonds. FLOATING RATE LOAN RISK Life Vision Conservative Fund Life Vision Growth and Income Fund Life Vision Moderate Growth Fund Life Vision Target Date 2015 Fund Life Vision Target Date 2025 Fund Life Vision Target Date 2035 Fund As fixed income securities, investments in floating rate loans are subject to interest rate risk, but that risk is less because the interest rate of the loan adjusts periodically. As debt securities, investments in floating rate loans are subject to credit risk. Many floating rate loans are in unrated or lower credit rated securities. When a security is unrated, an underlying Fund must rely more heavily on the analytical ability of the Adviser. Many floating rate loan investments share the same risks as high yield MORE INFORMATION ABOUT RISK 36 PROSPECTUS securities, although these risks are reduced when the floating rate loans are senior and secured as opposed to many high yield securities that are junior and unsecured. Floating rate securities are often subject to restrictions on resale which can result in reduced liquidity. A floating rate loan also may not be fully collateralized, although one lending institution will often be required to monitor collateral. Borrowers may repay principal faster than the scheduled due date which may result in an underlying Fund replacing that loan with a lower- yielding security. Investment in loan participation interests may result in increased exposure to financial services sector risk. A loan may not be fully collateralized which may cause the loan to decline significantly in value, although one lending institution acting as agent for all of the lenders will generally be required to administer and manage the loan and, with respect to collateralized loans, to service or monitor the collateral. Certain portfolio managers and other personnel of the Adviser may also manage similar investment portfolios of floating rate loans for another non-investment adviser contracted affiliated business, Seix Structured Products, LLC ("SSP"). SSP is a subsidiary of SunTrust Bank and an affiliate of the Adviser, but not a client of the Adviser. In that role, this group purchases bank loans on behalf of SSP, for purposes of subsequent collateralized loan obligation ("CLO") transactions where the Adviser and its affiliate, SunTrust Capital Markets, Inc., will serve as collateral manager and as structuring agent/placement agent, respectively. The trustee and custodian of the CLO transactions are not affiliated entities of the Adviser or SunTrust Capital Markets. In addition, the Adviser serves as adviser to an account established with its affiliate, SunTrust Equity Funding, LLC for the purpose of purchasing high yield securities for subsequent sale to these same CLO transactions. Each of these transactions is subject to the approval of the independent trustee of the CLO transaction. In addition to disclosure to the trustee, all such transactions are fully disclosed to potential investors in the CLO's Offering and Disclosure documents. As a result of these multiple investment-oriented and associated relationships, there exists a potential risk that the portfolio managers may favor other adviser and non-adviser contracted businesses over an underlying Fund, especially when allocating certain types of transactions. The Adviser has created and implemented additional policies and procedures designed to protect shareholders against such conflicts; however, there can be no absolute guarantee that an underlying Fund will always participate in the same or similar investments or receive equal or better individual investment allocations at any given time. FOREIGN SECURITY RISK All Funds Investments in securities of foreign companies or governments can be more volatile than investments in U.S. companies or governments. Political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. Diplomatic, political, or economic developments, including nationalization or appropriation, could affect investments in foreign countries. Foreign securities markets generally have less trading volume and less liquidity than U.S. markets. The value of securities denominated in foreign currencies, and of dividends from such securities, can change significantly when foreign currencies strengthen or weaken relative to the U.S. dollar. As a result, changes in the value of those currencies compared to the U.S. dollar may affect (positively or negatively) the value of an investment. Certain foreign currencies may be particularly volatile, and foreign governments may intervene in the currency markets, causing a decline in value or liquidity in foreign currency holdings. These currency movements may happen separately from and in response to events that do not otherwise affect the value of the security in the issuer's home country. Foreign companies or governments generally are not subject to uniform accounting, auditing, and financial reporting standards comparable to those applicable to domestic U.S. companies or governments. Transaction costs are generally higher than those in the U.S. and expenses for custodial arrangements of foreign securities may be somewhat greater than typical expenses for custodial arrangements of similar U.S. securities. Some foreign governments levy withholding taxes against dividend and interest income. Although in some countries a portion of these taxes are recoverable, the non-recovered portion will reduce the income received from the securities comprising the portfolio. MORE INFORMATION ABOUT FUND INVESTMENTS PROSPECTUS 37 LARGE COMPANY RISK All Funds Large cap stocks can perform differently from other segments of the equity market or the equity market as a whole. Companies with large capitalization tend to go in and out of favor based on market and economic conditions and, while they can be less volatile than companies with smaller market capitalizations, they may also be less flexible in evolving markets or unable to implement change as quickly as their smaller counterparts. Accordingly, the value of large cap stocks may not rise to the same extent as the value of small or mid-cap companies. MORTGAGE-BACKED SECURITY RISK Life Vision Conservative Fund Life Vision Growth and Income Fund Life Vision Moderate Growth Fund Life Vision Target Date 2015 Fund Life Vision Target Date 2025 Fund Life Vision Target Date 2035 Fund Mortgage-backed securities are fixed income securities representing an interest in a pool of underlying mortgage loans. Mortgage-backed securities are sensitive to changes in interest rates, but may respond to these changes differently from other fixed income securities due to the likelihood that a change in the general level of interest rates will impact the magnitude and timing of any prepayments of the underlying mortgage loans. As a result, it may not be possible to accurately determine in advance the actual maturity date or average life of a mortgage-backed security. The uncertainty inherent in assessing prepayment risk makes it difficult to calculate the average maturity of a portfolio including mortgage-backed securities, and therefore, to assess the volatility risk of an underlying Fund. SMALLER COMPANY RISK All Funds Small and mid-capitalization stocks can perform differently from other segments of the equity market or the equity market as a whole. The small and mid- capitalization companies the Fund invests in may be more vulnerable to adverse business or economic events than larger, more established companies. In particular, these companies may have limited product lines, markets and financial resources, and may depend upon a relatively small management group. Therefore, small and mid-cap stocks can be more volatile than those of larger companies. These securities may be traded over-the-counter or listed on an exchange. (MOUNTAIN ICON) MORE INFORMATION ABOUT FUND INVESTMENTS This prospectus describes the Funds' primary strategies, and the Funds will normally invest in the types of securities described in this prospectus. However, in addition to the investments and strategies described in this prospectus, each Fund also may invest in other securities, use other strategies and engage in other investment practices. These investments and strategies, as well as those described in this prospectus, are described in detail in the Statement of Additional Information. The investments and strategies described in this prospectus are those that the Funds use under normal conditions. During unusual economic or market conditions, or for temporary defensive or liquidity purposes, each Fund may invest up to 100% of its assets in cash, money market instruments, repurchase agreements and short-term obligations that would not ordinarily be consistent with a Fund's objectives. A Fund will do so only if the Adviser believes that the risk of loss outweighs the opportunity for capital gains or higher income. Of course, a Fund cannot guarantee that it will achieve its investment goal. INFORMATION ABOUT PORTFOLIO HOLDINGS A description of the Funds' policy and procedures with respect to the circumstances under which the Funds disclose their portfolio securities is available in the Statement of Additional Information. INVESTMENT ADVISER 38 PROSPECTUS (MAGNIFYING GLASS ICON) INVESTMENT ADVISER Trusco Capital Management, Inc., 50 Hurt Plaza, Suite 1400, Atlanta, Georgia 30303 ("Trusco" or the "Adviser"), serves as the investment adviser to the Funds. As of June 30, 2006, the Adviser had approximately $71 billion in assets under management. For the fiscal year ended March 31, 2006, the following Funds paid the Adviser advisory fees (after waivers) based on the respective Fund's average daily net assets of: Life Vision Aggressive Growth Fund 0.11% Life Vision Conservative Fund 0.00% Life Vision Growth and Income Fund 0.11% Life Vision Moderate Growth Fund 0.11%
For its advisory services to the Life Vision Target Date 2015 Fund, the Life Vision Target Date 2025 Fund and the Life Vision Target Date 2035 Fund, the Adviser is entitled to receive an annual advisory fee of 0.10% based on each Fund's average daily net assets. The Adviser has contractually agreed to waive fees and reimburse expenses until at least August 1, 2007 in order to keep total operating expenses of each Life Vision Fund from exceeding the applicable expense cap. If at any point before August 1, 2009, it becomes unnecessary for the Adviser to make reimbursements, the Adviser may retain the difference between the total annual operating expenses and the expense cap to recapture any of the prior waivers or reimbursement. Since August 1, 2005, the following breakpoints have been used in computing the advisory fee:
AVERAGE DAILY NET ASSETS DISCOUNT FROM FULL FEE - ------------------------ ---------------------- First $500 million None - Full Fee Next $500 million 5% Over $1 billion 10%
A discussion regarding the basis for the Board of Trustees' approval of the investment advisory contract with the Adviser appears in the Funds' semi-annual report to shareholders for the period ended September 30, 2005. The Adviser is responsible for making investment decisions for the Funds and continuously reviews, supervises and administers each Fund's respective investment program. The Board of Trustees supervises the Adviser and establishes policies that the Adviser must follow in its management activities. The Adviser may use its affiliates as brokers for Fund transactions. An investment adviser has a fiduciary obligation to its clients when the adviser has authority to vote their proxies. Under the current contractual agreement, the Adviser is authorized to vote proxies on behalf of each Fund. Information regarding the Adviser's, and thus each Fund's, Proxy Voting Policies and Procedures is provided in the Statement of Additional Information. A copy of the Funds' Proxy Voting Policies and Procedures may be obtained by contacting the STI Classic Funds at 1-888-STI-FUND, or by visiting www.sticlassicfunds.com. PORTFOLIO MANAGERS Mr. Alan Gayle is primarily responsible for the day-to-day management of the Funds. Mr. Gayle has served as Managing Director of Trusco since July 2000 and Director of Asset Allocation since March 2006. He serves as lead manager of the LIFE VISION AGGRESSIVE GROWTH FUND, LIFE VISION CONSERVATIVE FUND, LIFE VISION GROWTH AND INCOME FUND, LIFE VISION MODERATE GROWTH FUND, LIFE VISION 2015 TARGET DATE FUND, the LIFE VISION 2025 TARGET DATE FUND and the LIFE VISION 2035 TARGET DATE FUND since each Fund's inception. He has more than 29 years of investment experience. The Statement of Additional Information provides additional information regarding the portfolio manager's compensation, other accounts managed by the portfolio manager, potential conflicts of interest and the portfolio manager's ownership of securities of the Funds. PURCHASING, SELLING AND EXCHANGING FUND SHARES PROSPECTUS 39 (HAND SHAKE ICON) PURCHASING, SELLING AND EXCHANGING FUND SHARES This section tells you how to purchase, sell (sometimes called "redeem") and exchange A Shares, B Shares and C Shares of the Funds. B shares are closed to purchases by new and existing investors. Existing shareholders, however, may still reinvest dividend and capital gain distributions in B Shares of the Funds and exchange B Shares of any Fund for B Shares of any other Fund, if applicable. The information below regarding how to purchase shares is intended for existing holders of B Shares. HOW TO PURCHASE FUND SHARES You may purchase shares of the Funds through financial intermediaries or financial institutions that are authorized to place transactions in Fund shares for their customers. Please contact your financial intermediary or institution directly and follow its procedures for Fund share transactions. Your institution or intermediary may charge a fee for its services, in addition to the fees charged by a Fund. You will also generally have to address your correspondence or questions regarding a Fund to your financial institution or intermediary. Your investment professional can assist you in opening a brokerage account that will be used purchasing shares of STI Classic Funds. Shareholders who purchased shares directly from the Funds may purchase additional Fund shares by: - - Mail - - Telephone (1-888-STI-FUND) - - Wire - - Fax (1-800-451-8377) - - Automated Clearing House ("ACH") The Funds do not accept cash, credit card checks, third-party checks, travelers' checks, money orders, bank starter checks or checks drawn in a foreign currency, as payment for Fund shares. If you pay with a check of ACH transfer that does not clear or if your payment is not received in a timely manner, your purchase may be canceled. You will be responsible for any losses or expenses incurred by the Fund or transfer agent, and the Fund can redeem shares you own in this or another identically registered STI Classic Funds account as reimbursement. WHEN CAN YOU PURCHASE SHARES? You may purchase shares on any day that the New York Stock Exchange ("NYSE") is open for business (a "Business Day"). The price per share (the offering price) will be the net asset value per share ("NAV") next determined after the Funds receive your purchase order in proper form plus any applicable sales charge. Each Fund calculates its NAV once each Business Day at the regularly-scheduled close of normal trading on the NYSE (normally, 4:00 p.m., Eastern Time). So, for you to receive the current Business Day's NAV, a Fund or its authorized agent must receive your purchase order in proper form before 4:00 p.m., Eastern Time. If the NYSE closes early - such as on days in advance of certain holidays - the Funds will calculate NAV as of the earlier closing time. The Funds will not accept orders that request a particular day or price for the transaction or any other special conditions. YOU MAY HAVE TO TRANSMIT YOUR PURCHASE, SALE AND EXCHANGE REQUESTS TO YOUR FINANCIAL INSTITUTION OR INTERMEDIARY AT AN EARLIER TIME FOR YOUR TRANSACTION TO BECOME EFFECTIVE THAT DAY. THIS ALLOWS THE FINANCIAL INSTITUTION OR INTERMEDIARY TIME TO PROCESS YOUR REQUEST AND TRANSMIT IT TO THE TRANSFER AGENT IN TIME TO MEET THE ABOVE STATED FUND CUT-OFF TIMES. FOR MORE INFORMATION ABOUT HOW TO PURCHASE, SELL OR EXCHANGE FUND SHARES, INCLUDING SPECIFIC FINANCIAL INSTITUTION'S OR INTERMEDIARY'S INTERNAL ORDER ENTRY CUT-OFF TIMES, PLEASE CONTACT YOUR FINANCIAL INSTITUTION OR INTERMEDIARY DIRECTLY. A Fund may reject any purchase order. HOW THE FUNDS CALCULATE NAV NAV is calculated by adding the total value of a Fund's investments and other assets, subtracting its liabilities and then dividing that figure by the number of outstanding shares of the Fund. In calculating NAV, each Fund generally values its investment portfolio at market price. If market prices are not readily available or the Fund reasonably believes that they are unreliable, such as in the case of a security value that has been materially affected by events occurring after the relevant market closes, a Fund is required to price those securities at fair value as determined in good faith using methods approved by PURCHASING, SELLING AND EXCHANGING FUND SHARES 40 PROSPECTUS the Board of Trustees. A Fund's determination of a security's fair value price often involves the consideration of a number of subjective factors, and is therefore subject to the unavoidable risk that the value that a Fund assigns to a security may be higher or lower than the security's value would be if a reliable market quotation for the security was readily available. Although the Funds invest primarily in the stocks of U.S. companies that are traded on exchanges, there may be limited circumstances in which a Fund would price securities at fair value - for example, if the exchange on which a portfolio security is principally traded closed early or if trading in a particular security was halted during the day and did not resume prior to the time a Fund calculated its NAV. When valuing fixed income securities with remaining maturities of more than 60 days, the Funds use the value of the security provided by pricing services. The values provided by a pricing service may be based upon market quotations for the same security, securities expected to trade in a similar manner, or a pricing matrix. When valuing fixed income securities with remaining maturities of 60 days or less, the Funds use the security's amortized cost. Amortized cost and the use of a pricing matrix in valuing fixed income securities are forms of fair value pricing. With respect to non-U.S. securities held by a Fund, the Fund may take factors influencing specific markets or issues into consideration in determining the fair value of a non-U.S. security. International securities markets may be open on days when the U.S. markets are closed. In such cases, the value of any international securities owned by a Fund may be significantly affected on days when investors cannot buy or sell shares. In addition, due to the difference in times between the close of the international markets and the time a Fund prices its shares, the value the Fund assigns to securities generally will not be the same as the primary markets or exchanges. In determining fair value prices, a Fund may consider the performance of securities on their primary exchanges, foreign currency appreciation/depreciation, securities market movements in the U.S., or other relevant information as related to the securities. MINIMUM/MAXIMUM PURCHASES To purchase A Shares and C Shares for the first time, you must invest in any Fund at least:
CLASS DOLLAR AMOUNT A Shares $2,000 C Shares $5,000 ($2,000 for IRAs or other tax qualified accounts)
Purchases of C Shares of a Fund requested in an amount of $1,000,000 or more will automatically be made in A Shares of that Fund. Your subsequent investments of shares of any Fund must be made in amounts of at least $1,000 or, if you pay by a statement coupon, $100. The Funds may accept investments of smaller amounts at its discretion. SYSTEMATIC INVESTMENT PLAN If you have a checking or savings account with a bank, you may purchase shares automatically through regular deductions from your bank account. With a $500 minimum initial investment, you may begin regularly-scheduled investments of $50 or more once or twice a month. CUSTOMER IDENTIFICATION FOREIGN INVESTORS To purchase shares of the Funds, you must be a U.S. citizen residing in the U.S. or its territories or a U.S. entity with a U.S. tax identification number. If you owned shares on July 31, 2006, you may keep your account open even if you do not reside in the U.S. or its territories, but you may not make additional purchases or exchanges. These restrictions do not apply to investors with U.S. military APO or FPO addresses. CUSTOMER IDENTIFICATION AND VERIFICATION To help the government fight the funding of terrorism and money laundering activities, federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account. When you open an account, you will be asked to provide your name, residential street address, date of birth, Social Security number or tax identification number. You may also be asked for other information PURCHASING, SELLING AND EXCHANGING FUND SHARES PROSPECTUS 41 that will allow us to identify you. Entities are also required to provide additional documentation. This information will be verified to ensure the identity of all persons opening a mutual fund account. In certain instances, the Funds are required to collect documents to fulfill their legal obligation. Documents provided in connection with your application will be used solely to establish and verify a customer's identity. The Funds are required by law to reject your new account application if the required identifying information is not provided. Attempts to collect the missing information required on the application will be performed by either contacting you or, if applicable, your broker. If this information is unable to be obtained within a timeframe established in the sole discretion of the Funds, your application will be rejected. Upon receipt of your application in proper form (or upon receipt of all identifying information required on the application), your investment will be accepted and your order will be processed at the NAV next determined. However, the Funds reserve the right to close your account at the then-current day's price if the Funds are unable to verify your identity. Attempts to verify your identity will be performed within a timeframe established in the sole discretion of the Funds. If the Funds are unable to verify your identity, the Funds reserve the right to liquidate your account at the then-current day's price and remit proceeds to you via check. The Funds reserve the further right to hold your proceeds until your original check clears the bank. In such an instance, you may be subject to a gain or loss on Fund shares and will be subject to corresponding tax implications. ANTI-MONEY LAUNDERING PROGRAM Customer identification and verification is part of the Funds' overall obligation to deter money laundering under federal law. The Funds have adopted an anti-money laundering compliance program designed to prevent the Funds from being used for money laundering or the financing of terrorist activities. In this regard, the Funds reserve the right to (i) refuse, cancel or rescind any purchase or exchange order, (ii) freeze any account and/or suspend account services, or (iii) involuntarily redeem your account in cases of threatening conduct or suspected fraudulent or illegal activity. These actions will be taken when, in the sole discretion of Fund management, they are deemed to be in the best interest of the Funds or in cases when the Funds are requested or compelled to do so by governmental or law enforcement authority. (DOLLAR ICON) SALES CHARGES FRONT-END SALES CHARGES - A SHARES The offering price of A Shares is the NAV next calculated after a Fund receives your request in proper form, plus the front-end sales charge. The amount of any front-end sales charge included in your offering price varies, depending on the amount of your investment. For all Funds except the Life Vision Conservative Fund:
YOUR SALES YOUR SALES CHARGE AS A CHARGE AS A PERCENTAGE OF PERCENTAGE OF OFFERING YOUR NET IF YOUR INVESTMENT IS: PRICE* INVESTMENT Less than $50,000 5.75% 6.10% $50,000 but less than $100,000 4.75% 4.99% $100,000 but less than $250,000 3.75% 3.90% $250,000 but less than $500,000 2.50% 2.56% $500,000 but less than $1,000,000 2.00% 2.04% $1,000,000 and over None None
* The Distributor may pay a percentage of the offering price as a commission to broker-dealers. While investments over $1,000,000 are not subject to a front-end sales charge, the Distributor may pay dealer commissions ranging from 0.25% to 1.00%. PURCHASING, SELLING AND EXCHANGING FUND SHARES 42 PROSPECTUS For the Life Vision Conservative Fund:
YOUR SALES YOUR SALES CHARGE AS A CHARGE AS A PERCENTAGE OF PERCENTAGE OF OFFERING YOUR NET IF YOUR INVESTMENT IS: PRICE* INVESTMENT Less than $50,000 4.75% 4.99% $50,000 but less than $100,000 4.50% 4.71% $100,000 but less than $250,000 3.50% 3.63% $250,000 but less than $500,000 2.50% 2.56% $500,000 but less than $1,000,000 2.00% 2.04% $1,000,000 and over None None
* The Distributor may pay a percentage of the offering price as a commission to broker-dealers. While investments over $1,000,000 are not subject to a front-end sales charge, the Distributor may pay dealer commissions ranging from 0.25% to 1.00%. INVESTMENTS OF $1,000,000 OR MORE. You do not pay an initial sales charge when you buy $1,000,000 or more of A Shares in either a single investment or through our rights of accumulation, letter of intent, or combined purchase/quantity discount programs. However, you will pay a deferred sales charge of 1.00% if you redeem any of these A Shares within one year of purchase. The deferred sales charge is calculated based on the lessor of (1) the NAV of the shares at the time of purchase or (2) NAV of the shares next calculated after the Fund receives your redemption request. The deferred sales charge does not apply to shares you purchase through reinvestment of dividends or capital gains distributions. WAIVER OF FRONT-END SALES CHARGE - A SHARES The front-end sales charge will be waived on A Shares purchased: - - through reinvestment of dividends and distributions; - - through an account managed by an affiliate of the Adviser; - - by persons repurchasing shares they redeemed within the last 180 days (see "Repurchase of A Shares"); - - by employees, and members of their immediate family (spouse, mother, father, mother-in-law, father-in-law, and children (including step-children) under the age of 21 years), of the Adviser and its affiliates; - - by current STI Classic Funds shareholders reinvesting distributions from qualified employee benefit retirement plans and rollovers from individual retirement accounts ("IRAs"); - - by persons investing an amount less than or equal to the value of an account distribution when an account for which a bank affiliated with the Adviser acted in a fiduciary, administrative, custodial or investment advisory capacity is closed; - - through dealers, retirement plans, asset allocation and wrap programs and financial institutions that, under their dealer agreements with the Distributor or otherwise, do not receive any portion of the front-end sales charge; or - - by Trustees of the STI Classic Funds. REPURCHASE OF A SHARES You may repurchase any amount of A Shares of any Fund at NAV (without the normal front-end sales charge), up to the limit of the value of any amount of A Shares (other than those which were purchased with reinvested dividends and distributions) that you redeemed within the past 180 days. In effect, this allows you to reacquire shares that you may have had to redeem, without re-paying the front-end sales charge. Such repurchases may be subject to special tax rules. See the section on Taxes in the Statement of Additional Information for more information. To exercise this privilege, the Funds must receive your purchase order within 180 days of your redemption. In addition, you must notify the Fund when you send in your purchase order that you are repurchasing shares. REDUCED SALES CHARGES - A SHARES RIGHTS OF ACCUMULATION. In calculating the appropriate sales charge rate, this right allows you to add the market value (at the close of business on the day of the current purchase) of your existing holdings in any class of shares to the amount of A shares you are currently purchasing. You should retain any records necessary to substantiate the historical amounts you have invested. The Funds may amend or terminate this right at any time. Please see the Statement of Additional Information for details. LETTER OF INTENT. A Letter of Intent allows you to purchase shares over a 13-month period and receive the PURCHASING, SELLING AND EXCHANGING FUND SHARES PROSPECTUS 43 same sales charge as if you had purchased all the shares at the same time. The Funds will hold a certain portion of your investment in escrow until you fulfill your commitment. Please see the Statement of Additional Information for details. COMBINED PURCHASE/QUANTITY DISCOUNT PRIVILEGE. When calculating the appropriate sales charge rate, the Funds will combine same day purchases of shares of any class made by you, your spouse and your minor children (under age 21). This combination also applies to A Shares you purchase with a Letter of Intent. You can also obtain this information about sales charges, rights of accumulation and Letters of Intent on the Funds' website at www.sticlassicfunds.com. CONTINGENT DEFERRED SALES CHARGE ("CDSC") - B SHARES You do not pay a sales charge when you purchase B Shares. However, if you redeem your shares within five years of purchase, you will generally pay a CDSC on these shares according to the following schedule:
CDSC AS A PERCENTAGE OF ORIGINAL PURCHASE AMOUNT YEARS AFTER PURCHASE SUBJECT TO CHARGE 0 to 1 Year 5% 1 to 2 Years 4% 2 to 3 Years 4% 3 to 4 Years 3% 4 to 5 Years 2% 5 Years+* 0%
* B Shares automatically convert to A Shares after eight years. The CDSC does not apply to share price appreciation or shares acquired through dividend or capital gains distribution reinvestment. To minimize the CDSC, shares not subject to any charge will be redeemed first, followed by shares held longest (therefore having the lowest CDSC). CONTINGENT DEFERRED SALES CHARGE ("CDSC") - C SHARES You do not pay a sales charge when you purchase C Shares. The offering price of C Shares is simply the next calculated NAV. But if you sell your shares within the first year after your purchase, you will pay a CDSC equal to 1% of either (1) the NAV of the shares at the time of purchase, or (2) NAV of the shares next calculated after the Funds receive your sale request, whichever is less. The Funds will use the first-in, first-out ("FIFO") method to determine the holding period. So, you never pay a deferred sales charge on any increase in your investment above the initial offering price. This sales charge does not apply to shares you purchase through the reinvestment of dividends or capital gain distributions or to the exchange of C Shares of one Fund for C Shares of another Fund. WAIVER OF THE CDSC No CDSC is imposed if you sell your shares under any of the following circumstances: - - Death or Post purchase Disablement (as defined in Section 72(m)(7) of the Internal Revenue Code) - You are shareholder/joint shareholder or participant/beneficiary of certain retirement plans; - You die or become disabled after the account is opened; - Redemption must be made within 1 year of such death/disability; - The Fund must be notified in writing of such death/disability at time of redemption request; - The Fund must be provided with satisfactory evidence of death (death certificate) or disability (doctor's certificate specifically referencing disability as defined in 72(m)(7) referenced above). - - Shares purchased through dividend and capital gains reinvestment. - - Participation in the Systematic Withdrawal Plan described below: - Withdrawal not to exceed 10% of the current balance of a Fund in a 12 month period, the 10% amount will be calculated as of the date of the initial Systematic Withdrawal Plan and recalculated annually on the 12 month anniversary date. Shares purchased through dividend or capital gains reinvestment, although not subject to the CDSC, will be included in calculating the account value and 10% limitation amount; - If the total of all Fund account withdrawals (Systematic Withdrawal Plan or otherwise) PURCHASING, SELLING AND EXCHANGING FUND SHARES 44 PROSPECTUS exceeds the 10% limit within the 12 month period following the initial calculation date, the entire Systematic Withdrawal Plan for the period will be subject to the applicable sales charge, in the initial year of a Systematic Withdrawal Plan, the withdrawal limitation period shall begin 12 months before the initial Systematic Withdrawal Plan payment; - To qualify for the CDSC waiver under the Systematic Withdrawal Plan a Fund account must have a minimum of $25,000 at Systematic Withdrawal Plan inception and must also reinvest dividends and capital gains distributions. - - Required mandatory minimum withdrawals made after 70 1/2 under any retirement plan qualified under IRS Code Section 401, 408 or 403(b) or resulting from the tax free return of an excess distribution to an Individual Retirement Account (IRA). Satisfactory qualified plan documentation to support any waiver includes employer letter (separation from services) and plan administrator certificate (certain distributions under plan requirements). - - Permitted exchanges of shares except if shares acquired by exchange are then redeemed within the period during which a CDSC would apply to the initial shares purchased. - - Exchanges for B Shares of other Life Vision Funds. - - Exchanges in connection with plans of Fund reorganizations such as mergers and acquisitions. To take advantage of any of these waivers, you must qualify in advance. To see if you qualify, please call your investment professional or other investment representative. These waivers are subject to change or elimination at any time at the discretion of the Funds. OFFERING PRICE OF FUND SHARES The offering price of A Shares is the NAV next calculated after the transfer agent receives your request in proper form, plus the front-end sales charge. The offering price of B Shares and C Shares is simply the next calculated NAV. You can also obtain this information about sales charges, rights of accumulation and letters of intent on the Funds' website at www.sticlassicfunds.com. HOW TO SELL YOUR FUND SHARES If you own your shares through an account with a broker or other financial institution, contact that broker, institution or intermediary to sell your shares. Your broker, financial institution or intermediary may charge a fee for its services, in addition to the fees charged by the Funds. Shareholders who purchased shares directly from the Funds may sell their Fund shares by: - - Mail - - Telephone (1-888-STI-FUND) - - Wire - - Fax (1-800-451-8377) - - ACH A MEDALLION SIGNATURE GUARANTEE] by a bank or other financial institution (a notarized signature is not sufficient) is required to redeem shares: - - made payable to someone other than the registered shareholder; - - sent to an address or bank account other than the address or bank account of record; or - - sent to an address or bank account of record that has been changed within the last 15 calendar days. ] MEDALLION SIGNATURE GUARANTEE: A Medallion Signature Guarantee verifies the authenticity of your signature and helps ensure that you, in fact, authorized charges to your account. A Medallion Signature Guarantee may be obtained from a domestic bank or trust company, broker, dealer, clearing agency, savings association or other financial institution participating in a Medallion Program recognized by the Securities Trading Association. Signature guarantees from financial institutions that do not reflect one of the following are not part of the program and will not be accepted. The acceptable Medallion programs are Securities Transfer Agents Medallion Program, (STAMP), Stock Exchange Medallion Program, (SEMP), or the New York Stock Exchange, Inc. Medallion Program, (NYSE MSP). Contact your local financial adviser or institution for further assistance. The sale price of each share will be the NAV next determined after the Funds receive your request less, in PURCHASING, SELLING AND EXCHANGING FUND SHARES PROSPECTUS 45 the case of B Shares and C Shares, any applicable CDSC. REDEMPTION FEE A redemption fee of 2% of the value of the shares sold will be imposed on shares redeemed within 7 days or less after their date of purchase unless the redemption is excluded under the Redemption Fee Policy. The redemption fee is intended to limit short-term trading and to help offset costs to the Funds' remaining shareholders of that type of activity. (See "Redemption Fee Policy.") SYSTEMATIC WITHDRAWAL PLAN If you have at least $10,000 in your account, you may use the Systematic Withdrawal Plan. Under the plan you may arrange monthly, quarterly, semi-annual or annual automatic withdrawals of at least $50 from any Fund. The proceeds of each withdrawal will be mailed to you by check or, if you have a checking or savings account with a bank, may be electronically transferred to your account. Please check with your bank. Withdrawals under the Systematic Withdrawal Plan may be subject to a CDSC unless they meet the requirements described above under "Waiver of the CDSC." RECEIVING YOUR MONEY Normally, the Funds will send your sale proceeds within five Business Days after the Funds receive your request but a fund may take up to seven days to pay the sale proceeds if making immediate payment would adversely affect the Fund (for example, to allow the Fund to raise capital in the case of a large redemption). Your proceeds can be wired to your bank account (subject to a fee) or sent to you by check. IF YOU RECENTLY PURCHASED YOUR SHARES BY CHECK OR THROUGH ACH, REDEMPTION PROCEEDS MAY NOT BE AVAILABLE UNTIL YOUR FUNDS HAVE CLEARED (WHICH MAY TAKE UP TO 15 CALENDAR DAYS FROM YOUR DATE OF PURCHASE). REDEMPTIONS IN KIND The Funds generally pay redemption proceeds in cash. However, under unusual conditions that make the payment of cash unwise (and for the protection of the Funds' remaining shareholders), the Funds might pay all or part of your redemption proceeds in liquid securities with a market value equal to the redemption price (redemption in kind). It is highly unlikely that your shares would ever be redeemed in kind, but if they were you would probably have to pay transaction costs to sell the securities distributed to you, as well as taxes on any capital gains from the sale as with any redemption. INVOLUNTARY SALES OF YOUR SHARES If your account balance drops below the required minimum as a result of redemptions, you may be required to sell your shares. The account balance minimums are:
CLASS DOLLAR AMOUNT A Shares $2,000 B Shares $5,000 ($2,000 for IRAs or other tax qualified accounts) C Shares $5,000 ($2,000 for IRAs or other tax qualified accounts)
But the Funds will always give you at least 60 days written notice to give you time to add to your account and avoid the sale of your shares. SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES A Fund may suspend your right to sell your shares if the NYSE restricts trading, the SEC declares an emergency or for other reasons approved by the SEC. More information about this is in the Statement of Additional Information. HOW TO EXCHANGE YOUR SHARES You may exchange your shares on any Business Day by contacting the Funds or your financial institution or intermediary by mail or telephone. Exchange requests must be for an amount of at least $1,000. The exchange privilege is not intended as a vehicle for short-term trading. Excessive exchange activity may interfere with Fund management and may have an adverse effect on all shareholders. In order to limit excessive exchange activity and in other circumstances where it is in the best interests of a Fund, all Funds reserve the right to revise or terminate the exchange privilege, limit the amount or number of exchanges or reject any exchange or restrict or refuse purchases if (1) a Fund or its manager(s) believes the Fund would be harmed or unable to invest effectively, or (2) a Fund receives or anticipates orders that may dramatically affect MARKET TIMING POLICIES AND PROCEDURES 46 PROSPECTUS the Fund as outlined under "Market Timing Policies and Procedures" below. IF YOU RECENTLY PURCHASED SHARES BY CHECK, OR THROUGH ACH, YOU MAY NOT BE ABLE TO EXCHANGE YOUR SHARES UNTIL YOUR FUNDS HAVE CLEARED (WHICH MAY TAKE UP TO 15 CALENDAR DAYS FROM YOUR DATE OF PURCHASE). This exchange privilege may be changed or canceled at any time upon 60 days notice. EXCHANGES When you exchange shares, you are really selling your shares of one Fund and buying shares of another STI Classic Fund. So, your sale price and purchase price will be based on the NAV next calculated after the Fund receive your exchange requests in proper form. REDEMPTION FEE A redemption fee of 2% of the value of the shares sold will be imposed on shares exchanged for shares of another STI Classic Fund within 7 days or less after their date of purchase unless the redemption is excluded under the Redemption Fee Policy. The redemption fee is intended to limit short-term trading and to help offset costs to the Funds' remaining shareholders of that type of activity. (See "Redemption Fee Policy.") A SHARES You may exchange A Shares of any Fund for A Shares of any other STI Classic Fund. If you exchange shares that you purchased without a sales charge or with a lower sales charge into an STI Classic Fund with a sales charge or with a higher sales charge, the exchange is subject to a sales charge equal to the difference between the lower and higher applicable sales charges. If you exchange shares into an STI Classic Fund with the same, lower or no sales charge, there is no sales charge for the exchange. The amount of your exchange must meet any initial or subsequent purchase minimums applicable to the STI Classic Fund into which you are making the exchange. B SHARES You may exchange B Shares of any Life Vision Fund for B Shares of another Life Vision Fund. For purposes of computing the CDSC applicable to B Shares, as well as the 8-year automatic conversion period, the length of time you have owned your shares will be measured from the original date of purchase and will not be affected by an exchange. C SHARES You may exchange C Shares of a Fund for C Shares of any other STI Classic Fund. For purposes of computing the CDSC applicable to C Shares, the length of time you have owned your shares will be measured from the original date of purchase and will not be affected by any exchange. TELEPHONE TRANSACTIONS Purchasing, selling and exchanging Fund shares over the telephone is extremely convenient, but not without risk. Although the Funds have certain safeguards and procedures to confirm the identity of callers and the authenticity of instructions, the Funds are not responsible for any losses or costs incurred by following telephone instructions the Funds reasonably believe to be genuine. If you or your financial institution or intermediary transact with the Funds over the telephone, you will generally bear the risk of any loss. The Funds reserve the right to modify, suspend or terminate telephone transaction privileges at any time. To redeem shares by telephone: - - redemption checks must be made payable to the registered shareholder; and - - redemption checks must be mailed to an address or wired to a bank account of record that has been associated with the shareholder account for at least 15 calendar days. MARKET TIMING POLICIES AND PROCEDURES The Funds are intended for long-term investment purposes only and discourage shareholders from engaging in "market timing" or other types of excessive short-term trading. This frequent trading into and out of the Funds may present risks to the Funds' long-term shareholders, all of which could adversely affect shareholder returns. The risks posed by frequent trading include interfering with the efficient implementation of the Funds' investment strategies, triggering the recognition of taxable gains and losses on the sale of Fund investments, requiring the Funds to maintain higher cash balances to meet redemption requests, and REDEMPTION FEE POLICY PROSPECTUS 47 experiencing increased transaction costs. A Fund that invests a significant amount of its assets in overseas markets is particularly susceptible to the risk of certain investors using a strategy known as time-zone arbitrage. Investors using this strategy attempt to take advantage of the differences in value of foreign securities that might result from events that occur between the close of the foreign securities market on which a foreign security is traded and the time at which the Fund calculates its NAV. The Funds and/or their service providers will take steps reasonably designed to detect and deter frequent trading by shareholders pursuant to the Funds' policies and procedures described in this prospectus and approved by the Funds' Board of Trustees. For purposes of applying these policies, the Funds' service providers may consider the trading history of accounts under common ownership or control. The Funds' policies and procedures include: - - Shareholders are restricted from making more than one (1) "round trip" into or out of a Fund within 14 days or more than two (2) "round trips" within any continuous 90 day period. If a shareholder exceeds either "round trip" restriction, he or she may be deemed a "Market Timer," and the Funds and/or their service providers may, at their discretion, reject any additional purchase orders. The Funds define a round trip as a purchase into a Fund by a shareholder, followed by a subsequent redemption out of the Fund. Anyone considered to be a Market Timer by the Funds, their manager(s) or a shareholder servicing agent may be notified in writing of their designation as a Market Timer. - - The Funds reserve the right to reject any purchase request by any investor or group of investors for any reason without prior notice, including, in particular, if the Funds or their Adviser reasonably believes that the trading activity would be harmful or disruptive to the Funds. - - A redemption fee of 2% of the value of the shares sold will be imposed on shares redeemed (including exchanges) within 7 days or less after their date of purchase. The redemption fee proceeds will be paid to the applicable Fund to help offset costs to the Fund's remaining shareholders. The Funds will use the first-in, first-out ("FIFO") method to determine the holding period. Under this method, the date of the redemption will be compared to the earliest purchase date of shares of a particular Fund held in a shareholder's account. If this holding period is less than the required holding period, the redemption fee will be assessed. The Funds and/or their service providers seek to apply these policies to the best of their abilities uniformly and in a manner they believe is consistent with the interests of the Funds' long-term shareholders. Although these policies are designed to deter frequent trading, none of these measures alone nor all of them taken together eliminate the possibility that frequent trading in the Funds will occur, particularly with respect to trades placed by shareholders that invest in the Funds through omnibus arrangements maintained by brokers, retirement plan accounts and other financial intermediaries. The Funds' and their service providers' access to information about individual shareholder transactions made through such omnibus arrangements is often unavailable or severely limited. The Funds rely in large part on the policies, ability and willingness of brokers, retirement plan accounts and other financial intermediaries who maintain omnibus arrangements to detect and deter short-term trading. Despite this reliance, the Funds cannot assure that their policies will be enforced with regard to those Fund shares held through such omnibus arrangements (which may represent a majority of Fund shares), and as a result frequent trading could adversely affect the Funds and their long-term shareholders as discussed above. In addition to the previously mentioned initiatives to discourage market timing, the Funds intend to continually evaluate and, if practical, implement other measures to deter market timing. REDEMPTION FEE POLICY A redemption fee of 2% of the value of the shares sold will be imposed on shares redeemed (including exchanges) within 7 days or less after their date of purchase. The redemption fee proceeds will be paid to the Fund to help offset costs to the Fund's remaining shareholders. The Funds will use the FIFO method to determine the holding period. Under this method, the date of the redemption will be compared to the earliest purchase date of shares of a particular Fund held in a shareholder's account. If this holding period is less than REDEMPTION FEE POLICY 48 PROSPECTUS the required holding period, the redemption fee will be assessed. The redemption fee is applicable to Fund shares purchased either directly or through a financial intermediary, such as a broker-dealer. Transactions through financial intermediaries typically are placed with the Funds on an omnibus basis and include both purchase and sale transactions placed on behalf of multiple investors. For this reason, the Funds request the support from financial intermediaries of their obligation to assess the redemption fee on customer accounts and to collect and remit the proceeds to the Funds. However, due to operational requirements, the intermediaries' methods for tracking and calculating the fee may be inadequate or differ in some respects from the Funds' methods. The redemption fee may not apply to certain categories of redemptions, such as those that the Funds reasonably believe may not raise frequent trading or market timing concerns. These categories include, but are not limited to, the following: (i) accounts held through an omnibus arrangement, such as participants in certain group retirement plans (e.g., 401(k)/403(b) type participant accounts) or automatic asset allocation accounts, because information may not be available regarding beneficial owners or whose processing systems are incapable of properly applying the redemption fee to underlying shareholders; (ii) redemptions resulting from certain transfers upon the death of a shareholder; (iii) redemptions by certain pension plans as required by law or by regulatory authorities; (iv) Systematic Withdrawal Plan accounts; (v) retirement loans and withdrawals; (vi) shares sold due to the drop of an account balance below the required minimum as discussed under "Involuntary Sales of Your Shares"; and (vii) shares purchased through reinvestment of dividends or capital gains distributions. Dealers who purchase A Shares or C Shares on behalf of Market Timers, including Market Timers with shares held through an omnibus account, may not be eligible to receive any dealer commissions and also may not be eligible to receive 12b-1 fees from the original date of purchase. Further, the Funds reserve the right to refuse any purchase or exchange requests by any investor at any time. The Funds also reserve the right to modify or eliminate the redemption fee for certain categories of investors or waivers at any time. Such changes will be approved prior to implementation by the Funds' Board of Trustees. DISTRIBUTION OF FUND SHARES Each Fund has adopted a distribution plan that allows the Fund to pay distribution and service fees for the sale and distribution of its shares and for services provided to shareholders. Because these fees are paid out of a Fund's assets continuously, over time these fees will increase the cost of your investment and may cost you more than paying other types of sales charges. While B and C Shares are sold without any initial sales charge, the distributor may pay at the time of sale up to 4% and 1% of the amount invested to broker-dealers and other financial intermediaries who sell B Shares and C Shares, respectively. Through the distribution plan, the distributor is reimbursed for these payments, as well as other distribution related services provided by the distributor. For A Shares, each Fund's distribution plan authorizes payment of up to 0.35% of the average daily net assets of the Fund. Currently, however, the Board of Trustees has only approved payment of up to 0.30% of the average daily net assets of the Fund's A Shares. For B Shares and C Shares, the maximum distribution fee is 1.00% of the average daily net assets of each Fund. The distributor may provide financial assistance in connection with pre-approved seminars, conferences and advertising to the extent permitted by applicable state or self-regulatory agencies, such as the National Association of Securities Dealers. From its own assets, the Adviser or its affiliates may make payments based on gross sales and current assets to selected brokerage firms or institutions. The amount of these payments may be substantial. The minimum aggregate sales required for eligibility for such payments, and the factors in selecting the brokerage firms and institutions to which they will be made, are determined from time to time by the Adviser. Furthermore, in addition to the fees that may be paid by the Funds, the Adviser or its affiliates may pay fees from its own capital resources to brokers, banks, financial advisers, retirement plan service providers and other financial intermediaries, including affiliates, for providing distribution-related or shareholder services. DIVIDENDS, DISTRIBUTIONS AND TAXES PROSPECTUS 49 DIVIDENDS AND DISTRIBUTIONS The Funds distribute their income quarterly. The Funds make distributions of capital gains, if any, at least annually. If you own Fund shares on a Fund's record date, you will be entitled to receive the distribution. You will receive dividends and distributions in the form of additional Fund shares unless you elect to receive payment in cash. To elect cash payment, you must notify the Funds in writing prior to the date of the distribution. Your election will be effective for dividends and distributions paid after the Funds receive your written notice. To cancel your election, simply send the Funds written notice. TAXES PLEASE CONSULT YOUR TAX ADVISOR REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL, STATE AND LOCAL INCOME TAXES. Below the Funds have summarized some important tax issues that affect the Funds and their shareholders. This summary is based on current tax laws, which may change. Each Fund will distribute substantially all of its net investment income and its net realized capital gains, if any, at least annually. The dividends and distributions you receive may be subject to federal, state and local taxation, depending upon your tax situation. Distributions you receive from a Fund may be taxable whether or not you reinvest them. Income distributions are generally taxable either as ordinary income or qualified dividend income. Dividends that are qualified dividend income are eligible for the reduced maximum rate to individuals of 15% (5% for individuals in lower tax brackets) to the extent that a Fund receives qualified dividend income. Capital gains distributions are generally taxable at the rates applicable to long-term capital gains. Long-term capital gains are currently taxed at a maximum rate of 15%. Absent further legislation, the maximum 15% tax rate on qualified dividend income and long-term capital gains will cease to apply to taxable years beginning after December 31, 2010. EACH SALE OR EXCHANGE OF FUND SHARES MAY BE A TAXABLE EVENT. FOR TAX PURPOSES, AN EXCHANGE OF FUND SHARES FOR SHARES OF A DIFFERENT STI CLASSIC FUND IS TREATED THE SAME AS A SALE. A TRANSFER FROM ONE SHARE CLASS TO ANOTHER SHARE CLASS IN THE SAME STI CLASSIC FUND SHOULD NOT BE A TAXABLE EVENT. Each Fund will inform you of the amount of your ordinary income dividends, qualified dividend income, and capital gain distributions shortly after the close of each calendar year. If you have a tax-advantaged or other retirement account you will generally not be subject to federal taxation on income and capital gain distributions until you begin receiving your distributions from your retirement account. You should consult your tax advisor regarding the rules governing your own retirement plan. MORE INFORMATION ABOUT TAXES IS IN THE STATEMENT OF ADDITIONAL INFORMATION. FINANCIAL HIGHLIGHTS 50 PROSPECTUS The financial highlights table is intended to help you understand a Fund's financial performance for the period of the Fund's operations. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This financial information has been audited by PricewaterhouseCoopers LLP whose report, along with the Funds' financial statements and related notes, are included in the Annual Reports to Shareholders for each period shown. The 2006 Annual Report is available upon request and without charge by calling 1-888-STI-FUND or on the Funds' website at www.sticlassicfunds.com.
NET ASSET NET REALIZED DIVIDENDS VALUE, NET AND UNREALIZED FROM NET BEGINNING INVESTMENT GAINS ON TOTAL FROM INVESTMENT OF PERIOD INCOME (LOSS) INVESTMENTS OPERATIONS INCOME --------- ------------- ----------- ---------- ------ LIFE VISION AGGRESSIVE GROWTH FUND(B) A SHARES Year Ended March 31, 2006................... $11.05 0.11 1.37 1.48 (0.11) Period Ended March 31, 2005................. $10.23 0.09 0.82 0.91 (0.09) Period Ended May 31, 2004(c)................ $ 9.46 (0.01)(a) 0.81(a) 0.80 (0.03) B SHARES Year Ended March 31, 2006................... $10.98 0.09 1.34 1.43 (0.09) Period Ended March 31, 2005................. $10.18 0.06 0.80 0.86 (0.06) Year Ended May 31, 2004..................... $ 8.53 (0.04)(a) 1.70(a) 1.66 (0.01) Period Ended May 31, 2003(d)................ $ 7.23 (0.01) 1.31 1.30 -- C SHARES Period Ended March 31, 2006(e) $11.07 0.08 1.39 1.47 (0.08) LIFE VISION CONSERVATIVE FUND(B) A SHARES Year Ended March 31, 2006................... $11.09 0.33 0.17 0.50 (0.32) Period Ended March 31, 2005................. $10.86 0.24 0.29 0.53 (0.26) Period Ended May 31, 2004(f)................ $10.68 0.12(a) 0.18(a) 0.30 (0.12) B SHARES Year Ended March 31, 2006 $11.09 0.28 0.18 0.46 (0.27) Period Ended March 31, 2005................. $10.86 0.20 0.29 0.49 (0.22) Year Ended May 31, 2004..................... $10.43 0.17(a) 0.39(a) 0.56 (0.13) Period Ended May 31, 2003(d)................ $10.00 0.01 0.42 0.43 -- C SHARES Period Ended March 31, 2006(e) $11.08 0.29 0.17 0.46 (0.28) LIFE VISION GROWTH AND INCOME FUND(B) A SHARES Year Ended March 31, 2006................... $11.39 0.19 1.02 1.21 (0.19) Period Ended March 31, 2005................. $10.75 0.13 0.66 0.79 (0.15) Period Ended May 31, 2004(g)................ $10.18 0.06(a) 0.58(a) 0.64 (0.07) B SHARES Year Ended March 31, 2006 $11.39 0.14 1.02 1.16 (0.14) Period Ended March 31, 2005................. $10.74 0.08 0.67 0.75 (0.10) Year Ended May 31, 2004..................... $ 9.34 0.07(a) 1.42(a) 1.49 (0.09) Period Ended May 31, 2003(d)................ $ 8.10 0.02 1.24 1.26 (0.02) C SHARES Period Ended March 31, 2006(h) $11.41 0.15 0.98 1.13 (0.15) LIFE VISION MODERATE GROWTH FUND(B) A SHARES Year Ended March 31, 2006................... $10.48 0.25 0.59 0.84 (0.24) Period Ended March 31, 2005................. $10.05 0.17 0.50 0.67 (0.19) Period Ended May 31, 2004(i)................ $ 9.58 0.10(a) 0.45(a) 0.55 (0.08) B SHARES Year Ended March 31, 2006................... $10.46 0.21 0.59 0.80 (0.20) Period Ended March 31, 2005................. $10.03 0.13 0.50 0.63 (0.15) Year Ended May 31, 2004..................... $ 9.00 0.09(a) 1.04(a) 1.13 (0.10) Period Ended May 31, 2003(d)................ $ 8.05 0.03 0.95 0.98 (0.03) C SHARES Period Ended March 31, 2006(h) $10.49 0.20 0.57 0.77 (0.20) DISTRIBUTIONS TOTAL FROM DIVIDENDS REALIZED AND CAPITAL GAINS DISTRIBUTIONS ------------- ------------- LIFE VISION AGGRESSIVE GROWTH FUND(B) A SHARES Year Ended March 31, 2006................... (0.13) (0.24) Period Ended March 31, 2005................. -- (0.09) Period Ended May 31, 2004(c)................ -- (0.03) B SHARES Year Ended March 31, 2006................... (0.13) (0.22) Period Ended March 31, 2005................. -- (0.06) Year Ended May 31, 2004..................... -- (0.01) Period Ended May 31, 2003(d)................ -- -- C SHARES Period Ended March 31, 2006(e) (0.13) (0.21) LIFE VISION CONSERVATIVE FUND(B) A SHARES Year Ended March 31, 2006................... (0.06) (0.38) Period Ended March 31, 2005................. (0.04) (0.30) Period Ended May 31, 2004(f)................ -- (0.12) B SHARES Year Ended March 31, 2006 (0.06) (0.33) Period Ended March 31, 2005................. (0.04) (0.26) Year Ended May 31, 2004..................... -- (0.13) Period Ended May 31, 2003(d)................ -- -- C SHARES Period Ended March 31, 2006(e) (0.06) (0.34) LIFE VISION GROWTH AND INCOME FUND(B) A SHARES Year Ended March 31, 2006................... -- (0.19) Period Ended March 31, 2005................. -- (0.15) Period Ended May 31, 2004(g)................ -- (0.07) B SHARES Year Ended March 31, 2006 -- (0.14) Period Ended March 31, 2005................. -- (0.10) Year Ended May 31, 2004..................... -- (0.09) Period Ended May 31, 2003(d)................ -- (0.02) C SHARES Period Ended March 31, 2006(h) -- (0.15) LIFE VISION MODERATE GROWTH FUND(B) A SHARES Year Ended March 31, 2006................... (0.24) (0.48) Period Ended March 31, 2005................. (0.05) (0.24) Period Ended May 31, 2004(i)................ -- (0.08) B SHARES Year Ended March 31, 2006................... (0.24) (0.44) Period Ended March 31, 2005................. (0.05) (0.20) Year Ended May 31, 2004..................... -- (0.10) Period Ended May 31, 2003(d)................ -- (0.03) C SHARES Period Ended March 31, 2006(h) (0.24) (0.44)
+ Total return excludes sales charge. Not annualized for periods less than one year. ++ Annualized for periods less than one year. (a) Per share data calculated using average shares outstanding method. (b) The Life Vision Funds and its shareholders indirectly bear a pro rata share of the expenses of the underlying STI Classic Funds. The expense ratios do not include such expenses. (c) Commenced operations on October 16, 2003. (d) Commenced operations on March 11, 2003. (e) Commenced operations on April 4, 2005. (f) Commenced operations on November 11, 2003. (g) Commenced operations on November 5, 2003. (h) Commenced operations on April 6, 2005. (i) Commenced operations on October 10, 2003. FINANCIAL HIGHLIGHTS PROSPECTUS 51
RATIO OF RATIO OF RATIO OF NET NET INVESTMENT EXPENSES TO NET ASSET NET ASSETS, EXPENSES INCOME (LOSS) AVERAGE NET ASSETS PORTFOLIO VALUE, END TOTAL END OF TO AVERAGE TO AVERAGE (EXCLUDING WAIVERS TURNOVER OF PERIOD RETURN+ PERIOD (000) NET ASSETS++ NET ASSETS++ AND REIMBURSEMENTS)++ RATE - --------- ------- ------------ ------------ ------------ --------------------- ---- $12.29 13.50% $ 2,619 0.52% 1.06% 0.62% 31% $11.05 8.90% $ 2,080 0.55% 1.20% 1.01% 29% $10.23 8.43% $ 867 0.51% (0.24)% 5.15% 44% $12.19 13.10% $ 5,756 0.99% 0.50% 1.10% 31% $10.98 8.44% $ 5,452 1.03% 0.53% 1.40% 29% $10.18 19.49% $ 4,367 1.00% (0.36)% 1.95% 44% $ 8.53 18.03% $ 1,052 0.89% (0.86)% 1.36% 50% $12.33 13.40% $ 1,146 1.17% 0.67% 1.22% 31% $11.21 4.63% $ 1,324 0.53% 3.10% 0.83% 29% $11.09 4.88% $ 606 0.56% 2.61% 1.51% 121% $10.86 2.82% $ 474 0.57% 2.06% 4.00% 138% $11.22 4.23% $ 5,189 0.97% 2.59% 1.19% 29% $11.09 4.50% $ 5,635 0.96% 2.22% 1.67% 121% $10.86 5.38% $ 5,012 0.95% 1.54% 1.81% 138% $10.43 4.30% $ 800 0.92% 0.85% 1.39% 160% $11.20 4.22% $ 835 1.03% 2.64% 1.59% 29% $12.41 10.73% $ 5,737 0.51% 1.74% 0.58% 34% $11.39 7.37% $ 3,575 0.57% 1.55% 0.91% 59% $10.75 6.32% $ 1,426 0.56% 1.04% 1.95% 97% $12.41 10.21% $17,829 0.96% 1.21% 1.07% 34% $11.39 7.00% $16,641 1.01% 1.05% 1.34% 59% $10.74 15.99% $13,060 1.00% 0.63% 1.61% 97% $ 9.34 15.57% $ 2,017 0.90% 0.39% 1.34% 139% $12.39 9.94% $ 2,820 1.15% 1.39% 1.20% 34% $10.84 8.16% $ 5,821 0.47% 2.38% 0.59% 34% $10.48 6.74% $ 8,161 0.47% 2.13% 0.87% 83% $10.05 5.79% $ 3,541 0.55% 1.49% 1.27% 109% $10.82 7.60% $14,073 0.92% 1.87% 1.06% 34% $10.46 6.28% $14,797 0.92% 1.59% 1.35% 83% $10.03 12.66% $13,236 1.00% 0.91% 1.56% 109% $ 9.00 12.22% $ 2,691 0.91% 0.93% 1.34% 101% $10.82 7.40% $ 1,674 1.13% 1.89% 1.19% 34%
[THIS PAGE INTENTIONALLY LEFT BLANK] INVESTMENT ADVISER: Trusco Capital Management, Inc. 50 Hurt Plaza, Suite 1400 Atlanta, Georgia 30303 More information about the STI Classic Funds is available without charge through the following: STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI includes detailed information about the STI Classic Funds. The SAI is on file with the SEC and is incorporated by reference into this prospectus. This means that the SAI, for legal purposes, is a part of this prospectus. ANNUAL AND SEMI-ANNUAL REPORTS: These reports list each Fund's holdings and contain information from the Funds' managers about strategies and recent market conditions and trends and their impact on Fund performance. The reports also contain detailed financial information about the Funds. TO OBTAIN AN SAI, ANNUAL OR SEMI-ANNUAL REPORT, OR MORE INFORMATION: TELEPHONE: 1-888-STI-FUND MAIL: STI Classic Funds BISYS Fund Services Limited Partnership 3435 Stelzer Road Columbus, Ohio 43219 WEBSITE: www.sticlassicfunds.com SEC: You can also obtain the SAI or the Annual and Semi-Annual reports, as well as other information about the STI Classic Funds, from the EDGAR Database on the SEC's website at http://www.sec.gov. You may review and copy documents at the SEC Public Reference Room in Washington, DC (for information on the operation of the Public Reference Room, call 202-942-8090). You may request documents by mail from the SEC, upon payment of a duplicating fee, by writing to: Securities and Exchange Commission, Public Reference Section, Washington, DC 20549-0102. You may also obtain this information, upon payment of a duplicating fee, by e-mailing the SEC at publicinfo@sec.gov. The STI Classic Funds' Investment Company Act registration number is 811-06557. STI CLASSIC FUNDS STI CLASSIC FUNDS I Shares PROSPECTUS STI CLASSIC EQUITY FUNDS Small Cap Value Equity Fund For Participants of The Coca-Cola Enterprises (CCE) 401(k) Plan Investment Adviser: Trusco Capital Management, Inc. (the "Adviser") August 1, 2006 The Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense. PROSPECTUS ABOUT THIS PROSPECTUS The STI Classic Funds is a mutual fund family that offers shares in separate investment portfolios that have individual investment goals and strategies. This prospectus gives you important information about the I Shares of the Small Cap Value Equity Fund ("Fund") that you should know before investing. Please read this prospectus and keep it for future reference. This prospectus has been arranged into different sections so that you can easily review this important information. On the next page, there is some general information you should know about risk and return. For more detailed information about the Fund, please see: 2 FUND SUMMARY 2 INVESTMENT STRATEGY 2 WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? 3 PERFORMANCE INFORMATION 4 FUND FEES AND EXPENSES 5 MORE INFORMATION ABOUT RISK 6 MORE INFORMATION ABOUT FUND INVESTMENTS 6 INFORMATION ABOUT PORTFOLIO HOLDINGS 6 INVESTMENT ADVISER 7 PORTFOLIO MANAGER 7 PURCHASING AND SELLING FUND SHARES 10 MARKET TIMING POLICIES AND PROCEDURES 11 DIVIDENDS AND DISTRIBUTIONS 11 TAXES 12 FINANCIAL HIGHLIGHTS INSIDE BACK PRIVACY POLICY COVER BACK HOW TO OBTAIN MORE INFORMATION ABOUT THE COVER STI CLASSIC FUNDS
- -------------------------------------------------------------------------------- (SUITCASE FUND SUMMARY ICON) (TELESCOPE INVESTMENT STRATEGY ICON) (LIFE WHAT ARE THE PRINCIPAL RISKS OF INVESTING? PRESERVER ICON) (TARGET PERFORMANCE INFORMATION ICON) (LINE WHAT IS AN INDEX? GRAPH ICON) (COIN FUND FEES AND EXPENSES ICON) (MOUNTAIN MORE INFORMATION ABOUT FUND INVESTMENTS ICON) (MAGNIFYING INVESTMENT ADVISER GLASS ICON) (HAND PURCHASING AND SELLING SHAKE FUND SHARES ICON)
- -------------------------------------------------------------------------------- AUGUST 1, 2006 PROSPECTUS 1 CUSIP/TICKER SYMBOL
FUND NAME CLASS INCEPTION* TICKER CUSIP Small Cap Value Equity Fund I Shares 1/31/97 SCETX 784766370
* The performance included under "Performance Information" may include the performance of other classes of the Fund and/or predecessors of the Fund. RISK/RETURN INFORMATION COMMON TO THE STI CLASSIC FUNDS The Fund is a mutual fund. A mutual fund pools shareholders' money and, using professional investment managers, invests it in securities. The Fund has its own investment goal and strategies for reaching that goal. The Adviser invests Fund assets in a way that it believes will help the Fund achieve its goal. Still, investing in the Fund involves risk and there is no guarantee that the Fund will achieve its goal. The Adviser's judgments about the markets, the economy or companies may not anticipate actual market movements, economic conditions or company performance, and these judgments may affect the return on your investment. In fact, no matter how good a job the Adviser does, you could lose money on your investment in the Fund, just as you could with other investments. A FUND SHARE IS NOT A BANK DEPOSIT AND IT IS NOT INSURED OR GUARANTEED BY THE FDIC OR ANY GOVERNMENT AGENCY. The value of your investment in the Fund is based on the market prices of the securities the Fund holds. These prices change daily due to economic and other events that affect particular companies and other issuers. These price movements, sometimes called volatility, may be greater or lesser depending on the types of securities the Fund owns and the markets in which it trades. The effect on the Fund of a change in the value of a single security will depend on how widely the Fund diversifies its holdings. The Fund's investment goal may be changed without shareholder approval. Before investing, make sure that the Fund's goal matches your own. SMALL CAP VALUE EQUITY FUND 2 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOALS PRIMARY Capital appreciation SECONDARY Current income INVESTMENT FOCUS U.S. small cap equity securities SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Attempts to identify undervalued small cap securities INVESTOR PROFILE Investors who primarily want the value of their investment to grow, but want to receive some income from their investment
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Small Cap Value Equity Fund invests at least 80% of its net assets in U.S. traded equity securities of small cap companies. U.S. traded equity securities may include listed American Depositary Receipts ("ADRs"). The Adviser considers small cap companies to be companies with market capitalizations below $3 billion. In selecting investments for the Fund, the Adviser chooses companies that it believes are undervalued in the market, relative to the industry sector and the company's own valuation history. The Adviser evaluates potential catalysts that may increase a stock's value to such an extent that the stock no longer meets the Fund's investment criteria. Additionally, all common stocks purchased for the Fund are required to pay cash dividends. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as market risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Since it purchases equity securities, the Fund is subject to the risk that stock prices will fall over short or extended periods of time. Historically, the equity market has moved in cycles, and the value of the Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. Small cap stocks can perform differently from other segments of the equity market or the equity market as a whole and can be more volatile than stocks of larger companies. The Adviser's value investing style may be out of favor in the marketplace for various periods of time. Value investing involves purchasing securities that are undervalued in comparison to their prospects for growth or to their peers or that have historically traded below their historical value. These securities are subject to the risk that their potential values as perceived by the Adviser are never realized by the market. Because the Fund may invest in ADRs, it is subject to some of the same risks as direct investments in foreign companies. These include the risk that political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. For information about the risks involved when investing in derivatives, see "More Information About Risk." SMALL CAP VALUE EQUITY FUND PROSPECTUS 3 (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. The Fund began operating as a registered mutual fund on January 31, 1997. Performance prior to January 31, 1997 is that of the Adviser's similarly managed collective investment fund. The collective fund's performance has been adjusted to reflect the current fees and expenses for I Shares of the Fund. As a collective fund, rather than a registered mutual fund, it was not subject to the same investment and tax restrictions. If it had been, the collective fund's performance would have been lower. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1996 34.25% 1997 32.59% 1998 -13.45% 1999 -2.72% 2000 17.96% 2001 21.21% 2002 -1.74% 2003 37.05% 2004 25.47% 2005 12.46%
BEST QUARTER WORST QUARTER 19.82% -21.99% (6/30/99) (9/30/98)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 10.27%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Russell 2000(R) Value Index. These returns assume shareholders redeem all of their shares at the end of the period indicated.
SINCE INCEPTION AS A REGISTERED I SHARES 1 YEAR 5 YEARS MUTUAL FUND* 10 YEARS** Small Cap Value Equity Fund 12.46% 18.16% 12.94% 15.07% Russell 2000(R) Value Index (reflects no deduction for fees or expenses) 4.71% 13.55% 12.12% 13.08%
* Since inception of the I Shares on January 31, 1997, when the Fund began operating as a registered mutual fund. ** Includes performance of the Adviser's collective investment fund. (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Russell 2000(R) Value Index is a widely-recognized, capitalization weighted (companies with larger market capitalizations have more influence than those with smaller market capitalizations) index of companies in the Russell 2000(R) Index with lower growth rates and price-to-book ratios. The Russell 2000(R) Index is a widely-recognized, capitalization-weighted index that consists of a subset of the 3,000 largest U.S. companies. SMALL CAP VALUE EQUITY FUND 4 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 1.13% Other Expenses 0.07% ----------------- Total Annual Operating Expenses(2) 1.20%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $122 $381 $660 $1,455
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. For more information about these fees, see "Investment Adviser." MORE INFORMATION ABOUT RISK PROSPECTUS 5 (LIFE PRESERVER ICON) MORE INFORMATION ABOUT RISK DERIVATIVES RISK Derivatives may involve risks different from, and possibly greater than, those of traditional investments. The Fund may use derivatives (such as futures, options, and swaps) to attempt to achieve its investment objective and offset certain investment risks, while at the same time maintaining liquidity. These positions may be established for hedging or non-hedging purposes. Risks associated with the use of derivatives include those associated with hedging and leveraging activities: - - 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. - - The Fund experiencing losses over certain ranges in the market that exceed losses experienced by a fund that does not use derivatives. - - 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 derivatives. - - There may not be a liquid secondary market for derivatives. - - Trading restrictions or limitations may be imposed by an exchange. - - Government regulations may restrict trading in derivatives. - - The other party to an agreement (e.g., options or swaps) may default; however, in certain circumstances, such counter-party risk may be reduced by having an organization with very good credit act as intermediary. Because options premiums paid or received by the Fund are small in relation to the market value of the investments underlying the options, buying and selling put and call options can be more speculative than investing directly in securities. EQUITY RISK Equity securities include public and privately issued equity securities, common and preferred stocks, warrants, rights to subscribe to common stock and convertible securities, as well as instruments that attempt to track the price movement of equity indices. Investments in equity securities and equity derivatives in general are subject to market risks that may cause their prices to fluctuate over time. The value of securities convertible into equity securities, such as warrants or convertible debt, is also affected by prevailing interest rates, the credit quality of the issuer and any call provision. Fluctuations in the value of equity securities in which a mutual fund invests will cause the Fund's net asset value to fluctuate. An investment in a portfolio of equity securities may be more suitable for long-term investors who can bear the risk of these share price fluctuations. EXCHANGE TRADED FUND RISK The Fund may purchase shares of exchange-traded funds ("ETFs") to temporarily gain exposure to a particular portion of the market while awaiting an opportunity to purchase securities directly. ETFs are investment companies that are bought and sold on a securities exchange. An ETF holds a portfolio of securities designed to track a particular market segment or index. ETFs, like mutual funds, have expenses associated with their operation, including advisory fees. When the Fund invests in an ETF, in addition to directly bearing expenses associated with its own operations, it will bear a pro rata portion of the ETF's expense. The risks of owning shares of an ETF generally reflect the risks of owning the underlying securities the ETF is designed to track, although lack of liquidity in an ETF could result in being more volatile than the underlying portfolio of securities. In addition, because of ETF expenses, compared to owning the underlying securities directly, it may be more costly to own an ETF. FOREIGN SECURITY RISK Investments in securities of foreign companies or governments can be more volatile than investments in U.S. companies or governments. Political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. Diplomatic, political, or economic developments, including nationalization or appropriation, could affect investments in foreign countries. Foreign securities markets generally have less trading volume and less liquidity than U.S. markets. Foreign companies or governments generally are not subject to uniform accounting, auditing, and financial reporting standards comparable to those applicable to domestic U.S. companies or governments. Transaction costs are generally higher than those in the U.S. and expenses for custodial arrangements of foreign securities may be somewhat greater than typical expenses for custodial arrangements of similar U.S. securities. Some foreign governments levy withholding taxes against dividend and interest income. Although in some countries a portion of these taxes are recoverable, the non-recovered portion will reduce the income received from the securities comprising the portfolio. MORE INFORMATION ABOUT FUND INVESTMENTS 6 PROSPECTUS SMALLER COMPANY RISK Small and mid-capitalization stocks can perform differently from other segments of the equity market or the equity market as a whole. The small and mid- capitalization companies the Fund invests in may be more vulnerable to adverse business or economic events than larger, more established companies. In particular, these companies may have limited product lines, markets and financial resources, and may depend upon a relatively small management group. Therefore, small and mid-cap stocks can be more volatile than those of larger companies. These securities may be traded over-the-counter or listed on an exchange. (MOUNTAIN ICON) MORE INFORMATION ABOUT FUND INVESTMENTS This prospectus describes the Fund's primary strategies, and the Fund will normally invest in the types of securities described in this prospectus. However, in addition to the investments and strategies described in this prospectus, the Fund also may invest in other securities, use other strategies and engage in other investment practices. These investments and strategies, as well as those described in this prospectus, are described in detail in the Statement of Additional Information. The investments and strategies described in this prospectus are those that the Adviser uses under normal conditions. During unusual economic or market conditions, or for temporary defensive or liquidity purposes, the Fund may invest up to 100% of its assets in cash, money market instruments, repurchase agreements and short-term obligations. The Fund also may invest in investment grade fixed income securities and mid- to large cap common stocks that would not ordinarily be consistent with the Fund's objectives. The Fund will do so only if the Adviser believes that the risk of loss outweighs the opportunity for capital gains. Of course, the Fund cannot guarantee that it will achieve its investment goal. INFORMATION ABOUT PORTFOLIO HOLDINGS A description of the Fund's policies and procedures with respect to the circumstances under which the Fund discloses its portfolio securities is available in the Statement of Additional Information. (MAGNIFIYING GLASS ICON) INVESTMENT ADVISER Trusco Capital Management, Inc. ("Trusco" or the "Adviser"), 50 Hurt Plaza, Suite 1400, Atlanta, Georgia 30303, serves as the investment adviser to the Fund. As of June 30, 2006, the Adviser had approximately $71 billion in assets under management. For the fiscal year ended March 31, 2006, the Adviser received advisory fees (after waivers) of 1.14% of the Fund's average daily net assets. Since August 1, 2005, the following breakpoints have been used in computing the advisory fee:
AVERAGE DAILY NET ASSETS DISCOUNT FROM FULL FEE - ------------------------ ---------------------- First $500 million None - Full Fee Next $500 million 5% Over $1 billion 10%
Based on average daily net assets for the fiscal year ended March 31, 2006, the asset level of the Fund had reached a breakpoint in the advisory fee. Fund expenses in the "Annual Fund Operating Expenses" table shown earlier in this prospectus reflect the advisory breakpoints. Had the Fund's asset levels been lower, the Adviser may have been entitled to receive a maximum advisory fee of 1.15%. A discussion regarding the basis for the Board of Trustees' approval of the investment advisory contract with the Adviser appears in the Fund's semi-annual report to shareholders for the period ended September 30, 2005. 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 Adviser may use its affiliates as brokers for Fund transactions. An investment adviser has a fiduciary obligation to its clients when the adviser has authority to vote their proxies. Under the current contractual agreement, the Adviser is authorized to vote proxies on behalf of the Fund. Information regarding the Adviser's, and thus the Fund's, Proxy Voting Policies and Procedures is provided in the Statement of Additional Information. A copy of the Fund's Proxy Voting Policies and Procedures may be obtained by contacting the STI PURCHASING AND SELLING FUND SHARES PROSPECTUS 7 Classic Funds at 1-888-STI-FUND, or by visiting www.sticlassicfunds.com. PORTFOLIO MANAGER Mr. Brett Barner, CFA, has served as Managing Director of Trusco since July 2000. He has managed the Fund since its inception. He has more than 21 years of investment experience. The Statement of Additional Information provides additional information regarding the Fund's portfolio manager's compensation, other accounts managed by the portfolio manager and the portfolio manager's ownership of securities of the Fund. (HAND SHAKE ICON) PURCHASING AND SELLING FUND SHARES This section tells you how to purchase or sell (sometimes called "redeem") I Shares of the Fund. Investors purchasing or selling shares through a pension or 401(k) plan should also refer to their Plan documents. HOW TO PURCHASE FUND SHARES The Fund offers I Shares exclusively to financial institutions and intermediaries for their own accounts or for the accounts of customers for which they act as fiduciary agent, investment adviser, or custodian and which consist of: - - assets of a bona fide trust, or - - assets of a business entity possessing a tax identification number. As a result, you, as a customer of a financial institution or intermediary may purchase I Shares through accounts made with financial institutions. I Shares will be held of record by (in the name of) your financial institution. Depending upon the terms of your account, however, you may have, or be given, the right to vote your I Shares. WHEN CAN YOU PURCHASE SHARES? You may purchase shares on any day that the New York Stock Exchange ("NYSE") is open for business (a "Business Day"). The price per share (the offering price) will be the net asset value per share ("NAV") next determined after the Fund receives your purchase order in proper form. The Fund calculates its NAV once each Business Day at the regularly-scheduled close of normal trading on the NYSE (normally, 4:00 p.m., Eastern Time). So, for you to receive the current Business Day's NAV, the Fund or its authorized agent must receive your purchase order in proper form before 4:00 p.m., Eastern Time. If the NYSE closes early -- such as on days in advance of certain holidays -- the Fund will calculate NAV as of the earlier closing time. The Fund will not accept orders that request a particular day or price for the transaction or any other special conditions. YOU MAY HAVE TO TRANSMIT YOUR PURCHASE AND SALE REQUESTS TO YOUR FINANCIAL INSTITUTION OR INTERMEDIARY AT AN EARLIER TIME FOR YOUR TRANSACTION TO BECOME EFFECTIVE THAT DAY. THIS ALLOWS THE FINANCIAL INSTITUTION OR INTERMEDIARY TIME TO PROCESS YOUR REQUEST AND TRANSMIT IT TO THE TRANSFER AGENT IN TIME TO MEET THE ABOVE STATED FUND CUT-OFF TIMES. FOR MORE INFORMATION ABOUT HOW TO PURCHASE OR SELL FUND SHARES, INCLUDING A SPECIFIC FINANCIAL INSTITUTION'S OR INTERMEDIARY'S INTERNAL ORDER ENTRY CUT-OFF TIME, PLEASE CONTACT YOUR FINANCIAL INSTITUTION OR INTERMEDIARY DIRECTLY. The Fund may reject any purchase order. HOW THE FUND CALCULATES NAV NAV is calculated by adding the total value of the Fund's investments and other assets, subtracting its liabilities and then dividing that figure by the number of outstanding shares of the Fund. In calculating NAV, the Fund generally values its investment portfolio at market price. If market prices are not readily available or the Fund reasonably believes that they are unreliable, such as in the case of a security value that has been materially affected by events occurring after the relevant market closes, the Fund is required to price those securities at fair value as determined in good faith using methods approved by the Board of Trustees. The Fund's determination of a security's fair value price often involves the consideration of a number of subjective factors, and is therefore subject to the unavoidable risk that the value that the Fund assigns to a security may be higher or PURCHASING AND SELLING FUND SHARES 8 PROSPECTUS lower than the security's value would be if a reliable market quotation for the security was readily available. Although the Fund invests primarily in the stocks of companies that are traded on U.S. exchanges, there may be limited circumstances in which the Fund would price securities at fair value - for example, if the exchange on which a portfolio security is principally traded closed early or if trading in a particular security was halted during the day and did not resume prior to the time the Fund calculated its NAV. IN-KIND PURCHASES Payment for shares of the Fund may, in the discretion of the Adviser, be made in the form of securities that are permissible investments for the Fund. In connection with an in-kind securities payment, the Fund will require, among other things, that the securities (a) meet the investment objectives and policies of the Fund; (b) are acquired for investment and not for resale; (c) are liquid securities that are not restricted as to transfer either by law or liquidity of markets; (d) have a value that is readily ascertainable (e.g., by a listing on a nationally recognized securities exchange); and (e) are valued on the day of purchase in accordance with the pricing methods used by the Fund. For further information about this form of payment, please call 1-888-STI-FUND. CUSTOMER IDENTIFICATION FOREIGN INVESTORS The Fund does not generally accept investments in I Shares by non-U.S. citizens or entities. CUSTOMER IDENTIFICATION AND VERIFICATION To help the government fight the funding of terrorism and money laundering activities, federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account. When you open an account, you will be asked to provide your name, residential street address, date of birth, Social Security number or tax identification number. You may also be asked for other information that will allow us to identify you. Entities are also required to provide additional documentation. This information will be verified to ensure the identity of all persons opening a mutual fund account. In certain instances, the Fund is required to collect documents to fulfill its legal obligation. Documents provided in connection with your application will be used solely to establish and verify a customer's identity. The Fund is required by law to reject your new account application if the required identifying information is not provided. Attempts to collect the missing information required on the application will be performed by either contacting you or, if applicable, your broker. If this information is unable to be obtained within a timeframe established in the sole discretion of the Fund, your application will be rejected. Upon receipt of your application in proper form (or upon receipt of all identifying information required on the application), your investment will be accepted and your order will be processed at the NAV next determined. However, the Fund reserves the right to close your account at the then-current day's price if the Fund is unable to verify your identity. Attempts to verify your identity will be performed within a timeframe established in the sole discretion of the Fund. If the Fund is unable to verify your identity, the Fund reserves the right to liquidate your account at the then-current day's price and remit proceeds to you via check. The Fund reserves the further right to hold your proceeds until your original check clears the bank. In such an instance, you may be subject to a gain or loss on Fund shares and will be subject to corresponding tax implications. ANTI-MONEY LAUNDERING PROGRAM Customer identification and verification is part of the Fund's overall obligation to deter money laundering under federal law. The Fund has adopted an anti-money laundering compliance program designed to prevent the Fund from being used for money laundering or the financing of terrorist activities. In this regard, the Fund reserves the right to (i) refuse, cancel or rescind any purchase or exchange order, (ii) freeze any account and/or suspend account services, or (iii) involuntarily redeem your account in cases of threatening conduct or suspected fraudulent or illegal activity. These actions will be taken when, in the sole discretion of Fund management, they are deemed to be in the best interest of the Fund or in cases when the Fund is requested or compelled to do so by governmental or law enforcement authority. PURCHASING AND SELLING FUND SHARES PROSPECTUS 9 HOW TO SELL YOUR FUND SHARES You may sell your shares on any Business Day by contacting your financial institution or intermediary. Your financial institution or intermediary will give you information about how to sell your shares including any specific cut-off times required. Holders of I Shares may sell shares by following the procedures established when they opened their account or accounts with the Fund or with their financial institution or intermediary. The sale price of each share will be the NAV next determined after the Fund receives your request in proper form. RECEIVING YOUR MONEY Normally, the Fund will send your sale proceeds within five Business Days after the Fund receives your request but the Fund may take up to seven days to pay sale proceeds if making immediate payment would adversely affect the Fund (for example, to allow the Fund to raise capital in the case of a large redemption). A MEDALLION SIGNATURE GUARANTEE] by a bank or other financial institution (a notarized signature is not sufficient) is required to redeem shares: - - made payable to someone other than the registered shareholder; - - sent to an address or bank account other than the address or bank account of record; or - - sent to an address or bank account of record that has been changed within the last 15 calendar days. Other documentation may be required depending on the registration of the account. ] MEDALLION SIGNATURE GUARANTEE: A Medallion Signature Guarantee verifies the authenticity of your signature and helps ensure that changes to your account are in fact authorized by you. A Medallion Signature Guarantee may be obtained from a domestic bank or trust company, broker, dealer, clearing agency, savings association or other financial institution participating in a Medallion Program recognized by the Securities Trading Association. Signature guarantees from financial institutions that do not reflect one of the following are not part of the program and will not be accepted. The acceptable Medallion programs are Securities Transfer Agents Medallion Program, (STAMP), Stock Exchange Medallion Program, (SEMP), or the New York Stock Exchange, Inc. Medallion Program, (NYSR MSP). Contact your local financial adviser for further assistance. REDEMPTIONS IN KIND The Fund generally pays redemption proceeds in cash. However, under unusual conditions that make the payment of cash unwise (and for the protection of the Fund's remaining shareholders), the Fund might pay all or part of your redemption proceeds in liquid securities with a market value equal to the redemption price (redemption in kind). It is highly unlikely that your shares would ever be redeemed in kind, but if they were you would probably have to pay transaction costs to sell the securities distributed to you, as well as taxes on any capital gains from the sale as with any redemption. SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES The Fund may suspend your right to sell your shares if the NYSE restricts trading, the SEC declares an emergency or for other reasons approved by the SEC. More information about this is in the Statement of Additional Information. TELEPHONE TRANSACTIONS Purchasing and selling Fund shares over the telephone is extremely convenient, but not without risk. Although the Fund has certain safeguards and procedures to confirm the identity of callers and the authenticity of instructions, the Fund is not responsible for any losses or costs incurred by following telephone instructions the Fund reasonably believes to be genuine. If you or MARKET TIMING POLICIES AND PROCEDURES 10 PROSPECTUS your financial institution or intermediary transact with the Fund over the telephone, you will generally bear the risk of any loss. The Fund reserves the right to modify, suspend or terminate telephone transaction privileges at any time. To redeem shares by telephone: - - redemption checks must be made payable to the registered shareholder; and - - redemption checks must be mailed to an address or wired to a bank account of record that has been associated with the shareholder account for at least 15 calendar days. MARKET TIMING POLICIES AND PROCEDURES The Fund is intended for long-term investment purposes only and discourages shareholders from engaging in "market timing" or other types of excessive short-term trading. This frequent trading into and out of the Fund may present risks to the Fund's long-term shareholders, all of which could adversely affect shareholder returns. The risks posed by frequent trading include interfering with the efficient implementation of the Fund's investment strategies, triggering the recognition of taxable gains and losses on the sale of Fund investments, requiring the Fund to maintain higher cash balances to meet redemption requests, and experiencing increased transaction costs. Because the Fund may invest a significant amount of its assets in overseas markets the Fund may be particularly susceptible to the risk of certain investors using a strategy known as time-zone arbitrage. Investors using this strategy attempt to take advantage of the differences in value of foreign securities that might result from events that occur between the close of the foreign securities market on which a foreign security is traded and the time at which the Fund calculates its NAV. The Fund and/or its service providers will take steps reasonably designed to detect and deter frequent trading by shareholders pursuant to the Fund's policies and procedures described in this prospectus and approved by the Fund's Board of Trustees. For purposes of applying these policies, the Fund's service providers may consider the trading history of accounts under common ownership or control. The Fund's policies and procedures include: - - Shareholders are restricted from making more than one (1) "round trip" into or out of the Fund within 14 days or more than two (2) "round trips" within any continuous 90 day period. If a shareholder exceeds either "round trip" restriction, he or she may be deemed a "Market Timer," and the Fund and/or its service providers may, at their discretion, reject any additional purchase orders. The Fund defines a round trip as a purchase into the Fund by a shareholder, followed by a subsequent redemption out of the Fund. Anyone considered to be a Market Timer by the Fund, its manager(s) or a shareholder servicing agent may be notified in writing of their designation as a Market Timer. - - The Fund reserves the right to reject any purchase request by any investor or group of investors for any reason without prior notice, including, in particular, if the Fund or its Adviser reasonably believes that the trading activity would be harmful or disruptive to the Fund. The Fund and/or its service providers seek to apply these policies to the best of their abilities uniformly and in a manner they believe is consistent with the interests of the Fund's long-term shareholders. Although these policies are designed to deter frequent trading, none of these measures alone nor all of them taken together eliminate the possibility that frequent trading in the Fund will occur, particularly with respect to trades placed by shareholders that invest in the Fund through omnibus arrangements maintained by brokers, retirement plan accounts and other financial intermediaries. The Fund and its service providers' access to information about individual shareholder transactions made through such omnibus arrangements is often unavailable or severely limited. The Fund relies in large part on the policies, ability and willingness of brokers, retirement plan accounts and other financial intermediaries who maintain omnibus arrangements to detect and deter short-term trading. Despite this reliance, the Fund cannot assure that its policies will be enforced with regard to those Fund shares held through such omnibus arrangements (which may represent a majority of Fund shares), and as a result frequent trading could adversely affect the Fund and its long-term shareholders as discussed above. In addition to the DIVIDENDS, DISTRIBUTIONS AND TAXES PROSPECTUS 11 previously mentioned initiatives to discourage market timing, the Fund intends to continually evaluate and, if practical, implement other measures to deter market timing. DISTRIBUTION OF FUND SHARES The distributor may provide financial assistance in connection with pre-approved seminars, conferences and advertising to the extent permitted by applicable state of self-regulatory agencies, such as the National Association of Securities Dealers. From its own assets, the Adviser or its affiliates may make payments based on gross sales and current assets to selected brokerage firms or institutions. The amount of these payments may be substantial. The minimum aggregate sales required for eligibility for such payments, and the factors in selecting the brokerage firms and institutions to which they will be made, are determined from time to time by the Adviser. Furthermore, in addition to the fees that may be paid by the Fund, the Adviser or its affiliates may pay fees from its own capital resources to brokers, banks, financial advisers, retirement plan service providers and other financial intermediaries, including affiliates, for providing distribution-related or shareholder services. DIVIDENDS AND DISTRIBUTIONS The Fund distributes its net investment income quarterly. The Fund makes distributions of its net realized capital gains, if any, at least annually. If your 401(k) Plan owns Fund shares on the Fund's record date, the Plan is entitled to receive the distribution. As Plan participants, you will receive dividends and distributions in the form of additional Fund shares if you own shares of the Fund on the date the dividend or distribution is allocated by the Plan. You will, therefore, not receive a dividend or distribution if you do not own shares of the Fund on the date the dividend or distribution is allocated. TAXES PLEASE CONSULT YOUR TAX ADVISOR REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL, STATE AND LOCAL INCOME TAXES. Below the Fund has summarized some important tax issues that affect the Fund and its shareholders. This summary is based on current tax laws, which may change. Dividends and distributions will accumulate on a tax-deferred basis if you are investing through an employer-sponsored retirement or savings plan that qualifies for tax-exempt treatment under federal income tax laws. Generally, you will not owe taxes on these distributions until you begin withdrawals from the plan. Redemptions of Fund shares resulting in withdrawals from the plan are subject to numerous complex and special tax rules and may be subject to a penalty in the case of premature withdrawals. You should consult your plan administrator, your plan's Summary Plan Description, and/or your tax advisor about the tax consequences of plan withdrawals. MORE INFORMATION ABOUT TAXES IS IN THE STATEMENT OF ADDITIONAL INFORMATION. FINANCIAL HIGHLIGHTS 12 PROSPECTUS FINANCIAL HIGHLIGHTS The financial highlights table is intended to help you understand the Fund's financial performance for the period of the Fund's (and its predecessor's) operations. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This financial information has been audited by PricewaterhouseCoopers LLP, except the information for the year ended May 31, 2001, which has been audited by a predecessor independent accounting firm that has ceased operations. The Report of Independent Registered Public Accounting Firm for each period shown, along with the Fund's financial statements and related notes, are included in the Annual Reports to Shareholders for such periods. The 2006 Annual Report is available upon request and without charge by calling 1-888-STI-FUND or on the Funds' website at www.sticlassicfunds.com.
NET ASSET NET REALIZED DIVIDENDS TOTAL VALUE, NET AND UNREALIZED FROM NET DISTRIBUTIONS DIVIDENDS BEGINNING INVESTMENT GAINS (LOSSES) TOTAL FROM INVESTMENT FROM REALIZED AND OF PERIOD INCOME (LOSS) ON INVESTMENTS OPERATIONS INCOME CAPITAL GAINS DISTRIBUTIONS --------- ------------- -------------- ---------- ------ ------------- ------------- SMALL CAP VALUE EQUITY FUND I SHARES Year Ended March 31, 2006................. $19.86 0.10 5.39 5.49 (0.10) (4.32) (4.42) Period Ended March 31, 2005................. $18.26 0.04(a) 3.15(a) 3.19 (0.06) (1.53) (1.59) Year Ended May 31, 2004................. $13.73 0.06(a) 4.53(a) 4.59 (0.06) -- (0.06) Year Ended May 31, 2003................. $14.54 0.08 (0.82) (0.74) (0.07) -- (0.07) Year Ended May 31, 2002................. $12.21 0.08 2.35 2.43 (0.10) -- (0.10) Year Ended May 31, 2001................. $ 9.13 0.17 3.07 3.24 (0.16) -- (0.16)
+ Not annualized for periods less than one year. ++ Annualized for periods less than one year. (a) Per share data calculated using average shares outstanding method. FINANCIAL HIGHLIGHTS PROSPECTUS 13
RATIO OF EXPENSES TO RATIO OF RATIO OF AVERAGE NET ASSETS NET ASSET NET ASSETS, NET EXPENSES NET INVESTMENT (EXCLUDING WAIVERS PORTFOLIO VALUE, END TOTAL END OF TO AVERAGE INCOME (LOSS) TO AND/OR TURNOVER OF PERIOD RETURN+ PERIOD (000) NET ASSETS++ AVERAGE NET ASSETS++ REIMBURSEMENTS)++ RATE - ---------- ------- ------------ ------------ -------------------- -------------------- --------- $20.93 30.70% $762,709 1.20% 0.48% 1.20% 58% $19.86 17.57% $726,904 1.21% 0.22% 1.21% 17% $18.26 33.56% $682,567 1.25% 0.38% 1.25% 44% $13.73 (5.09)% $518,468 1.24% 0.64% 1.24% 29% $14.54 20.06% $614,199 1.25% 0.67% 1.25% 29% $12.21 35.90% $401,900 1.25% 1.72% 1.25% 86%
[THIS PAGE INTENTIONALLY LEFT BLANK] [THIS PAGE INTENTIONALLY LEFT BLANK] INVESTMENT ADVISER: Trusco Capital Management, Inc. 50 Hurt Plaza, Suite 1400 Atlanta, Georgia 30303 More information about the STI Classic Funds is available without charge through the following: STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI includes detailed information about the STI Classic Funds. The SAI is on file with the SEC and is incorporated by reference into this prospectus. This means that the SAI, for legal purposes, is a part of this prospectus. ANNUAL AND SEMI-ANNUAL REPORTS: These reports list each Fund's holdings and contain information from the Funds' managers about strategies and recent market conditions and trends and their impact on Fund performance. The reports also contain detailed financial information about the Funds. TO OBTAIN AN SAI, ANNUAL OR SEMI-ANNUAL REPORT, OR MORE INFORMATION: TELEPHONE: 1-888-STI-FUND MAIL: STI Classic Funds BISYS Fund Services Limited Partnership 3435 Stelzer Road Columbus, Ohio 43219 WEBSITE: www.sticlassicfunds.com SEC: You can also obtain the SAI or the Annual and Semi-Annual reports, as well as other information about the STI Classic Funds, from the EDGAR Database on the SEC's website at http://www.sec.gov. You may review and copy documents at the SEC Public Reference Room in Washington, DC (for information on the operation of the Public Reference Room, call 202-942-8090). You may request documents by mail from the SEC, upon payment of a duplicating fee, by writing to: Securities and Exchange Commission, Public Reference Section, Washington, DC 20549-0102. You may also obtain this information, upon payment of a duplicating fee, by e-mailing the SEC at publicinfo@sec.gov. The STI Classic Funds' Investment Company Act registration number is 811-06557. STI CLASSIC FUNDS PU-ICCE-0806 STI CLASSIC FUNDS I Shares PROSPECTUS STI CLASSIC BOND FUNDS Core Bond Fund Intermediate Bond Fund Limited Duration Fund Seix Floating Rate High Income Fund Seix High Yield Fund Investment Adviser: Seix Advisors, a fixed income division of Trusco Capital Management, Inc. (the "Adviser") August 1, 2006 The Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense. PROSPECTUS ABOUT THIS PROSPECTUS The STI Classic Funds is a mutual fund family that offers shares in separate investment portfolios that have individual investment goals and strategies. This prospectus gives you important information about the I Shares of the Core Bond Fund, Intermediate Bond Fund, Limited Duration Fund, Seix Floating Rate High Income Fund and Seix High Yield Fund ("Funds") that you should know before investing. Please read this prospectus and keep it for future reference. This prospectus has been arranged into different sections so that you can easily review this important information. On the next page, there is some general information you should know about risk and return that is common to each of the Funds. For more detailed information about each Fund, please see: 2 CORE BOND FUND 5 INTERMEDIATE BOND FUND 8 LIMITED DURATION FUND 11 SEIX FLOATING RATE HIGH INCOME FUND 14 SEIX HIGH YIELD FUND 17 MORE INFORMATION ABOUT RISK 19 MORE INFORMATION ABOUT FUND INVESTMENTS 20 INFORMATION ABOUT PORTFOLIO HOLDINGS 20 INVESTMENT ADVISER 21 PORTFOLIO MANAGERS 21 PURCHASING AND SELLING FUND SHARES 24 MARKET TIMING POLICIES AND PROCEDURES 25 REDEMPTION FEE POLICY 26 DIVIDENDS AND DISTRIBUTIONS 27 TAXES 28 FINANCIAL HIGHLIGHTS INSIDE PRIVACY POLICY BACK COVER BACK HOW TO OBTAIN MORE INFORMATION COVER ABOUT THE STI CLASSIC FUNDS
- -------------------------------------------------------------------------------- (SUITCASE FUND SUMMARY ICON) (TELESCOPE INVESTMENT STRATEGY ICON) (LIFE WHAT ARE THE PRINCIPAL RISKS OF INVESTING? PRESERVER ICON) (TARGET PERFORMANCE INFORMATION ICON) (LINE WHAT IS AN INDEX? GRAPH ICON) (COIN FUND FEES AND EXPENSES ICON) (MOUNTAIN MORE INFORMATION ABOUT FUND INVESTMENTS ICON) (MAGNIFYING INVESTMENT ADVISER GLASS ICON) (HAND PURCHASING AND SELLING FUND SHARES SHAKE ICON)
- -------------------------------------------------------------------------------- AUGUST 1, 2006 PROSPECTUS 1 CUSIP/TICKER SYMBOLS
FUND NAME CLASS INCEPTION* TICKER CUSIP Core Bond Fund I Shares 10/11/04 SAMFX 78476A603 Intermediate Bond Fund I Shares 10/11/04 SAMIX 78476A884 Limited Duration Fund I Shares 10/11/04 SAMLX 78476A405 Seix Floating Rate High Income Fund I Shares 3/2/06 SAMBX 78476A587 Seix High Yield Fund I Shares 10/11/04 SAMHX 78476A843
* The performance included under "Performance Information" may include the performance of other classes of the Fund and/or predecessors of the Fund. RISK/RETURN INFORMATION COMMON TO THE STI CLASSIC FUNDS Each Fund is a mutual fund. A mutual fund pools shareholders' money and, using professional investment managers, invests it in securities. Each Fund has its own investment goal and strategies for reaching that goal. The Adviser invests Fund assets in a way that it believes will help a Fund achieve its goal. Still, investing in each Fund involves risk and there is no guarantee that a Fund will achieve its goal. The Adviser's judgments about the markets, the economy or companies may not anticipate actual market movements, economic conditions or company performance, and these judgments may affect the return on your investment. In fact, no matter how good a job the Adviser does, you could lose money on your investment in the Fund, just as you could with other investments. A FUND SHARE IS NOT A BANK DEPOSIT AND IT IS NOT INSURED OR GUARANTEED BY THE FDIC OR ANY GOVERNMENT AGENCY. The value of your investment in a Fund is based on the market prices of the securities the Fund holds. These prices change daily due to economic and other events that affect particular companies and other issuers. These price movements, sometimes called volatility, may be greater or lesser depending on the types of securities a Fund owns and the markets in which they trade. The effect on a Fund of a change in the value of a single security will depend on how widely the Fund diversifies its holdings. Each Fund's investment goal may be changed without shareholder approval. Before investing, make sure that the Fund's goal matches your own. CORE BOND FUND 2 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Total return that consistently exceeds the total return of the broad U.S. investment grade bond market INVESTMENT FOCUS Investment grade debt securities SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Invest in fixed income securities with an emphasis on corporate and mortgage-backed securities INVESTOR PROFILE Investors who want to receive income from their investment, as well as an increase in the value of the investment
(TELESCOPE ICON) INVESTMENT STRATEGY The Core Bond Fund invests in various types of income producing debt securities including mortgage- and asset-backed securities, government and agency obligations, corporate obligations and floating rate loans. The Fund may invest in debt obligations of U.S. and non-U.S. issuers, including emerging market debt. Under normal circumstances, the Fund invests at least 80% of its net assets in fixed income securities. These securities will be chosen from the broad universe of available fixed income securities rated investment grade by at least one national securities rating agency or unrated securities that the Adviser believes are of comparable quality. The Fund may invest up to 20% of its net assets in below investment grade, high yield debt obligations. The Fund may also invest a portion of its assets in securities that are restricted as to resale. The Adviser anticipates that the Fund's modified adjusted duration will generally range from 3 to 6 years, similar to that of the Lehman Brothers Aggregate Bond Index, the Fund's comparative benchmark. In selecting investments for the Fund, the Adviser generally selects a greater weighting in obligations of domestic corporations and mortgage-backed securities relative to the Fund's comparative benchmark, and a lower relative weighting in U.S. Treasury and government agency issues. Because securities tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell derivative instruments (such as futures, options and swaps, including credit default swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate or credit risks. The Fund may count the value of certain derivatives with investment grade fixed income characteristics towards its policy to invest, under normal circumstances, at least 80% of its net assets in fixed income securities. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. Mortgage-backed investments involve risk of loss due to prepayments and, like any bond, due to default. Because of the sensitivity of mortgage-related securities to changes in interest rates, the Fund's performance may be more volatile than if it did not hold these securities. Foreign securities involve special risks such as currency fluctuations, economic or financial instability, lack of timely or reliable financial information and unfavorable political or legal developments. These risks are increased for investments in emerging markets. Below investment grade securities (sometimes referred to as "junk bonds") involve greater risk of default or downgrade and are more volatile than investment grade securities. Below investment grade securities may also be less liquid than higher quality securities. The risks associated with floating rate loans are similar to the risks of below investment grade securities. In addition, the value of the collateral securing the loan may decline, causing a loan to be substantially unsecured. Difficulty in selling a floating rate loan may result in a loss. Borrowers may pay back principal before the scheduled due date when interest rates decline, which may require the Fund to replace a particular loan with a lower-yielding security. There may be less extensive public information available with respect to loans than for rated, registered or exchange listed securities. The Fund may assume the credit risk of the primary lender in addition to the borrower, and investments in loan assignments may involve the risks of being a lender. CORE BOND FUND PROSPECTUS 3 U.S. government securities can exhibit price movements resulting from changes in interest rates. Treasury inflation protected securities ("TIPS") can also exhibit price movements as a result of changing inflation expectations and seasonal inflation patterns. Certain U.S. government securities are backed by the full faith and credit of the U.S. Government, while others are backed by the ability of the issuing entity to borrow from the U.S. Treasury or by the issuing entity's own resources. Restricted securities may increase the level of illiquidity in the Fund during any period that qualified institutional buyers become uninterested in purchasing these restricted securities. The Adviser intends to invest only in restricted securities that it believes present minimal liquidity risk. Because the Fund invests in derivatives, it is exposed to additional volatility and potential losses. Credit default swaps can increase the Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. The use of derivatives may cause the Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. The Fund began operating on October 11, 2004. Performance prior to October 11, 2004 is that of the Class I Shares of the Seix Core Bond Fund, the Fund's predecessor, which began operations on December 30, 1997. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 1998 7.81% 1999 -0.53% 2000 10.40% 2001 6.83% 2002 7.58% 2003 4.82% 2004 4.59% 2005 2.13%
BEST QUARTER WORST QUARTER 4.25% -2.16% (9/30/01) (6/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was -1.02%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Lehman Brothers U.S. Aggregate Index. These returns assume shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
SINCE I SHARES* 1 YEAR 5 YEARS INCEPTION** - ---------------------------------------------------------- Fund Returns Before Taxes 2.13% 5.17% 5.43% - ---------------------------------------------------------- Fund Returns After Taxes on Distributions 0.72% 3.42% 3.38% - ---------------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares 1.38% 3.37% 3.37% - ---------------------------------------------------------- Lehman Brothers U.S. Aggregate Index (reflects no deduction for fees, expenses or taxes) 2.43% 5.87% 6.06% - ----------------------------------------------------------
* Performance prior to October 11, 2004 is that of the predecessor fund's Class I Shares. ** Since inception of the predecessor fund on December 30, 1997. (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Lehman Brothers U.S. Aggregate Index is a widely-recognized index of U.S. Treasury and agency securities, corporate bond issues, mortgage-backed securities, asset-backed securities and corporate mortgage-backed securities. CORE BOND FUND 4 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
I SHARES Redemption Fee (as a percentage of net asset value)* 2.00%
* This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees 0.25% Other Expenses(1) 0.06% ----------------- Total Annual Operating Expenses(2) 0.31%
(1) Adjusted to reflect an expected change in Other Expenses for the current fiscal year. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $32 $100 $174 $393
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." INTERMEDIATE BOND FUND PROSPECTUS 5 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Total return that consistently exceeds the total return of the broad U.S. dollar-denominated, investment grade market of intermediate-term government and corporate bonds INVESTMENT FOCUS Intermediate-term investment grade debt securities SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Invest in intermediate-term fixed income securities with an emphasis on corporate and mortgage-backed securities INVESTOR PROFILE Investors who want to receive income from their investment, as well as an increase in the value of the investment
(TELESCOPE ICON) INVESTMENT STRATEGY The Intermediate Bond Fund invests in various types of income producing debt securities including mortgage- and asset-backed securities, government and agency obligations, corporate obligations and floating rate loans. The Fund may invest in debt securities of U.S. and non-U.S. issuers, including emerging market debt. Under normal circumstances, the Fund invests at least 80% of its net assets in fixed income securities. These securities will be chosen from the broad universe of available intermediate-term fixed income securities rated investment grade by at least one national securities rating agency or unrated securities that the Adviser believes are of comparable quality. The Fund may invest up to 20% of its net assets in below investment grade, high yield debt obligations. The Fund may also invest a portion of its assets in securities that are restricted as to resale. The Adviser anticipates that the Fund will maintain an average-weighted maturity of 3 to 10 years and the Fund will be managed with a duration that is close to that of its comparative benchmark, the Lehman Brothers Intermediate Government/Credit Bond Index, which is generally between 3 to 4 years. In selecting investments for the Fund, the Adviser generally selects a greater weighting in obligations of domestic corporations and mortgage-backed securities relative to the Fund's comparative benchmark, and a lower relative weighting in U.S. Treasury and government agency issues. Because securities tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell derivative instruments (such as futures, options and swaps, including credit default swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate or credit risks. The Fund may count the value of certain derivatives with investment grade intermediate term fixed income characteristics towards its policy to invest, under normal circumstances, at least 80% of its net assets in fixed income securities. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. Mortgage-backed investments involve risk of loss due to prepayments and, like any bond, due to default. Because of the sensitivity of mortgage-related securities to changes in interest rates, the Fund's performance may be more volatile than if it did not hold these securities. Foreign securities involve special risks such as currency fluctuations, economic or financial instability, lack of timely or reliable financial information and unfavorable political or legal developments. These risks are increased for investments in emerging markets. Below investment grade securities (sometimes referred to as "junk bonds") involve greater risk of default or downgrade and are more volatile than investment grade securities. Below investment grade securities may also be less liquid than higher quality securities. The risks associated with floating rate loans are similar to the risks of below investment grade securities. In addition, the value of the collateral securing the loan may decline, causing a loan to be substantially INTERMEDIATE BOND FUND 6 PROSPECTUS unsecured. Difficulty in selling a floating rate loan may result in a loss. Borrowers may pay back principal before the scheduled due date when interest rates decline, which may require the Fund to replace a particular loan with a lower-yielding security. There may be less extensive public information available with respect to loans than for rated, registered or exchange listed securities. The Fund may assume the credit risk of the primary lender in addition to the borrower, and investments in loan assignments may involve the risks of being a lender. U.S. government securities can exhibit price movements resulting from changes in interest rates. Treasury inflation protected securities ("TIPS") can also exhibit price movements as a result of changing inflation expectations and seasonal inflation patterns. Certain U.S. government securities are backed by the full faith and credit of the U.S. Government, while others are backed by the ability of the issuing entity to borrow from the U.S. Treasury or by the issuing entity's own resources. Restricted securities may increase the level of illiquidity in the Fund during any period that qualified institutional buyers become uninterested in purchasing these restricted securities. The Adviser intends to invest only in restricted securities that it believes present minimal liquidity risk. Because the Fund invests in derivatives, it is exposed to additional volatility and potential losses. Credit default swaps can increase the Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. The use of derivatives may cause the Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. The Fund began operating on October 11, 2004. Performance prior to October 11, 2004 is that of the Class I Shares of the Seix Intermediate Bond Fund, the Fund's predecessor, which began operations on June 30, 1999. This bar chart shows changes in the performance of the Fund's I Shares from year to year. (BAR CHART) 2000 10.19% 2001 7.03% 2002 7.18% 2003 4.03% 2004 3.69% 2005 1.38%
BEST QUARTER WORST QUARTER 4.33% -2.33% (9/30/01) (6/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was -0.40%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Lehman Brothers Intermediate Government/Credit Bond Index. These returns assume shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
SINCE I SHARES* 1 YEAR 5 YEARS INCEPTION** - ---------------------------------------------------------- Fund Returns Before Taxes 1.38% 4.64% 5.30% - ---------------------------------------------------------- Fund Returns After Taxes on Distributions 0.06% 2.82% 3.30% - ---------------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares 0.92% 2.88% 3.31% - ---------------------------------------------------------- Lehman Brothers Intermediate Government/ Credit Bond Index (reflects no deduction for fees, expenses or taxes) 1.58% 5.50% 5.92% - ----------------------------------------------------------
* Performance prior to October 11, 2004 is that of the predecessor fund's Class I Shares. ** Since inception of the predecessor fund on June 30, 1999. INTERMEDIATE BOND FUND PROSPECTUS 7 (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Lehman Brothers Intermediate Government/Credit Bond Index is a widely-recognized, market-value weighted (higher market value bonds have more influence than lower market value bonds) index of U.S. Treasury and agency securities, corporate bond issues and mortgage-backed securities having maturities of 10 years or less. (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
I SHARES Redemption Fee (as a percentage of net asset value)* 2.00%
* This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees 0.25% Other Expenses(1) 0.05% ----------------- Total Annual Operating Expenses(2) 0.30%
(1) Adjusted to reflect an expected change in Other Expenses for the current fiscal year. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $31 $97 $169 $381
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." LIMITED DURATION FUND 8 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL Current income, while preserving liquidity and principal INVESTMENT FOCUS Short-term U.S. dollar-denominated, investment grade fixed income securities SHARE PRICE VOLATILITY Low PRINCIPAL INVESTMENT STRATEGY Attempts to identify U.S. dollar-denominated, investment grade fixed income securities that offer high current income while preserving liquidity and principal INVESTOR PROFILE Investors who want to receive income from their investment
(TELESCOPE ICON) INVESTMENT STRATEGY The Limited Duration Fund invests in U.S. dollar-denominated, investment grade fixed income securities, including corporate and bank obligations, government securities, and mortgage-and asset-backed securities of U.S. and non-U.S. issuers, rated A or better by at least one national securities rating agency or unrated securities that the Adviser believes are of comparable quality. The Fund will maintain an average credit quality of AA or Aa and all securities held in the Fund will have interest rate durations of 180 days or less. For floating rate notes, the interest rate duration will be based on the next interest rate reset date. In deciding which securities to buy and sell, the Adviser emphasizes securities that are within the targeted segment of the U.S. dollar-denominated, fixed income securities markets and will generally focus on investments that have good business prospects, credit strength, stable cash flows and effective management. The Adviser may retain securities if the rating of the security falls below investment grade and the Adviser deems retention of the security to be in the best interests of the Fund. Because securities tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options and swaps) to use as a substitute for a purchase or sale of a position in the underlying asset and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate risk. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. Mortgage-backed investments involve risk of loss due to prepayments and, like any bond, due to default. Because of the sensitivity of mortgage-related securities to changes in interest rates, the Fund's performance may be more volatile than if it did not hold these securities. Foreign securities involve special risks such as economic or financial instability, lack of timely or reliable financial information and unfavorable political or legal developments. U.S. government securities can exhibit price movements resulting from changes in interest rates. Treasury inflation protected securities ("TIPS") can also exhibit price movements as a result of changing inflation expectations and seasonal inflation patterns. Certain U.S. government securities are backed by the full faith and credit of the U.S. Government, while others are backed by the ability of the issuing entity to borrow from the U.S. Treasury or by the issuing entity's own resources. For information about the risks involved when investing in derivatives, see "More Information About Risk." LIMITED DURATION FUND PROSPECTUS 9 (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. The Fund began operating on October 11, 2004. Performance prior to October 11, 2004 is that of the Class I Shares of the Seix Limited Duration Fund, the Fund's predecessor, which began operations on October 25, 2002. This bar chart shows changes in the performance of the Fund's I Shares from year to year.* (BAR CHART) 2003 0.97% 2004 1.20% 2005 3.20%
BEST QUARTER WORST QUARTER 0.97% 0.14% (12/31/05) (6/30/04)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 2.25%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Merrill 3-Month Treasury Bill Index. These returns assume shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
I SHARES* 1 YEAR SINCE INCEPTION** - ------------------------------------------------------- Fund Returns Before Taxes 3.20% 1.72% - ------------------------------------------------------- Fund Returns After Taxes on Distributions 2.11% 1.10% - ------------------------------------------------------- Fund Returns After Taxes on Distributions and Sale of Fund Shares 2.07% 1.11% - ------------------------------------------------------- Merrill 3-Month Treasury Bill Index (reflects no deduction for fees, expenses or taxes) 3.07% 1.84% - -------------------------------------------------------
* Performance prior to October 11, 2004 is that of the predecessor fund's Class I Shares. ** Since inception of the predecessor fund on October 25, 2002. Benchmark returns since September 30, 2002 (benchmark returns available only on a month end basis). (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Merrill 3-Month Treasury Bill Index is a widely-recognized index based on the 3 month U.S. Treasury bills. LIMITED DURATION FUND 10 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
I SHARES Redemption Fee (as a percentage of net asset value)* 2.00%
* This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees 0.10% Other Expenses(1) 0.06% ----------------- Total Annual Operating Expenses(2) 0.16%
(1) Adjusted to reflect an expected change in Other Expenses for the current fiscal year. (2) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $16 $52 $90 $205
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." SEIX FLOATING RATE HIGH INCOME FUND PROSPECTUS 11 (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL To provide a high level of current income by investing primarily in first and second lien senior floating rate loans and other floating rate debt securities INVESTMENT FOCUS Senior floating rate loans and other floating rate debt securities SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Invest in a portfolio of interests in first and second lien senior secured floating rate loans and other floating rate debt securities INVESTOR PROFILE Investors who seek: - Current income and a hedge against rising interest rates; - Diversification by adding assets that have traditionally exhibited low correlation to other asset classes; - Relatively high risk adjusted returns compared to other short term investment vehicles
(TELESCOPE ICON) INVESTMENT STRATEGY Under normal circumstances, the Seix Floating Rate High Income Fund invests at least 80% of its net assets in a combination of first and second lien senior floating rate loans and other floating rate debt securities. These loans are loans made by banks and other large financial institutions to various companies and are senior in the borrowing companies' capital structure. Coupon rates are floating, not fixed and are tied to a benchmark lending rate, the most popular of which is LIBOR ("London Interbank Offered Rate"). LIBOR is based on rates that contributor banks in London charge each other for interbank deposits and is typically used to set coupon rates on floating rate debt securities. The interest rates of these floating rate debt securities vary periodically based upon a benchmark indicator of prevailing interest rates. The Fund may invest all or substantially all of its assets in floating rate loans and debt securities that are rated below investment grade, or in comparable unrated securities. The Fund may also invest up to 20% of its total assets in any combination of junior debt securities or securities with a lien on collateral lower than a senior claim on collateral, high yield fixed rate bonds, investment grade fixed income debt obligations, asset-backed securities (such as special purpose trusts investing in bank loans), money market securities and repurchase agreements. In deciding which debt securities to buy and sell, the portfolio managers will emphasize securities which are within the segment of the high yield market it has targeted, which are securities rated either "BB" and "B" by Standard & Poor's Rating Services or "Ba" and "B" by Moody's Investor Services, Inc. or unrated securities that the Adviser believes are of comparable quality. The Fund may invest up to 20% of its total assets in senior loans made to non-U.S. borrowers provided that no more than 5% of these loans are non-U.S. dollar denominated. The Fund may also engage in certain hedging transactions. Preservation of capital is considered when consistent with the Fund's objective. Some types of senior loans in which the Fund may invest require that an open loan for a specific amount be continually offered to a borrower. These types of senior loans are commonly referred to as revolvers. Because revolvers contractually obligate the lender (and therefore those with an interest in the loan) to fund the loan at the borrower's discretion, the Fund must have funds sufficient to cover its contractual obligation. Therefore the Fund will maintain, on a daily basis, high-quality, liquid assets in an amount at least equal in value to its contractual obligation to fulfill the revolving senior loan. The Fund will not encumber any assets that are otherwise encumbered. The Fund will limit its investments in such obligations to no more than 25% of the Fund's total assets. In addition, to implement its investment strategy, the Fund may buy or sell to a limited extent, derivative instruments (such as futures, options, credit linked notes and swaps, including credit default and total return swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate or credit risks. The Fund may count the value of certain derivatives with floating rate debt or high yield bond characteristics towards its policy to invest, under normal circumstances, at least 80% of its net assets in a combination of senior floating rate loans and other floating rate debt securities and high yield bonds. SEIX FLOATING RATE HIGH INCOME FUND 12 PROSPECTUS (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. Economic and other market events may reduce the demand for certain senior loans held by the Fund, which may adversely impact the net asset value of the Fund. Loans and other debt securities are subject to credit risk. Credit risk is the possibility that an issuer will fail to make timely payments of interest or principal, or go bankrupt. The lower the ratings of such debt securities, the greater their risks. In addition, lower rated securities have higher risk characteristics, and changes in economic conditions are likely to cause issuers of these securities to be unable to meet their obligations. Many floating rate loans are such lower rated securities. Below investment grade securities (sometimes referred to as "junk bonds") involve greater risk of default or downgrade and are more volatile than investment grade securities. Below investment grade securities may also be less liquid than higher quality securities. The risks associated with floating rate loans are similar to the risks of below investment grade securities. In addition, the value of the collateral securing the loan may decline, causing a loan to be substantially unsecured. Difficulty in selling a floating rate loan may result in a loss. Borrowers may pay back principal before the scheduled due date when interest rates decline, which may require the Fund to replace a particular loan with a lower-yielding security. There may be less extensive public information available with respect to loans than for rated, registered or exchange listed securities. The Fund may assume the credit risk of the primary lender in addition to the borrower, and investments in loan assignments may involve the risks of being a lender. Foreign securities involve special risks such as currency fluctuations, economic or financial instability, lack of timely or reliable financial information and unfavorable political or legal developments. These risks are increased for investments in emerging markets. The Fund is non-diversified, which means that it may invest in the securities of relatively few issuers. As a result, the Fund may be more susceptible to a single adverse economic or regulatory occurrence affecting one or more of these issuers, and may experience increased volatility due to its investments in those securities. Because the Fund invests in derivatives, it is exposed to additional volatility and potential losses. Credit default swaps can increase the Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. Total return swaps could result in loses if the reference index, security, or investments do not perform as anticipated. The use of derivatives may cause the Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. (TARGET ICON) PERFORMANCE INFORMATION No performance information is included because the Fund does not have performance history for a full calendar year. SEIX FLOATING RATE HIGH INCOME FUND PROSPECTUS 13 (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
I SHARES Redemption Fee (as a percentage of net asset value)* 2.00%
* This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees 0.45% Other Expenses(1) 0.10% ---- Total Annual Fund Operating Expenses(2) 0.55%
(1) Other Expenses are based on estimated amounts for the current fiscal year. (2) The Adviser has contractually agreed to waive fees and reimburse expenses until at least August 1, 2007 in order to keep Total Annual Operating Expenses from exceeding 0.55%. If at any point before August 1, 2009, Total Annual Operating Expenses are less than the applicable expense cap, the Adviser may retain the difference to recapture any of the prior waivers or reimbursements. In addition, the Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These voluntary waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS $56 $176
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." SEIX HIGH YIELD FUND 14 PROSPECTUS (SUITCASE ICON) FUND SUMMARY INVESTMENT GOAL PRIMARY High income SECONDARY Capital appreciation INVESTMENT FOCUS High yield corporate and other debt instruments of U.S. and non-U.S. entities SHARE PRICE VOLATILITY High PRINCIPAL INVESTMENT STRATEGY Attempts to identify lower rated, higher yielding bonds offering above average total return INVESTOR PROFILE Investors who seek above average total return
(TELESCOPE ICON) INVESTMENT STRATEGY The Seix High Yield Fund invests in various types of lower rated, higher yielding debt instruments, including corporate obligations, floating rate loans and other debt obligations. The Fund may invest in debt obligations of U.S. and non-U.S. issuers, including emerging market debt. Under normal circumstances, the Fund invests at least 80% of its net assets in high yield securities. These securities will be chosen from the broad universe of available U.S. dollar-denominated, high yield securities rated below investment grade by either Moody's Investor Services, Inc. or Standard & Poor's Rating Services or unrated securities that the Adviser believes are of comparable quality. Such securities are commonly known as "junk bonds" and offer greater risks than investment grade bonds. Although the Fund seeks to achieve its investment objective primarily through investment in high yield securities, the Fund may invest up to 20% of its net assets in investment grade securities. The Fund will be managed with a duration that is close to the Fund's comparative benchmark, the Merrill Lynch High Yield Master Index, which is generally between 3 and 6 years. The Fund may also invest a portion of its assets in securities that are restricted as to resale. In selecting securities for the Fund, the Adviser employs a research driven process designed to identify value areas within the high yield market. In deciding which securities to buy and sell, the portfolio managers will emphasize securities which are within the segment of the high yield market it has targeted for emphasis, which are "BB" and "B" rated issuers. The Adviser seeks to identify securities which meet the following criteria: (1) industries that have strong fundamentals; (2) companies that have good business prospects and increasing credit strength; and (3) issuers with stable or growing cash flows and effective management. Because securities tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell derivative instruments (such as futures, options and swaps, including credit default swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate or credit risks. The Fund may count the value of certain derivatives with below investment grade fixed income characteristics towards its policy to invest, under normal circumstances, at least 80% of its net assets in high yield corporate securities rated as non- investment grade. (LIFE PRESERVER ICON) WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. Below investment grade securities (sometimes referred to as "junk bonds") involve greater risk of default or downgrade and are more volatile than investment grade securities. Below investment grade securities may also be less liquid than higher quality securities. The risks associated with floating rate loans are similar to the risks of below investment grade securities. In addition, the value of the collateral securing the loan may decline, causing a loan to be substantially unsecured. Difficulty in selling a floating rate loan may result in a loss. Borrowers may pay back principal before the scheduled due date when interest rates decline, which may require the Fund to replace a particular loan with a lower-yielding security. There may be less extensive public information available with respect to loans than for rated, registered or exchange listed securities. The Fund may assume the credit risk of the primary lender in addition to the borrower, and investments in loan assignments may involve the risks of being a lender. Foreign securities involve special risks such as currency fluctuations, economic or financial instability, lack of timely or reliable financial information and unfavorable SEIX HIGH YIELD FUND PROSPECTUS 15 political or legal developments. These risks are increased for investments in emerging markets. Restricted securities may increase the level of illiquidity in the Fund during any period that qualified institutional buyers become uninterested in purchasing these restricted securities. The Adviser intends to invest only in restricted securities that it believes present minimal liquidity risk. Because the Fund invests in derivatives, it is exposed to additional volatility and potential losses. Credit default swaps can increase the Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. The use of derivatives may cause the Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. (TARGET ICON) PERFORMANCE INFORMATION The bar chart and the performance table that follow illustrate the risks and volatility of an investment in the Fund. The Fund's past performance does not indicate how the Fund will perform in the future. The Fund began operating on October 11, 2004. Performance prior to October 11, 2004 is that of the Class I Shares of the Seix High Yield Fund, the Fund's predecessor, which began operations on December 29, 2000. This bar chart shows changes in the performance of the Fund's I Shares from year to year. (BAR CHART) 2001 11.33% 2002 6.34% 2003 15.56% 2004 8.34% 2005 2.62%
BEST QUARTER WORST QUARTER 5.78% -1.66% (3/31/01) (3/31/05)
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/06 was 0.24%. - ------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS - ------------------------------------------------------------- This table compares the Fund's average annual total returns for the periods ended December 31, 2005, to those of the Merrill Lynch High Yield Master Index. These returns assume shareholders redeem all of their shares at the end of the period indicated. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Your actual after-tax returns will depend on your tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
I SHARES* 1 YEAR 5 YEARS SINCE INCEPTION** Fund Returns Before Taxes 2.62% 8.75% 8.74% Fund Returns After Taxes on Distributions 0.07% 6.09% 6.08% Fund Returns After Taxes on Distributions and Sale of Fund Shares 1.81% 5.91% 5.90% Merrill Lynch High Yield Master Index (reflects no deduction for fees, expenses or taxes) 2.83% 8.76% 9.07%
* Performance prior to October 11, 2004 is that of the predecessor fund's Class I Shares. ** Since inception of the predecessor fund on December 29, 2000. Benchmark returns since November 30, 2000 (benchmark returns available only on a month end basis). (LINE GRAPH ICON) ------------------------------------------------------------- WHAT IS AN INDEX? ------------------------------------------------------------- An index measures the market prices of a specific group of securities in a particular market or market sector. You cannot invest directly in an index. Unlike a mutual fund, an index does not have an investment adviser and does not pay any commissions or expenses. If an index had expenses, its performance would be lower. The Merrill Lynch High Yield Master Index is a widely-recognized index of U.S. high yield corporate bond issues having maturities of at least one year. SEIX HIGH YIELD FUND 16 PROSPECTUS (COIN ICON) FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. The annual fund operating expenses shown in the table below are based on amounts incurred during the Fund's most recent fiscal year, unless otherwise indicated. - -------------------------------------------------------------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------
I SHARES Redemption Fee (as a percentage of net asset value)* 2.00%
* This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." - -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------
I SHARES Investment Advisory Fees(1) 0.43% Other Expenses(2) 0.06% ----------------- Total Annual Operating Expenses(3) 0.49%
(1) Adjusted to reflect a reduction in the contractual advisory fee effective August 1, 2005. (2) Adjusted to reflect an expected change in Other Expenses for the current fiscal year. (3) The Adviser and/or other service providers may voluntarily waive a portion of their fees in order to limit Total Annual Operating Expenses. These waivers may be discontinued at any time. - ------------------------------------------------------------- EXAMPLE - ------------------------------------------------------------- This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and that you sell your shares at the end of the period. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS $50 $157 $274 $616
- ------------------------------------------------------------- FUND EXPENSES - ------------------------------------------------------------- Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser." MORE INFORMATION ABOUT RISK PROSPECTUS 17 (LIFE PRESERVER ICON) MORE INFORMATION ABOUT RISK BELOW INVESTMENT GRADE RISK All Funds High yield securities, which are also known as "junk bonds," involve greater risks of default or downgrade and are more volatile than investment grade securities. High yield securities involve greater risk of default or price declines than investment grade securities due to actual or perceived changes in an issuer's credit-worthiness. In addition, issuers of high yield securities may be more susceptible than other issuers to economic downturns. High yield securities are subject to the risk that the issuer may not be able to pay interest or dividends and ultimately to repay principal upon maturity. Discontinuation of these payments could substantially adversely affect the market value of the security. High yield securities may be less liquid than higher quality investments. A security whose credit rating has been lowered may be particularly difficult to sell. DERIVATIVES RISK All Funds Derivatives may involve risks different from, and possibly greater than, those of traditional investments. A Fund may use derivatives (such as futures, options, and swaps) to attempt to achieve its investment objective and offset certain investment risks, while at the same time maintaining liquidity. These positions may be established for hedging or non-hedging purposes. Risks associated with the use of derivatives include those associated with hedging and leveraging activities: - - 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. - - A Fund experiencing losses over certain ranges in the market that exceed losses experienced by a fund that does not use derivatives. - - There may be an imperfect or no correlation between the changes in market value of the securities held by a Fund and the prices of derivatives. - - There may not be a liquid secondary market for derivatives. - - Trading restrictions or limitations may be imposed by an exchange. - - Government regulations may restrict trading in derivatives. - - The other party to an agreement (e.g., options or swaps) may default; however, in certain circumstances, such counterparty risk may be reduced by having an organization with very good credit act as intermediary. Because options premiums paid or received by a Fund are small in relation to the market value of the investments underlying the options, buying and selling put and call options can be more speculative than investing directly in securities. Credit default swaps can increase a Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. The use of derivatives may cause a Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. Total return swaps could result in losses if their reference index, security or investments do not perform as anticipated. EMERGING MARKETS RISK Core Bond Fund Intermediate Bond Fund Seix Floating Rate High Income Fund Seix High Yield Fund Emerging market countries are countries that the World Bank or the United Nations considers to be emerging or developing. Most countries or regions are included in this category, except for Australia, Canada, Hong Kong, Japan, New Zealand, Singapore, the United Kingdom, the United States and most of the countries located in Western Europe. Emerging markets may be more likely to experience political turmoil or rapid changes in market or economic conditions than more developed countries. In addition, the financial stability of issuers (including governments) in emerging market countries may be more precarious than in other countries. As a result, there will tend to be an increased risk of price volatility associated with a Fund's investments in emerging market countries, which may be magnified by MORE INFORMATION ABOUT RISK 18 PROSPECTUS currency fluctuations relative to the U.S. dollar. Governments of some emerging market countries have defaulted on their bonds and may do so in the future. EXCHANGE TRADED FUND RISK All Funds The Funds may purchase shares of exchange-traded funds ("ETFs") to temporarily gain exposure to a particular portion of the market while awaiting an opportunity to purchase securities directly. ETFs are investment companies that are bought and sold on a securities exchange. An ETF holds a portfolio of securities designed to track a particular market segment or index. ETFs, like mutual funds, have expenses associated with their operation, including advisory fees. When a Fund invests in an ETF, in addition to directly bearing expenses associated with its own operations, it will bear a pro rata portion of the ETF's expense. The risks of owning shares of an ETF generally reflect the risks of owning the underlying securities the ETF is designed to track, although lack of liquidity in an ETF could result in being more volatile than the underlying portfolio of securities. In addition, because of ETF expenses, compared to owning the underlying securities directly, it may be more costly to own an ETF. FIXED INCOME RISK All Funds The prices of a Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, a Fund's fixed income securities will decrease in value if interest rates rise and vice versa. Long-term debt securities generally are more sensitive to changes in interest rates, usually making them more volatile than short-term debt securities and thereby increasing risk. Debt securities are also subject to credit risk, which is the possibility than an issuer will fail to make timely payments of interest or principal, or go bankrupt. The lower the ratings of such debt securities, the greater their risks. In addition, lower rated securities have higher risk characteristics, and changes in economic conditions are likely to cause issuers of these securities to be unable to meet their obligations. Debt securities are also subject to income risk, which is the possibility that falling interest rates will cause a Fund's income to decline. Income risk is generally higher for short-term bonds. FLOATING RATE LOAN RISK Core Bond Fund Intermediate Bond Fund Seix Floating Rate High Income Fund Seix High Yield Fund As fixed income securities, investments in floating rate loans are subject to interest rate risk, but that risk is less because the interest rate of the loan adjusts periodically. As debt securities, investments in floating rate loans are subject to credit risk. Many floating rate loans are in unrated or lower credit rated securities. When a security is unrated, a Fund must rely more heavily on the analytical ability of the Adviser. Many floating rate loan investments share the same risks as high yield securities, although these risks are reduced when the floating rate loans are senior and secured as opposed to many high yield securities that are junior and unsecured. Floating rate securities are often subject to restrictions on resale which can result in reduced liquidity. A floating rate loan also may not be fully collateralized, although one lending institution will often be required to monitor collateral. Borrowers may repay principal faster than the scheduled due date which may result in a Fund replacing that loan with a lower-yielding security. Investment in loan participation interests may result in increased exposure to financial services sector risk. A loan may not be fully collateralized which may cause the loan to decline significantly in value, although one lending institution acting as agent for all of the lenders will generally be required to administer and manage the loan and, with respect to collateralized loans, to service or monitor the collateral. Certain portfolio managers and other personnel of the Adviser may also manage similar investment portfolios of floating rate loans for another non-investment adviser contracted affiliated business, Seix Structured Products, LLC ("SSP"). SSP is a subsidiary of SunTrust Bank and an affiliate of the Adviser, but not a client of the Adviser. In that role, this group purchases bank loans on behalf of SSP, for purposes of subsequent collateralized loan obligation ("CLO") transactions where the Adviser and its affiliate, SunTrust Capital MORE INFORMATION ABOUT FUND INVESTMENTS PROSPECTUS 19 Markets, Inc., will serve as collateral manager and as structuring agent/placement agent, respectively. The trustee and custodian of the CLO transactions are not affiliated entities of the Adviser or SunTrust Capital Markets. In addition, the Adviser serves as adviser to an account established with its affiliate, SunTrust Equity Funding, LLC for the purpose of purchasing high yield securities for subsequent sale to these same CLO transactions. Each of these transactions is subject to the approval of the independent trustee of the CLO transaction. In addition to disclosure to the trustee, all such transactions are fully disclosed to potential investors in the CLO's Offering and Disclosure documents. As a result of these multiple investment-oriented and associated relationships, there exists a potential risk that the portfolio managers may favor other adviser and non-adviser contracted businesses over a Fund, especially when allocating certain types of transactions. The Adviser has created and implemented additional policies and procedures designed to protect shareholders against such conflicts; however, there can be no absolute guarantee that a Fund will always participate in the same or similar investments or receive equal or better individual investment allocations at any given time. FOREIGN SECURITY RISK All Funds Investments in securities of foreign companies or governments can be more volatile than investments in U.S. companies or governments. Political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. Diplomatic, political, or economic developments, including nationalization or appropriation, could affect investments in foreign countries. Foreign securities markets generally have less trading volume and less liquidity than U.S. markets. The value of securities denominated in foreign currencies, and of dividends from such securities, can change significantly when foreign currencies strengthen or weaken relative to the U.S. dollar. As a result, changes in the value of those currencies compared to the U.S. dollar may affect (positively or negatively) the value of a Fund's investment. Certain foreign currencies may be particularly volatile, and foreign governments may intervene in the currency markets, causing a decline in value or liquidity in a Fund's foreign currency holdings. These currency movements may happen separately from and in response to events that do not otherwise affect the value of the security in the issuer's home country. Foreign companies or governments generally are not subject to uniform accounting, auditing, and financial reporting standards comparable to those applicable to domestic U.S. companies or governments. Transaction costs are generally higher than those in the U.S. and expenses for custodial arrangements of foreign securities may be somewhat greater than typical expenses for custodial arrangements of similar U.S. securities. Some foreign governments levy withholding taxes against dividend and interest income. Although in some countries a portion of these taxes are recoverable, the non-recovered portion will reduce the income received from the securities comprising the portfolio. MORTGAGE-BACKED SECURITY RISK Core Bond Fund Intermediate Term Bond Fund Limited Duration Fund Seix High Yield Fund Mortgage-backed securities are fixed income securities representing an interest in a pool of underlying mortgage loans. Mortgage-backed securities are sensitive to changes in interest rates, but may respond to these changes differently from other fixed income securities due to the likelihood that a change in the general level of interest rates will impact the magnitude and timing of any prepayments of the underlying mortgage loans. As a result, it may not be possible to accurately determine in advance the actual maturity date or average life of a mortgage-backed security. The uncertainty inherent in assessing prepayment risk makes it difficult to calculate the average maturity of a portfolio including mortgage-backed securities, and therefore, to assess the volatility risk of a Fund. (MOUNTAIN ICON) MORE INFORMATION ABOUT FUND INVESTMENTS This prospectus describes the Funds' primary strategies, and the Funds will normally invest in the types of securities described in this prospectus. However, in addition to the investments and strategies INFORMATION ABOUT PORTFOLIO HOLDINGS 20 PROSPECTUS described in this prospectus, each Fund also may invest in other securities, use other strategies and engage in other investment practices. These investments and strategies, as well as those described in this prospectus, are described in detail in the Statement of Additional Information. The investments and strategies described in this prospectus are those that the Funds use under normal conditions. During unusual economic or market conditions, or for temporary defensive or liquidity purposes, each Fund may invest up to 100% of its assets in cash, money market instruments, repurchase agreements and short-term obligations that would not ordinarily be consistent with a Fund's objectives. In addition, each Fund may shorten its average weighted maturity to as little as 90 days. A Fund will do so only if the Adviser believes that the risk of loss outweighs the opportunity for higher income. Of course, a Fund cannot guarantee that it will achieve its investment goal. INFORMATION ABOUT PORTFOLIO HOLDINGS A description of the Funds' policies and procedures with respect to the circumstances under which the Funds disclose their portfolio securities is available in the Statement of Additional Information. (MAGNIFYING GLASS ICON) INVESTMENT ADVISER Trusco Capital Management, Inc., 50 Hurt Plaza, Suite 1400, Atlanta, Georgia 30303, ("Trusco" or the "Adviser") serves as the investment adviser to the Funds. Seix Advisors, a fixed income division of Trusco, located at 10 Mountainview Road, Suite C-200, Upper Saddle River, NJ 07458, manages the Funds. As of June 30, 2006, the Adviser had approximately $71 billion in assets under management. For the fiscal year ended March 31, 2006, the following Funds paid the Adviser advisory fees (after waivers) based on the respective Fund's average daily net assets of: Core Bond Fund 0.25% Intermediate Bond Fund 0.25% Limited Duration Fund 0.10% Seix High Yield Fund 0.45%
For its advisory services to the Seix Floating Rate High Income Fund, the Adviser is entitled to receive an annual advisory fee of 0.45% based on the Fund's average daily net assets. The Adviser has contractually agreed to waive fees and reimburse expenses until at least August 1, 2007 in order to keep total annual operating expenses from exceeding the expense cap. If at any point before August 1, 2009, total annual operating expenses are less that the expense cap, the Adviser may retain the difference to recapture any of the prior waivers or reimbursements. Since August 1, 2005 the following breakpoints have been used in computing the advisory fee:
AVERAGE DAILY NET ASSETS DISCOUNT FROM FULL FEE - ----------------------------- ---------------------- First $500 million None -- Full Fee Next $500 million 5% Over $1 billion 10%
Based on average daily net assets for the fiscal year ended March 31, 2006, the asset level of the Seix High Yield Fund had reached a breakpoint in the advisory fee. Had the Fund's asset levels been lower, the Adviser may have been entitled to receive a maximum advisory fees of 0.45%. Fund expenses in the "Annual Fund Operating Expenses" tables shown earlier in this prospectus reflect the advisory breakpoints. A discussion regarding the basis for the Board of Trustees' approval of the investment advisory contract with the Adviser appears in the Funds' semi-annual report to shareholders for the period ended September 30, 2005. The Adviser is responsible for making investment decisions for the Funds and continuously reviews, supervises and administers each Fund's respective investment program. The Board of Trustees supervises the Adviser and establishes policies that the Adviser must follow in its management activities. The Adviser may use its affiliates as brokers for fund transactions. An investment adviser has a fiduciary obligation to its clients when the adviser has authority to vote their proxies. Under the current contractual agreement, the Adviser is authorized to vote proxies on behalf of each Fund. Information regarding the Adviser's, and thus each Fund's, Proxy Voting Policies and Procedures is provided in the Statement of Additional Information. A copy of the Funds' Proxy Voting Policies and PORTFOLIO MANAGERS PROSPECTUS 21 Procedures may be obtained by contacting the STI Classic Funds at 1-888-STI-FUND, or by visiting www.sticlassicfunds.com. PORTFOLIO MANAGERS The following individuals are primarily responsible for the day-to-day management of the Funds. Mr. Joseph Calabrese, CFA, has served as Managing Director since joining Trusco in May 2004. He has co-managed the LIMITED DURATION FUND since its inception, after serving as portfolio manager for the Fund's predecessor fund, the Seix Limited Duration Fund. Prior to joining Trusco, Mr. Calabrese served as Senior Portfolio Manager of Seix Investment Advisors, Inc. from May 1997 to May 2004. He has more than 19 years of investment experience. Mr. George Goudelias has served as Managing Director since joining Trusco in May 2004. He has co-managed the SEIX FLOATING RATE HIGH INCOME FUND and the SEIX HIGH YIELD FUND since their inception. Prior to joining Trusco, Mr. Goudelias served as Director of High Yield Research of Seix Investment Advisors, Inc. from February 2001 to May 2004. He has more than 20 years of investment experience. Mr. Michael McEachern, CFA, has served as Managing Director since joining Trusco in May 2004. He has co-managed the SEIX FLOATING RATE HIGH INCOME FUND and the SEIX HIGH YIELD FUND since their inception after serving as the portfolio manager for the Seix High Yield Fund's predecessor fund. Prior to joining Trusco, Mr. McEachern served as Senior Portfolio Manager of Seix Investment Advisors, Inc. from June 1997 to May 2004. He has more than 21 years of investment experience. Mr. John Talty, CFA, has served as Executive Vice President since joining Trusco in May 2004. He has co-managed the CORE BOND FUND, the INTERMEDIATE BOND FUND and the LIMITED DURATION FUND since their inception, after serving as a portfolio manager for each Fund's predecessor fund, the Seix Core Bond Fund, Seix Intermediate Bond Fund and Seix Limited Duration Fund respectively. Prior to joining Trusco, Mr. Talty served as President & Senior Portfolio Manager of Seix Investment Advisors, Inc. from January 1993 to May 2004. He has more than 25 years of investment experience. Mr. Perry Troisi has served as Managing Director since joining Trusco in May 2004. He has co-managed the CORE BOND FUND and the INTERMEDIATE BOND FUND since their inception, after serving as a portfolio manager for each Fund's predecessor Fund, the Seix Core Bond Fund and Seix Intermediate Bond Fund, respectively. Prior to joining Trusco, Mr. Troisi served as Senior Portfolio Manager of Seix Investment Advisors, Inc. from November 1999 to May 2004. He has more than 20 years of investment experience. The Statement of Additional Information provides additional information regarding the portfolio managers' compensation, other accounts managed by the portfolio managers, potential conflicts of interest and the portfolio managers' ownership of securities in the Funds. (HAND SHAKE ICON) PURCHASING AND SELLING FUND SHARES This section tells you how to purchase and sell (sometimes called "redeem") I Shares of the Funds. HOW TO PURCHASE FUND SHARES The Funds offer I Shares exclusively to financial institutions and intermediaries for their own accounts or for the accounts of customers for which they act as fiduciary agent, investment adviser, or custodian and which consist of: - - assets of a bona fide trust, or - - assets of a business entity possessing a tax identification number. As a result, you, as a customer of a financial institution or intermediary may purchase I Shares through accounts made with financial institutions or intermediaries. I Shares will be held of record by (in the name of) your financial institution or intermediary. Depending upon the terms of your account, however, you may have, or be given, the right to vote your I Shares. WHEN CAN YOU PURCHASE SHARES? You may purchase shares on any day that the New York Stock Exchange ("NYSE") is open for business (a "Business Day"). The price per share (the offering price) will be the net asset value per share ("NAV") next determined after the PURCHASING AND SELLING FUND SHARES 22 PROSPECTUS Funds receive your purchase order in proper form. Each Fund calculates its NAV once each Business Day at the regularly-scheduled close of normal trading on the NYSE (normally, 4:00 p.m., Eastern Time). So, for you to receive the current Business Day's NAV for each Fund, a Fund or its authorized agent must receive your purchase order in proper form before 4:00 p.m., Eastern Time. If the NYSE closes early - such as on days in advance of certain holidays - the Funds will calculate NAV as of the earlier closing time. The Funds will not accept orders that request a particular day or price for the transaction or any other special conditions. YOU MAY HAVE TO TRANSMIT YOUR PURCHASE AND SALE REQUESTS TO YOUR FINANCIAL INSTITUTION OR INTERMEDIARY AT AN EARLIER TIME FOR YOUR TRANSACTION TO BECOME EFFECTIVE THAT DAY. THIS ALLOWS THE FINANCIAL INSTITUTION OR INTERMEDIARY TIME TO PROCESS YOUR REQUEST AND TRANSMIT IT TO THE TRANSFER AGENT IN TIME TO MEET THE ABOVE STATED FUND CUT-OFF TIMES. FOR MORE INFORMATION ABOUT HOW TO PURCHASE OR SELL FUND SHARES, INCLUDING A SPECIFIC FINANCIAL INSTITUTION'S OR INTERMEDIARY'S INTERNAL ORDER ENTRY CUT-OFF TIME, PLEASE CONTACT YOUR FINANCIAL INSTITUTION OR INTERMEDIARY DIRECTLY. A Fund may reject any purchase order. HOW THE FUNDS CALCULATE NAV NAV is calculated by adding the total value of a Fund's investments and other assets, subtracting its liabilities and then dividing that figure by the number of outstanding shares of the Fund. In calculating NAV, each Fund generally values its investment portfolio at market price. If market prices are not readily available or a Fund reasonably believes that market prices or amortized cost valuation method are unreliable, such as in the case of a security value that has been materially affected by events occurring after the relevant market closes, the Fund is required to price those securities at fair value as determined in good faith using methods approved by the Board of Trustees. A Fund's determination of a security's fair value price often involves the consideration of a number of subjective factors, and is therefore subject to the unavoidable risk that the value that a Fund assigns to a security may be higher or lower than the security's value would be if a reliable market quotation for the security was readily available. When valuing fixed income securities with remaining maturities of more than 60 days, the Funds use the value of the security provided by pricing services. The values provided by a pricing service may be based upon market quotations for the same security, securities expected to trade in a similar manner, or a pricing matrix. When valuing fixed income securities with remaining maturities of 60 days or less, the Funds use the security's amortized cost. Amortized cost and the use of a pricing matrix in valuing fixed income securities are forms of fair value pricing. Fair value prices may be determined in good faith using methods approved by the Board of Trustees. With respect to non-U.S. securities held by a Fund, the Fund may take factors influencing specific markets or issues into consideration in determining the fair value of a non-U.S. security. International securities markets may be open on days when the U.S. markets are closed. In such cases, the value of any international securities owned by a Fund may be significantly affected on days when investors cannot buy or sell shares. In addition, due to the difference in times between the close of the international markets and the time a Fund prices its shares, the value the Fund assigns to securities generally will not be the same as the primary markets or exchanges. In determining fair value prices, a Fund may consider the performance of securities on their primary exchanges, foreign currency appreciation/depreciation, securities market movements in the U.S., or other relevant information as related to the securities. IN-KIND PURCHASES Payment for shares of a Fund may, in the discretion of the Adviser, be made in the form of securities that are permissible investments for such Fund. In connection with an in-kind securities payment, a Fund will require, among other things, that the securities (a) meet the investment objectives and policies of the Fund; (b) are acquired for investment and not for resale; (c) are liquid securities that are not restricted as to transfer either by law or liquidity of markets; (d) have a value that is readily ascertainable (e.g., by a listing on a nationally recognized securities exchange); and (e) are valued on the day of purchase in accordance with the pricing methods used by the Fund. For further information about this form of payment, please call 1-888-STI-FUND. PURCHASING AND SELLING FUND SHARES PROSPECTUS 23 CUSTOMER IDENTIFICATION FOREIGN INVESTORS The Funds do not generally accept investments in I Shares by non-U.S. citizens or entities. CUSTOMER IDENTIFICATION AND VERIFICATION To help the government fight the funding of terrorism and money laundering activities, federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account. When you open an account, you will be asked to provide your name, residential street address, date of birth, Social Security number or tax identification number. You may also be asked for other information that will allow us to identify you. Entities are also required to provide additional information. This information will be verified to ensure the identity of all persons opening a mutual fund account. In certain instances, the Funds are required to collect documents to fulfill their legal obligation. Documents provided in connection with your application will be used solely to establish and verify a customer's identity. The Funds are required by law to reject your new account application if the required identifying information is not provided. Attempts to collect the missing information required on the application will be performed by either contacting you or, if applicable, your broker. If this information is unable to be obtained within a timeframe established in the sole discretion of the Funds your application will be rejected. Upon receipt of your application in proper form (or upon receipt of all identifying information required on the application), your investment will be accepted and your order will be processed at the NAV next-determined. However, the Funds reserve the right to close your account at the then-current day's price if the Funds are unable to verify your identity. Attempts to verify your identity will be performed within a timeframe established in the sole discretion of the Funds. If the Funds are unable to verify your identity, the Funds reserve the right to liquidate your account at the then-current day's price and remit proceeds to you via check. The Funds reserve the further right to hold your proceeds until your original check clears the bank. In such an instance, you may be subject to a gain or loss on Fund shares and will be subject to corresponding tax implications. ANTI-MONEY LAUNDERING PROGRAM Customer identification and verification is part of the Funds' overall obligation to deter money laundering under federal law. The Funds have adopted an anti-money laundering compliance program designed to prevent the Funds from being used for money laundering or the financing of terrorist activities. In this regard, the Funds reserve the right to (i) refuse, cancel or rescind any purchase or exchange order, (ii) freeze any account and/or suspend account services, or (iii) involuntarily redeem your account in cases of threatening conduct or suspected fraudulent or illegal activity. These actions will be taken when, in the sole discretion of Fund management, they are deemed to be in the best interest of the Funds or in cases when the Funds are requested or compelled to do so by governmental or law enforcement authority. HOW TO SELL YOUR FUND SHARES You may sell your shares on any Business Day by contacting your financial institution or intermediary. Your financial institution or intermediary will give you information about how to sell your shares including any specific cut-off times required. Holders of I Shares may sell shares by following the procedures established when they opened their account or accounts with the Funds or with their financial institution or intermediary. The sale price of each share will be the NAV next determined after the Funds receive your request in proper form. A MEDALLION SIGNATURE GUARANTEE] by a bank or other financial institution (a notarized signature is not sufficient) is required to redeem shares: - - made payable to someone other than the registered shareholder; - - sent to an address or bank account other than the address or bank account of record; or - - sent to an address or bank account of record that has been changed within the last 15 calendar days. Other documentation may be required depending on the registration of the account. PURCHASING AND SELLING FUND SHARES 24 PROSPECTUS ] MEDALLION SIGNATURE GUARANTEE: A Medallion Signature Guarantee verifies the authenticity of your signature and helps ensure that changes to your account are in fact authorized by you. A Medallion Signature Guarantee may be obtained from a domestic bank or trust company, broker, dealer, clearing agency, savings association or other financial institution participating in a Medallion Program recognized by the Securities Trading Association. Signature guarantees from financial institutions that do not reflect one of the following are not part of the program and will not be accepted. The acceptable Medallion programs are Securities Transfer Agents Medallion Program, (STAMP), Stock Exchange Medallion Program, (SEMP), or the New York Stock Exchange, Inc. Medallion Program, (NYSR MSP). Contact your local financial adviser for further assistance. REDEMPTION FEE A redemption fee of 2% of the value of the shares sold will be imposed on shares redeemed within 7 days or less after their date of purchase unless the redemption is excluded under the Redemption Fee Policy. The redemption fee is intended to limit short-term trading and to help offset costs to the Funds' remaining shareholders of that type of activity. (See "Redemption Fee Policy.") RECEIVING YOUR MONEY Normally, the Funds will send your sales proceeds within five Business Days after a Fund receives your request, but a Fund may take up to seven days to pay the sale proceeds if making immediate payment would adversely affect the Fund (for example, to allow the Fund to raise capital in the case of a large redemption). REDEMPTIONS IN KIND The Funds generally pay redemption proceeds in cash. However, under unusual conditions that make the payment of cash unwise (and for the protection of the Funds' remaining shareholders), a Fund might pay all or part of your redemption proceeds in liquid securities with a market value equal to the redemption price (redemption in kind). It is highly unlikely that your shares would ever be redeemed in kind, but if they were you would probably have to pay transaction costs to sell the securities distributed to you, as well as taxes on any capital gains from the sale as with any redemption. SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES A Fund may suspend your right to sell your shares if the NYSE restricts trading, the SEC declares an emergency or for other reasons approved by the SEC. More information about this is in the Statement of Additional Information. TELEPHONE TRANSACTIONS Purchasing and selling Fund shares over the telephone is extremely convenient, but not without risk. Although the Funds have certain safeguards and procedures to confirm the identity of callers and the authenticity of instructions, the Funds are not responsible for any losses or costs incurred by following telephone instructions the Funds reasonably believe to be genuine. If you or your financial institution or intermediary transact with the Funds over the telephone, you will generally bear the risk of any loss. The Funds reserve the right to modify, suspend or terminate telephone transaction privileges at any time. To redeem shares by telephone: - - redemption checks must be made payable to the registered shareholder; and - - redemption checks must be mailed to an address or wired to a bank account of record that has been associated with the shareholder account for at least 15 calendar days. MARKET TIMING POLICIES AND PROCEDURES The Funds are intended for long-term investment purposes only and discourage shareholders from engaging in "market timing" or other types of excessive short-term trading. This frequent trading into and out of the Funds may present risks to the Funds' long-term shareholders, all of which could adversely affect shareholder returns. The risks posed by frequent trading include interfering with the efficient implementation of the Funds' investment strategies, triggering the recognition of taxable gains and losses on the sale of Fund investments, requiring the Funds to maintain higher cash balances to meet redemption requests, and experiencing increased transaction costs. A Fund that invests a significant amount of its assets in overseas REDEMPTION FEE POLICY PROSPECTUS 25 markets is particularly susceptible to the risk of certain investors using a strategy known as time-zone arbitrage. Investors using this strategy attempt to take advantage of the differences in value of foreign securities that might result from events that occur between the close of the foreign securities market on which a foreign security is traded and the time at which the Fund calculates its NAV. The Funds and/or their service providers will take steps reasonably designed to detect and deter frequent trading by shareholders pursuant to the Funds' policies and procedures described in this prospectus and approved by the Funds' Board of Trustees. For purposes of applying these policies, the Funds' service providers may consider the trading history of accounts under common ownership or control. The Funds' policies and procedures include: - - Shareholders are restricted from making more than one (1) "round trip" into or out of a Fund within 14 days or more than two (2) "round trips" within any continuous 90 day period. If a shareholder exceeds either "round trip" restriction, he or she may be deemed a "Market Timer," and the Funds and/or their service providers may, at their discretion, reject any additional purchase orders. The Funds define a round trip as a purchase into a Fund by a shareholder, followed by a subsequent redemption out of the Fund. Anyone considered to be a Market Timer by the Funds, their manager(s) or a shareholder servicing agent may be notified in writing of their designation as a Market Timer. - - The Funds reserve the right to reject any purchase request by any investor or group of investors for any reason without prior notice, including, in particular, if the Funds or their Adviser reasonably believes that the trading activity would be harmful or disruptive to the Funds. - - A redemption fee of 2% of the value of the shares sold will be imposed on shares redeemed within 7 days or less after their date of purchase. The redemption fee proceeds will be paid to the applicable Fund to help offset costs to the Fund's remaining shareholders. The Funds will use the first-in, first-out ("FIFO") method to determine the holding period. Under this method, the date of the redemption will be compared to the earliest purchase date of shares of a particular Fund held in a shareholder's account. If this holding period is less than the required holding period, the redemption fee will be assessed. The Funds and/or their service providers seek to apply these policies to the best of their abilities uniformly and in a manner they believe is consistent with the interests of the Funds' long-term shareholders. Although these policies are designed to deter frequent trading, none of these measures alone nor all of them taken together eliminate the possibility that frequent trading in the Funds will occur, particularly with respect to trades placed by shareholders that invest in the Funds through omnibus arrangements maintained by brokers, retirement plan accounts and other financial intermediaries. The Funds' and their service providers' access to information about individual shareholder transactions made through such omnibus arrangements is often unavailable or severely limited. The Funds rely in large part on the policies, ability and willingness of brokers, retirement plan accounts and other financial intermediaries who maintain omnibus arrangements to detect and deter short-term trading. Despite this reliance, the Funds cannot assure that their policies will be enforced with regard to those Fund shares held through such omnibus arrangements (which may represent a majority of Fund shares), and as a result frequent trading could adversely affect the Funds and their long-term shareholders as discussed above. In addition to the previously mentioned initiatives to discourage market timing, the Funds intend to continually evaluate and, if practical, implement other measures to deter market timing. REDEMPTION FEE POLICY A redemption fee of 2% of the value of the shares sold will be imposed on shares redeemed within 7 days or less after their date of purchase. The redemption fee proceeds will be paid to the applicable Fund to help offset costs to the Fund's remaining shareholders. The Funds will use the first-in, first-out ("FIFO") method to determine the holding period. Under this method, the date of the redemption will be compared to the earliest purchase date of shares of a particular Fund held in a shareholder's account. If this holding period is less than the required holding period, the redemption fee will be assessed. The redemption fee is applicable to Fund shares purchased either directly or through a financial intermediary, such as a broker-dealer. Transactions through financial intermediaries typically are placed with the Fund on an omnibus basis and include both purchase and sale transactions placed on behalf of DIVIDENDS AND DISTRIBUTIONS 26 PROSPECTUS multiple investors. For this reason, the Funds request the support from financial intermediaries of their obligation to assess the redemption fee on customer accounts and to collect and remit the proceeds to the Funds. However, due to operational requirements, the intermediaries' methods for tracking and calculating the fee may be inadequate or differ in some respects from the Funds' methods. The redemption fee may not apply to certain categories of redemptions, such as those that the Funds reasonably believe may not raise frequent trading or market timing concerns. These categories include, but are not limited to, the following: (i) accounts held through an omnibus arrangement, such as participants in certain group retirement plans (e.g., 401(k)/403(b) type participant accounts) or automatic asset allocation accounts, because information may not be available regarding beneficial owners or whose processing systems are incapable of properly applying the redemption fee to underlying shareholders; (ii) redemptions resulting from certain transfers upon the death of a shareholder; (iii) redemptions by certain pension plans as required by law or by regulatory authorities; (iv) retirement loans and withdrawals; and (v) shares purchased through reinvestment of dividends or capital gains distributions. Further, the Fund reserves the right to refuse any purchase request by any investor at any time. The Funds also reserve the right to modify or eliminate the redemption fee for certain categories of investors or waivers at any time. Such changes will be approved prior to implementation by the Funds' Board of Trustees. DISTRIBUTION OF FUND SHARES The distributor may provide financial assistance in connection with pre-approved seminars, conferences and advertising to the extent permitted by applicable state or self-regulatory agencies, such as the National Association of Securities Dealers. From its own assets, the Adviser or its affiliates may make payments based on gross sales and current assets to selected brokerage firms or institutions. The amount of these payments may be substantial. The minimum aggregate sales required for eligibility for such payments, and the factors in selecting the brokerage firms and institutions to which they will be made, are determined from time to time by the Adviser. Furthermore, in addition to the fees that may be paid by the Funds, the Adviser or its affiliates may pay fees from its own capital resources to brokers, banks, financial advisers, retirement plan service providers and other financial intermediaries, including affiliates, for providing distribution-related or shareholder services. DIVIDENDS AND DISTRIBUTIONS Each Fund declares dividends daily and pays these dividends monthly. Each Fund makes distributions of its net realized capital gains, if any, at least annually. If you own Fund shares on a Fund's record date, you will be entitled to receive the distribution. You will receive dividends and distributions in the form of additional Fund shares unless you elect to receive payment in cash. To elect cash payment, you must notify the Funds in writing prior to the date of the distribution. Your election will be effective for dividends and distributions paid after the Funds receive your written notice. To cancel your election, simply send the Funds written notice. TAXES PROSPECTUS 27 TAXES PLEASE CONSULT YOUR TAX ADVISOR REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL, STATE AND LOCAL INCOME TAXES. Below the Funds have summarized some important tax issues that affect the Funds and their shareholders. This summary is based on current tax laws, which may change. Each Fund will distribute substantially all of its net investment income and its net realized capital gains, if any, at least annually. The dividends and distributions you receive may be subject to federal, state and local taxation, depending upon your tax situation. Distributions you receive from a Fund may be taxable whether or not you reinvest them. Income distributions are generally taxable as ordinary income and will not qualify for the reduced tax rates applicable to qualified dividend income. Capital gains distributions are generally taxable at the rates applicable to long-term capital gains. Long-term capital gains are currently taxed at a maximum rate of 15%. Absent further legislation, the maximum 15% tax rate on long-term capital gains will cease to apply to taxable years beginning after December 31, 2010. EACH SALE OR EXCHANGE OF FUND SHARES MAY BE A TAXABLE EVENT. FOR TAX PURPOSES, AN EXCHANGE OF YOUR FUND SHARES FOR SHARES OF ANOTHER STI CLASSIC FUND IS TREATED THE SAME AS A SALE. A TRANSFER FROM ONE SHARE CLASS TO ANOTHER SHARE CLASS IN THE SAME STI CLASSIC FUND SHOULD NOT BE A TAXABLE EVENT. Each Fund will inform you of the amount of your ordinary income dividends and capital gain distributions shortly after the close of each calendar year. If you have a tax-advantaged or other retirement account you will generally not be subject to federal taxation on income and capital gain distributions until you begin receiving your distributions from your retirement account. You should consult your tax advisor regarding the rules governing your own retirement plan. The Funds expect to distribute primarily ordinary income dividends currently taxable at a maximum rate of 35%. MORE INFORMATION ABOUT TAXES IS IN THE STATEMENT OF ADDITIONAL INFORMATION. FINANCIAL HIGHLIGHTS 28 PROSPECTUS FINANCIAL HIGHLIGHTS The financial highlights table is intended to help you understand a Fund's financial performance for the period of the Fund's (and its predecessor's) operations. There was no financial information for the Seix Floating Rate High Income Fund because that Fund did not begin operations until after March 31, 2006. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This financial information has been audited by PricewaterhouseCoopers LLP, except the information for the three years (or periods) ended October 31, 2003, which has been audited by predecessor independent accounting firms. The Report of the Independent Registered Public Accounting Firm for each period shown along with the Funds' financial statements and related notes, are included in the Annual Reports to Shareholders for such periods. The 2006 Annual Report is available upon request and without charge by calling 1-888-STI-FUND or on the Funds' website at www.sticlassicfunds.com.
NET ASSET NET REALIZED DIVIDENDS VALUE, NET AND UNREALIZED FROM BEGINNING OF INVESTMENT GAINS (LOSSES) TOTAL FROM NET INVESTMENT PERIOD INCOME ON INVESTMENTS OPERATIONS INCOME ------------ ---------- -------------- ---------- -------------- CORE BOND FUND I SHARES Year Ended March 31, 2006.......... $10.12 0.41 (0.24) 0.17 (0.42) Period Ended March 31, 2005........ $10.30 0.15 (0.14) 0.01 (0.14) Year Ended October 31, 2004**...... $10.31 0.31 0.23 0.54 (0.32) Year Ended October 31, 2003........ $10.00 0.30 0.35 0.65 (0.34) Year Ended October 31, 2002........ $10.34 0.42 (0.29) 0.13 (0.42) Year Ended October 31, 2001........ $ 9.66 0.59 0.70 1.29 (0.61) INTERMEDIATE BOND FUND I SHARES Year Ended March 31, 2006.......... $10.08 0.38 (0.21) 0.17 (0.39) Period Ended March 31, 2005........ $10.37 0.14 (0.21) (0.07) (0.14) Year Ended October 31, 2004**...... $10.23 0.34 0.14 0.48 (0.34) Year Ended October 31, 2003........ $10.12 0.37 0.15 0.52 (0.41) Year Ended October 31, 2002........ $10.63 0.47 (0.23) 0.24 (0.50) Year Ended October 31, 2001........ $ 9.96 0.57 0.68 1.25 (0.58) LIMITED DURATION FUND I SHARES Year Ended March 31, 2006.......... $ 9.98 0.35 0.02 0.37 (0.36) Period Ended March 31, 2005........ $ 9.98 0.08 -- 0.08 (0.08) Year Ended October 31, 2004**...... $ 9.98 0.11 -- 0.11 (0.11) Year Ended October 31, 2003........ $10.00 0.11 (0.02) 0.09 (0.11) Period Ended October 31, 2002(a)... $10.00 --* -- --* --* SEIX FLOATING RATE HIGH INCOME FUND I SHARES Period Ended March 31, 2006(c)..... $10.00 0.04 (0.04) -- (0.04) SEIX HIGH YIELD FUND I SHARES Year Ended March 31, 2006.......... $10.94 0.68 (0.10) 0.58 (0.68) Period Ended March 31, 2005........ $11.42 0.29 (0.35) (0.06) (0.29) Year Ended October 31, 2004**...... $11.09 0.72 0.35 1.07 (0.72) Year Ended October 31, 2003........ $10.17 0.68 0.92 1.60 (0.68) Year Ended October 31, 2002........ $10.40 0.63 (0.20) 0.43 (0.63) Period Ended October 31, 2001(d)... $10.00 0.64 0.36 1.00 (0.60) DISTRIBUTIONS FROM TOTAL REALIZED DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS ------------- ------------- CORE BOND FUND I SHARES Year Ended March 31, 2006.......... (0.01) (0.43) Period Ended March 31, 2005........ (0.05) (0.19) Year Ended October 31, 2004**...... (0.23) (0.55) Year Ended October 31, 2003........ -- (0.34) Year Ended October 31, 2002........ (0.05) (0.47) Year Ended October 31, 2001........ -- (0.61) INTERMEDIATE BOND FUND I SHARES Year Ended March 31, 2006.......... (0.01) (0.40) Period Ended March 31, 2005........ (0.08) (0.22) Year Ended October 31, 2004**...... -- (0.34) Year Ended October 31, 2003........ -- (0.41) Year Ended October 31, 2002........ (0.25) (0.75) Year Ended October 31, 2001........ -- (0.58) LIMITED DURATION FUND I SHARES Year Ended March 31, 2006.......... -- (0.36) Period Ended March 31, 2005........ --* (0.08) Year Ended October 31, 2004**...... -- (0.11) Year Ended October 31, 2003........ -- (0.11) Period Ended October 31, 2002(a)... -- --* SEIX FLOATING RATE HIGH INCOME FUND I SHARES Period Ended March 31, 2006(c)..... -- (0.04) SEIX HIGH YIELD FUND I SHARES Year Ended March 31, 2006.......... (0.15) (0.83) Period Ended March 31, 2005........ (0.13) (0.42) Year Ended October 31, 2004**...... (0.02) (0.74) Year Ended October 31, 2003........ -- (0.68) Year Ended October 31, 2002........ (0.03) (0.66) Period Ended October 31, 2001(d)... -- (0.60)
+ Not annualized for periods less than one year. ++ Annualized for periods less than one year. (a) Commenced operations on October 25, 2002. (b) Amounts are not meaningful due to the short period of operations. (c) Commenced operations on March 2, 2006. (d) Commenced operations on December 29, 2000. * Amount less than $0.005. ** Effective November 1, 2003, these Funds adopted a change in the amortization and accretion methodology on fixed income securities. The cumulative effect of this change in methodology was immaterial to all Funds except for the Seix High Yield Fund as noted below:
CHANGE TO RATIO OF NET INVESTMENT CHANGE TO NET INCOME TO CHANGE TO REALIZED AND AVERAGE NET ASSETS NET INVESTMENT UNREALIZED GAINS ------------------ INCOME PER SHARE (LOSSES) PER SHARE I SHARES ---------------- ------------------ ------------------ Seix High Yield Fund....................................... $0.01 $(0.01) 0.06%
FINANCIAL HIGHLIGHTS PROSPECTUS 29
RATIO OF EXPENSES RATIO OF NET TO AVERAGE NET NET ASSETS, RATIO OF NET INVESTMENT INCOME ASSETS (EXCLUDING NET ASSET VALUE, TOTAL END OF EXPENSES TO TO AVERAGE WAIVERS AND END OF PERIOD RETURN+ PERIOD (000) AVERAGE NET ASSETS++ NET ASSETS++ EXPENSE OFFSET)++ ------------- ------- ------------ -------------------- ------------ ----------------- $ 9.86 1.68% $ 497,730 0.29% 4.01% 0.29% $10.12 0.09% $ 176,537 0.37% 3.12% 0.37% $10.30 5.49% $ 56,019 0.45% 3.03% 0.59% $10.31 6.58% $ 33,662 0.45% 3.10% 0.51% $10.00 1.38% $ 80,727 0.45% 4.08% 0.70% $10.34 13.82% $ 52,034 0.45% 5.85% 0.70% $ 9.85 1.76% $ 78,187 0.31% 3.88% 0.31% $10.08 (0.75)% $ 47,981 0.29% 3.25% 0.29% $10.37 4.73% $ 35,848 0.45% 3.25% 0.59% $10.23 5.16% $ 28,689 0.45% 3.42% 0.56% $10.12 2.47% $ 40,284 0.45% 4.63% 0.73% $10.63 12.87% $ 26,192 0.45% 5.50% 0.76% $ 9.99 3.73% $ 58,887 0.15% 3.39% 0.15% $ 9.98 0.84% $ 83,315 0.16% 2.12% 0.16% $ 9.98 1.09% $ 129,259 0.20% 1.04% 0.26% $ 9.98 0.92% $ 146,513 0.20% 1.10% 0.26% $10.00 --(b) $ 12,298 --(b) --(b) --(b) $ 9.96 0.02% $ 106,405 0.56% 5.24% 0.80% $10.69 5.37% $1,217,679 0.49% 6.20% 0.50% $10.94 (0.53)% $1,391,879 0.51% 6.22% 0.57% $11.42 9.97% $1,689,327 0.55% 6.48% 0.64% $11.09 16.10% $1,057,993 0.55% 6.67% 0.67% $10.17 4.21% $ 82,017 0.55% 6.80% 1.07% $10.40 10.14% $ 4,641 0.55% 7.33% 3.98% NET ASSET VALUE, PORTFOLIO END OF PERIOD TURNOVER RATE+ ------------- -------------- $ 9.86 236% $10.12 150% $10.30 330% $10.31 463% $10.00 502% $10.34 492% $ 9.85 154% $10.08 94% $10.37 130% $10.23 277% $10.12 237% $10.63 431% $ 9.99 94% $ 9.98 12% $ 9.98 101% $ 9.98 244% $10.00 --(b) $ 9.96 9% $10.69 95% $10.94 42% $11.42 73% $11.09 108% $10.17 97% $10.40 466%
[THIS PAGE INTENTIONALLY LEFT BLANK] [THIS PAGE INTENTIONALLY LEFT BLANK] INVESTMENT ADVISER: Trusco Capital Management, Inc. 50 Hurt Plaza, Suite 1400 Atlanta, Georgia 30303 Seix Advisors, a fixed income division of Trusco Capital Management, Inc. 10 Mountainview Road Suite C-200 Upper Saddle River, NJ 07458 More information about the STI Classic Funds is available without charge through the following: STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI includes detailed information about the STI Classic Funds. The SAI is on file with the SEC and is incorporated by reference into this prospectus. This means that the SAI, for legal purposes, is a part of this prospectus. ANNUAL AND SEMI-ANNUAL REPORTS: These reports list each Fund's holdings and contain information from the Funds' managers about strategies and recent market conditions and trends and their impact on Fund performance. The reports also contain detailed financial information about the Funds. TO OBTAIN AN SAI, ANNUAL OR SEMI-ANNUAL REPORT, OR MORE INFORMATION: TELEPHONE: 1-888-STI-FUND MAIL: STI Classic Funds BISYS Fund Services Limited Partnership 3435 Stelzer Road Columbus, Ohio 43219 WEBSITE: www.sticlassicfunds.com SEC: You can also obtain the SAI or the Annual and Semi-Annual reports, as well as other information about the STI Classic Funds, from the EDGAR Database on the SEC's website at http://www.sec.gov. You may review and copy documents at the SEC Public Reference Room in Washington, DC (for information on the operation of the Public Reference Room, call 202-942-8090). You may request documents by mail from the SEC, upon payment of a duplicating fee, by writing to: Securities and Exchange Commission, Public Reference Section, Washington, DC 20549-0102. You may also obtain this information, upon payment of a duplicating fee, by e-mailing the SEC at publicinfo@sec.gov. The STI Classic Funds' Investment Company Act registration number is 811-06557. STI CLASSIC FUNDS PU-ISEIXB-0806 STI CLASSIC FUNDS BOND FUNDS C SHARES PROSPECTUS AUGUST 1, 2006 HIGH QUALITY BOND FUND TOTAL RETURN BOND FUND INVESTMENT ADVISER: TRUSCO CAPITAL MANAGEMENT, INC. (THE "ADVISER") THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ABOUT THIS PROSPECTUS The STI Classic Funds is a mutual fund family that offers shares in separate investment portfolios that have individual investment goals and strategies. This prospectus gives you important information about C Shares of the High Quality Bond and Total Return Bond Funds ("Funds") that you should know before investing. Please read this prospectus and keep it for future reference. This prospectus has been arranged into different sections so that you can easily review this important information. On the next page, there is some general information you should know about risk and return that is common to each of the Funds. For more detailed information about each Fund, please see:
PAGE ---------- HIGH QUALITY BOND FUND ............................................ XXX TOTAL RETURN BOND FUND ............................................ XXX MORE INFORMATION ABOUT RISK ....................................... XXX MORE INFORMATION ABOUT FUND INVESTMENTS ........................... XXX INFORMATION ABOUT PORTFOLIO HOLDINGS .............................. XXX INVESTMENT ADVISER ................................................ XXX PORTFOLIO MANAGERS ................................................ XXX PURCHASING, SELLING AND EXCHANGING FUND SHARES .................... XXX MARKET TIMING POLICIES AND PROCEDURES ............................. XXX DIVIDENDS AND DISTRIBUTIONS ....................................... XXX TAXES ............................................................. XXX HOW TO OBTAIN MORE INFORMATION ABOUT THE STI CLASSIC FUNDS ................................................. Back Cover
RISK/RETURN INFORMATION COMMON TO THE STI CLASSIC FUNDS Each Fund is a mutual fund. A mutual fund pools shareholders' money and, using professional investment managers, invests it in securities. Each Fund has its own investment goal and strategies for reaching that goal. The Adviser invests Fund assets in a way that it believes will help a Fund achieve its goal. Still, investing in each Fund involves risk and there is no guarantee that a Fund will achieve its goal. The Adviser's judgments about the markets, the economy or companies may not anticipate actual market movements, economic conditions or company performance, and these judgments may affect the return on your investment. In fact, no matter how good a job the Adviser does, you could lose money on your investment in a Fund, just as you could with other investments. A FUND SHARE IS NOT A BANK DEPOSIT AND IT IS NOT INSURED OR GUARANTEED BY THE FDIC OR ANY GOVERNMENT AGENCY. The value of your investment in a Fund is based on the market prices of the securities the Funds hold. These prices change daily due to economic and other events that affect particular companies and other issuers. These price movements, sometimes called volatility, may be greater or lesser depending on the types of securities a Fund owns and the markets in which they trade. The effect on a Fund of a change in the value of a single security will depend on how widely a Fund diversifies its holdings. Each Fund's investment goal may be changed without shareholder approval. Before investing, make sure that the Fund's goal matches your own. HIGH QUALITY BOND FUND FUND SUMMARY INVESTMENT GOAL Current income and price appreciation INVESTMENT FOCUS High quality fixed income securities SHARE PRICE VOLATILITY Low PRINCIPAL INVESTMENT STRATEGY Attempts to identify intermediate duration securities that offer solid return potential and yield INVESTOR PROFILE Conservative investors seeking to maximize income and yield consistent with intermediate share price volatility
INVESTMENT STRATEGY Under normal circumstances, the High Quality Bond Fund invests at least 80% of its assets in high quality fixed income securities. These securities will be primarily U.S. government, corporate and mortgage-backed securities rated A or better by at least one national securities rating agency or unrated securities that the Adviser believes are of comparable quality. The Fund may also invest in futures, options, taxable municipal securities, asset backed securities and collateralized mortgage obligations ("CMOs"). The Fund may invest in debt securities of U.S. and non-U.S. issuers. The Adviser allocates the Fund's investments based on the Adviser's analysis of duration, yield curve structure, relative value sector and security analysis. The average duration of the Fund's portfolio will typically range from 3 to 10 years. The Adviser may retain securities if the rating of the security falls below investment grade and the Adviser deems retention of the security to be in the best interests of the Fund. In addition, to implement its investment strategy, the Fund may buy or sell, to a limited extent, derivative instruments (such as futures, options, and swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate risk. WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. Mortgage-backed investments involve risk of loss due to prepayments and, like any bond, due to default. Because of the sensitivity of mortgage-related securities to changes in interest rates, the Fund's performance may be more volatile than if it did not hold these securities. Foreign securities involve special risks such as currency fluctuations, economic or financial instability, lack of timely or reliable financial information and unfavorable political or legal developments. U.S. government securities can exhibit price movements resulting from changes in interest rates. Treasury inflation protected securities ("TIPS") can also exhibit price movements as a result of changing inflation expectations and seasonal inflation patterns. Some U.S. government securities are backed solely by the ability of the issuing entity to borrow from the U.S. Treasury or by the entity's own resources. For information about the risks involved when investing in derivatives, see "More Information About Risk." PERFORMANCE INFORMATION The Classic Institutional High Quality Bond Fund's C Shares have not yet commenced operations and, therefore, do not have any performance history. FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
C SHARES -------- Maximum Deferred Sales Charge (Load) (as a percentage of net asset value)* 1.00% Redemption Fee (as a percentage of net asset value)* 2.00%
* This sales charge is imposed if you sell your C Shares within one year of your purchase and decreases over time, depending on how long you own your shares. See "Sales Charges." ** This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
C SHARES -------- Investment Advisory Fees 0.40% Distribution and Service (12b-1) Fees 1.00% Other Expenses 0.30%* ---- Total Annual Fund Operating Expenses 1.70%**
- ---------- * Other Expenses are based on estimated amounts for the current fiscal year. ** The Adviser may waive a portion of its fees in order to limit the total operating expenses to the levels set forth below. The Adviser may discontinue all or a part of this fee waiver at any time. High Quality Bond Fund-- C Shares 1.60%
EXAMPLE This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: If you sell your shares at the end of the period:
1 YEAR 3 YEARS - ------ ------- $383 $566
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS - ------ ------- $183 $566
FUND EXPENSES Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." TOTAL RETURN BOND FUND FUND SUMMARY INVESTMENT GOAL Current income and price appreciation INVESTMENT FOCUS Government, corporate, and mortgage-backed securities, plus other opportunistic investments SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Attempts to recognize relative value in fixed income markets INVESTOR PROFILE Investors seeking diversification and attractive total returns in the fixed income market
INVESTMENT STRATEGY Under normal circumstances, the Total Return Bond Fund invests at least 80% of its net assets in fixed income securities. These securities will be chosen from a wide array of debt securities, primarily utilizing government, corporate and mortgage-backed securities and floating rate loans. The Fund may also invest in convertible bonds, preferred stocks, taxable municipal securities, asset backed securities and collateralized mortgage obligations ("CMOs"). The Fund may invest in debt securities of U.S. and non-U.S. issuers, including emerging market debt. The Fund's investments may include high yield securities rated below investment grade by at least one national securities rating agency or unrated securities that the Adviser believes are of comparable quality. The Fund may also invest a portion of its assets in securities that are restricted as to resale. The Adviser allocates the Fund's investments among various market sectors based on the Adviser's analysis of duration, yield curve structure and relative value sector and security analysis. The average weighted maturity of the Fund's portfolio will typically range from 4 to 10 years. Because securities tend to shift in relative attractiveness, the Fund may buy and sell securities frequently, which may result in higher transaction costs, additional capital gains tax liabilities and lower performance. In addition, to implement its investment strategy, the Fund may buy or sell derivative instruments (such as futures, options and swaps, including credit default swaps) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate or credit risks. The Fund may count the value of certain derivatives with fixed income characteristics towards its policy to invest, under normal circumstances, at least 80% of its net assets in fixed income securities. WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THIS FUND? Debt securities will generally lose value if interest rates increase. Interest rate risk is generally higher for investments with longer maturities or durations. Debt securities are subject to the risk that an issuer will fail to make timely payments of interest or principal, or go bankrupt, reducing the Fund's return. The lower the rating of a debt security, the higher its credit risk. Below investment grade securities (sometimes referred to as "junk bonds") involve greater risk of default or downgrade and are more volatile than investment grade securities. Below investment grade securities may also be less liquid than higher quality securities. The risks associated with floating rate loans are similar to the risks of below investment grade securities. In addition, the value of the collateral securing the loan may decline, causing a loan to be substantially unsecured. Difficulty in selling a floating rate loan may result in a loss. Borrowers may pay back principal before the scheduled due date when interest rates decline, which may require the Fund to replace a particular loan with a lower-yielding security. There may be less extensive public information available with respect to loans than for rated, registered or exchange listed securities. The Fund may assume the credit risk of the primary lender in addition to the borrower, and investments in loan assignments may involve the risks of being a lender. Foreign securities involve special risks such as currency fluctuations, economic or financial instability, lack of timely or reliable financial information and unfavorable political or legal developments. These risks are increased for investments in emerging markets. Mortgage-backed investments involve risk of loss due to prepayments and, like any bond, due to default. Because of the sensitivity of mortgage-related securities to changes in interest rates, the Fund's performance may be more volatile than if it did not hold these securities. U.S. government securities can exhibit price movements resulting from changes in interest rates. Treasury inflation protected securities ("TIPS") can also exhibit price movements as a result of changing inflation expectations and seasonal inflation patterns. Some U.S. government securities are backed solely by the ability of the issuing entity to borrow from the U.S. Treasury or by the entity's own resources. Restricted securities may increase the level of illiquidity in the Fund during any period that qualified institutional buyers become uninterested in purchasing these restricted securities. The Adviser intends to invest only in restricted securities that it believes present minimal liquidity risk. Because the Fund invests in derivatives, it is exposed to additional volatility and potential losses. Credit default swaps can increase the Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. The use of derivatives may cause the Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. PERFORMANCE INFORMATION The Total Return Bond Fund's C Shares have not yet commenced operations and, therefore, do not have any performance history. FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
C SHARES -------- Maximum Deferred Sales Charge (Load) (as a percentage of net asset value)* 1.00% Redemption Fee (as a percentage of net asset value)** 2.00%
* This sales charge is imposed if you sell your C Shares within one year of your purchase and decreases over time, depending on how long you own your shares. See "Sales Charges." ** This redemption fee will be imposed on shares redeemed within seven days of purchase unless the redemption is excluded under the Redemption Fee Policy. See "Redemption Fee Policy." ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
C SHARES -------- Investment Advisory Fees 0.35% Distribution and Service (12b-1) Fees 1.00% Other Expenses 0.30%* ---- Total Annual Fund Operating Expenses 1.65%
- ---------- * Other expenses are based on estimated amounts for the current fiscal year. EXAMPLE This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated. The Example also assumes that each year your investment has a 5% return, Fund operating expenses remain the same and you reinvest all dividends and distributions. Although your actual costs and returns might be different, your approximate costs of investing $10,000 in the Fund would be: If you sell your shares at the end of the period:
1 YEAR 3 YEARS - ------ ------- $378 $551
If you do not sell your shares at the end of the period:
1 YEAR 3 YEARS - ------ ------- $178 $551
FUND EXPENSES Every mutual fund has operating expenses to pay for professional advisory, shareholder, distribution, administration and custody services. The Fund's expenses in the table above are shown as a percentage of the Fund's net assets. These expenses are deducted from Fund assets. For more information about these fees, see "Investment Adviser" and "Distribution of Fund Shares." MORE INFORMATION ABOUT RISK BELOW INVESTMENT GRADE RISK - (TOTAL RETURN BOND FUND) High yield securities, which are also known as "junk bonds," involve greater risks of default or downgrade and are more volatile than investment grade securities. High yield securities involve greater risk of default or price declines than investment grade securities due to actual or perceived changes in an issuer's credit-worthiness. In addition, issuers of high yield securities may be more susceptible than other issuers to economic downturns. High yield securities are subject to the risk that the issuer may not be able to pay interest or dividends and ultimately to repay principal upon maturity. Discontinuation of these payments could substantially adversely affect the market value of the security. High yield securities may be less liquid than higher quality investments. A security whose credit rating has been lowered may be particularly difficult to sell. DERIVATIVES RISK - (Both Funds) A Fund's investments in securities whose interest rates bear an inverse relationship to the interest rate on another security or the value of an index are called inverse floaters. An investment in inverse floaters may involve greater risk than an investment in a fixed rate bond. Because changes in the interest rate on the other security or index inversely affect the residual interest paid on the inverse floater, the value and income on an inverse floater are generally more volatile than that of a fixed rate bond. Inverse floaters have varying degrees of liquidity, and the market for these securities is relatively volatile. These securities tend to underperform the market for fixed rate bonds in a rising interest rate environment, but tend to outperform the market for fixed rate bonds when interest rates decline. Credit default swaps can increase a Fund's exposure to credit risk and could result in losses if the Adviser does not correctly evaluate the creditworthiness of the entity on which the credit default swap is based. The use of derivatives may cause a Fund to recognize higher amounts of short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates. Total return swaps could result in losses if their reference index, security or investments do not perform as anticipated. EMERGING MARKETS RISK - (Total Return Bond Fund) Emerging market countries are countries that the World Bank or the United Nations considers to be emerging or developing. Most countries are included in this category, except for Australia, Canada, Hong Kong, Japan, New Zealand, Singapore, the United Kingdom, the United States and most of the countries located in Western Europe. Emerging markets may be more likely to experience political turmoil or rapid changes in market or economic conditions than more developed countries. In addition, the financial stability of issuers (including governments) in emerging market countries may be more precarious than in other countries. As a result, there will tend to be an increased risk of price volatility associated with a Fund's investments in emerging market countries, which may be magnified by currency fluctuations relative to the U.S. dollar. Governments of some emerging market countries have defaulted on their bonds and may do so in the future. Exchange Traded Fund Risk - (Both Funds) The Funds may purchase shares of exchange-traded funds ("ETFs") to temporarily gain exposure to a particular portion of the market while awaiting an opportunity to purchase securities directly. ETFs are investment companies that are bought and sold on a securities exchange. An ETF holds a portfolio of securities designed to track a particular market segment or index. ETFs, like mutual funds, have expenses associated with their operation, including advisory fees. When the Fund invests in an ETF, in addition to directly bearing expenses associated with its own operations, it will bear a pro rata portion of the ETF's expense. The risks of owning shares of an ETF generally reflect the risks of owning the underlying securities the EFT is designed to track, although lack of liquidity in an ETF could result in being more volatile than the underlying portfolio of securities. In addition, because of ETF expenses, compared to owning the underlying securities directly, it may be more costly to own an ETF. FIXED INCOME RISK -- (Both Funds) The prices of a Fund's fixed income securities respond to economic developments, particularly interest rate changes, as well as to perceptions about the creditworthiness of individual issuers, including governments. Generally, a Fund's fixed income securities will decrease in value if interest rates rise and vice versa. Long-term debt securities generally are more sensitive to changes in interest rates, usually making them more volatile than short-term debt securities and thereby increasing risk. Debt securities are also subject to credit risk, which is the possibility than an issuer will fail to make timely payments of interest or principal, or go bankrupt. The lower the ratings of such debt securities, the greater their risks. In addition, lower rated securities have higher risk characteristics, and changes in economic conditions are likely to cause issuers of these securities to be unable to meet their obligations. Debt securities are also subject to income risk, which is the possibility that falling interest rates will cause a Fund's income to decline. Income risk is generally higher for short-term bonds. FLOATING RATE LOAN RISK - (Both Funds) As fixed income securities, investments in floating rate loans are subject to interest rate risk, but that risk is less because the interest rate of the loan adjusts periodically. As debt securities, investments in floating rate loans are subject to credit risk. Many floating rate loans are in unrated or lower credit rated securities. When a security is unrated, a Fund must rely more heavily on the analytical ability of the Adviser. Many floating rate loan investments share the same risks as high yield securities, although these risks are reduced when the floating rate loans are senior and secured as opposed to many high yield securities that are junior and unsecured. Floating rate securities are often subject to restrictions on resale which can result in reduced liquidity. A floating rate loan also may not be fully collateralized, although one lending institution will often be required to monitor collateral. Borrowers may repay principal faster than the scheduled due date which may result in a Fund replacing that loan with a lower-yielding security. Investment in loan participation interests may result in increased exposure to financial services sector risk. A loan may not be fully collateralized which may cause the loan to decline significantly in value, although one lending institution acting as agent for all of the lenders will generally be required to administer and manage the loan and, with respect to collateralized loans, to service or monitor the collateral. Certain portfolio managers and other personnel of the Adviser may also manage similar investment portfolios of floating rate loans for another non-investment adviser contracted affiliated business, Seix Structured Products, LLC ("SSP"). SSP is a subsidiary of SunTrust Bank and an affiliate of the Adviser, but not a client of the Adviser. In that role, this group purchases bank loans on behalf of SSP, for purposes of subsequent collateralized loan obligation ("CLO") transactions where the Adviser and its affiliate, SunTrust Capital Markets, Inc., will serve as collateral manager and as structuring agent/placement agent, respectively. The trustee and custodian of the CLO transactions are not affiliated entities of the Adviser or SunTrust Capital Markets. In addition, the Adviser serves as adviser to an account established with its affiliate, SunTrust Equity Funding, LLC for the purpose of purchasing high yield securities for subsequent sale to these same CLO transactions. Each of these transactions is subject to the approval of the independent trustee of the CLO transaction. In addition to disclosure to the trustee, all such transactions are fully disclosed to potential investors in the CLO's Offering and Disclosure documents. As a result of these multiple investment-oriented and associated relationships, there exists a potential risk that the portfolio managers may favor other adviser and non-adviser contracted businesses over a Fund, especially when allocating certain types of transactions. The Adviser has created and implemented additional policies and procedures designed to protect shareholders against such conflicts; however, there can be no absolute guarantee that a Fund will always participate in the same or similar investments or receive equal or better individual investment allocations at any given time. FOREIGN SECURITY RISK -- (Both Funds) Investments in securities of foreign companies or governments can be more volatile than investments in U.S. companies or governments. Political and economic events unique to a country or region will affect those markets and their issuers. These events will not necessarily affect the U.S. economy or similar issuers located in the United States. Diplomatic, political, or economic developments, including nationalization or appropriation, could affect investments in foreign countries. Foreign securities markets generally have less trading volume and less liquidity than U.S. markets. The value of securities denominated in foreign currencies, and of dividends from such securities, can change significantly when foreign currencies strengthen or weaken relative to the U.S. dollar. As a result, changes in the value of those currencies compared to the U.S. dollar may affect (positively or negatively) the value of a Fund's investment. Certain foreign currencies may be particularly volatile, and foreign governments may intervene in the currency markets, causing a decline in value or liquidity in a Fund's foreign currency holdings. These currency movements may happen separately from and in response to events that do not otherwise affect the value of the security in the issuer's home country. Foreign companies or governments generally are not subject to uniform accounting, auditing, and financial reporting standards comparable to those applicable to domestic U.S. companies or governments. Transaction costs are generally higher than those in the U.S. and expenses for custodial arrangements of foreign securities may be somewhat greater than typical expenses for custodial arrangements of similar U.S. securities. Some foreign governments levy withholding taxes against dividend and interest income. Although in some countries a portion of these taxes are recoverable, the non-recovered portion will reduce the income received from the securities comprising the portfolio. MORTGAGE-BACKED SECURITY RISK - (Both Funds) Mortgage-backed securities are fixed income securities representing an interest in a pool of underlying mortgage loans. Mortgage-backed securities are sensitive to changes in interest rates, but may respond to these changes differently from other fixed income securities due to the likelihood that a change in the general level of interest rates will impact the magnitude and timing of any prepayments of the underlying mortgage loans. As a result, it may not be possible to accurately determine in advance the actual maturity date or average life of a mortgage-backed security. The uncertainty inherent in assessing prepayment risk makes it difficult to calculate the average maturity of a portfolio including mortgage-backed securities, and therefore, to assess the volatility risk of a Fund. MORE INFORMATION ABOUT FUND INVESTMENTS This prospectus describes the Funds' primary strategies, and the Funds will normally invest in the types of securities described in this prospectus. However, in addition to the investments and strategies described in this prospectus, each Fund also may invest in other securities, use other strategies and engage in other investment practices. These investments and strategies, as well as those described in this prospectus, are described in detail in the Statement of Additional Information. The investments and strategies described in this prospectus are those that the Funds use under normal conditions. During unusual economic or market conditions, or for temporary defensive or liquidity purposes, each Fund may invest up to 100% of its assets in cash, money market instruments, repurchase agreements and short-term obligations that would not ordinarily be consistent with a Fund's objectives. In addition, each Fund may shorten its average weighted maturity to as little as 90 days. A Fund will do so only if the Adviser believes that the risk of loss outweighs the opportunity for capital gains or higher income. Of course, a Fund cannot guarantee that it will achieve its investment goal. INFORMATION ABOUT PORTFOLIO HOLDINGS A description of the Funds' policies and procedures with respect to the circumstances under which the Funds disclose their portfolio securities is available in the Statement of Additional Information. INVESTMENT ADVISER Trusco Capital Management, Inc., 50 Hurt Plaza, Suite 1400, Atlanta, Georgia 30303, ("Trusco" or the "Adviser") serves as the Adviser to the Funds. As of June 30, 2006, the Adviser had approximately $71 billion in assets under management. For its advisory services to the Funds, the Adviser is entitled to receive the following fees as a percentage of each Fund's daily net assets: High Quality Bond Fund 0.40% Total Return Bond Fund 0.35%
Breakpoints will be used in computing the advisory fee as follows:
AVERAGE DAILY NET ASSETS DISCOUNT FROM FULL FEE - ------------------------ ---------------------- First $500 million None - Full Fee Next $500 million 5% Over $1 billion 10%
A discussion regarding the basis for the Board of Trustees' approval of the investment advisory contract with the Adviser appears in the Fund's semi-annual report to shareholders for the period ended September 30, 2005. The Adviser is responsible for making investment decisions for the Funds and continuously reviews, supervises and administers each Fund's respective investment program. The Board of Trustees supervises the Adviser and establishes policies that the Adviser must follow in its management activities. The Adviser may use its affiliates as brokers for Fund transactions. An investment adviser has a fiduciary obligation to its clients when the adviser has authority to vote their proxies. Under the current contractual agreement, the Adviser is authorized to vote proxies on behalf of each Fund. Information regarding the Adviser's, and thus each Fund's, Proxy Voting Policies and Procedures is provided in the Statement of Additional Information. A copy of the Funds' Proxy Voting Policies and Procedures may be obtained by contacting the STI Classic Funds at 1-888-STI-FUND, or by visiting www.sticlassicfunds.com. PORTFOLIO MANAGERS The following individuals are primarily responsible for the day-to-day management of the Funds. Mr. John Talty, CFA, has served as Executive Vice President since joining Trusco in May 2004. He has co-managed the TOTAL RETURN BOND FUND since July 2004. Prior to joining Trusco, Mr. Talty served as President and Senior Portfolio Manager of Seix Investment Advisors, Inc. from January 1993 to May 2004. He has more than 25 years of investment experience. Mr. Perry Troisi has served as Managing Director since joining Trusco in May 2004. He has co-managed the HIGH QUALITY BOND FUND and TOTAL RETURN BOND FUND since July 2004. Prior to joining Trusco, Mr. Troisi served as Senior Portfolio Manager of Seix Investment Advisers, Inc. from November 1999 to May 2004. He has more than 19 years of investment experience. Mr. Adrien Webb, CFA, has served as Managing Director since joining Trusco in May 2004. He has co-managed the HIGH QUALITY BOND FUND since October 2004. Prior to joining Trusco, Mr. Webb served as Senior Portfolio Manager of Seix Investment Advisors, Inc. from May 2000 to May 2004. He has more than 11 years of investment experience. The Statement of Additional Information provides additional information regarding the portfolio managers' compensation, other accounts managed by the portfolio managers, potential conflicts of interest and the portfolio managers' ownership of securities of the Funds. PURCHASING, SELLING AND EXCHANGING FUND SHARES This section tells you how to purchase, sell (sometimes called "redeem") and exchange C Shares of the Funds. HOW TO PURCHASE FUND SHARES You may purchase shares of the Funds through financial institutions or intermediaries who are authorized to place transactions in Fund shares for their customers. Please contact your financial institution or intermediary directly and follow its procedures for Fund share transactions. Your financial institution or intermediary may charge a fee for its services, in addition to the fees charged to the Fund. You will also generally have to address your correspondence or questions regarding a Fund to your financial institution or intermediary. Your investment professional can assist you in opening a brokerage account that will be used for purchasing shares of the STI Classic Funds. Shareholders who purchased shares directly from the Funds may purchase additional Fund shares by: - Mail - Telephone (1-888-STI-FUND) - Wire - Fax (1-800-451-8377) - Automated Clearing House ("ACH") The Funds do not accept cash, credit card checks, third party checks, travelers' checks, money orders, bank starter checks or checks drawn on a foreign currency as payment for Fund shares. If you pay with a check or ACH transfer that does not clear or if your payment is not received in a timely manner, your purchase may be canceled. You will be responsible for any losses or expenses incurred by the Fund or transfer agent, and the Fund can redeem shares you own in this or another identically registered STI Classic Funds account as reimbursement. WHEN CAN YOU PURCHASE SHARES? You may purchase shares on any day that the New York Stock Exchange ("NYSE") is open for business (a "Business Day"). The price per share (the offering price) will be the net asset value per share ("NAV") next determined after the Funds receive your purchase order. Each Fund calculates its NAV once each Business Day at the regularly-scheduled close of normal trading on the NYSE (normally, 4:00 p.m., Eastern Time). So, for you to receive the current Business Day's NAV, a Fund must receive your purchase order in proper form before 4:00 p.m., Eastern Time. If the NYSE closes early - such as on days in advance of certain holidays - the Funds reserve the right to calculate NAV as of the earlier closing time. The Funds will not accept orders that request a particular day or price for the transaction or any other special conditions. YOU MAY HAVE TO TRANSMIT YOUR PURCHASE, SALE AND EXCHANGE REQUESTS TO YOUR FINANCIAL INSTITUTION OR INTERMEDIARY AT AN EARLIER TIME FOR YOUR TRANSACTION TO BECOME EFFECTIVE THAT DAY. THIS ALLOWS THE FINANCIAL INSTITUTION OR INTERMEDIARY TIME TO PROCESS YOUR REQUEST AND TRANSMIT IT TO THE TRANSFER AGENT IN TIME TO MEET THE ABOVE STATED FUND CUT-OFF TIMES. FOR MORE INFORMATION ABOUT HOW TO PURCHASE, SELL OR EXCHANGE FUND SHARES, INCLUDING A SPECIFIC FINANCIAL INSTITUTION'S OR OTHER INTERMEDIARY'S INTERNAL ORDER ENTRY CUT-OFF TIMES, PLEASE CONTACT YOUR FINANCIAL INSTITUTION OR INTERMEDIARY DIRECTLY. A Fund may reject any purchase order. HOW THE FUNDS CALCULATE NAV NAV is calculated by adding the total value of the Fund's investments and other assets, subtracting its liabilities and the dividing that figure by the number of outstanding shares of the Fund. In calculating NAV, a Fund generally values its investment portfolio at market price. If market prices are unavailable or the Fund reasonably believes that they are unreliable, such as in the case of a security value that has been materially affected by events occurring after the relevant market closes, a Fund is required to price those securities at fair value as determined in good faith using methods approved by the Board of Trustees. A Fund's determination of a security's fair value price often involves the consideration of a number of subjective factors, and is therefore subject to the unavoidable risk that the value that a Fund assigns to a security may be higher or lower than the security's value would be if a reliable market quotation for the security was readily available. When valuing fixed-income securities with remaining maturities of more than 60 days, the Funds use the value of the security provided by pricing services. The values provided by a pricing service may be based upon market quotations for the same security, securities expected to trade in a similar manner, or a pricing matrix. When valuing fixed income securities with remaining maturities of 60 days or less, the Funds use the security's amortized cost. Amortized cost and the use of a pricing matrix in valuing fixed income securities are forms of fair value pricing. With respect to non-U.S. securities held by a Fund, the Fund may take factors influencing specific markets or issues into consideration in determining the fair value of a non-U.S. security. International securities markets may be open on days when the U.S. markets are closed. In such cases, the value of any international securities owned by a Fund may be significantly affected on days when investors can not buy or sell shares. In addition, due to the difference in times between the close of the international markets and the time Fund prices its shares, the value the Fund assigns to securities generally will not be the same as the primary markets or exchanges. In determining fair value prices, a Fund may consider the performance of securities on their primary exchanges, foreign currency appreciation/depreciation, securities market movements in the U.S., or other relevant information as related to the securities. MINIMUM PURCHASES To purchase shares for the first time, you must invest at least $5,000 ($2,000 for IRA accounts) in C Shares of the Funds. Your subsequent investments of shares of any Fund must be made in amounts of at least $1,000 or, if you pay by a statement coupon, $100. A Fund may accept investments of smaller amounts at its discretion. SYSTEMATIC INVESTMENT PLAN If you have a checking or savings account with a bank, you may purchase C Shares automatically through regular deductions from your bank account. With a $500 minimum initial investment, you may begin regularly-scheduled investments from $50 to $100,000 once or twice a month. You should plan on investing at least $5,000 per Fund during the first two years. The Distributor may close your account if you do not meet this minimum investment requirement at the end of two years. CUSTOMER IDENTIFICATION FOREIGN INVESTORS To purchase shares of the Funds, you must be a U.S. citizen residing in the U.S. or its territories or a U.S. entity with a U.S. tax identification number. If you owned shares on July 31, 2006, you may keep your account open even if you do not reside in the U.S. or its territories, but you may not make additional purchases or exchanges. These restrictions do not apply to investors with U.S. military APO or FPO addresses. CUSTOMER IDENTIFICATION AND VERIFICATION To help the government fight the funding of terrorism and money laundering activities, federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account. When you open an account, you will be asked to provide your name, residential street address, date of birth, Social Security number or tax identification number. You may also be asked for other information that will allow us to identify you. Entities are also required to provide additional documentation. This information will be verified to ensure the identity of all persons opening a mutual fund account. In certain instances, the Funds are required to collect documents to fulfill its legal obligation. Documents provided in connection with your application will be used solely to establish and verify a customer's identity. The Funds are required by law to reject your new account application if the required identifying information is not provided. Attempts to collect the missing information required on the application will be performed by either contacting you or, if applicable, your broker. If this information is unable to be obtained within a timeframe established in the sole discretion of the Funds, your application will be rejected. Upon receipt of your application in proper form (or upon receipt of all identifying information required on the application), your investment will be accepted and your order will be processed at the NAV per share next-determined. However, the Funds reserve the right to close your account at the then-current day's price if is the Funds are unable to verify your identity. Attempts to verify your identity will be performed within a timeframe established in the sole discretion of the Funds. If the Funds are unable to verify your identity, the Funds reserve the right to liquidate your account at the then-current day's price and remit proceeds to you via check. The Funds reserve the further right to hold your proceeds until your original check clears the bank. In such an instance, you may be subject to a gain or loss on Fund shares and will be subject to corresponding tax implications. ANTI-MONEY LAUNDERING PROGRAM Customer identification and verification is part of the Funds' overall obligation to deter money laundering under federal law. The Funds have adopted an anti-money laundering compliance program designed to prevent the Funds from being used for money laundering or the financing of terrorist activities. In this regard, the Funds reserve the right to (i) refuse, cancel or rescind any purchase or exchange order, (ii) freeze any account and/or suspend account services, or (iii) involuntarily redeem your account in cases of threatening conduct or suspected fraudulent or illegal activity. These actions will be taken when, in the sole discretion of Fund management, they are deemed to be in the best interest of the Funds or in cases when the Funds are requested or compelled to do so by governmental or law enforcement authority. SALES CHARGES CONTINGENT DEFERRED SALES CHARGES ("CDSC") You do not pay a sales charge when you purchase C Shares. The offering price of C Shares is simply the next calculated NAV. But if you sell your shares within the first year after your purchase, you will pay a CDSC equal to 1.00% for either (1) the NAV of the shares at the time of purchase, or (2) NAV of the shares next calculated after the Funds receive your sale request, whichever is less. The Funds will use the first-in, first-out ("FIFO") method to determine the holding period. The CDSC does not apply to shares you purchase through reinvestment of dividends or capital gains distributions. So, you never pay a CDSC on any increase in your investment above the initial offering price. The CDSC does not apply to exchanges of C Shares of one Fund for C Shares of another Fund. WAIVER OF CDSC The CDSC will be waived if you sell your C Shares for the following reasons: - Death or Post purchase Disablement (as defined in Section 72(m)(7) of the Internal Revenue Code) - You are shareholder/joint shareholder or participant/beneficiary of certain retirement plans; - You die or become disabled after the account is opened; - Redemption must be made within 1 year of such death/disability; - The Fund must be notified in writing of such death/disability at time of redemption request; - The Fund must be provided with satisfactory evidence of death (death certificate) or disability (doctor's certificate specifically referencing disability as defined in 72(m)(7) referenced above). - Shares purchased through dividend and capital gains reinvestment. - Participation in the Systematic Withdrawal Plan described below: - Withdrawal not to exceed 10% of the current balance of a Fund in a 12 month period, the 10% amount will be calculated as of the date of the initial Systematic Withdrawal Plan and recalculated annually on the 12 month anniversary date. Shares purchased through dividend or capital gains reinvestment, although not subject to the CDSC sales charge, will be included in calculating the account value and 10% limitation amount; - If the total of all Fund account withdrawals (Systematic Withdrawal Plan or otherwise) exceeds the 10% limit within the 12 month period following the initial calculation date, the entire Systematic Withdrawal Plan for the period will be subject to the applicable sales charge, in the initial year of a Systematic Withdrawal Plan, the withdrawal limitation period shall begin 12 months before the initial Systematic Withdrawal Plan payment; - To qualify for the CDSC waiver under the Systematic Withdrawal Plan a Fund account must have a minimum of $25,000 at Systematic Withdrawal Plan inception and must also reinvest dividends and capital gains distributions. - Required mandatory minimum withdrawals made after 70 1/2 under any retirement plan qualified under IRS Code Section 401, 408 or 403(b) or resulting from the tax free return of an excess distribution to an Individual Retirement Account (IRA). Satisfactory qualified plan documentation to support any waiver includes employer letter (separation from services) and plan administrator certificate (certain distributions under plan requirements). - Permitted exchanges of shares, except if shares acquired by exchange are then redeemed within the period during which a CDSC would apply to the initial shares purchased. - Exchanges in connection with plans of Fund reorganizations such as mergers and acquisitions. To take advantage of any of these waivers, you must qualify in advance. To see if you qualify, please call your investment professional or other investment representative. These waivers are subject to change or elimination at any time at the discretion of the Funds. OFFERING PRICE OF FUND SHARES The offering price of C Shares is simply the next calculated NAV. You can also obtain information about sales charges on the Funds' website at www.sticlassicfunds.com. HOW TO SELL YOUR FUND SHARES If you own your shares through an account with a broker or other financial institution or intermediary, contact that broker, financial institution or intermediary to sell your shares. Your broker, financial institution or intermediary may charge a fee for its services, in addition to the fees charged by the Funds. Shareholders who purchased shares directly from the Funds may sell their Fund shares by: - Mail - Telephone (1-888-STI-FUND) - Wire - Fax (1-800-451-8377) - ACH A Medallion Signature Guarantee(*) by a bank or other financial institution (a notarized signature is not sufficient) is required to redeem shares: - made payable to someone other than the registered shareholder; - sent to an address or bank account other than the address or bank account on record; - sent to an address or bank account of record that has been changed within the last 15 calendar days. (*) MEDALLION SIGNATURE GUARANTEE: A Medallion Signature Guarantee verifies the authenticity of your signature and helps ensure that changes to your account are in fact authorized by you. A Medallion Signature Guarantee may be obtained from a domestic bank or trust company, broker, dealer, clearing agency, savings association or other financial institution participating in a Medallion Program recognized by the Securities Trading Association. Signature guarantees from financial institutions that do not reflect one of the following are not part of the program and will not be accepted. The acceptable Medallion programs are Securities Transfer Agents Medallion Program, (STAMP), Stock Exchange Medallion Program, (SEMP), or the New York Stock Exchange, Inc. Medallion Program, (NYSE MSP). Contact your local financial adviser for further assistance. The sale price of each share will be the next NAV determined after the Funds receive your request less any applicable CDSC. REDEMPTION FEE A redemption fee of 2% of the value of the shares sold will be imposed on shares redeemed within 7 days or less after their date of purchase unless the redemption fee is excluded under the Redemption Fee Policy. The redemption fee is intended to limit short-term trading and to help offset costs to the Funds' remaining shareholders of that type of activity. (See "Redemption Fee Policy.") SYSTEMATIC WITHDRAWAL PLAN If you have at least $10,000 in your account, you may use the systematic withdrawal plan. Under the plan you may arrange monthly, quarterly, semi-annual or annual automatic withdrawals of at least $50 from any Fund. The proceeds of each withdrawal will be mailed to you by check [or, if you have a checking or savings account with a bank, electronically transferred to your account.] Withdrawals under the Systematic Withdrawal Plan may be subject to a CDSC unless they meet the requirements described above under "Waiver of the CDSC." RECEIVING YOUR MONEY Normally, the Funds will send your sale proceeds within five Business Days after the Funds receive your request, but a Fund may take up to seven days to pay the sale proceeds if making immediate payment would adversely affect the Fund (for example, to allow the Fund to raise capital in the case of a larger redemption). Your proceeds can be wired to your bank account (subject to a fee) or sent to you by check. IF YOU RECENTLY PURCHASED YOUR SHARES BY CHECK OR THROUGH ACH, REDEMPTION PROCEEDS MAY NOT BE AVAILABLE UNTIL YOUR CHECK HAS CLEARED (WHICH MAY TAKE UP TO 15 CALENDAR DAYS FROM YOUR DATE OF PURCHASE). REDEMPTIONS IN KIND The Funds generally pay redemption proceeds in cash. However, under unusual conditions that make the payment of cash unwise (and for the protection of the Funds' remaining shareholders) the Funds might pay all or part of your redemption proceeds in liquid securities with a market value equal to the redemption price (redemption in kind). It is highly unlikely that your shares would ever be redeemed in kind, but if they were you would probably have to pay transaction costs to sell the securities distributed to you, as well as taxes on any capital gains from the sale as with any redemption. INVOLUNTARY SALES OF YOUR SHARES If your account balance drops below $5,000 ($2,000 for IRA accounts) due to redemptions you may be required to sell your shares. But the Funds will always give you at least 60 days written notice to give you time to add to your account and avoid the sale of your shares. SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES A Fund may suspend your right to sell your shares if the NYSE restricts trading, the SEC declares an emergency or for other reasons approved by the SEC. More information about this is in the Statement of Additional Information. HOW TO EXCHANGE YOUR SHARES You may exchange your shares for C Shares of any other STI Classic Fund on any Business Day by contacting the Funds or your financial institution or intermediary by mail or telephone. You may also exchange C Shares of another STI Classic Fund for C Shares of each Fund in the same way. Exchange requests must be for an amount of at least $1,000. The exchange privilege is not intended as a vehicle for short-term trading. Excessive exchange activity may interfere with Fund management and may have an adverse effect on all shareholders. In order to limit excessive exchange activity and in other circumstances where it is in the best interests of the Fund, all Funds reserve the right to revise or terminate the exchange privilege, limit the amount or number of exchanges or reject any exchange or restrict or refuse purchases if (1) the Fund or its manager(s) believes the Fund would be harmed or unable to invest effectively, or (2) the Fund receives or anticipates orders that may dramatically affect the Fund as outlined under "Market Timing Policies and Procedures" below. IF YOU RECENTLY PURCHASED SHARES BY CHECK, OR THROUGH ACH, YOU MAY NOT BE ABLE TO EXCHANGE YOUR SHARES UNTIL YOUR CHECK HAS CLEARED (WHICH MAY TAKE UP TO 15 CALENDAR DAYS FROM YOUR DATE OF PURCHASE). This exchange privilege may be changed or canceled at any time upon 60 days notice. EXCHANGES When you exchange C Shares of each Fund, you are really selling your shares and buying C Shares of another STI Classic Fund. So, your sale price and purchase price will be based on the NAV next calculated after the Fund receives your exchange request. REDEMPTION FEE A redemption fee of 2% of the value of the shares sold will be imposed on shares exchanged for shares of another STI Classic Fund within 7 days or less after their date of purchase unless the redemption is excluded under the Redemption Fee Policy. The redemption fee is intended to limit short-term trading and to help offset costs to the Funds' remaining shareholders of that type of activity. (See "Redemption Fee Policy.") TELEPHONE TRANSACTIONS Purchasing, selling and exchanging Fund shares over the telephone is extremely convenient, but not without risk. Although the Funds have certain safeguards and procedures to confirm the identity of callers and the authenticity of instructions, the Funds are not responsible for any losses or costs incurred by following telephone instructions the Funds reasonably believe to be genuine. If you or your financial institution or intermediary transact with the Funds over the telephone, you will generally bear the risk of any loss. The Funds reserve the right to modify, suspend or terminate telephone transaction privileges at any time. To redeem shares by telephone: - redemption checks must be made payable to the registered shareholder; and - redemption checks must be mailed to an address or wired to a bank account of record that has been associated with the shareholder account for at least 15 calendar days. MARKET TIMING POLICIES AND PROCEDURES The Funds are intended for long-term investment purposes only and discourage shareholders from engaging in "market timing" or other types of excessive short-term trading. This frequent trading into and out of the Funds may present risks to the Funds' long-term shareholders, all of which could adversely affect shareholder returns. The risks posed by frequent trading include interfering with the efficient implementation of the Funds' investment strategies, triggering the recognition of taxable gains and losses on the sale of Fund investments, requiring the Funds to maintain higher cash balances to meet redemption requests, and experiencing increased transaction costs. The Funds and/or their service providers will take steps reasonably designed to detect and deter frequent trading by shareholders pursuant to the Funds' policies and procedures described in this prospectus and approved by the Funds' Board of Trustees. For purposes of applying these policies, the Funds' service providers may consider the trading history of accounts under common ownership or control. The Funds' policies and procedures include: Shareholders are restricted from making more than one (1) "round trip" into or out of a Fund within 14 days or more than two (2) "round trips" within any continuous 90 day period. If a shareholder exceeds either "round trip" restriction, he or she may be deemed a "Market Timer," and the Funds and/or their service providers may, at their discretion, reject any additional purchase orders. The Funds define a round trip as a purchase into a Fund by a shareholder, followed by a subsequent redemption out of the Fund. Anyone considered to be a Market Timer by the Funds, their manager(s) or a shareholder servicing agent may be notified in writing of their designation as a Market Timer. - The Funds reserve the right to reject any purchase request by any investor or group of investors for any reason without prior notice, including, in particular, if the Funds or their Adviser reasonably believes that the trading activity would be harmful or disruptive to the Funds. - A redemption fee of 2% of the value of the shares sold will be imposed on shares redeemed (including exchanges_ within 7 days or less after their date of purchase. The redemption fee proceeds will be paid to the applicable Fund to help offset costs to the Fund's remaining shareholders. The Funds will use the first-in, first-out ("FIFO") method to determine the holding period. Under this method, the date of the redemption will be compares to the earliest purchase date of shares of a particular Fund held in a shareholder's account. If this holding period is less than the required holding period, the redemption fee will be assessed. The Funds and/or their service providers seek to apply these policies to the best of their abilities uniformly and in a manner they believe is consistent with the interests of the Funds' long-term shareholders. Although these policies are designed to deter frequent trading, none of these measures alone nor all of them taken together eliminate the possibility that frequent trading in the Funds will occur, particularly with respect to trades placed by shareholders that invest in the Funds through omnibus arrangements maintained by brokers, retirement plan accounts and other financial intermediaries. The Funds and their service providers' access to information about individual shareholder transactions made through such omnibus arrangements is often unavailable or severely limited. The Funds rely in large part on the policies, ability and willingness of brokers, retirement plan accounts and other financial intermediaries who maintain omnibus arrangements to detect and deter short-term trading. Despite this reliance, the Funds cannot assure that their policies will be enforced with regard to those Fund shares held through such omnibus arrangements (which may represent a majority of Fund shares), and as a result frequent trading could adversely affect the Funds and their long-term shareholders as discussed above. In addition to the previously mentioned initiatives to discourage market timing, the Funds intend to continually evaluate and, if practical, implement other measures to deter market timing. REDEMPTION FEE POLICY A redemption fee of 2% of the value of the shares sold will be imposed on shares redeemed (including exchanges) within 7 days or less after their date of purchase. The redemption fee proceeds will be paid to the appropriate Fund to help offset costs to the Fund's long-term shareholders. The Funds will use the FIFO method to determine the holding period. Under this method, the date of the redemption will be compared to the earliest purchase date of shares of a particular Fund held in a shareholder's account. If this holding period is less than the required holding period, the redemption fee will be assessed. The redemption fee is applicable to Fund shares purchased either directly or through a financial intermediary, such as a broker-dealer. Transactions through financial intermediaries typically are placed with the Fund on an omnibus basis and include both purchase and sale transactions placed on behalf of multiple investors. For this reason, the Funds request the support from financial intermediaries of their obligation to assess the redemption fee on customer accounts and to collect and remit proceeds to the Funds. However, due to operational requirements, the intermediaries' methods for tracking and calculating the fee may be inadequate or differ in some respects from the Funds' methods. The redemption fee may not apply to certain categories of redemptions, such as those that the Funds reasonably believe may not raise frequent trading or market timing concerns. These categories include, but are not limited to, the following: (i) accounts held through an omnibus arrangement, such as participants in certain group retirement plans (e.g., 401(k)/403(b) type participant accounts) or automatic asset allocation accounts, because information may not be available regarding beneficial owners or whose processing systems are incapable of properly applying the redemption fee to underlying shareholders; (ii) redemptions resulting from certain transfers upon the death of a shareholder; (iii) redemptions by certain pension plans as required by law or by regulatory authorities; (iv) Systematic Withdrawal Plan accounts; (v) retirement loans and withdrawals; (vi) shares sold due to the drop of an account balance below the required minimum as discussed under "Involuntary Sales of Your Shares"; and (vii) shares purchased through reinvestment of dividends or capital gains distributions. Dealers who purchase C Shares on behalf of Market Timers, including Market Timers with shares held through an omnibus account, may not be eligible to receive any dealer commissions and also may not be eligible to receive 12b-1 fees from the original date of purchase. Further, the Funds reserve the right to refuse any purchase or exchange requests by any investor at any time. The Funds also reserve the right to modify or eliminate the redemption fee for certain categories of investors or waivers at any time. Such changes will be approved prior to implementation by the Funds' Board of Trustees. DISTRIBUTION OF FUND SHARES Each Fund has adopted a distribution plan that allows the Funds to pay distribution and service fees for the sale and distribution of its shares, and for services provided to shareholders. Because these fees are paid out of a Fund's assets continuously, over time these fees will increase the cost of your investment and may cost you more than paying other types of sales charges. While C Shares are sold without any initial sales charge, the distributor may pay at the time of sale up to 1.00% of the amount invested to broker-dealers and other financial intermediaries who sell C Shares. Through the distribution plan, the distributor is reimbursed for these payments, as well as other distribution related services provided by the distributor. For C Shares, the maximum distribution fee is 1.00% of the average daily net assets of each Fund. The distributor may provide financial assistance in connection with pre-approved seminars, conferences and advertising to the extent permitted by applicable state or self-regulatory agencies, such as the National Association of Securities Dealers. From its own assets, the Adviser, the Distributor or their affiliates may make payments based on gross sales and current assets to selected brokerage firms or institutions. The amount of these payments may be substantial. The minimum aggregate sales required for eligibility for such payments, and the factors in selecting the brokerage firms and institutions to which they will be made, are determined from time to time by the Adviser. Furthermore, in addition to the fees that may be paid by the Funds, the Adviser or its affiliates may pay fees from its own capital resources or past profits to brokers, banks, finacial advisers, retirement plan service providers and other financial intermediaries, including affiliates, for providing distribution-related, shareholder services, marketing supposrt or administrative services suppost. As indicated, payment for these services is solely at the Adviser's or its affiliates expense and there are no monetary or non-monetary guarantees, arrangements, or agreements of any kind designed in any manner to influence any partner, affiliate or service provider to recommend or sell shares of a Fund in lieu of another investment. In addition, the Adviser, the Distributor or their affiliates may pay fees, from their own assets, to brokers, banks, financial advisers, retirement plan service providers and other financial intermediaries for providing distribution-related or shareholder services, in addition to fees that may be paid by the Funds for these purposes. DIVIDENDS AND DISTRIBUTIONS Each Fund declares dividends daily and pays these dividends monthly. Each Fund makes distributions of its net realized capital gains, if any, at least annually. If you own Fund shares on a Fund's record date, you will be entitled to receive the distribution. You will receive dividends and distributions in the form of additional Fund shares unless you elect to receive payment in cash. To elect cash payment, you must notify the Funds in writing prior to the date of the distribution. Your election will be effective for dividends and distributions paid after the Funds receive your written notice. To cancel your election, simply send the Funds written notice. TAXES PLEASE CONSULT YOUR TAX ADVISOR REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL, STATE AND LOCAL INCOME TAXES. Below the Funds have summarized some important tax issues that affect the Funds and their shareholders. This summary is based on current tax laws, which may change. Each Fund will distribute substantially all of its net investment income and its net realized capital gains, if any, at least annually. The dividends and distributions you receive may be subject to federal, state and local taxation, depending upon your tax situation. Distributions you receive from a Fund may be taxable whether or not you reinvest them. Income distributions are generally taxable at ordinary income tax rates and will not qualify for the reduced tax rates applicable to qualified dividend income. Capital gains distributions are generally taxable at the rates applicable to long-term capital gains. Long-term capital gains are currently taxed at a maximum rate of 15%. Absent further legislation, the maximum rate of 15% on long-term capital gains will cease to apply to taxable years beginning after December 31, 2010. EACH SALE OR EXCHANGE OF FUND SHARES MAY BE A TAXABLE EVENT. FOR TAX PURPOSES, AN EXCHANGE OF YOUR FUND SHARES FOR SHARES OF ANOTHER STI CLASSIC FUND IS THE SAME AS A SALE. Each Fund will inform you of the amount of your ordinary income dividends, qualified dividend income, and capital gain distributions shortly after the close of each calendar year. If you have a tax-advantaged or other retirement account you will generally not be subject to federal taxation on income and capital gain distributions until you begin receiving your distributions from your retirement account. You should consult your tax advisor regarding the rules governing your own retirement plan. The Funds expect to distribute primarily ordinary income dividends taxable at the maximum rate of 35%. MORE INFORMATION ABOUT TAXES IS IN THE STATEMENT OF ADDITIONAL INFORMATION. STI CLASSIC FUNDS INVESTMENT ADVISER Trusco Capital Management, Inc. 50 Hurt Plaza Suite 1400 Atlanta, Georgia 30303 More information about the STI Classic Funds is available without charge through the following: STATEMENT OF ADDITIONAL INFORMATION (SAI) The SAI includes detailed information about the STI Classic Funds. The SAI is on file with the SEC and is incorporated by reference into this prospectus. This means that the SAI, for legal purposes, is a part of this prospectus. ANNUAL AND SEMI-ANNUAL REPORTS These reports list each Fund's holdings and contain information from the Funds' managers about strategies and recent market conditions and trends and their impact on Fund performance. The reports also contain detailed financial information about the Funds. TO OBTAIN AN SAI, ANNUAL OR SEMI-ANNUAL REPORT, OR MORE INFORMATION: TELEPHONE: 1-888-STI-FUND MAIL: STI Classic Funds BISYS Fund Services, Limited Partnership 3435 Stelzer Road Columbus, Ohio 43219 WEBSITE: www.sticlassicfunds.com SEC: You can also obtain the SAI or the Annual and Semi-Annual reports, as well as other information about the STI Classic Funds, from the EDGAR Database on the SEC's website ("http://www.sec.gov"). You may review and copy documents at the SEC Public Reference Room in Washington, DC (for information on the operation of the Public Reference Room, call 202-942-8090). You may request documents by mail from the SEC, upon payment of a duplicating fee, by writing to: Securities and Exchange Commission, Public Reference Section, Washington, DC 20549-0102. You may also obtain this information, upon payment of a duplicating fee, by emailing the SEC at the following address: publicinfo@sec.gov. The STI Classic Funds' Investment Company Act registration number is 811-06557. STATEMENT OF ADDITIONAL INFORMATION STI CLASSIC FUNDS AUGUST 1, 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 STI Classic Funds (the "Trust") and should be read in conjunction with the Trust's prospectuses dated August 1, 2006, as may be supplemented from time to time. This SAI relates to each class of the following series of the Trust (each a "Fund" and collectively, the "Funds"):
A SHARES B SHARES C SHARES I SHARES -------- -------- -------- -------- EQUITY FUNDS Aggressive Growth Stock Fund X X X Capital Appreciation Fund X X X Emerging Growth Stock Fund X X X International Equity Fund X X X International Equity Index Fund X X X Large Cap Quantitative Equity Fund (formerly, X X X Strategic Quantitative Equity Fund) Large Cap Relative Value Fund X X X Large Cap Value Equity Fund X X X Mid-Cap Equity Fund X X X Mid-Cap Value Equity Fund X X X Quality Growth Stock Fund X X X Small Cap Growth Stock Fund X X X Small Cap Quantitative Equity Fund X X X Small Cap Value Equity Fund X X X TAXABLE BOND FUNDS Core Bond Fund X X X High Income Fund X X X High Quality Bond Fund X Intermediate Bond Fund X X X Investment Grade Bond Fund X X X Limited Duration Fund X Limited-Term Federal Mortgage Securities Fund X X X Seix Floating Rate High Income Fund X X Seix High Yield Fund X X X
A SHARES B SHARES C SHARES I SHARES -------- -------- -------- -------- Short-Term Bond Fund X X X Short-Term U.S. Treasury Securities Fund X X X Strategic Income Fund X X X Total Return Bond Fund X U.S. Government Securities Fund X X X U.S. Government Securities Ultra-Short Bond Fund X Ultra-Short Bond Fund X TAX-EXEMPT BOND FUNDS Florida Tax-Exempt Bond Fund X X X Georgia Tax-Exempt Bond Fund X X X Investment Grade Tax-Exempt Bond Fund X X X Maryland Municipal Bond Fund X X X North Carolina Tax-Exempt Bond Fund X X X Virginia Intermediate Municipal Bond Fund X X X MONEY MARKET FUNDS Prime Quality Money Market Fund X X X Tax-Exempt Money Market Fund X X U.S. Government Securities Money Market Fund X X U.S. Treasury Money Market Fund X X Virginia Tax-Free Money Market Fund X X ASSET ALLOCATION FUNDS Balanced Fund X X X Life Vision Aggressive Growth Fund X X X X Life Vision Conservative Fund X X X X Life Vision Growth and Income Fund X X X X Life Vision Moderate Growth Fund X X X X Life Vision Target Date 2015 Fund X X X Life Vision Target Date 2025 Fund X X X Life Vision Target Date 2035 Fund X X X
The Equity Funds and Asset Allocation Funds are collectively referred to herein as "Equity Funds" and the Bond Funds and the Tax-Exempt Bond Funds are collectively referred to herein as the "Fixed Income Funds." This SAI is incorporated by reference into the Trust's prospectuses. 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. TABLE OF CONTENTS THE TRUST ....................................... 1 DESCRIPTION OF PERMITTED INVESTMENTS ............ 1 INVESTMENT LIMITATIONS .......................... 33 THE ADVISER ..................................... 35 THE SUBADVISER .................................. 40 THE ADMINISTRATOR ............................... 41 THE PORTFOLIO MANAGERS .......................... 45 THE DISTRIBUTOR ................................. 53 THE TRANSFER AGENT .............................. 66 THE CUSTODIAN ................................... 66 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ... 66 LEGAL COUNSEL ................................... 66 TRUSTEES AND OFFICERS OF THE TRUST .............. 66 PURCHASING AND REDEEMING SHARES ................. 71 DETERMINATION OF NET ASSET VALUE ................ 74 TAXES ........................................... 75 FUND TRANSACTIONS ............................... 80 PORTFOLIO TURNOVER RATE ......................... 90 PORTFOLIO HOLDINGS .............................. 92 DESCRIPTION OF SHARES ........................... 93 VOTING RIGHTS ................................... 93 SHAREHOLDER LIABILITY ........................... 94 LIMITATION OF TRUSTEES' LIABILITY ............... 94 CODES OF ETHICS ................................. 94 PROXY VOTING .................................... 94 5% AND 25% SHAREHOLDERS ......................... 95 FINANCIAL STATEMENTS ............................ 95 APPENDIX A - DESCRIPTION OF RATINGS ............. A-1 APPENDIX B - PROXY VOTING SUMMARIES ............. B-1
THE TRUST Each Fund is a separate series of the Trust, an open-end management investment company established under Massachusetts law as a Massachusetts business trust under a Declaration of Trust dated January 15, 1992. The Declaration of Trust permits the Trust to offer separate series (each a "Fund" and collectively, the "Funds") of units of beneficial interest ("shares") and different classes of shares of each Fund. The Trust reserves the right to create and issue shares of additional funds and/or classes. Each Fund, except the Maryland Municipal Bond Fund, North Carolina Tax-Exempt Bond Fund, Seix Floating Rate High Income Fund and the Virginia Intermediate Municipal Bond 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 Funds' respective investment objectives and principal investment strategies are described in the prospectuses. The following information supplements, and should be read in conjunction with, the prospectuses. Following are descriptions of the permitted investments and investment practices discussed in the Funds' 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 Funds' stated investment policies. AMERICAN DEPOSITARY RECEIPTS (ADRS), EUROPEAN DEPOSITARY RECEIPTS (EDRS) AND GLOBAL DEPOSITARY RECEIPTS (GDRS). ADRs, EDRs, and GDRs are securities, typically issued by a U.S. financial institution or a non-U.S. financial institution in the case of an EDR or GDR (a "depositary"). The institution has ownership interests in a security, or a pool of securities, issued by a foreign issuer and deposited with the depositary. ADRs, EDRs and GDRs may be available through "sponsored" or "unsponsored" facilities. A sponsored facility is established jointly by the issuer of the security underlying the receipt and a depositary. An unsponsored facility may be established by a depositary without participation by the issuer of the underlying security. Holders of unsponsored depositary receipts generally bear all the costs of the unsponsored facility. The depositary of an unsponsored facility frequently is under no obligation to distribute shareholder communications received from the issuer of the deposited security or to pass through, to the holders of the receipts, voting rights with respect to the deposited securities. ACQUISITIONAL/EQUIPMENT LINES (DELAYED-DRAW TERM LOANS). Acquisitional/equipment lines (delayed-draw term loans) are credits that may be drawn down for a given period to purchase specified assets or equipment of to make acquisitions. The issuer pays a fee during the commitment period (a ticking fee). The lines are then repaid over a specified period (the term-out period). Repaid amounts may not be re-borrowed. To avoid any leveraging concerns, the Fund will segregate or earmark liquid assets with the Fund's custodian in an amount sufficient to cover its repurchase obligations. 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 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. 1 Asset-backed securities that are backed by a single type of asset are pooled together by asset type for purposes of calculating a 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 also is the possibility that recoveries on repossessed collateral may not, in some cases, be available to support payments on those securities. Asset-backed securities entail prepayment risk, which may vary depending on the type of asset, but is generally less than the prepayment risk associated with mortgage-backed securities. In addition, credit card receivables are unsecured obligations of the card holder. BORROWING. As required by the 1940 Act, a Fund must maintain continuous asset coverage (total assets, including assets acquired with borrowed funds, less liabilities exclusive of borrowings) of 300% of all amounts borrowed. If, at any time, the value of the Fund's assets should fail to meet this 300% coverage test, the Fund, within three days (not including Sundays and holidays), will reduce the amount of the Fund's borrowings to the extent necessary to meet this 300% coverage. Maintenance of this percentage limitation may result in the sale of portfolio securities at a time when investment considerations otherwise indicate that it would be disadvantageous to do so. In addition to the foregoing, the Funds are authorized to borrow money as a temporary measure for extraordinary or emergency purposes in amounts not in excess of 5% of the value of a Fund's total assets. This borrowing is not subject to the foregoing 300% asset coverage requirement. The Funds are authorized to pledge portfolio securities as the Adviser deems appropriate in connection with any borrowings. Borrowing may subject the Funds to interest costs, which may exceed the interest received on the securities purchased with the borrowed funds. The Funds may borrow at times to meet redemption requests rather than sell portfolio securities to raise the necessary cash. Borrowing can involve leveraging when securities are purchased with the borrowed money. BRADY BONDS. A Brady Bond is a U.S. dollar denominated bond issued by an emerging market, particularly those in Latin America, and collateralized by U.S. Treasury zero-coupon bonds. In the event of a default on collateralized Brady Bonds for which obligations are accelerated, the collateral for the payment of principal will not be distributed to investors, nor will such obligations be sold and the proceeds distributed. The collateral will be held by the collateral agent to the scheduled maturity of the defaulted Brady Bonds, which will continue to be outstanding, at which time the face amount of the collateral will equal the principal payments which would have then been due on the Brady Bonds in the normal course. 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 nonconvertible debt of the issuer. Convertible bonds generally carry 2 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 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. A 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 a Fund sells the security becomes insolvent, the Fund's right to repurchase the security may be restricted. Other risks involved in entering into dollar rolls include the risk that the value of the security may change adversely over the term of the dollar roll and that the security the Fund is required to repurchase may be worth less than the security that the Fund originally held. To avoid any leveraging concerns, the Fund will segregate or earmark liquid assets with the Fund's custodian in an amount sufficient to cover its repurchase obligations. 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 a fund invests will cause the net asset value of a fund to fluctuate. The Funds purchase equity securities traded in the U.S. or foreign countries on securities exchanges or the over-the-counter market. Equity securities are described in more detail below: 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 a fund is called for redemption or conversion, the fund could be required to tender it for redemption, convert it into the underlying common stock, or sell it to a third-party. 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. SMALL AND MEDIUM CAPITALIZATION ISSUERS. Generally, capitalization or market capitalization is a measure of a company's 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. 4 EQUITY-LINKED SECURITIES. A Fund may invest in equity-linked securities, including, among others, PERCS, ELKS or LYONs, which are securities that are convertible into, or the value of which is based upon the value of, equity securities upon certain terms and conditions. The amount received by an investor at maturity of such securities is not fixed but is based on the price of the underlying common stock. It is impossible to predict whether the price of the underlying common stock will rise or fall. Trading prices of the underlying common stock will be influenced by the issuer's operational results, by complex, interrelated political, economic, financial or other factors affecting the capital markets, the stock exchanges on which the underlying common stock is traded and the market segment of which the issuer is a part. In addition, it is not possible to predict how equity-linked securities will trade in the secondary market. The market for such securities may be shallow, and high volume trades may be possible only with discounting. In addition to the foregoing risks, the return on such securities depends on the creditworthiness of the issuer of the securities, which may be the issuer of the underlying securities or a third-party investment banker or other lender. The creditworthiness of such third-party issuer equity-linked securities may, and often does, exceed the creditworthiness of the issuer of the underlying securities. The advantage of using equity-linked securities over traditional equity and debt securities is that the former are income producing vehicles that may provide a higher income than the dividend income on the underlying equity securities while allowing some participation in the capital appreciation of the underlying equity securities. Another advantage of using equity-linked securities is that they may be used for hedging to reduce the risk of investing in the generally more volatile underlying equity securities. The following are three examples of equity-linked securities. A Fund may invest in the securities described below or other similar equity-linked securities. 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. 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 six times 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, a 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 5 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. A 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 a 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, DIAMONDS(SM), NASDAQ 100 Index Tracking Stock(SM) ("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. Coupons may be fixed or adjustable, based on a pre-set formula. The market value of fixed income investments may change in response to interest rate changes and other factors. During periods of falling interest rates, the values of outstanding fixed income securities generally rise. Conversely, during periods of rising interest rates, the values of such securities generally decline. Moreover, while securities with longer maturities tend to produce higher yields, the prices of longer maturity securities are also subject to greater market fluctuations as a result of changes in interest rates. Changes by recognized agencies in the rating of any fixed income security and in the ability of an issuer to make payments of interest and principal will also affect the value of these investments. Changes in the value of portfolio securities will not affect cash income derived from these securities but will affect a 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 6 value due to changes in exchange rates, or the adoption of other foreign governmental restrictions which might adversely affect the payment of principal and interest on such obligations. These investments may also entail higher custodial fees and sales commissions than domestic investments. Foreign issuers of securities or obligations are often subject to accounting treatment and engage in business practices different from those respecting domestic issuers of similar securities or obligations. Foreign branches of U.S. banks and foreign banks may be subject to less stringent reserve requirements than those applicable to domestic branches of U.S. banks. In making investment decisions for the Funds, the Adviser evaluates the risks associated with investing Fund assets in a particular country, including risks stemming from a country's financial infrastructure and settlement practices; the likelihood of expropriation, nationalization or confiscation of invested assets; prevailing or developing custodial practices in the country; the country's laws and regulations regarding the safekeeping, maintenance and recovery of invested assets, the likelihood of government-imposed exchange control restrictions which could impair the liquidity of Fund assets maintained with custodians in that country, as well as risks from political acts of foreign governments ("country risks"). Of course, the Adviser cannot assure that the Fund will not suffer losses resulting from investing in foreign countries. Holding Fund assets in foreign countries through specific foreign custodians presents additional risks, including but not limited to the risks that a particular foreign custodian or depository will not exercise proper care with respect to Fund assets or will not have the financial strength or adequate practices and procedures to properly safeguard Fund assets. By investing in foreign securities, the Funds attempt to take advantage of differences between both economic trends and the performance of securities markets in the various countries, regions and geographic areas as prescribed by each Fund's investment objective and policies. During certain periods the investment return on securities in some or all countries may exceed the return on similar investments in the United States, while at other times the investment return may be less than that on similar U.S. securities. The international investments of a 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 a Fund's investments in one foreign market represented in its portfolio may offset potential gains from the Fund's investments in another country's markets. Emerging countries are all countries that are considered to be developing or emerging countries by the World Bank or the International Finance Corporation, as well as countries classified by the United Nations or otherwise regarded by the international financial community as developing. FORWARD FOREIGN CURRENCY CONTRACTS. Forward foreign currency contracts involve obligations to purchase or sell a specific currency amount at a future date, agreed upon by the parties, at a price set at the time of the contract. A Fund may also enter into a contract to sell, for a fixed amount of U.S. dollars or other appropriate currency, the amount of foreign currency approximating the value of some or all of the Fund's securities denominated in the foreign currency. A Fund may realize a gain or loss from currency transactions. FUTURES AND OPTIONS ON FUTURES. Futures contracts provide for the future sale by one party and purchase by another party of a specified amount of a specific security at a specified future time and at a specified price. An option on a futures contract gives the purchaser the right, in exchange for a premium, to assume a position in a futures contract at a specified exercise price during the term of the option. A Fund will reduce the risk that it will be unable to close out a futures contract by only entering into futures contracts that are traded on a national futures exchange regulated by the Commodities Futures Trading Commission ("CFTC"). A 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 a 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 each Fund, has filed a notice of eligibility for exclusion from the definition of the term "commodity pool operator" in accordance 7 with Rule 4.5 and therefore, no Fund is 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 a Fund purchases or sells a futures contract, or sells an option thereon, the Fund is required to "cover" its position in order to limit leveraging and related risks. A long position is established when the Adviser purchases a stock outright and a short position is established when the Adviser sells a security that it has borrowed. To cover its position, a Fund will segregate or earmark liquid assets with the Fund's custodian that, when added to any amounts deposited with a futures commission merchant as margin, are equal to the market value of the futures contract or otherwise "cover" its position in a manner consistent with the 1940 Act or the rules and Securities and Exchange Commission (the "SEC"), interpretations thereunder. The segregated account functions as a practical limit on the amount of leverage which the Fund may undertake and on the potential increase in the speculative character of the Fund's outstanding portfolio securities. Additionally, such segregated accounts will generally assure the availability of adequate funds to meet the obligations of the fund arising from such investment activities. A Fund may also cover its long position in a futures contract by purchasing a put option on the same futures contract with a strike price (i.e., an exercise price) as high 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. A Fund may also cover its long position in a futures contract by taking a short position in the instruments underlying the futures contract, or by taking positions in instruments with prices, which are expected to move relatively consistently with the futures contract. A Fund may cover its short position in a futures contract by taking a long position in the instruments underlying the futures contracts, or by taking positions in instruments with prices, which are expected to move relatively consistently with the futures contract. A Fund may cover its sale of a call option on a futures contract by taking a long position in the underlying futures contract at a price less than or equal to the strike price of the call option. In the alternative, if the long position in the underlying futures contract is established at a price greater than the strike price of the written (sold) call, the Fund will maintain in a segregated account cash or liquid securities equal in value to the difference between the strike price of the call and the price of the futures contract. A Fund may also cover its sale of a call option by taking positions in instruments with prices which are expected to move relatively consistently with the call option. A Fund may cover its sale of a put option on a futures contract by taking a short position in the underlying futures contract at a price greater than or equal to the strike price of the put option, or, if the short position in the underlying futures contract is established at a price less than the strike price of the written put, the fund will maintain in a segregated account cash or liquid securities equal in value to the difference between the strike price of the put and the price of the futures contract. A Fund may also cover its sale of a put option by taking positions in instruments with prices, which are expected to move relatively consistently with the put option. There are significant risks associated with a Fund's use of futures contracts and related options, including the following: (1) the success of a hedging strategy may depend on the Adviser's ability to predict movements in the prices of individual securities, fluctuations in markets and movements in interest rates, (2) there may be an imperfect or no correlation between the changes in market value of the securities held by the Fund and the prices of futures and options on futures, (3) there may not be a liquid secondary market for a futures contract or option, (4) trading restrictions or limitations may be imposed by an exchange, and (5) government regulations may restrict trading in futures contracts and options on futures. In addition, some strategies reduce a Fund's exposure to price fluctuations, while others tend to increase its market exposure. 8 GUARANTEED INVESTMENT CONTRACTS (GICS). A GIC is a general obligation of the issuing insurance company and not a separate account. The purchase price paid for a GIC becomes part of the general assets of the issuer, and the contract is paid at maturity from the general assets of the issuer. Generally, GICs are not assignable or transferable without the permission of the issuing insurance company. For this reason, an active secondary market in GICs does not currently exist and GICs are considered to be illiquid investments. HEDGING TECHNIQUES. Hedging is an investment strategy designed to offset investment risks. Hedging activities include, among other things, the use of options and futures. There are risks associated with hedging activities, including: (i) the success of a hedging strategy may depend on an ability to predict movements in the prices of individual securities, fluctuations in markets, and movements in interest rates; (ii) there may be an imperfect or no correlation between the changes in market value of the securities held by a Fund and the prices of futures and option on futures; (iii) there may not be a liquid secondary market for a futures contract or option; and (iv) trading restrictions or limitations may be imposed by an exchange, and government regulations may restrict trading in futures contracts and options. HIGH YIELD SECURITIES. High yield securities, commonly referred to as junk bonds, are debt obligations rated below investment grade, i.e., below BBB by Standard & Poor's Ratings Group ("S&P") or Baa by Moody's Investors Service, Inc. ("Moody's"), or their unrated equivalents. The risks associated with investing in high yield securities include: 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 a Fund to sell these securities at their fair market values either to meet redemption requests, or in response to changes in the economy or the financial markets. 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 a 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 9 principal or interest when due may result in the cancellation of such third parties' commitments to lend funds, which may further impair the obligor's ability or willingness to timely service its debts. ILLIQUID SECURITIES. Illiquid securities are securities that cannot be sold or disposed of in the ordinary course of business (within seven days) at approximately the prices at which they are valued. Because of their illiquid nature, illiquid securities must be priced at fair value as determined in good faith pursuant to procedures approved by the Trust's Board of Trustees. Despite such good faith efforts to determine fair value prices, a Fund's illiquid securities are subject to the risk that the security's fair value price may differ from the actual price, which the Fund may ultimately realize upon its sale or disposition. Difficulty in selling illiquid securities may result in a loss or may be costly to a Fund. Under the supervision of the Trust's Board of Trustees, the Adviser determines the liquidity of a Fund's investments. In determining the liquidity of a Fund's investments, the Adviser may consider various factors, including (1) the frequency and volume of trades and quotations, (2) the number of dealers and prospective purchasers in the marketplace, (3) dealer undertakings to make a market, and (4) the nature of the security and the market in which it trades (including any demand, put or tender features, the mechanics and other requirements for transfer, any letters of credit or other credit enhancement features, any ratings, the number of holders, the method of soliciting offers, the time required to dispose of the security, and the ability to assign or offset the rights and obligations of the security). A Fund will not invest more than 15% of its net assets (10% with respect to the Prime Quality Money Market Fund, Tax-Exempt Money Market Fund, U.S. Government Securities Money Market Fund, U.S. Treasury Money Market Fund and Virginia Tax-Exempt Money Market Fund) in illiquid securities. INVERSE FLOATERS. A Fund may invest in municipal securities whose interest rated bear an inverse relationship to the interest rate on another security or the value of an index ("Inverse Floaters"). An investment in Inverse Floaters may involve greater risk than an investment in a fixed rate bond. Because changes in the interest rate on the other security or index inversely affect the residual interest paid on the Inverse Floater, the value and income of an inverse floater is generally more volatile than that of a fixed rate bond. Inverse Floaters have varying degrees of liquidity, and the market for these securities is relatively volatile. These securities tend to underperform the market for fixed rate bonds in a rising interest rate environment, but tend to outperform the market for fixed rate bonds when interest rates decline. INVESTMENT COMPANY SHARES. The Funds may invest in shares of other investment companies, to the extent permitted by applicable law and subject to certain restrictions. These investment companies typically incur fees that are separate from those fees incurred directly by the Funds. The Funds' purchase of such investment company securities results in the layering of expenses, such that shareholders would indirectly bear a proportionate share of the operating expenses of such investment companies, including advisory fees, in addition to paying the Funds' expenses. Under applicable regulations, unless an exception is available, the Funds are prohibited from acquiring the securities of another investment company if, as a result of such acquisition: (1) the Funds own more than 3% of the total voting stock of the other company; (2) securities issued by any one investment company represent more than 5% of the Funds' total assets; or (3) securities (other than treasury stock) issued by all investment companies represent more than 10% of the total assets of the Funds. For hedging or other purposes, each 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, each 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. 10 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 Funds. INVESTMENT GRADE OBLIGATIONS. Investment grade obligations are fixed income obligations rated by one or more of the rating agencies in one of the four highest rating categories at the time of purchase (e.g., AAA, AA, A or BBB by S&P or Fitch, Inc. ("Fitch"), or Aaa, Aa, A or Baa by Moody's or determined to be of equivalent quality by the Adviser). Securities rated BBB or Baa represent the lowest of four levels of investment grade obligations and are regarded as borderline between sound obligations and those in which the speculative element begins to predominate. Ratings assigned to fixed income securities represent only the opinion of the rating agency assigning the rating and are not dispositive of the credit risk associated with the purchase of a particular fixed income obligation. A 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. LEVERAGED BUYOUTS. The Funds 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. 11 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. Each 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 U.S. government agencies and government-sponsored entities, such as Government National Mortgage Association ("GNMA"), Federal National Mortgage Association ("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"), commercial banks, savings and loan associations, mortgage banks, or by issuers that are affiliates of or sponsored by such entities. The payment of interest and principal on mortgage-backed obligations issued by these entities may be guaranteed by the full faith and credit of the U.S. government (in the case of GNMA), or may be guaranteed by the issuer (in the case of FNMA and MHLMC). However, these guarantees do not apply to the market prices and yields of these securities, which vary with changes in interest rates. Obligations of GNMA are backed by the full faith and credit of the U.S. Government. Obligations of Fannie Mae and FHLMC are not backed by the full faith and credit of the U.S. Government, but are considered to be of high quality since they are considered to be instrumentalities of the United States. 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 multiclass 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 12 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. 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 13 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. 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 generally must be rated investment grade by at least one national securities rating agency or, if not rated, must be deemed by the Adviser to essentially have characteristics similar to those of bonds having the above rating. Bonds downgraded to below investment grade may continue to be held at the discretion of the Fund's Adviser. 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 14 financial strength of the writers where adequate current financial information is not available. In the event that any writer is unable to honor a put for financial reasons, the affected Fund would be a general creditor (i.e., on parity with all other unsecured creditors) of the writer. Furthermore, particular provisions of the contract between a Fund and the writer may excuse the writer from repurchasing the securities in certain circumstances (for example, a change in the published rating of the underlying municipal securities or any similar event that has an adverse effect on the issuer's credit); or a provision in the contract may provide that the put will not be exercised except in certain special cases, for example, to maintain portfolio liquidity. A Fund could, however, sell the underlying portfolio security in the open market or wait until the portfolio security matures, at which time it should realize the full par value of the security. Municipal securities purchased subject to a put may be sold to third persons at any time, even though the put is outstanding, but the put itself, unless it is an integral part of the security as originally issued, may not be marketable or otherwise assignable. Sale of the securities to third parties or lapse of time with the put unexercised may terminate the right to put the securities. Prior to the expiration of any put option, a Fund could seek to negotiate terms for the extension of such an option. If such a renewal cannot be negotiated on terms satisfactory to a Fund, the Fund could, of course, sell the portfolio security. The maturity of the underlying security will generally be different from that of the put. There will be no limit to the percentage of portfolio securities that the Funds may purchase subject to a put. For the purpose of determining the "maturity" of securities purchased subject to an option to put, and for the purpose of determining the dollar-weighted average maturity of the Funds including such securities, the Trust will consider "maturity" to be the first date on which it has the right to demand payment from the writer of the put although the final maturity of the security is later than such date. Other types of tax-exempt instruments, which are permissible investments include floating rate notes. Investments in such floating rate instruments will normally involve industrial development or revenue bonds which provide that the rate of interest is set as a specific percentage of a designated base rate (such as the prime rate) at a major commercial bank, and that the Fund can demand payment of the obligation at all times or at stipulated dates on short notice (not to exceed 30 days) at par plus accrued interest. Such obligations are frequently secured by letters of credit or other credit support arrangements provided by banks. The quality of the underlying credit or of the bank, as the case may be, must, in the Adviser's opinion, be equivalent to the long-term bond or commercial paper ratings stated above. The Adviser will monitor the earning power, cash flow and liquidity ratios of the issuers of such instruments and the ability of an issuer of a demand instrument to pay principal and interest on demand. The Funds may also purchase participation interests in municipal securities (such as industrial development bonds and municipal lease/purchase agreements). A participation interest gives a Fund an undivided interest in the underlying municipal security. If it is unrated, the participation interest will be backed by an irrevocable letter of credit or guarantee of a credit-worthy financial institution or the payment obligations otherwise will be collateralized by U.S. government securities. Participation interests may have fixed, variable or floating rates of interest and may include a demand feature. A participation interest without a demand feature or with a demand feature exceeding seven days may be deemed to be an illiquid security subject to a Fund's investment limitations restricting its purchases of illiquid securities. A Fund may purchase other types of tax-exempt instruments as long as they are of a quality equivalent to the bond or commercial paper ratings stated above. Opinions relating to the validity of municipal securities and to the exemption of interest thereon from federal income tax are rendered by bond counsel to the respective issuers at the time of issuance. Neither the Funds nor the Adviser will review the proceedings relating to the issuance of municipal securities or the basis for such opinions. SENIOR LOANS Structure of Senior Loans. A senior floating rate loan ("Senior Loan") is typically originated, negotiated and structured by a U.S. or foreign commercial bank, insurance company, finance company or other financial institution (the "Agent") for a group of loan investors ("Loan Investors"). The Agent typically administers and enforces the Senior Loan on behalf of the other Loan Investors in the syndicate. In addition, an institution, typically but not always the Agent, holds any collateral on behalf of the Loan Investors. 15 Senior Loans primarily include senior floating rate loans and secondarily senior floating rate debt obligations (including those issued by an asset-backed pool), and interests therein. Loan interests primarily take the form of assignments purchased in the primary or secondary market. Loan interests may also take the form of participation interests in, or novations of a Senior Loan. Such loan interests may be acquired from U.S. or foreign commercial banks, insurance companies, finance companies or other financial institutions who have made loans or are Loan Investors or from other investors in loan interests. The Fund typically purchases "Assignments" from the Agent or other Loan Investors. The purchaser of an Assignment typically succeeds to all the rights and obligations under the Loan Agreement of the assigning Loan Investor and becomes a Loan Investor under the Loan Agreement with the same rights and obligations as the assigning Loan Investor. Assignments may, however, be arranged through private negotiations between potential assignees and potential assignors, and the rights and obligations acquired by the purchaser of an Assignment may differ from, and be more limited than, those held by the assigning Loan Investor. The Fund may invest up to 10% of its total assets in "Participations." Participations by the Fund in a Loan Investor's portion of a Senior Loan typically will result in the Fund having a contractual relationship only with such Loan Investor, not with the borrower. As a result, the Fund may have the right to receive payments of principal, interest and any fees to which it is entitled only from the Loan Investor selling the Participation and only upon receipt by such Loan Investor of such payments from the borrower. In connection with purchasing Participations, the Fund generally will have no right to enforce compliance by the borrower with the terms of the loan agreement, nor any rights with respect to any funds acquired by other Loan Investors through set-off against the borrower and the Fund may not directly benefit from the collateral supporting the Senior Loan in which it has purchased the Participation. As a result, the Fund may assume the credit risk of both the borrower and the Loan Investor selling the Participation. In the event of the insolvency of the Loan Investor selling a Participation, the Fund may be treated as a general creditor of such Loan Investor. The selling Loan Investors and other persons interpositioned between such Loan Investors and the Fund with respect to such Participations will likely conduct their principal business activities in the banking, finance and financial services industries. Persons engaged in such industries may be more susceptible to, among other things, fluctuations in interest rates, changes in the Federal Open Market Committee's monetary policy, governmental regulations concerning such industries and capital raising activities generally, and fluctuations in the financial markets generally. The Fund will only acquire Participations if the Loan Investor selling the Participation, and any other persons interpositioned between the Fund and the Loan Investor, at the time of investment has outstanding debt or deposit obligations rated investment grade (BBB or A-3 or higher by Standard & Poor's Ratings Group ("S&P") or Baa or P-3 or higher by Moody's Investors Service, Inc. ("Moody's") or comparably rated by another nationally recognized rating agency (each a "Rating Agency")) or determined by the investment adviser to be of comparable quality. Securities rated Baa by Moody's have speculative characteristics. Similarly, the Fund will purchase an Assignment or Participation or act as a Loan Investor with respect to a syndicated Senior Loan only where the Agent with respect to such Senior Loan at the time of investment has outstanding debt or deposit obligations rated investment grade or determined by the investment adviser to be of comparable quality. Long-term debt rated BBB by S&P is regarded by S&P as having adequate capacity to pay interest and repay principal and debt rated Baa by Moody's is regarded by Moody's as a medium grade obligation, i.e., it is neither highly protected nor poorly secured. Commercial paper rated A-3 by S&P indicates that S&P believes such obligations exhibit adequate protection parameters but that adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation and issues of commercial paper rated P-3 by Moody's are considered by Moody's to have an acceptable ability for repayment of senior short-term obligations. The effect of industry characteristics and market compositions may be more pronounced. Loan Collateral. In order to borrow money pursuant to a Senior Loan, a borrower will frequently, for the term of the Senior Loan, pledge collateral, including but not limited to, (i) working capital assets, such as accounts receivable and inventory; (ii) tangible fixed assets, such as real property, buildings and equipment; (iii) intangible assets, such as 16 trademarks and patent rights (but excluding goodwill); and/or (iv) security interests in shares of stock of subsidiaries or affiliates. In the case of Senior Loans made to non-public companies, the company's shareholders or owners may provide collateral in the form of secured guarantees and/or security interests in assets that they own. In many instances, a Senior Loan may be secured only by stock in the borrower or its subsidiaries. Collateral may consist of assets that may not be readily liquidated, and there is no assurance that the liquidation of such assets would satisfy a borrower's obligations under a Senior Loan. Certain Fees Paid to the Fund. In the process of buying, selling and holding Senior Loans, the Fund may receive and/or pay certain fees. These fees are in addition to interest payments received and may include facility fees, commitment fees, commissions and prepayment penalty fees. When the Fund buys a Senior Loan it may receive a facility fee and when it sells a Senior Loan it may pay a facility fee. On an ongoing basis, the Fund may receive a commitment fee based on the undrawn portion of the underlying line of credit portion of a Senior Loan. In certain circumstances, the Fund may receive a prepayment penalty fee upon the prepayment of a Senior Loan by a borrower. Other fees received by the Fund may include amendment fees. Borrower Covenants. A borrower must comply with various restrictive covenants contained in a loan agreement or note purchase agreement between the borrower and the holders of the Senior Loan (the "Loan Agreement"). Such covenants, in addition to requiring the scheduled payment of interest and principal, may include restrictions on dividend payments and other distributions to stockholders, provisions requiring the borrower to maintain specific minimum financial ratios, and limits on total debt. In addition, the Loan Agreement may contain a covenant requiring the borrower to prepay the Loan with any free cash flow. Free cash flow is generally defined as net cash flow after scheduled debt service payments and permitted capital expenditures, and includes the proceeds from asset dispositions or sales of securities. A breach of a covenant which is not waived by the Agent, or by the Loan Investors directly, as the case may be, is normally an event of acceleration; i.e., the Agent, or the Loan Investors directly, as the case may be, has the right to call the outstanding Senior Loan. The typical practice of an Agent or a Loan Investor in relying exclusively or primarily on reports from the borrower may involve a risk of fraud by the borrower. In the case of a Senior Loan in the form of a Participation, the agreement between the buyer and seller may limit the rights of the holder to vote on certain changes which may be made to the Loan Agreement, such as waiving a breach of a covenant. However, the holder of the Participation will, in almost all cases, have the right to vote on certain fundamental issues such as changes in principal amount, payment dates and interest rate. Administration Of Loans. In a typical Senior Loan the Agent administers the terms of the Loan Agreement. In such cases, the Agent is normally responsible for the collection of principal and interest payments from the borrower and the apportionment of these payments to the credit of all institutions which are parties to the Loan Agreement. The Fund will generally rely upon the Agent or an intermediate participant to receive and forward to the Fund its portion of the principal and interest payments on the Senior Loan. Furthermore, unless under the terms of a Participation Agreement the Fund has direct recourse against the borrower, the Fund will rely on the Agent and the other Loan Investors to use appropriate credit remedies against the borrower. The Agent is typically responsible for monitoring compliance with covenants contained in the Loan Agreement based upon reports prepared by the borrower. The seller of the Senior Loan usually does, but is often not obligated to, notify holders of Senior Loans of any failures of compliance. The Agent may monitor the value of the collateral and, if the value of the collateral declines, may accelerate the Senior Loan, may give the borrower an opportunity to provide additional collateral or may seek other protection for the benefit of the participants in the Senior Loan. The Agent is compensated by the borrower for providing these services under a Loan Agreement, and such compensation may include special fees paid upon structuring and funding the Senior Loan and other fees paid on a continuing basis. With respect to Senior Loans for which the Agent does not perform such administrative and enforcement functions, the Fund will perform such tasks on its own behalf, although a collateral bank will typically hold any collateral on behalf of the Fund and the other Loan Investors pursuant to the applicable Loan Agreement. A financial institution's appointment as Agent may usually be terminated in the event that it fails to observe the requisite standard of care or becomes insolvent, enters Federal Deposit Insurance Corporation ("FDIC") receivership, 17 or, if not FDIC insured, enters into bankruptcy proceedings. A successor Agent would generally be appointed to replace the terminated Agent, and assets held by the Agent under the Loan Agreement should remain available to holders of Senior Loans. However, if assets held by the Agent for the benefit of the Fund were determined to be subject to the claims of the Agent's general creditors, the Fund might incur certain costs and delays in realizing payment on a Senior Loan, or suffer a loss of principal and/or interest. In situations involving intermediate participants similar risks may arise. Prepayments. Senior Loans can require, in addition to scheduled payments of interest and principal, the prepayment of the Senior Loan from free cash flow, as defined above. The degree to which borrowers prepay Senior Loans, whether as a contractual requirement or at their election, may be affected by general business conditions, the financial condition of the borrower and competitive conditions among Loan Investors, among others. As such, prepayments cannot be predicted with accuracy. Upon a prepayment, either in part or in full, the actual outstanding debt on which the Fund derives interest income will be reduced. However, the Fund may receive both a prepayment penalty fee from the prepaying borrower and a facility fee upon the purchase of a new Senior Loan with the proceeds from the prepayment of the former. Prepayments generally will not materially affect the Fund's performance because the Fund should be able to reinvest prepayments in other Senior Loans that have similar yields (subject to market conditions) and because receipt of such fees may mitigate any adverse impact on the Fund's yield. Other Information Regarding Senior Loans. From time to time the investment adviser and its affiliates may borrow money from various banks in connection with their business activities. Such banks may also sell interests in Senior Loans to or acquire them from the Fund or may be intermediate participants with respect to Senior Loans in which the Fund owns interests. Such banks may also act as Agents for Senior Loans held by the Fund. The Fund may purchase and retain in its portfolio a Senior Loan where the borrower has experienced, or may be perceived to be likely to experience, credit problems, including involvement in or recent emergence from bankruptcy reorganization proceedings or other forms of debt restructuring. Such investments may provide opportunities for enhanced income as well as capital appreciation. At times, in connection with the restructuring of a Senior Loan either outside of bankruptcy court or in the context of bankruptcy court proceedings, the Fund may determine or be required to accept equity securities or junior debt securities in exchange for all or a portion of a Senior Loan. As soon as reasonably practical, the Fund will divest itself of any equity securities or any junior debt securities received if it is determined that the security is an ineligible holding for the Fund. As a matter of policy, the Fund will not consider equity securities to be eligible holdings. The Fund may acquire interests in Senior Loans which are designed to provide temporary or "bridge" financing to a borrower pending the sale of identified assets or the arrangement of longer-term loans or the issuance and sale of debt obligations. Bridge loans are often unrated. The Fund may also invest in Senior Loans of borrowers that have obtained bridge loans from other parties. A borrower's use of bridge loans involves a risk that the borrower may be unable to locate permanent financing to replace the bridge loan, which may impair the borrower's perceived creditworthiness. The Fund will be subject to the risk that collateral securing a loan will decline in value or have no value. Such a decline, whether as a result of bankruptcy proceedings or otherwise, could cause the Senior Loan to be undercollateralized or unsecured. In most credit agreements there is no formal requirement to pledge additional collateral. In addition, the Fund may invest in Senior Loans guaranteed by, or secured by assets of, shareholders or owners, even if the Senior Loans are not otherwise collateralized by assets of the borrower; provided, however, that such guarantees are fully secured. There may be temporary periods when the principal asset held by a borrower is the stock of a related company, which may not legally be pledged to secure a Senior Loan. On occasions when such stock cannot be pledged, the Senior Loan will be temporarily unsecured until the stock can be pledged or is exchanged for or replaced by other assets, which will be pledged as security for the Senior Loan. However, the borrower's ability to dispose of such securities, other than in connection with such pledge or replacement, will be strictly limited for the protection of the holders of Senior Loans and, indirectly, Senior Loans. 18 If a borrower becomes involved in bankruptcy proceedings, a court may invalidate the Fund's security interest in the loan collateral or subordinate the Fund's rights under the Senior Loan to the interests of the borrower's unsecured creditors or cause interest previously paid to be refunded to the borrower. If a court required interest to be refunded, it could negatively affect the Fund's performance. Such action by a court could be based, for example, on a "fraudulent conveyance" claim to the effect that the borrower did not receive fair consideration for granting the security interest in the loan collateral to the Fund. For Senior Loans made in connection with a highly leveraged transaction, consideration for granting a security interest may be deemed inadequate if the proceeds of the Loan were not received or retained by the borrower, but were instead paid to other persons (such as shareholders of the borrower) in an amount which left the borrower insolvent or without sufficient working capital. There are also other events, such as the failure to perfect a security interest due to faulty documentation or faulty official filings, which could lead to the invalidation of the Fund's security interest in loan collateral. If the Fund's security interest in loan collateral is invalidated or the Senior Loan is subordinated to other debt of a borrower in bankruptcy or other proceedings, the Fund would have substantially lower recovery, and perhaps no recovery on the full amount of the principal and interest due on the Loan, or the Fund could also have to refund interest (see the prospectus for additional information). The Fund may acquire warrants and other equity securities as part of a unit combining a Senior Loan and equity securities of a borrower or its affiliates. The acquisition of such equity securities will only be incidental to the Fund's purchase of a Senior Loan. The Fund may also acquire equity securities or debt securities (including non-dollar denominated debt securities) issued in exchange for a Senior Loan or issued in connection with the debt restructuring or reorganization of a borrower, or if such acquisition, in the judgment of the investment adviser, may enhance the value of a Senior Loan or would otherwise be consistent with the Fund's investment policies. Regulatory Changes. To the extent that legislation or state or federal regulators that regulate certain financial institutions impose additional requirements or restrictions with respect to the ability of such institutions to make loans, particularly in connection with highly leveraged transactions, the availability of Senior Loans for investment may be adversely affected. Further, such legislation or regulation could depress the market value of Senior Loans. SPECIAL CONSIDERATIONS RELATING TO MUNICIPAL OBLIGATIONS OF DESIGNATED STATES As described in the prospectuses, except for investments in temporary investments, each Tax-Exempt Bond Fund will invest substantially all of its net assets (at least 80%) in municipal bonds that are exempt from federal and state tax in that state ("Municipal Obligations"), generally Municipal Obligations issued in its respective state. Each Fund is therefore more susceptible to political, economic or regulatory factors adversely affecting issuers of Municipal Obligations in its state. Set forth below is additional information that bears upon the risk of investing in Municipal Obligations issued by public authorities in the states of currently offered Funds. This information was obtained from official statements of issuers located in the respective states as well as from other publicly available official documents and statements. The Funds have not independently verified any of the information contained in such statements and documents. The information below is intended only as a general summary and is not intended as a discussion of any specific factor that may affect any particular obligation or issuer. - FACTORS PERTAINING TO FLORIDA The outlook for the State's general obligation bonds is stable. Florida's financial performance has exceeded expectations over recent years, its economy has continued to strengthen and its debt load, while growing, has remained within the State's debt policy limits. As a result of Florida's fiscally conservative economic policies, Moody's, Fitch and Standard & Poor's, the nation's three major credit rating agencies, all upgraded Florida's bond rating in 2005, with the State receiving the first-ever AAA rating in its history. These ratings reflect the State's credit quality only and do not indicate the creditworthiness of other tax-exempt securities in which 19 the Fund may invest. Furthermore, it cannot be assumed that the State will maintain its current credit ratings. Florida's fiscal conservatism has also yielded the State's largest budget surpluses in history, providing a safety-net for the State to deal with emergencies and invest in Florida's future. From January 2005 to January 2006, Florida added 302,500 new jobs, seasonally adjusted. Florida's January 2006 unemployment rate was 3.0%, 1.7% below the national rate of 4.7%. Florida's unemployment rate is the lowest recorded in the history of the current methodology, which began in 1976. Florida continues to lead the nation in the number of new jobs created and has the fastest rate of annual job growth and the lowest unemployment rate among the 10 most populous states. Governor Bush has made diversifying Florida's economy a top priority for his second term in office, placing particular emphasis on fostering the development of emerging technologies. The Bush/Jennings administration recommended an investment of $630 million to further diversify and strengthen Florida's economy. The proposal includes $200 million for the State's Centers of Excellence program to build and enhance innovation infrastructure, $75 million in tax credits for the new Florida Capital Formation Program, $50 million to expand Florida's Quick Action Closing Fund, $55 million to secure Florida's position as a leader in the Space and Aeronautics industry, and $250 million to create the Florida Innovation Incentive Fund to bring large scale research projects, private sector business or prestigious institutions to the State. - FACTORS PERTAINING TO GEORGIA The State of Georgia ended March 2006 with revenue collections for the fiscal year to date exceeding 2005 levels by 9.6%. The State's fiscal year ended on June 30, 2006. As in 2005, a portion of the anticipated budget surplus will be used to replenish depleted reserves. Revenue growth continues to be paced by corporate income tax receipts, which are up over 44% year to date. Governor Sonny Perdue's $17.4 billion 2006 general fund budget was enacted based on 5% revenue growth over 2005 levels. In a February 2006 report, Moody's Investors Service praised the State's conservative fiscal practices, revenue growth recovery, and well-funded pensions, while acknowledging the State's recent history of financial reporting deficiencies. The State's unemployment rate for March 2006 was 4.5%, 0.2% below the national average of 4.7%. Georgia's general obligation debt continues to carry Aaa/AAA ratings from Moody's, Standard and Poor's and Fitch. These ratings reflect the State's credit quality only and do not indicate the creditworthiness of other tax-exempt securities in which the Fund may invest. Furthermore, it cannot be assumed that the State will maintain its current credit ratings. - FACTORS PERTAINING TO MARYLAND Maryland's economy continues a steady expansion that began after the national recession several years ago. Port of Baltimore activity, proximity to the vibrant Washington D.C. economy, and higher defense and homeland security spending by the Federal Government all benefit the State's 20 economy. Spending by the Federal Government is the primary driver of activity though tourism is growing and is expected to continue at a strong pace. Manufacturing provided only 5.4% of employment in 2005, about one half of the amount that manufacturing represented on a national basis. Promising developments include growth in aerospace, medical research, security and distribution industries. Military base closure and relocation is expected to bring a net increase in related employment in coming years. The unemployment rate was 4.2% for 2005, compared to the national level of 5.1%, while 2004 per capita income at nearly 120% of the national average ranked Maryland the 4th wealthiest State. State revenues began improving in 2004 following two years of weakness. Fiscal 2004 General Fund revenue grew by 9.4% over 2003, including legislative changes, and fiscal 2005 revenue growth was 13.2%. Slower growth is budgeted for 2006, still producing healthy reserves and general fund balances. Revenues are expected to be strong again in 2007, however, spending increases are significant for public and higher education, Medicaid, and a proposal under consideration to begin funding post retirement health benefits which are significant. Maryland's general obligation debt is rated AAA by Moody's, Standard & Poor's and Fitch Ratings. According to Moody's, the State is one of the more heavily indebted States, ranking 17 in 2005 on a per capita basis, however, the ranking is closer to the national median (21st) when debt is compared to the State's high personal income. The State's tax supported debt is limited by the Constitution to 15 year terms, assuring a rapid payout and replenishment of debt capacity. These ratings reflect the State's credit quality only and do not indicate the creditworthiness of other securities in which the Fund may invest. Furthermore, it cannot be assumed that the State will maintain its current credit ratings. - FACTORS PERTAINING TO NORTH CAROLINA North Carolina ended January 2006 with revenue collections for the fiscal year to date exceeding 2005 levels by 10.4%. The State's fiscal year ended on June 30, 2006. Total General Fund revenues currently exceed budget by almost $200 million. Governor Mike Easley's 2005-2006 budget was enacted based on 5.5% revenue growth for fiscal 2006. In a March 2006 report, Moody's Investors Service noted the State's improving economic and financial performance and praised its history of strong financial management, while acknowledging the challenges posed by a structural budget imbalance and rising debt burden. The State's unemployment rate for March 2006 was 4.5%, 0.2% below the national average of 4.7%. North Carolina's general obligation debt carries AAA ratings from Standard and Poor's and Fitch, while Moody's awards a Aa1 rating with a positive outlook. These ratings reflect the State's credit quality only and do not indicate the creditworthiness of other tax-exempt securities in which the Fund may invest. Furthermore, it cannot be assumed that the State will maintain its current credit ratings. - FACTORS PERTAINING TO VIRGINIA Virginia's economy and employment has grown at a pace exceeding the nation in most years with construction, professional and business services, and retail contributing to employment growth. The 21 technology sector employment was affected by the slowdown in the early 2000s but rebounded nicely in 2004 and 2005. The State has lost manufacturing jobs in textiles and furniture, areas hard hit by imports. Federal spending on defense and homeland security has been an important factor in the regional economies of Northern Virginia and Hampton Roads. Numerous tourist attractions add strength and diversity to the economy and Virginia has benefited from above average home price appreciation and below average mortgage delinquencies. The State's unemployment rate was 3.3% in December 2005 compared to the national rate of 4.9%, a relationship that has existed for many years. Similarly, personal income per capita was $36,175 in 2004, the highest in the Southeastern region and 109% of the national average. Personal income growth has exceeded national rates of growth each year since 2001. The 2005-2006 Biennial Budget restored fiscal stability with an increase in the statewide sales tax rate of 1/2 of 1%, combined with spending restraint and a cap on the car tax relief program that was draining State revenues and contributing to a budget that had been structurally out of balance. Revenues grew by 17% in 2005 compared to 2004 and for the fiscal year ending June 30, 2006 General Fund revenue growth of 6.1% was budgeted. Through January revenues were ahead of budget, up 11.2%. It is expected that the State will end the fiscal year with reserve funds at the highest level in history. According to Moody's Investors Service, the State's tax supported debt remains below national averages as measured by debt per capita and debt as a percentage of personal income. Moody's, Standard & Poor's and Fitch Ratings all assign Virginia's general obligation debt a AAA rating. Moody's states that Virginia's credit strengths are its tradition of conservative fiscal management, a diversified economy and low debt burden. These ratings reflect only the State's credit and do not indicate the creditworthiness of all of the securities in which the Funds may invest. Furthermore, it cannot be assumed that these ratings will be maintained. NON-PUBLICLY TRADED SECURITIES; RULE 144A SECURITIES. The Funds may purchase securities that are not registered under the Securities Act of 1933, as amended (the "1933 Act"), but that can be sold to "qualified institutional buyers" in accordance with Rule 144A under the 1933 Act ("Rule 144A Securities"). An investment in Rule 144A Securities will be considered illiquid and therefore subject to the Fund's limitation on the purchase of illiquid securities (usually 15% of a fund's net assets, 10% for the money market funds), unless the Fund's governing Board of Trustees determines on an ongoing basis that an adequate trading market exists for the security. In addition to an adequate trading market, the Board of Trustees will also consider factors such as trading activity, availability of reliable price information and other relevant information in determining whether a Rule 144A Security is liquid. This investment practice could have the effect of increasing the level of illiquidity in the Fund to the extent that qualified institutional buyers become uninterested for a time in purchasing Rule 144A Securities. The Board of Trustees will carefully monitor any investments by the Fund in Rule 144A Securities. The Board of Trustees may adopt guidelines and delegate to the Adviser the daily function of determining and monitoring the liquidity of Rule 144A Securities, although the Board of Trustees will retain ultimate responsibility for any determination regarding liquidity. Non-publicly traded securities (including Rule 144A Securities) may involve a high degree of business and financial risk and may result in substantial losses. These securities may be less liquid than publicly traded securities, and the Fund may take longer to liquidate these positions than would be the case for publicly traded securities. Although these securities may be resold in privately negotiated transactions, the prices realized on such sales could be less than those originally paid by the Fund. Further, companies whose securities are not publicly traded may not be subject to the disclosure and other investor protection requirements applicable to companies whose securities are publicly traded. The Fund's investments in illiquid securities are subject to the risk that should the Fund desire to sell any of these securities when a ready buyer is not available at a price that is deemed to be representative of their value, the value of the 22 Fund's net assets could be adversely affected. OBLIGATIONS OF DOMESTIC BANKS, FOREIGN BANKS AND FOREIGN BRANCHES OF U.S. BANKS. A Fund may invest in obligations issued by banks and other savings institutions. Investments in bank obligations include obligations of domestic branches of foreign banks and foreign branches of domestic banks. Such investments in domestic branches of foreign banks and foreign branches of domestic banks may involve risks that are different from investments in securities of domestic branches of U.S. banks. These risks may include future unfavorable political and economic developments, possible withholding taxes on interest income, seizure or nationalization of foreign deposits, currency controls, interest limitations, or other governmental restrictions which might affect the payment of principal or interest on the securities held by a Fund. Additionally, these institutions may be subject to less stringent reserve requirements and to different accounting, auditing, reporting and recordkeeping requirements than those applicable to domestic branches of U.S. banks. The Funds may invest in U.S. dollar-denominated obligations of domestic branches of foreign banks and foreign branches of domestic banks only when the Adviser believes that the risks associated with such investment are minimal and that all applicable quality standards have been satisfied. Bank obligations include the following: - 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 Funds will not purchase obligations issued by the Adviser or its affiliates. OPTIONS. A Fund may purchase and write put and call options on securities or securities indices (traded on U.S. exchanges or over-the-counter markets) and enter into related closing transactions. A put option on a security gives the purchaser of the option the right to sell, and the writer of the option the obligation to buy, the underlying security at any time during the option period. A call option on a security gives the purchaser of the option the right to buy, and the writer of the option the obligation to sell, the underlying security at any time during the option period. The premium paid to the writer is the consideration for undertaking the obligations under the option contract. Put and call options on indices are similar to options on securities except that options on an index give the holder the right to receive, upon exercise of the option, an amount of cash if the closing level of the underlying index is greater than (or less than, in the case of puts) the exercise price of the option. This amount of cash is equal to the difference between the closing price of the index and the exercise price of the option, expressed in dollars multiplied by a specified number. Thus, unlike options on individual securities, all settlements are in cash, and gain or loss depends on price movements in the particular market represented by the index generally, rather than the price movements in individual securities. The initial purchase (sale) of an option contract is an "opening transaction." In order to close out an option position, a Fund may enter into a "closing transaction," which is simply the sale (purchase) of an option contract on the same security with the same exercise price and expiration date as the option contract originally opened. If a Fund is unable 23 to effect a closing purchase transaction with respect to an option it has written, it will not be able to sell the underlying security until the option expires or the Fund delivers the security upon exercise. A Fund may purchase and write options on an exchange or over-the-counter. Over-the-counter options ("OTC options") differ from exchange-traded options in several respects. They are transacted directly with dealers and not with a clearing corporation, and therefore entail the risk of non-performance by the dealer. OTC options are available for a greater variety of securities and for a wider range of expiration dates and exercise prices than are available for exchange-traded options. Because OTC options are not traded on an exchange, pricing is done normally by reference to information from a market maker. It is the SEC's position that OTC options are generally illiquid. The market value of an option generally reflects the market price of an underlying security. Other principal factors affecting market value include supply and demand, interest rates, the pricing volatility of the underlying security and the time remaining until the expiration date. A Fund must cover all options it writes. For example, when a Fund writes an option on a security, index or foreign currency, it will segregate or earmark liquid assets with the Fund's custodian in an amount at least equal to the market value of the option and will maintain such coverage while the option is open. A Fund may otherwise cover the transaction by means of an offsetting transaction or other means permitted by the 1940 Act or the rules and SEC interpretations thereunder. Each Fund may trade put and call options on securities, securities indices or currencies, as the investment adviser or sub-adviser determines is appropriate in seeking the Fund's investment objective. For example, a Fund may purchase put and call options on securities or indices to protect against a decline in the market value of the securities in its portfolio or to anticipate an increase in the market value of securities that the Fund may seek to purchase in the future. A Fund purchasing put and call options pays a premium therefor. If price movements in the underlying securities are such that exercise of the options would not be profitable for the Fund, loss of the premium paid may be offset by an increase in the value of the Fund's securities or by a decrease in the cost of acquisition of securities by the Fund. In another instance, a Fund may write covered call options on securities as a means of increasing the yield on its assets and as a means of providing limited protection against decreases in its market value. When a Fund writes an option, if the underlying securities do not increase or decrease to a price level that would make the exercise of the option profitable to the holder thereof, the option generally will expire without being exercised and the Fund will realize as profit the premium received for such option. When a call option written by the Fund is exercised, the Fund will be required to sell the underlying securities to the option holder at the strike price, and will not participate in any increase in the price of such securities above the strike price. When a put option written by the Fund is exercised, the Fund will be required to purchase the underlying securities at a price in excess of the market value of such securities. There are significant risks associated with a Fund's use of options, including the following: (1) the success of a hedging strategy may depend on the Adviser's ability to predict movements in the prices of individual securities, fluctuations in markets and movements in interest rates; (2) there may be an imperfect or no correlation between the movement in prices of options held by the Fund and the securities underlying them; (3) there may not be a liquid secondary market for options; and (4) while a Fund will receive a premium when it writes covered call options, it may not participate fully in a rise in the market value of the underlying security. OTHER INVESTMENTS. The Funds are not prohibited from investing in bank obligations issued by clients of BISYS Group, Inc., the parent company of the Funds' administrator and distributor. The purchase of Fund shares by these banks or their customers will not be a consideration in deciding which bank obligations the Funds will purchase. The Funds will not purchase obligations issued by the BISYS Group, Inc. 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 24 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 passthrough vehicle for federal income tax purposes. To meet the definitional requirements of the Code, a REIT must, among other things: invest substantially all of its assets in interests in real estate (including mortgages and other REITs), cash and government securities; derive most of its income from rents from real property or interest on loans secured by mortgages on real property; and distribute annually 95% or more of its otherwise taxable income to shareholders. REITs are sometimes informally characterized as Equity REITs and Mortgage REITs. An Equity REIT invests primarily in the fee ownership or leasehold ownership of land and buildings; a Mortgage REIT invests primarily in mortgages on real property, which may secure construction, development or longterm loans. REITs in which a Fund invests may be affected by changes in underlying real estate values, which may have an exaggerated effect to the extent that REITs in which a Fund invests may concentrate investments in particular geographic regions or property types. Additionally, rising interest rates may cause investors in REITs to demand a higher annual yield from future distributions, which may in turn decrease market prices for equity securities issued by REITs. Rising interest rates also generally increase the costs of obtaining financing, which could cause the value of the Fund's investments to decline. During periods of declining interest rates, certain Mortgage REITs may hold mortgages that the mortgagors elect to prepay, which prepayment may diminish the yield on securities issued by such Mortgage REITs. In addition, Mortgage REITs may be affected by the ability of borrowers to repay when due the debt extended by the REIT and Equity REITs may be affected by the ability of tenants to pay rent. Certain REITs have relatively small market capitalization, which may tend to increase the volatility of the market price of securities issued by such REITs. Furthermore, REITs are dependent upon specialized management skills, have limited diversification and are, therefore, subject to risks inherent in operating and financing a limited number of projects. By investing in REITs indirectly through the Fund, a shareholder will bear not only his proportionate share of the expenses of the Fund, but also, indirectly, similar expenses of the REITs. REITs depend generally on their ability to generate cash flow to make distributions to shareholders. In addition to these risks, Equity REITs may be affected by changes in the value of the underlying property owned by the trusts, while Mortgage REITs may be affected by the quality of any credit extended. Further, Equity and Mortgage REITs are dependent upon management skills and generally may not be diversified. Equity and Mortgage REITs are also subject to heavy cash flow dependency defaults by borrowers and self-liquidation. In addition, Equity and Mortgage REITs could possibly fail to qualify for tax free pass-through of income under the Code or to maintain their exemptions from registration under the 1940 Act. The above factors may also adversely affect a borrower's or a lessee's ability to meet its obligations to the REIT. In the event of default by a borrower or lessee, the REIT may experience delays in enforcing its rights as a mortgagee or lessor and may incur substantial costs associated with protecting its investments. 25 REAL ESTATE SECURITIES. A Fund may be subject to the risks associated with the direct ownership of real estate because of its policy of concentration in the securities of companies principally engaged in the real estate industry. For example, real estate values may fluctuate as a result of general and local economic conditions, overbuilding and increased competition, increases in property taxes and operating expenses, demographic trends and variations in rental income, changes in zoning laws, casualty or condemnation losses, regulatory limitations on rents, changes in neighborhood values, related party risks, changes in how appealing properties are to tenants, changes in interest rates and other real estate capital market influences. The value of securities of companies, which service the real estate business sector may also be affected by such risks. Because a Fund may invest a substantial portion of its assets in REITs, a Fund may also be subject to certain risks associated with the direct investments of the REITs. REITs may be affected by changes in the value of their underlying properties and by defaults by borrowers or tenants. Mortgage REITs may be affected by the quality of the credit extended. Furthermore, REITs are dependent on specialized management skills. Some REITs may have limited diversification and may be subject to risks inherent in financing a limited number of properties. REITs depend generally on their ability to generate cash flow to make distributions to shareholders or unitholders, and may be subject to defaults by borrowers and to self-liquidations. In addition, the performance of a REIT may be affected by its failure to qualify for taxfree pass-through of income under the Code or its failure to maintain exemption from registration under the 1940 Act. Changes in prevailing interest rates may inversely affect the value of the debt securities in which a Fund will invest. Changes in the value of portfolio securities will not necessarily affect cash income derived from these securities but will affect a Fund's net asset value. Generally, increases in interest rates will increase the costs of obtaining financing which could directly and indirectly decrease the value of a Fund's investments. REPURCHASE AGREEMENTS. A Fund may enter into repurchase agreements with financial institutions. The Funds each follow certain procedures designed to minimize the risks inherent in such agreements. These procedures include effecting repurchase transactions only with creditworthy financial institutions whose condition will be continually monitored by the Adviser. The repurchase agreements entered into by a Fund will provide that the underlying collateral at all times shall have a value at least equal to 102% of the resale price stated in the agreement. Under all repurchase agreements entered into by a Fund, the custodian or its agent must take possession of the underlying collateral. In the event of a default or bankruptcy by a selling financial institution, a Fund will seek to liquidate such collateral. However, the exercising of each Fund's right to liquidate such collateral could involve certain costs or delays and, to the extent that proceeds from any sale upon a default of the obligation to repurchase were less than the repurchase price, the Fund could suffer a loss. It is the current policy of each of the Funds, not to invest in repurchase agreements that do not mature within seven days if any such investment, together with any other illiquid assets held by that Fund, amounts to more than 15% of the Fund's net assets. The investments of each of the Funds in repurchase agreements, at times, may be substantial when, in the view of the Adviser, liquidity or other considerations so warrant. RESOURCE RECOVERY BONDS. 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. REVERSE REPURCHASE AGREEMENTS. A reverse repurchase agreement is a contract under which a Fund sells a security for cash for a relatively short period (usually not more than one week) subject to the obligation of the Fund to repurchase such security at a fixed time and price (representing the seller's cost plus interest). Reverse repurchase agreements involve the risk that the market value of the securities a Fund is obligated to repurchase under the agreement may decline below the repurchase price. In the event the buyer of securities under a reverse repurchase agreement files for bankruptcy or becomes insolvent, a Fund's use of proceeds of the agreement may be restricted 26 pending a determination by the other party, or its trustee or receiver, whether to enforce the Fund's obligation to repurchase the securities. In addition, reverse repurchase agreements are techniques involving leverage, and are subject to asset coverage requirements. Under the requirements of the 1940 Act, a Fund is required to maintain an asset coverage (including the proceeds of the borrowings) of at least 300% of all borrowings. To avoid any leveraging concerns, the Fund will segregate or earmark liquid assets with the Fund's custodian in an amount sufficient to cover its repurchase obligations. REVOLVING CREDIT FACILITIES ("REVOLVERS"). Revolvers are borrowing arrangements in which the lender agrees to make loans up to a maximum amount upon demand by the borrower during a specified term. As the borrower repays the loan, an amount equal to the repayment may be borrowed again during the term of the Revolver and usually provides for floating or variable rates of interest. These commitments may have the effect of requiring a Fund to increase its investment in a company at a time when it might not otherwise decide to do so (including at a time when the company's financial condition makes it unlikely that such amounts will be repaid). To avoid any leveraging concerns, the Fund will segregate or earmark liquid assets with the Fund's custodian in an amount sufficient to cover its repurchase obligations. A Fund may invest in Revolvers with credit quality comparable to that of issuers of its other investments. Revolvers may be subject to restrictions on transfer, and only limited opportunities may exist to resell such instruments. As a result, a Fund may be unable to sell such investments at an opportune time or may have to resell them at less than fair market value. Each Fund currently intends to treat Revolvers for which there is no readily available market as illiquid for purposes of that Fund's limitation on illiquid investments. RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS. Investments by a money market fund are subject to limitations imposed under regulations adopted by the SEC. Under these regulations, money market funds may acquire only obligations that present minimal credit risk and that are "eligible securities," which means they are (i) rated, at the time of investment, by at least two NRSROs (one if it is the only organization rating such obligation) in the highest rating category or, if unrated, determined to be of comparable quality (a "first tier security"), or (ii) rated according to the foregoing criteria in the second highest rating category or, if unrated, determined to be of comparable quality ("second tier security"). In the case of taxable money market funds, investments in second tier securities are subject to further constraints in that (i) no more than 5% of a money market fund's assets may be invested in second tier securities and (ii) any investment in securities of any one such issuer is limited to the greater of 1% of the money market fund's total assets or $1 million. A taxable money market fund may not purchase securities of any issuer (except securities issued or guaranteed by the U.S. Government, its agencies of instrumentalities) if, as a result, more than 5% of the total assets of the Fund would be invested the securities of one issuer. A taxable money market fund may also hold more than 5% of its assets in first tier securities of a single issuer for three "business days" (that is, any day other than a Saturday, Sunday or customary business holiday). SECURITIES LENDING. Each Fund may lend portfolio securities to brokers, dealers and other financial organizations that meet capital and other credit requirements or other criteria established by the Fund's Board. These loans, if and when made, may not exceed 33 1/3% of the total asset value of the Fund (including the loan collateral). No Fund will lend portfolio securities to its investment adviser, subadviser or their affiliates unless it has applied for and received specific authority to do so from the SEC. Loans of portfolio securities will be fully collateralized by cash, letters of credit or U.S. government securities, and the collateral will be maintained in an amount equal to at least 100% of the current market value of the loaned securities by marking to market daily. Any gain or loss in the market price of the securities loaned that might occur during the term of the loan would be for the account of the Fund. A Fund may pay a part of the interest earned from the investment of collateral, or other fee, to an unaffiliated third party for acting as the Fund's securities lending agent. By lending its securities, a Fund may increase its income by receiving payments from the borrower that reflect the amount of any interest or any dividends payable on the loaned securities as well as by either investing cash collateral received from the borrower in short-term instruments or obtaining a fee from the borrower when U.S. government 27 securities or letters of credit are used as collateral. Each Fund will adhere to the following conditions whenever its portfolio securities are loaned: (i) the Fund must receive at least 100% cash collateral or equivalent securities of the type discussed in the preceding paragraph from the borrower; (ii) the borrower must increase such collateral whenever the market value of the securities rises above the level of such collateral; (iii) the Fund must be able to terminate the loan on demand; (iv) the Fund must receive reasonable interest on the loan, as well as any dividends, interest or other distributions on the loaned securities and any increase in market value; (v) the Fund may pay only reasonable fees in connection with the loan (which fees may include fees payable to the lending agent, the borrower, the Fund's administrator and the custodian); and (vi) voting rights on the loaned securities may pass to the borrower, provided, however, that if a matter comes up for a vote which would have a material effect on a 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 a 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 a Fund's ability to recover the loaned securities or dispose of the collateral for the loan, which could give rise to loss because of adverse market action, expenses and/or delays in connection with the disposition of the underlying securities. SHORT SALES. As consistent with each Fund's investment objective, a Fund may engage in short sales that are either "uncovered" or "against the box." A short sale is "against the box" if at all times during which the short position is open, the Fund owns at least an equal amount of the securities or securities convertible into, or exchangeable without further consideration for, securities of the same issue as the securities that are sold short. A short sale "against-the-box" is a taxable transaction to the Fund with respect to the securities that are sold short. Uncovered short sales are transactions under which a Fund sells a security it does not own. To complete such a transaction, the Fund must borrow the security to make delivery to the buyer. The Fund then is obligated to replace the security borrowed by purchasing the security at the market price at the time of the replacement. The price at such time may be more or less than the price at which the security was sold by the Fund. Until the security is replaced, the Fund is required to pay the lender amounts equal to any dividends or interest that accrue during the period of the loan. To borrow the security, a Fund also may be required to pay a premium, which would increase the cost of the security sold. The proceeds of the short sale will be retained by the broker, to the extent necessary to meet margin requirements, until the short position is closed out. Until a Fund closes its short position or replaces the borrowed security, the Fund will: (a) maintain a segregated account containing cash or liquid securities at such a level that (i) the amount deposited in the account plus the amount deposited with the broker as collateral will equal the current value of the security sold short; and (ii) the amount deposited in the segregated account plus the amount deposited with the broker as collateral will not be less than the market value of the security at the time the security was sold short, or (b) otherwise cover the Fund's short positions. SHORT-TERM OBLIGATIONS. Short-term obligations are debt obligations maturing (becoming payable) in 397 days or less, including commercial paper and short-term corporate obligations. Short-term corporate obligations are short-term obligations issued by corporations. STANDBY COMMITMENTS AND PUTS. The Funds may purchase securities at a price which would result in a yield to maturity lower than that generally offered by the seller at the time of purchase when they can simultaneously acquire the right to sell the securities back to the seller, the issuer or a third-party (the "writer") at an agreed-upon price at any time during a stated period or on a certain date. Such a right is generally denoted as a "standby commitment" or a "put." The purpose of engaging in transactions involving puts is to maintain flexibility and liquidity to permit the Funds to meet redemptions and remain as fully invested as possible in municipal securities. The Funds reserve the right to engage in put transactions. The right to put the securities depends on the writer's ability to pay for the securities at the time the put is exercised. A Fund would limit its put transactions to institutions which the Adviser believes present minimal credit risks, and the Adviser would use its best efforts to initially determine and continue to 28 monitor the financial strength of the sellers of the options by evaluating their financial statements and such other information as is available in the marketplace. It may, however be difficult to monitor the financial strength of the writers because adequate current financial information may not be available. In the event that any writer is unable to honor a put for financial reasons, a Fund would be a general creditor (i.e., on a parity with all other unsecured creditors) of the writer. Furthermore, particular provisions of the contract between the Fund and the writer may excuse the writer from repurchasing the securities; for example, a change in the published rating of the underlying securities or any similar event that has an adverse effect on the issuer's credit or a provision in the contract that the put will not be exercised except in certain special cases, for example, to maintain portfolio liquidity. The Fund could, however, at any time sell the underlying portfolio security in the open market or wait until the portfolio security matures, at which time it should realize the full par value of the security. The securities purchased subject to a put may be sold to third persons at any time, even though the put is outstanding, but the put itself, unless it is an integral part of the security as originally issued, may not be marketable or otherwise assignable. Therefore, the put would have value only to the Fund. Sale of the securities to third parties or lapse of time with the put unexercised may terminate the right to put the securities. Prior to the expiration of any put option, the Fund could seek to negotiate terms for the extension of such an option. If such a renewal cannot be negotiated on terms satisfactory to the Fund, the Fund could, of course, sell the portfolio security. The maturity of the underlying security will generally be different from that of the put. There will be no limit to the percentage of portfolio securities that the Fund may purchase subject to a standby commitment or put, but the amount paid directly or indirectly for all standby commitments or puts which are not integral parts of the security as originally issued held in the Fund will not exceed one-half of 1% of the value of the total assets of such Fund calculated immediately after any such put is acquired. STRIPS. Separately Traded Interest and Principal Securities ("STRIPS") are component parts of U.S. Treasury securities traded through the federal book-entry system. An Adviser will only purchase STRIPS that it determines are liquid or, if illiquid, do not violate the affected Fund's investment policy concerning investments in illiquid securities. Consistent with Rule 2a-7 under the 1940 Act, the Adviser will only purchase STRIPS for money market funds that have a remaining maturity of 397 days or less; therefore, the money market funds currently may only purchase interest component parts of U.S. Treasury securities. While there is no limitation on the percentage of a Fund's assets that may be comprised of 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 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. 29 SWAP AGREEMENTS. The Funds may enter into equity index or interest rate swap agreements for purposes of attempting to gain exposure to the stocks making up an index of securities in a market without actually purchasing those stocks, or to hedge a position. Swap agreements are two-party contracts entered into primarily by institutional investors for periods ranging from a day to more than one-year. In a standard "swap" transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or instruments. The gross returns to be exchanged or "swapped" between the parties are calculated with respect to a "notional amount," i.e., the return on or increase in value of a particular dollar amount invested in a "basket" of securities representing a particular index. Forms of swap agreements include interest rate caps, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates exceed a specified rate, or "cap," interest rate floors, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates fall below a specified level, or "floor;" and interest rate dollars, under which a party sells a cap and purchases a floor or vice versa in an attempt to protect itself against interest rate movements exceeding given minimum or maximum levels. 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. The Select Aggregate Market Index ("SAMI") is a basket of credit default swaps whose underlying reference obligations are floating rate loans. Investments in SAMIs increase exposure to risks that are not typically associated with investments in other floating rate debt instruments, and involve many of the risks associated with investments in derivative instruments. The liquidity of the market for SAMIs is subject to liquidity in the secured loan and credit derivatives markets. A Fund's current obligations under a swap agreement will be accrued daily (offset against any amounts owing to the Fund) and any accrued but unpaid net amounts owed to a swap counterparty will be covered by segregating assets determined to be liquid. Obligations under swap agreements so covered will not be construed to be "senior securities" for purposes of a Fund's investment restriction concerning senior securities. Because they are two party contracts and because they may have terms of greater than seven days, swap agreements may be considered to be illiquid for the Fund's illiquid investment limitations. A Fund will not enter into any swap agreement unless the Adviser believes that the other party to the transaction is creditworthy. A Fund bears the risk of loss of the amount expected to be received under a swap agreement in the event of the default or bankruptcy of a swap agreement counterparty. Each Fund may enter into swap agreements to invest in a market without owning or taking physical custody of securities in circumstances in which direct investment is restricted for legal reasons or is otherwise impracticable. The counterparty to any swap agreement will typically be a bank, investment banking firm or broker/dealer. The counter-party will generally agree to pay the Fund the amount, if any, by which the notional amount of the swap agreement would have increased in value had it been invested in the particular stocks, plus the dividends that would have been received on those stocks. The Fund will agree to pay to the counter-party a floating rate of interest on the notional amount of the swap agreement plus the amount, if any, by which the notional amount would have decreased in value had it been invested in such stocks. Therefore, the return to the Fund on any swap agreement should be the gain or loss on the notional amount plus dividends on the stocks less the interest paid by the Fund on the notional amount. Swap agreements typically are settled on a net basis, which means that the two payment streams are netted out, with the Fund receiving or paying, as the case may be, only the net amount of the two payments. Payments may be made at the conclusion of a swap agreement or periodically during its term. Swap agreements do not involve the delivery of securities or other underlying assets. Accordingly, the risk of loss with respect to swap agreements is limited to the net amount of payments that a Fund is contractually obligated to make. If the other party to a swap agreement defaults, a Fund's risk of loss consists of the net amount of payments that such Fund is contractually entitled to receive, if any. The net amount of the excess, if any, of a Fund's obligations over its entitlements with respect to each equity swap will be accrued on a daily basis and cash or liquid assets, having an aggregate net asset value at least equal to such accrued excess will be maintained in a segregated account by a Fund's custodian. In as much as these transactions are entered into for hedging purposes or are offset by segregated cash of liquid assets, as permitted by applicable law, the 30 Funds and their Adviser believe that these transactions do not constitute senior securities under the 1940 Act and, accordingly, will not treat them as being subject to a Fund's borrowing restrictions. The swap market has grown substantially in recent years with a large number of banks and investment banking firms acting both as principals and as agents utilizing standardized swap documentation. As a result, the swap market has become relatively liquid in comparison with the markets for other similar instruments, which are traded in the over-the-counter market. The Adviser, under the supervision of the Board of Trustees, is responsible for determining and monitoring the liquidity of Fund transactions in swap agreements. The use of equity swaps is a highly specialized activity, which involves investment techniques and risks different from those associated with ordinary portfolio securities transactions. 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. Examples of types of U.S. government obligations in which the Funds may invest include U.S. Treasury obligations and the obligations of U.S. government agencies such as Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, the Federal Housing Administration, Farmers Home Administration, Export-Import Bank of the United States, Small Business Administration, Federal National Mortgage Association, Government National Mortgage Association, General Services Administration, Student Loan Marketing Association, Central Bank for Cooperatives, Freddie Mac (formerly Federal Home Loan Mortgage Corporation), Federal Intermediate Credit Banks, Maritime Administration, and other similar agencies. Whether backed by the full faith and credit of the U.S. Treasury or not, U.S. government securities are not guaranteed against price movements due to fluctuating interest rates. 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. 31 - 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." - U.S. GOVERNMENT AGENCIES. Some obligations issued or guaranteed by agencies of the U.S. Government are supported by the full faith and credit of the U.S. Treasury, others are supported by the right of the issuer to borrow from the Treasury, while still others are supported only by the credit of the instrumentality. Guarantees of principal by agencies or instrumentalities of the U.S. Government may be a guarantee of payment at the maturity of the obligation so that in the event of a default prior to maturity there might not be a market and thus no means of realizing on the obligation prior to maturity. Guarantees as to the timely payment of principal and interest do not extend to the value or yield of these securities nor to the value of a Fund's shares. VARIABLE AND FLOATING RATE INSTRUMENTS. Certain of the obligations purchased by the Funds may carry variable or floating rates of interest, may involve a conditional or unconditional demand feature and may include variable amount master demand notes. Such instruments bear interest at rates that are not fixed, but which vary with changes in specified market rates or indices. The interest rates on these securities may be reset daily, weekly, quarterly or some other reset period, and may have a floor or ceiling on interest rate changes. There is a risk that the current interest rate on such obligations may not accurately reflect existing market interest rates. A demand instrument with a demand notice exceeding seven days may be considered illiquid if there is no secondary market for such securities. VARIABLE RATE MASTER DEMAND NOTES. Variable rate master demand notes permit the investment of fluctuating amounts at varying market rates of interest pursuant to direct arrangements between a Fund, as lender, and a borrower. Such notes provide that the interest rate on the amount outstanding varies on a daily, weekly or monthly basis depending upon a stated short-term interest rate index. Both the lender and the borrower have the right to reduce the amount of outstanding indebtedness at any time. There is no secondary market for the notes and it is not generally contemplated that such instruments will be traded. The quality of the note or the underlying credit must, in the opinion 32 of the Adviser, be equivalent to the ratings applicable to permitted investments for the particular Fund. The Adviser will monitor on an ongoing basis the earning power, cash flow and liquidity ratios of the issuers of such instruments and will similarly monitor the ability of an issuer of a demand instrument to pay principal and interest on demand. Variable rate master demand notes may or may not be backed by bank letters of credit. WHEN-ISSUED SECURITIES AND FORWARD COMMITMENT SECURITIES. When-issued securities are securities that are delivered and paid for normally within 45 days after the date of commitment to purchase. 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. To avoid any leveraging concerns, a Fund will segregate or earmark 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 In addition to the 80% investment policy of the Florida Tax-Exempt Bond Fund, Georgia Tax-Exempt Bond Fund, Investment Grade Tax-Exempt Bond Fund, Maryland Municipal Bond Fund, North Carolina Tax-Exempt Bond Fund, Tax-Exempt Money Market Fund, Virginia Intermediate Municipal Bond Fund and Virginia Tax-Free Money Market Fund, the following investment limitations are fundamental policies of the Funds. Fundamental policies cannot be changed without the consent of the holders of a majority of each Fund's outstanding shares. The term "majority of the outstanding shares" means the vote of (i) 67% or more of the Fund's shares present at a meeting, if more than 50% of the outstanding shares of the Fund are present or represented by proxy, or (ii) more than 50% of the Fund's outstanding shares, whichever is less. No Fund may: 1. With respect to 75% of each Fund's total assets (50% in the case of Maryland Municipal Bond Fund, North Carolina Tax-Exempt Bond Fund, Seix Floating Rate High Income Fund and the Virginia Intermediate Municipal Bond Fund), invest more than 5% of the value of the total assets of a Fund in the securities of any one issuer (other than securities issued or guaranteed by the U.S. Government or any of its agencies or instrumentalities, repurchase agreements involving such securities, and securities issued by investment companies), or purchase the securities of any one issuer if such purchase would cause more than 10% of the voting securities of such issuer to be held by a Fund. 2. Borrow money in an amount exceeding 33 1/3% of the value of its total assets, provided that, for the purposes of this limitation, investment strategies that either obligate a Fund to purchase securities or require a Fund to segregate assets are not considered to be borrowing. Asset coverage of at least 300% is required for all borrowing, except where the Fund has borrowed money for temporary purposes (less than 60 days), and in an amount not exceeding 5% of its total assets. 3. Underwrite securities issued by others, except to the extent that the Fund may be considered an underwriter within the meaning of the 1933 Act in the sale of portfolio securities. 33 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. 1. With respect to the money market funds, this limitation does not apply to obligations issued by domestic branches of U.S. banks or U.S. branches of foreign banks subject to the same regulations as U.S. banks. 2. No Life Vision Fund may invest more than 25% of its assets in underlying STI Classic Funds that, as a matter of policy, concentrate their assets in any one industry. However, a Life Vision Fund may indirectly invest more than 25% of its total assets in one industry through its investments in the underlying STI Classic Funds. Each Life Vision Fund may invest up to 100% of its assets in securities issued by investment companies. 6. Purchase or sell real estate, unless acquired as a result of ownership of securities or other instruments (but this shall not prevent a Fund from investing in securities or other instruments either issued by companies that invest in real estate, backed by real estate or securities of companies engaged in the real estate business). 7. Purchase or sell physical commodities, unless acquired as a result of ownership of securities or other instruments. 8. Make loans, except that a Fund may: (i) purchase or hold debt instruments in accordance with its investment objectives and policies; (ii) enter into repurchase agreements; and (iii) lend its portfolio securities. NON-FUNDAMENTAL POLICIES The following investment policies are non-fundamental policies of the Funds and may be changed by the Funds' Board of Trustees: 1. With respect to each Fund, except the Florida Tax-Exempt Bond Fund, Georgia Tax-Exempt Bond Fund, Investment Grade Tax-Exempt Bond Fund, Maryland Municipal Bond Fund, North Carolina Tax-Exempt Bond Fund, Virginia Intermediate Municipal Bond Fund, Tax-Exempt Money Market Fund and Virginia Tax-Free Money Market Fund, any change to a Fund's investment policy of investing at least 80% of such Fund's net assets in securities of companies in a specific market sector is subject to 60 days prior notice to shareholders. 2. No Fund may purchase or hold illiquid securities (i.e., securities that cannot be disposed of for their approximate carrying value in seven days or less (which term includes repurchase agreements and time deposits maturing in more than seven days) if, in the aggregate, more than 15% of its net assets (10% for the Prime Quality Money Market Fund, Tax-Exempt Money Market Fund, U.S. Government Securities Money Market Fund, U.S. Treasury Money Market Fund and Virginia Tax-Exempt Money Market Fund) would be invested in illiquid securities. 34 3. No Life Vision Fund currently intends to purchase securities on margin, except that a Life Vision Fund may obtain such short-term credits as are necessary for the clearance of transactions. 4. No Life Vision Fund currently intends to sell securities short. 5. No Life Vision Fund currently intends to purchase or sell futures contracts or put or call options. 6. No Life Vision Fund may invest in shares of unaffiliated money market funds, except as permitted by applicable law or the SEC. 7. The Core Bond Fund, Intermediate Bond Fund, Limited Duration Fund, Seix Floating Rate High Income Fund and Seix High Yield Fund may not invest, at the time of purchase, in the securities of any company which has a primary line of business in the manufacture and sale of tobacco products. 8. The Intermediate Bond Fund will not engage in the strategy of establishing or rolling forward TBA mortgage commitments. With the exception of the limitations on liquidity standards, the foregoing percentages will apply at the time of the purchase of a security and shall not be considered violated unless an excess occurs or exists immediately after and as a result of a purchase of such security. THE ADVISER GENERAL. Trusco Capital Management, Inc. ("Trusco" or the "Adviser") is a professional investment management firm registered with the SEC under the Investment Advisers Act of 1940 and serves as investment adviser to the Funds. The Adviser is responsible for making investment decisions for the Funds (except for the Aggressive Growth Stock Fund and Emerging Growth Stock Fund) and continuously reviews, supervises and administers each Fund's respective investment program. With respect to the Aggressive Growth Stock Fund and the Emerging Growth Stock Fund, the Adviser oversees the subadviser to ensure compliance with each Fund's investment policies and guidelines and monitors the subadviser's adherence to its investment style. The Board of Trustees supervises the Adviser and establishes policies that the Adviser must follow in its management activities. The principal business address of the Adviser is 50 Hurt Plaza, Suite 1400, Atlanta, Georgia 30303. As of June 30, 2006, the Adviser had discretionary management authority with respect to approximately $ 71 billion of assets under management. ADVISORY AGREEMENTS WITH THE TRUST. Prior to January 1, 2000, STI Capital Management, N.A. ("STI"), a subsidiary of SunTrust Banks, Inc., served as investment adviser to the Balanced Fund, Capital Appreciation Fund, Florida Tax-Exempt Bond Fund, International Equity Fund, Investment Grade Bond Fund, Investment Grade Tax-Exempt Bond Fund, Large Cap Value Equity Fund, Limited-Term Federal Mortgage Securities Fund, Mid-Cap Equity Fund and Small Cap Value Equity Fund. On January 1, 2000, SunTrust Bank (formerly SunTrust Bank, Atlanta), a subsidiary of SunTrust Banks, Inc. and the investment adviser of the Georgia Tax-Exempt Bond Fund, succeeded STI as the investment adviser to those Funds. On July 1, 2000, SunTrust Banks, Inc. reorganized its money management units, including those of SunTrust Bank, into Trusco. As a result, Trusco now serves as the investment adviser to each Fund pursuant to three separate agreements (each, an "Advisory Agreement" and, together, the "Advisory Agreements"). For the periods prior to May 29, 2004, Seix Investment Advisors, Inc. ("Seix") served as the investment adviser to the Seix Core Bond Fund, Seix Intermediate Bond Fund, Seix High Yield Fund, and Seix Limited Duration Fund (each a "Predecessor Fund" and together the "Predecessor Funds"), the predecessors of the Core Bond Fund, Intermediate Bond Fund, Seix High Yield Fund and Limited Duration Fund (the "Seix Funds"), respectively. 35 Under the terms of each Advisory Agreement, the Adviser serves as the investment adviser and makes the investment decisions for each of the Funds and continuously reviews, supervises and administers the investment program of each Fund, subject to the supervision of, and policies established by, the Trustees of the Trust. The continuance of each Advisory Agreement, after the first 2 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. Each Advisory Agreement will terminate automatically in the event of its assignment, and each is terminable at any time without penalty by the Trustees of the Trust or, with respect to any Fund, 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 Agreements provide that the Adviser shall not be protected against any liability to the Trust or its shareholders by reason of willful misfeasance, bad faith or gross negligence on its part in the performance of its duties or from reckless disregard of its obligations or duties thereunder. The Advisory Agreements provide that if, for any fiscal year, the ratio of expenses of any Fund (including amounts payable to the Adviser but excluding interest, taxes, brokerage, litigation, and other extraordinary expenses) exceed limitations established by certain states, the Adviser and/or the Fund's administrator will bear the amount of such excess. The Adviser will not be required to bear expenses of the Trust to an extent which would result in a Fund's inability to qualify as a regulated investment company under provisions of the Code. ADVISORY FEES PAID TO THE ADVISER. For its services under the Advisory Agreements, the Adviser is entitled to a fee, which is calculated daily and paid monthly, at the specified annual rate of each Fund's average daily net assets as follows:
FUND FEES - ---- ----- Aggressive Growth Stock 1.10% Balanced 0.85% Capital Appreciation 0.97% Core Bond 0.25% Emerging Growth Stock 1.10% Florida Tax-Exempt Bond 0.55% Georgia Tax-Exempt Bond 0.55% High Income 0.60% High Quality Bond 0.40% Intermediate Bond 0.25% International Equity 1.15% International Equity Index 0.50% Investment Grade Bond 0.50% Investment Grade Tax-Exempt Bond 0.50% Large Cap Quantitative Equity 0.85% Large Cap Relative Value 0.85% Large Cap Value Equity 0.80% Life Vision Aggressive Growth 0.10% Life Vision Conservative 0.10% Life Vision Growth and Income 0.10% Life Vision Moderate Growth 0.10% Life Vision Target Date 2015 0.10% Life Vision Target Date 2025 0.10% Life Vision Target Date 2035 0.10% Limited Duration 0.10% Limited-Term Federal Mortgage Securities 0.50%
36
FUND FEES - ---- ----- Maryland Municipal Bond 0.55% Mid-Cap Equity 1.00% Mid-Cap Value Equity 1.00% North Carolina Tax-Exempt Bond 0.55% Prime Quality Money Market 0.55% Quality Growth Stock 0.85% Seix Floating Rate High Income 0.45% Seix High Yield 0.45% Short-Term Bond 0.40% Short-Term U.S. Treasury Securities 0.40% Small Cap Growth Stock 1.15% Small Cap Quantitative Equity 1.05% Small Cap Value Equity 1.15% Strategic Income 0.60% Tax-Exempt Money Market 0.45% Total Return Bond 0.35% U.S. Government Securities 0.50% U.S. Government Securities Money Market 0.55% U.S. Government Securities Ultra-Short Bond 0.20% U.S. Treasury Money Market 0.55% Ultra-Short Bond 0.22% Virginia Intermediate Municipal Bond 0.55% Virginia Tax Free Money Market 0.40%
The above fees are also subject to the following breakpoint discounts: Equity and Fixed Income Funds: First $500 million = full fee Next $500 million = 5% discount from full fee Over $1.0 billion = 10% discount from full fee Money Market Funds: First $1.0 billion = full fee Next $1.5 billion = 5% discount from full fee Next $2.5 billion = 10% discount from full fee Over $5.0 billion = 20% discount from full fee As discussed in the prospectuses, the Adviser has contractually agreed to waive a portion of its fees or reimburse expenses, with respect to certain Funds, in order to limit Fund expenses. For the year ended March 31, 2006, the fiscal period ended March 31, 2005, and the fiscal years ended May 31, 2004 and 2003, the Funds, except the Seix Funds, paid the following advisory fees: 37
FEES PAID ($) FEES WAIVED ($) ----------------------------------------------- ------------------------------------------ FUND* 2006 2005** 2004 2003 2006 2005** 2004 2003 - ----- ----------- ---------- ---------- ---------- --------- --------- --------- --------- Aggressive Growth Stock 1,230,000 468,000 26,000 *** 39,000 83,000 10,000 *** Balanced 1,768,000 2,330,000 3,000,000 2,638,000 28,000 73,000 91,000 81,000 Capital Appreciation 15,897,000 16,606,000 16,252,000 14,174,000 61,000 289,000 284,000 251,000 Emerging Growth Stock 342,000 173,000 19,000 *** 10,000 38,000 9,000 *** Florida Tax-Exempt Bond 1,076,000 988,000 1,219,000 1,021,000 24,000 62,000 90,000 76,000 Georgia Tax-Exempt Bond 687,000 597,000 724,000 685,000 18,000 38,000 54,000 51,000 High Income 574,000 809,000 1,173,000 600,000 69,000 152,000 271,000 139,000 High Quality Bond 241,000 547,000 252,000 *** 74,000 120,000 57,000 *** International Equity 8,023,000 4,272,000 3,256,000 2,639,000 *** 0 0 0 International Equity Index 3,831,000 3,208,000 2,651,000 2,013,000 113,000 318,000 278,000 212,000 Investment Grade Bond 3,394,000 3,714,000 5,400,000 6,625,000 4,000 101,000 155,000 193,000 Investment Grade Tax-Exempt Bond 1,855,000 1,640,000 1,740,000 1,522,000 3,000 67,000 79,000 69,000 Large Cap Quantitative Equity 1,505,000 782,000 355,000 *** 51,000 101,000 77,000 *** Large Cap Relative Value 11,260,000 7,265,000 7,647,000 6,313,000 *** 0 0 0 Large Cap Value Equity 7,082,000 5,943,000 6,572,000 5,640,000 *** 0 0 0 Life Vision Aggressive Growth 79,000 98,000 44,000 26,000 23,000 51,000 51,000 42,000 Life Vision Conservative 13,000 12,000 4,000 0 21,000 22,000 6,000 0 Life Vision Growth and Income 169,000 210,000 111,000 84,000 42,000 93,000 90,000 75,000 Life Vision Moderate Growth 243,000 310,000 173,000 122,000 58,000 136,000 128,000 94,000 Life Vision Target Date 2015 0 *** *** *** 13,000 *** *** *** Life Vision Target Date 2025 0 *** *** *** 13,000 *** *** *** Life Vision Target Date 2035 0 *** *** *** 13,000 *** *** *** Limited-Term Federal Mortgage Securities 2,154 2,672,000 3,393,000 1,875,000 45,000 206,000 281,000 156,000 Maryland Municipal Bond 250,000 250,000 312,000 359,000 9,000 41,000 44,000 50,000 Mid-Cap Equity 3,242,000 2,064,000 2,153,000 1,661,000 2,000 37,000 48,000 37,000 Mid-Cap Value Equity 2,338,000 1,948,000 1,556,000 1,263,000 51,000 156,000 135,000 110,000 North Carolina Tax- Exempt Bond 236,000 138,000 *** *** 6,000 21,000 *** *** Prime Quality Money Market 321,146,000 27,754,000 31,166,000 32,586,000 1,596,000 4,697,000 6,339,000 6,637,000 Quality Growth Stock 1,403,000 1,874,000 3,168,000 3,593,000 *** 46,000 0 0
38
FEES PAID ($) FEES WAIVED ($) ----------------------------------------------- ------------------------------------------ FUND* 2006 2005** 2004 2003 2006 2005** 2004 2003 - ----- ----------- ---------- ---------- ---------- --------- --------- --------- --------- Seix-Floating Rate High Income 38,000 *** *** *** 18,000 *** *** *** Short-Term Bond 1,453,000 1,650,000 2,006,000 2,051,000 51,000 126,000 157,000 162,000 Short-Term U.S. Treasury Securities 463,000 757,000 1,295,000 1,392,000 40,000 84,000 131,000 142,000 Small Cap Growth Stock 14,692,000 8,788,000 9,361,000 5,975,000 *** 0 0 0 Small Cap Value Equity 8,673,000 7,224,000 7,677,000 6,017,000 *** 0 0 0 Small Cap Quantitative Equity *** *** *** *** *** *** *** *** Strategic Income 2,089,000 1,649,000 1,674,000 873,000 93,000 194,000 222,000 116,000 Tax-Exempt Money Market 8,036,000 6,174,000 6,134,000 5,525,000 463,000 1,121,000 1,342,000 1,213,000 Total Return Bond 246,000 218,000 86,000 *** 3,000 49,000 29,000 *** U.S. Government Securities 2,072,000 2,005,000 2,221,000 1,846,000 5,000 83,000 101,000 85,000 U.S. Government Securities Money Market 4,261,000 4,624,000 5,267,000 6,683,000 203,000 640,000 843,000 1,074,000 U.S. Government Securities Ultra-Short Bond 150,000 321,000 537,000 86,000 63,000 225,000 375,000 198,000 U.S. Treasury Money Market 8,471,000 7,200,000 6,340,000 5,472,000 338,000 997,000 1,016,000 879,000 Ultra-Short Bond 703,000 969,000 1,355,000 216,000 206,000 581,000 812,000 325,000 Virginia Intermediate Municipal Bond 1,053,000 1,027,000 1,316,000 1,368,000 11,000 0 0 0 Virginia Tax Free Money Market 1,996,000 1,089,000 1,269,000 1,328,000 0 0 0 0
* Effective February 15, 2005, each Fund changed its fiscal year end from May 31 to March 31. ** With respect to the North Carolina Tax-Exempt Bond Fund, represents fees paid during the period from March 21, 2005 (the commencement of operations) through March 31, 2005 and, with respect to each other Fund listed, represents fees paid during the period from June 1, 2004 through March 31, 2005. *** Not in operation during the period. For the year ended March 31, 2006, the fiscal period November 1, 2004 through March 31, 2005 and the period May 29, 2004 through October 31, 2004, the Predecessor Funds and the Seix Funds paid the following advisory fees to Trusco:
FEES PAID ($) FEES WAIVED OR REIMBURSED($) -------------------------------------------- ----------------------------------------- 11/1/04- 5/29/04- 11/1/04- 5/29/04- FUND* 2006 3/31/05** 10/31/04 2006 3/31/05** 10/31/04 - ----- --------- --------- --------- ------ --------- -------- Core Bond 969,000 176,000 61,335 *** 0 26,902 Intermediate Bond 170,000 48,000 37,464 *** 0 18,253 Seix High Yield 5,825,000 3,210,000 3,322,887 69,000 409,000 631,229 Limited Duration 64,000 46,000 60,035 *** 0 38,919
39 * Prior to October 11, 2004, the Seix Funds were the Seix Core Bond Fund, the Seix Intermediate Bond Fund, the Seix High Yield Fund and the Seix Limited Duration Fund. ** Effective February 15, 2005, each Seix Fund changed its fiscal year end from October 31 to March 31. For the period November 1, 2003 through May 28, 2004 and the fiscal year ended October 31, 2003, the Predecessor Funds paid the following advisory fees to Seix:
FEES WAIVED OR FEES PAID($) REIMBURSED($) --------------------------- ------------------------- FUND 2004 2003 2004 2003 - ---- --------- --------- ------- ------- Seix Core Bond 74,501 125,175 50,633 32,605 Seix Intermediate Bond 42,031 73,614 28,260 33,623 Seix High Yield 3,796,419 2,587,237 600,283 637,126 Seix Limited Duration 99,393 92,496 48,105 54,027
THE SUBADVISER GENERAL. Zevenbergen Capital Investments LLC (the "Subadviser") serves as the subadviser to the Aggressive Growth Stock Fund and the Emerging Growth Stock Fund and manages the portfolios of the Funds on a day-to-day basis. The Subadviser was founded in 1987 and manages domestic growth equity assets. The firm's client base is comprised of a blend of institutional tax-exempt and taxable separately managed accounts. As a domestic growth equity manager, the Subadviser manages assets for a variety of entities, including public funds, foundations, endowments, corporations, pooled accounts, and private individuals. The Subadviser selects, buys, and sells securities for the Aggressive Growth Stock Fund and the Emerging Growth Stock Fund under the supervision of the Adviser and the Board of Trustees. The Adviser has a controlling interest in the Subadviser because it owns a majority of its shares. The principal business address of the Subadviser is 601 Union Street, Suite 4600, Seattle, Washington 98101. As of June 30, 2006, the Subadviser had approximately $1.2 billion of assets under management. INVESTMENT SUBADVISORY AGREEMENT. The Adviser and the Subadviser have entered into an investment subadvisory agreement (the "Subadvisory Agreement") under which the Subadviser makes the investment decisions for and continuously reviews, supervises, and administers the investment program of the Aggressive Growth Stock Fund and the Emerging Growth Stock Fund, subject to the supervision of, and policies established by, the Adviser and the Trustees of the Trust. After the initial two year term, the continuance of the Subadvisory Agreement with respect to either Fund must be specifically approved at least annually by (i) the vote of the Trustees or a vote of the shareholders of the Fund and (ii) the vote of a majority of the Trustees who are not parties to the Subadvisory Agreement or "interested persons" of any party thereto, cast in person at a meeting called for the purpose of voting on such approval. The Subadvisory Agreement will terminate automatically in the event of its assignment and is terminable at any time without penalty by (i) the Trustees of the Trust or, with respect to either Fund, by a majority of the outstanding shares of that Fund, (ii) the Adviser at any time on not less than 30 days nor more than 60 days written notice to the Subadviser, or (iii) the Subadviser on 90 days written notice to the Adviser. The Subadvisory Agreement provides that the Subadviser shall not be protected against any liability by reason of willful misfeasance, bad faith, or negligence on its part in the performance of its duties or from reckless disregard of its obligations or duties thereunder. SUBADVISORY FEES PAID TO THE SUBADVISER. For its services under the Subadvisory Agreement, the Subadviser is entitled to a fee, which is calculated daily and paid quarterly by the Adviser, at an annual rate of 0.625% based on the average daily net assets of the Aggressive Growth Stock Fund and the Emerging Growth Stock Fund. For the fiscal year ended March 31, 2006, the fiscal period ended March 31, 2005 and fiscal year ended May 31, 2004, the 40 Subadviser received subadvisory fees for the Aggressive Growth Stock Fund of $661,000, $207,000 and $7,000, respectively, and for the Emerging Growth Stock Fund of $185,000, $77,000 and $7,000, respectively. 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, STI Classic Variable Trust and the Administrator have entered into a master services agreement (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 each Fund's operations, maintenance of records and the books of the Trust, preparation of reports, assistance with compliance monitoring of the Funds' activities, and certain supplemental services in connection with the Trust's obligations under the Sarbanes-Oxley Act of 2002; fund accounting services, transfer agency services and shareholder services. 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 Trustees of the Trust unless terminated by either party on not less than 90 days written notice to the other party. ADMINISTRATION FEES TO BE PAID TO THE ADMINISTRATOR. Under the Master Services Agreement, the Administrator is entitled to receive an asset-based fee for administration, fund accounting, transfer agency and shareholder services (expressed as a percentage of the combined average daily net assets of the Trust and the STI Classic Variable Trust) of 2.75 basis points (0.0275%) on the first $25 billion, 2.25 basis points (0.0225%) on the next $5 billion in, and 1.75 basis points (0.0175%) on the amounts over $30 billion, plus an additional class fee of $2,593 per class annually, applicable to each additional class of shares over 145 classes of shares. The Administrator may waive a portion of its fee. The Master Services Agreement provides for the Administrator to pay certain insurance premiums for the Trust and STI Classic Variable Trust, including $300,000 toward the premium for Directors and Officers Liability/Errors and Omissions insurance coverage, and $25,000 toward the premium for Fidelity Bond coverage. The Administrator has agreed, under the terms of the Master Services Agreement, to pay certain legal expenses for the benefit of the Trust and the STI Classic Variable Trust relating to administrative service matters. The Master Services Agreement further provides for the Administrator to waive a portion of its fees for the benefit of shareholders. Such payments and fee waivers are expected to total approximately $400,000 to $650,000 annually, and will not be recouped by the Administrator in subsequent years. Prior to July 26, 2004, the Funds, except the Seix Funds, were subject to an administration agreement (the "Administration Agreement") between the Funds and SEI Investments Global Funds Services ("SEI"). Under the Administration Agreement, SEI was entitled to an annual fee (expressed as a percentage of the combined average daily net assets of the Trust and the STI Classic Variable Trust) of 0.12% up to $1 billion, 0.09% on the next $4 billion, 0.07% on the next $3 billion, 0.065% on the next $2 billion and 0.06% for over $10 billion. Prior to October 11, 2004, the Predecessor Funds were subject to a separate administration agreement (the "Predecessor Administration Agreement") between the Predecessor Funds and Investors Bank & Trust Company ("IBT"). Under the Predecessor Administration Agreement, IBT was entitled to a fee, at an annual rate of 0.07% of net assets, but with a minimum annual payment of $100,000 for the four Predecessor Funds together, and reimbursement of out-of-pocket expenses. 41 For the fiscal year ended March 31, 2006 and the fiscal period from July 26, 2004 through March 31, 2005, the Funds, except the Seix Funds, paid the following administrative fees to the Administrator:
FEES PAID ($) FEES WAIVED ($) FEES PAID ($) FEES WAIVED ($) FUND* 2006 2006 7/26/04-3/31/05 7/26/04-3/31/05 - ----- ------------- --------------- --------------- --------------- Aggressive Growth Stock 28,000 7,000 9,000 0 Balanced 53,000 15,000 53,000 0 Capital Appreciation 419,000 16,000 322,000 0 Emerging Growth Stock 8,000 2,000 4,000 0 Florida Tax-Exempt Bond 49,000 0 34,000 0 Georgia Tax-Exempt Bond 31,000 2,000 20,000 0 High Income 22,000 14,000 22,000 0 High Quality Bond 15,000 0 22,000 0 International Equity 181,000 68,000 78,000 0 International Equity Index 164,000 59,000 81,000 0 Investment Grade Bond 153,000 16,000 111,000 0 Investment Grade Tax-Exempt Bond 85,000 1,000 50,000 0 Large Cap Quantitative Equity 43,000 0 15,000 0 Large Cap Relative Value 353,000 23,000 181,000 0 Large Cap Value Equity 237,000 44,000 167,000 0 Life Vision Aggressive Growth 14,000 5,000 8,000 0 Life Vision Conservative 2,000 2,000 1,000 0 Life Vision Growth and Income 30,000 7,000 19,000 0 Life Vision Moderate Growth 43,000 8,000 28,000 0 Life Vision Target Date 2015 0 *** *** *** Life Vision Target Date 2025 0 *** *** *** Life Vision Target Date 2035 0 *** *** *** Limited-Term Federal Mortgage Securities 103,000 15,000 91,000 0 Maryland Municipal Bond 11,000 2,000 8,000 0 Mid-Cap Equity 82,000 32,000 40,000 0
42
FEES PAID ($) FEES WAIVED ($) FEES PAID ($) FEES WAIVED ($) FUND* 2006 2006 7/26/04-3/31/05 7/26/04-3/31/05 - ----- ------------- --------------- --------------- --------------- Mid-Cap Value Equity 57,000 15,000 35,000 0 North Carolina Tax-Exempt Bond 11,000 *** 43,000** 0 Prime Quality Money Market 1,545,000 175,000 944,000 0 Quality Growth Stock 39,000 24,000 35,000 0 Seix Floating Rate High Income 2,000 2,000 *** *** Short-Term Bond 79,000 11,000 56,000 0 Short-Term U.S. Treasury Securities 25,000 15,000 25,000 0 Small Cap Growth Stock 348,000 69,000 172,000 0 Small Cap Quantitative Equity *** *** *** *** Small Cap Value Equity 201,000 12,000 140,000 0 Strategic Income 80,000 7,000 44,000 0 Tax Exempt Money Market 446,000 *** 252,000 0 Total Return Bond 16,000 5,000 11,000 0 U.S. Government Securities 95,000 9,000 61,000 0 U.S. Government Securities Ultra-Short Bond 15,000 10,000 18,000 0 U.S. Treasury Money Market 387,000 6,000 251,000 0 Ultra-Short Bond 59,000 8,000 43,000 0 Virginia Intermediate Municipal Bond 47,000 3,000 35,000 0 Virginia Tax Free Money Market 131,000 *** 62,000 0
* Effective February 15, 2005, each Fund changed its fiscal year end from May 31 to March 31. ** Represents fees paid during the period March 21, 2005 (the commencement of operations) through March 31, 2005. *** Not in operation during the period. For the period June 1, 2004 through July 25, 2004, and for the fiscal years ended May 31, 2004 and 2003, the Funds, except the Seix Funds, paid the following administrative fees to SEI:
FEES PAID ($) ------------------------------------------------- 6/1/04- FUND 7/25/04 2004 2003 - ---- ------- ------- ------- Aggressive Growth Stock 3,000 2,000 * Balanced 33,000 223,000 197,000 Capital Appreciation 176,000 986,000 864,000
43
FEES PAID ($) ------------------------------------------------- 6/1/04- FUND 7/25/04 2004 2003 - ---- ------- ------- ------- Emerging Growth Stock 1,000 2,000 * Florida Tax-Exempt Bond 19,000 138,000 117,000 Georgia Tax-Exempt Bond 12,000 82,000 78,000 High Income 14,000 124,000 64,000 High Quality Bond 15,000 35,000 * International Equity 37,000 179,000 146,000 International Equity Index 39,000 223,000 170,000 Investment Grade Bond 64,000 514,000 635,000 Investment Grade Tax-Exempt Bond 26,000 168,000 148,000 Large Cap Quantitative Equity 8,000 26,000 * Large Cap Relative Value 96,000 582,000 483,000 Large Cap Value Equity 88,000 563,000 486,000 Life Vision Aggressive Growth 5,000 26,000 19,000 Life Vision Conservative 1,000 3,000 0 Life Vision Growth and Income 10,000 55,000 44,000 Life Vision Moderate Growth 14,000 83,000 60,000 Life Vision Target Date 2015 * * * Life Vision Target Date 2025 * * * Life Vision Target Date 2035 * * * Limited-Term Federal Mortgage Securities 33,000 387,000 215,000 Maryland Municipal Bond 5,000 37,000 43,000 Mid-Cap Equity 21,000 131,000 102,000 Mid-Cap Value Equity 17,000 93,000 76,000 North Carolina Tax-Exempt Bond * * * Quality Growth Stock 24,000 189,000 215,000 Small Cap Growth Stock 89,000 558,000 358,000 Small Cap Value Equity 76,000 458,000 361,000 Strategic Income 22,000 153,000 80,000 Total Return Bond 5,000 13,000 * U.S. Government Securities Ultra-Short Bond 11,000 92,000 49,000 Ultra-Short Bond 25,000 186,000 75,000 Virginia Intermediate Municipal Bond 20,000 139,000 145,000
* Not in operation during the period. For the fiscal year ended March 31, 2006 and the fiscal period November 1, 2004 through March 31, 2005 and the period October 11 through October 31, 2004, the Seix Funds paid the following administration fees to the Administrator:
FEES PAID ($) ------------------------------------------ 11/1/04- 5/29/04- FUND 2006 3/31/05* 10/31/04 - ---- ------- -------- -------- Core Bond 102,000 19,000 890 Intermediate Bond 18,000 5,000 560 Seix High Yield 327,000 173,000 25,879 Limited Duration 24,000 12,000 2,044
* Effective February 15, 2005, each Fund changed its fiscal year end from October 31 to March 31. 44 For the period November 1, 2003 through October 10, 2004 and the fiscal years ended October 31, 2003 and 2002, the Predecessor Funds paid the following administration fees to IBT:
FEES PAID ($) FEES REIMBURSED($) ----------------------------- -------------------------- 11/1/03- 11/1/03- FUND 10/10/04 2003 2002 10/10/04 2003 2002 - ---------------------- ---------- -------- ------- --------- ------- ------ Seix Core Bond 38,054 31,882 64,743 0 0 2,197 Seix Intermediate Bond 23,124 20,502 26,988 0 0 2,087 Seix High Yield 1,006,266 361,051 21,521 0 0 0 Seix Limited Duration 106,165 64,647 100* 0 0 0
* From commencement of operations on October 25, 2002. THE PORTFOLIO MANAGERS Set forth below is information regarding the individuals who are primarily responsible for the day-to-day management of the Funds ("portfolio managers"). All information is as of March 31, 2006, except as otherwise noted. MANAGEMENT OF OTHER ACCOUNTS. The table below shows the number of other accounts managed by each 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.
OTHER ACCOUNTS NUMBER OF OTHER ACCOUNTS WITH PERFORMANCE-BASED MANAGED/TOTAL ASSETS IN ACCOUNTS ($) FEES ------------------------------------------------------- -------------------------------- OTHER POOLED NAME OF REGISTERED INVESTMENT PORTFOLIO MANAGER INVESTMENT VEHICLES OTHER NUMBER & TOTAL (NAME OF FUND(S)) COMPANIES ("PIV") ACCOUNTS CATEGORY ASSETS($) - ------------------------------- ---------------- ----------------- ------------------ ---------------- -------------- ANDREW ATKINS (International Equity Index) None 1/$375.6 million 2/$466.6 million None None BRETT BARNER (Small Cap Value Equity) 1/$23.4 million None 16/$566.4 million None None EDWARD E. BEST (Small Cap Quantitative Equity Fund, Large Cap Quantitative Equity) None None 1/$53.2 million None None BROOKE DE BOUTRAY (Aggressive Growth Stock, Emerging Growth Stock) None None 56/$1.2 billion 1/Other Account $245.1 million
45
OTHER ACCOUNTS NUMBER OF OTHER ACCOUNTS WITH PERFORMANCE-BASED MANAGED/TOTAL ASSETS IN ACCOUNTS ($) FEES ------------------------------------------------------- -------------------------------- OTHER POOLED NAME OF REGISTERED INVESTMENT PORTFOLIO MANAGER INVESTMENT VEHICLES OTHER NUMBER & TOTAL (NAME OF FUND(S)) COMPANIES ("PIV") ACCOUNTS CATEGORY ASSETS($) - ------------------------------- ---------------- ----------------- ------------------ ---------------- -------------- ROBERT S. BOWMAN (Virginia Tax-Free Money Market, Tax-Exempt Money Market, U.S. Government Securities Money Market) None 1/$570 million 5/$150 million None None JOSEPH CALABRESE (Limited Duration, Limited-Term Federal Mortgage Securities, U.S. Government Securities) 1/$65.0 million 6/$671.0 million 206/$8.0 billion 2/Other Accounts $320.0 million GEORGE E. CALVERT (Maryland Municipal Bond, Virginia Intermediate Municipal Bond) None None 23/$83.0 million None None CHRIS CARTER (Georgia Tax-Exempt Bond, North Carolina Tax-Exempt Bond) None 2/$453 million 5/$133 million None None ROBERT W. CORNER (Short-Term Bond, Ultra-Short Bond, U.S. Government Securities Ultra-Short Bond) None 1/$175 million 60/$1.0 billion None None CHAD DEAKINS (International Equity Index, International Equity, Mid-Cap Equity) 2/$20.5 million 1/$35.1 million 7/$223.8 million None None JAMES P. FOSTER* (Small Cap Growth Stock) None 1/$21.0 million 22/$760.3 million None None ALAN M. GAYLE (Life Vision Aggressive Growth, Life Vision Conservative, Life Vision Growth and Income, Life Vision Moderate Growth, Life Vision Target Date 2015, Life Vision Target Date 2025, Life Vision Target Date 2035) None None None None None
46
OTHER ACCOUNTS NUMBER OF OTHER ACCOUNTS WITH PERFORMANCE-BASED MANAGED/TOTAL ASSETS IN ACCOUNTS ($) FEES ------------------------------------------------------- -------------------------------- OTHER POOLED NAME OF REGISTERED INVESTMENT PORTFOLIO MANAGER INVESTMENT VEHICLES OTHER NUMBER & TOTAL (NAME OF FUND(S)) COMPANIES ("PIV") ACCOUNTS CATEGORY ASSETS($) - ------------------------------- ---------------- ----------------- ------------------ ---------------- -------------- GEORGE GOUDELIAS (Seix Floating Rate High Income, Seix High Yield, High Income) 3/$338.0 million 3/$529.0 million 63/$7.8 billion None None GREG HALLMAN (Prime Quality Money Market, U.S. Treasury Securities Money Market, U.S. Government Securities Money Market) None 2/$540.0 million None None None KIMBERLY A. MAICHLE (Prime Quality Money Market, U.S. Treasury Securities Money Market, U.S. Government Securities Money Market) None 3/$758 million 14/$357 million None None JEFFREY E. MARKUNAS (Large Cap Relative Value) 3/$338.0 million 3/$529.0 million 63/$7.8 billion None None MICHAEL MCEACHERN (Seix Floating Rate High Income, Seix High Yield, High Income, Strategic Income) None 2/$127.0 million 67/$10.0 billion None None H. RICK NELSON (Classic Institutional Short-Term Bond, Short-Term U.S. Treasury Securities, Short-Term Bond, Ultra-Short Bond, U.S. Government Securities Ultra-Short Bond) None 1/$175 million 56/$2.1 billion None None
47
OTHER ACCOUNTS NUMBER OF OTHER ACCOUNTS WITH PERFORMANCE-BASED MANAGED/TOTAL ASSETS IN ACCOUNTS ($) FEES ------------------------------------------------------- -------------------------------- OTHER POOLED NAME OF REGISTERED INVESTMENT PORTFOLIO MANAGER INVESTMENT VEHICLES OTHER NUMBER & TOTAL (NAME OF FUND(S)) COMPANIES ("PIV") ACCOUNTS CATEGORY ASSETS($) - ------------------------------- ---------------- ----------------- ------------------ ---------------- -------------- BRIAN NOLD (High Income) None 2/$127.0 million 67/$10.0 billion None None ELIZABETH POLA (Balanced, Capital Appreciation) 1/$46.3 million 3/$288.1 million 25/$882 million None None ROBERT J. RHODES (Balanced, Capital Appreciation) 1/$46.3 million 3/$286.1 million 5/$822.2 million 1/PIV $42.7 million MILLS RIDDICK (Large Cap Value Equity) 1/$39.3 million 2/$190.3 million 14/$184.3 million None None E. DEAN SPEER (Prime Quality Money Market, U.S. Treasury Money Market, U.S. Government Securities Money Market) None None 2/$404.8 million None None RONALD SCHWARTZ (Florida Tax-Exempt Bond, Investment Grade Tax-Exempt Bond) None 2/$168.0 million 17/$478.0 million None None CHAD STEPHENS (Short-Term U.S. Treasury Securities, Ultra-Short Bond Fund, U.S. Government Securities Ultra-Short Bond Fund) None None None None None
48
OTHER ACCOUNTS NUMBER OF OTHER ACCOUNTS WITH PERFORMANCE-BASED MANAGED/TOTAL ASSETS IN ACCOUNTS ($) FEES ------------------------------------------------------- -------------------------------- OTHER POOLED NAME OF REGISTERED INVESTMENT PORTFOLIO MANAGER INVESTMENT VEHICLES OTHER NUMBER & TOTAL (NAME OF FUND(S)) COMPANIES ("PIV") ACCOUNTS CATEGORY ASSETS($) - ------------------------------- ---------------- ----------------- ------------------ ---------------- -------------- JOHN TALTY (Balanced, Core Bond, Intermediate Bond, Investment Grade Bond, Limited Duration, Limited-Term Federal Mortgage Securities, Total Return Bond, U.S. Government Securities) 2/$77.8 million 6/$671.0 million 206/$8.0 billion 2/Other Account $320.0 million PARKER W. THOMAS (Quality Growth Stock) None None 6/$200 million None None PERRY TROISI (Balanced, Core Bond, High Quality Bond, Intermediate Bond, Investment Grade Bond, Total Return Bond) 2/$77.8 million 6/$671.0 million 206/$8.0 billion 2/Other Account $320.0 million LESLIE TUBBS (Aggressive Growth Stock, Emerging Growth Stock) None None 56/$1.2 billion 1/Other Account $245.1 million STUART F. VAN ARSDALE* (Small Cap Growth Stock) None None None None None ADRIEN WEBB (High Quality Bond, Strategic Income) 1/$65.0 million 6/$671.0 million 206/$8.0 billion 2/Other Account $320.0 million DON WORDELL (Mid-Cap Value Equity) None None 1/$12 million None None SCOTT YUSCHAK (Mid-Cap Equity Fund) 1/$15.3 million 1/$39.6 million 5/$96.8 million None None NANCY ZEVENBERGEN (Aggressive Growth Stock, Emerging Growth Stock) None None 56/$1.2 billion 1/Other Account $245.1 million
* Portfolio Manager since June 26, 2006. POTENTIAL CONFLICTS OF INTEREST. A portfolio manager's dual management of both a 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 49 the disadvantage of the Fund. In addition, aggregation of trades may create the potential for unfairness to a Fund or an account if one account is favored over another in allocating the securities purchased or sold. The Adviser and the Subadviser each have 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 or Subadviser believes is fair and equitable. PORTFOLIO MANAGER COMPENSATION STRUCTURE. Portfolio Managers of the Adviser. Portfolio managers earn competitive salaries from the Adviser. In addition, portfolio managers (other than Messrs. Calabrese, Goudelias, McEachern, Rhodes, Talty and Troisi) are eligible to receive bonuses based on the performance of the specific Funds they manage and not on the performance of all Funds of the Trust or of other accounts they manage. Investment results are the basis for determining if such bonuses are paid. Investment results are determined by comparing the relevant Fund's pre-tax total returns to that same Fund's benchmarks and peer groups over multi-year periods, as applicable. Where a 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. Messrs. Calabrese, Goudelias, McEachern, Talty and Troisi receive bonuses based on the pre-tax performance of their accounts relative to the applicable account benchmark and peer groups over a calendar year. The method for determining these portfolio managers' compensation for the Funds is the same as for any other account they manage. Mr. Rhodes is eligible to receive incentive compensation by his participation in a non-qualified profit sharing plan sponsored by the Adviser which consists of a portion of the Adviser's net profits. As a plan participant, Mr. Rhodes is eligible to receive an allocation of a pre-determined percentage of this profit sharing pool, a portion of which is guaranteed. Eligibility for an award of the remaining portion is the result of a qualitative assessment of both his job performance and the investment performance of the Funds under his management. The criteria used to determine any award for the investment performance of those Funds are the same criteria applicable to other portfolio managers as set forth above. All full-time employees of the Adviser, including the Funds' portfolio managers, 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. - 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. 50 - 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. Portfolio Managers of the Subadviser. The Subadviser's compensation package for its portfolio managers is comprised of base salary and bonus. The portfolio managers receive a salary commensurate with the individual's experience and responsibilities with the firm. Each portfolio manager is eligible for an annual bonus based on the Subadviser's overall profitability. Components of the Subadviser's overall profitability are investment performance, client retention and asset growth. In addition, the portfolio managers are eligible for and may participate in both defined benefit and defined contribution retirement plans which are available to other full-time employees of the Subadviser on substantially similar terms. SECURITIES OWNERSHIP OF PORTFOLIO MANAGERS. The table below shows the range of equity securities beneficially owned by each portfolio manager in the Fund or Funds managed by the portfolio manager. The information is as on March 31, 2006, except as otherwise noted.
RANGE OF SECURITIES NAME OF PORTFOLIO MANAGER NAME OF FUND(S) MANAGED OWNED - --------------------------- ---------------------------------------- ------------------- Andrew Atkins International Equity Index $1 - $10,000 Brett Barner Small Cap Value Equity $100,001 - $500,000 Edward E. Best Small Cap Quantitative Equity Fund None Large Cap Quantitative Equity $100,001-$500,000 Brooke de Boutray Aggressive Growth Stock $50,001 - $100,000 Emerging Growth Stock None Robert S. Bowman Virginia Tax-Free Money Market None Tax-Exempt Money Market None U.S. Government Securities Money Market None Joseph Calabrese Limited Duration None Limited-Term Federal Mortgage Securities None U.S. Government Securities None George E. Calvert Maryland Municipal Bond None Virginia Intermediate Municipal Bond None Chris Carter Georgia Tax-Exempt Bond None North Carolina Tax-Exempt Bond None Robert W. Corner Short-Term Bond $1-10,000 Ultra-Short Bond None U.S. Government Securities Ultra-Short Bond None Chad Deakins International Equity Index $10,001-$50,000 International Equity None Mid-Cap Equity $10,001-$50,000 James P. Foster* Small Cap Growth Stock $100,001-$500,000
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RANGE OF SECURITIES NAME OF PORTFOLIO MANAGER NAME OF FUND(S) MANAGED OWNED - --------------------------- ---------------------------------------- ------------------- Alan M. Gayle Life Vision Aggressive Growth None Life Vision Conservative None Life Vision Growth and Income None Life Vision Moderate Growth None Life Vision Target Date 2015 None Life Vision Target Date 2025 None Life Vision Target Date 2035 None George Goudelias Seix Floating Rate High Income None Seix High Yield None High Income None Greg Hallman Prime Quality Money Market None U.S. Treasury Securities Money Market None U.S. Government Securities Money Market None Kimberly A. Maichle Prime Quality Money Market $1 - 10,000 U.S. Treasury Securities Money Market None U.S. Government Securities Money Market None Jeffrey E. Markunas Large Cap Relative Value $100,001-$500,000 Michael McEachern Seix Floating Rate High Income Fund None Seix High Yield None High Income None Strategic Income None H. Rick Nelson Classic Institutional Short - Term Bond None Short-Term U.S. Treasury Securities None Short-Term Bond None Ultra-Short Bond None U.S. Government Securities Ultra-Short Bond None Brian Nold High Income None Betty Pola Capital Appreciation $100,001-$500,000 Balanced None Robert J. Rhodes Balanced None Capital Appreciation $500,001 - $1,000,000 Mills Riddick Large Cap Value Equity $100,001-$500,000 E. Dean Speer Prime Quality Money Market None U.S. Treasury Money Market None U.S. Government Securities Money Market None Ronald Schwartz Florida Tax-Exempt Bond None Investment Grade Tax-Exempt Bond None Chad Stephens Short-Term U.S. Treasury Securities None
52
RANGE OF SECURITIES NAME OF PORTFOLIO MANAGER NAME OF FUND(S) MANAGED OWNED - --------------------------- ---------------------------------------- ------------------- Ultra-Short Bond Fund None U.S. Government Securities Ultra-Short Bond Fund None John Talty Balanced None Core Bond None Intermediate Bond None Investment Grade Bond None Limited Duration None Limited-Term Federal Mortgage Securities None Total Return Bond None U.S. Government Securities None Parker W. Thomas Quality Growth Stock $1-$10,000 Perry Troisi Balanced None Core Bond None High Quality Bond None Intermediate Bond None Investment Grade Bond None Total Return Bond None Leslie Tubbs Aggressive Growth Stock $50,001 - $100,000 Emerging Growth Stock $10,001 - $50, 000 Stuart F. Van Arsdale* Small Cap Growth Stock None Adrien Webb High Quality Bond None Strategic Income None Don Wordell Mid-Cap Value Equity $1-$10,000 Scott Yuschak Mid-Cap Equity Fund $1-10,000 Nancy Zevenbergen Aggressive Growth Stock $100,001 - $500,000 Emerging Growth Stock None
* Portfolio Manager since June 26, 2006. 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. The Distributor will receive no compensation for distribution of I Shares. In addition, the A Shares of the Funds have a distribution and service plan (the "A Plan"), the B Shares of the Funds have a distribution and service plan (the "B Plan"), and the C Shares of the Funds have a distribution and service plan (the "C Plan"). After an 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 Funds 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 53 without penalty by the Trustees of the Trust, the Distributor, or, with respect to any Fund, by a majority of the outstanding shares of that Fund, upon 60 days written notice by either party. Prior to July 26, 2004, the Funds, except the Seix Funds, were parties to a distribution agreement with SEI Investments Distribution Company. For the fiscal year ended March 31, 2006, the fiscal period ended March 31, 2005, and the fiscal years ended May 31, 2004 and 2003, the Funds paid the following aggregate sales charge payable to the Distributor with respect to the A Shares:
AGGREGATE SALES CHARGES AMOUNT RETAINED BY PAYABLE TO DISTRIBUTOR ($)* DISTRIBUTOR ($)* ---------------------------------------- ----------------------------------- FUND** 2006 2005*** 2004 2003 2006 2005*** 2004 2003 - --------------------------- ------- ------- ---------- ---------- --------- --------- ------ ----- Aggressive Growth Stock 1,000 0 0 **** 0 0 0 **** Balanced 2,000 2,000 25,000 22,000 0 0 0 0 Capital Appreciation 20,000 23,000 990,000 935,000 0 0 0 0 Core Bond 0 0 1,000 0 0 0 0 0 Emerging Growth Stock 0 1,000 0 **** 0 0 0 **** Florida Tax-Exempt Bond 2,000 3,000 12,000 11,000 0 0 0 0 Georgia Tax-Exempt Bond 0 0 5,000 5,000 0 0 0 0 High Income 3,000 1,000 2,000 **** 0 0 0 **** Intermediate Bond 0 0 0 0 0 0 0 0 International Equity 5,000 2,000 24,000 17,000 0 0 0 0 International Equity Index 5,000 4,000 56,000 19,000 0 0 0 0 Investment Grade Bond 3,000 7,000 20,000 116,000 0 0 0 0 Investment Grade Tax-Exempt Bond 8,000 10,000 7,000 88,000 0 0 0 0 Large Cap Quantitative Equity 5,000 2,000 0 **** 0 0 0 **** Large Cap Relative Value 15,000 20,000 105,000 80,000 0 0 0 0 Large Cap Value Equity 18,000 11,000 235,000 206,000 0 0 0 0 Life Vision Aggressive Growth 14,000 11,000 1,000 **** 0 0 0 **** Life Vision Conservative 7,000 7,000 1,000 **** 0 0 0 **** Life Vision Growth and Income 71,000 30,000 2,000 **** 0 0 0 **** Life Vision Moderate Growth 54,000 26,000 6,000 **** 0 0 0 **** Life Vision Target Date 2015 0 **** **** **** 0 **** **** ****
54
AGGREGATE SALES CHARGES AMOUNT RETAINED BY PAYABLE TO DISTRIBUTOR ($)* DISTRIBUTOR ($)* ---------------------------------------- ----------------------------------- FUND** 2006 2005*** 2004 2003 2006 2005*** 2004 2003 - --------------------------- ------- ------- ---------- ---------- --------- --------- ------ ----- Life Vision Target Date 2025 0 **** **** **** 0 **** **** **** Life Vision Target Date 2035 0 **** **** **** 0 **** **** **** Limited Duration 0 0 0 0 0 0 0 0 Limited-Term Federal Mortgage Securities 2,000 15,000 15,000 16,000 0 0 0 0 Maryland Municipal Bond 5,000 0 **** **** 0 0 **** **** Mid-Cap Equity 7,000 4,000 63,000 43,000 0 0 0 0 Mid-Cap Value Equity 5,000 3,000 1,000 **** 0 0 0 **** North Carolina Tax-Exempt Bond 0 0 **** **** 0 0 **** **** Prime Quality Money Market 0 0 3,763,000 3,839,000 0 0 0 0 Quality Growth Stock 0 0 1,000 **** 0 0 0 **** Seix Floating Rate High Income 0 **** **** **** 0 **** **** **** Seix High Yield 25,000 0 40,000 0 0 0 0 0 Short-Term Bond 3,000 2,000 15,000 11,000 0 0 0 0 Short-Term U.S. Treasury Securities 0 1,000 29,000 19,000 0 0 0 0 Small Cap Growth Stock 37,000 16,000 157,000 94,000 0 0 0 0 Small Cap Quantitative Equity **** **** **** **** 0 **** **** **** Small Cap Value Equity 2,000 3,000 4,000 **** 0 0 0 **** Strategic Income 7,000 5,000 6,000 **** 0 0 0 **** Tax-Exempt Money Market 0 0 401,000 357,000 0 0 0 0 U.S. Government Securities 0 3,000 32,000 27,000 0 0 0 0 U.S. Government Securities Money Market 0 0 399,000 407,000 0 0 0 0 U.S. Treasury Money Market 0 0 0 **** 0 0 0 0 Virginia Intermediate Municipal Bond 0 2,000 15,000 12,000 0 0 0 0 Virginia Tax Free Money Market 0 0 439,000 393,000 0 0 0 0
* The information in the above chart reflects gross distribution fees for the fiscal years ended May 31, 2004 and 2003 which were payable by the Funds, except the Seix Funds, pursuant to a distribution agreement between the Trust and SEI Investments Distribution Co. The information in the above chart was calculated and provided by SEI Investments Distribution Co. ** Effective February 15, 2005, the Seix Funds changed their fiscal year end from October 31 to March 31, and each other Fund changed its fiscal year end from May 31 to March 31. 55 *** With respect to the Seix Funds, represents fees paid during the period from November 1, 2004 through March 31, 2005, with respect to the North Carolina Tax-Exempt Bond Fund, represents fees paid during the period from March 21, 2005 (the commencement of operations) through March 31, 2005 and, with respect to each other Fund listed, represents fees paid during the period from June 1, 2004 through March 31, 2005. **** Not in operation during the period. The following table shows the amount of front-end sales charge that is paid to Investment Consultants (Dealers) as a percentage of the offering price of A Shares:
$50,000 $100,000 $250,000 $250,000 LESS BUT LESS BUT LESS BUT LESS BUT LESS THAN THAN THAN THAN THAN $1,000,000 FUNDS $50,000 $100,000 $250,000 $500,000 $500,000 AND OVER - ----------------------------------------- ------- -------- -------- -------- -------- ---------- Aggressive Growth Stock, Balanced, Capital Appreciation, Emerging Growth Stock, Large Cap Quantitative Equity, Large Cap Relative Value, Large Cap Value Equity, High Income, International Equity, International Equity Index, Life Vision Aggressive Growth, Life Vision Conservative, Life Vision Growth and Income, Life Vision Moderate Growth, Life Vision Target Date 2015, Life Vision Target Date 2025, Life Vision Target Date 2035, Mid-Cap Equity, Mid-Cap Value Equity, Quality Growth Stock, Small Cap Quantitative Equity, Small Cap Growth Stock and Small Cap Value Equity 5.00% 4.00% 3.00% 2.00% 1.75% 0.00% Limited Duration Fund, Limited-Term Federal Mortgage Securities, Short-Term Bond, Short-Term U.S. Treasury Securities and U.S. Government Securities 2.25% 2.00% 1.75% 1.50% 1.25% 0.00%
For the fiscal year ended March 31, 2006, the fiscal period ended March 31, 2005, and for the 2004 and 2003 fiscal years, the Funds paid the following aggregate sales charge payable to the Distributor with respect to the B Shares: 56
AGGREGATE SALES CHARGE AMOUNT RETAINED BY PAYABLE TO DISTRIBUTOR ($)* DISTRIBUTOR ($)* ---------------------------------- --------------------------- FUND** 2006 2005*** 2004 2003 2006 2005*** 2004 2003 - ----------------------------- ------- -------- ------- ------ ------ ------- ---- ---- Life Vision Aggressive Growth 12,000 24,000 30,000 1,000 **** 0 0 0 Life Vision Conservative 5,000 14,000 37,000 0 **** 0 0 0 Life Vision Growth and Income 46,000 100,000 78,000 2,000 **** 0 0 0 Life Vision Moderate Growth 23,000 48,000 95,000 3,000 **** 0 0 0
* The information in the above chart reflects gross distribution fees for the fiscal years ended May 31, 2004 and 2003, which were payable by such Funds pursuant to a distribution agreement between the Trust and SEI Investments Distribution Co. The information in the above chart was calculated and provided by SEI Investments Distribution Co. ** Effective February 15, 2005, each Fund changed its fiscal year end from May 31 to March 31. *** Represents fees paid during the period from June 1, 2004 through March 31, 2005. **** Not in operation during the period. For the fiscal year ended March 31, 2006 and the period ended March 31, 2005, and for the 2004 and 2003 fiscal years, the Funds paid the following aggregate sales charge payable to the Distributor with respect to the C Shares:
AGGREGATE SALES CHARGE AMOUNT RETAINED BY PAYABLE TO DISTRIBUTOR ($)* DISTRIBUTOR ($)* ----------------------------------------- ----------------------------- FUND** 2006 2005*** 2004 2003 2006 2005*** 2004 2003 - ----------------------------------- ------- -------- ---------- ---------- ------ ------- ---- ------ Aggressive Growth Stock 1,000 0 0 ** 0 0 0 **** Balanced 3,000 0 713,000 653,000 0 0 0 0 Capital Appreciation 5,000 0 1,030,000 902,000 0 0 0 0 Core Bond 0 0 0 0 0 0 0 0 Emerging Growth Stock 0 0 0 **** 0 0 0 **** Florida Tax-Exempt Bond 0 0 310,000 329,000 0 0 0 0 Georgia Tax-Exempt Bond 2,000 0 163,000 148,000 0 0 0 0 High Income 3,000 0 852,000 446,000 0 0 0 0 Intermediate Bond 1,000 0 0 0 0 0 0 0 International Equity 2,000 0 70,000 54,000 0 0 0 0 International Equity Index 1,000 0 43,000 28,000 0 0 0 0 Investment Grade Bond 3,000 0 319,000 365,000 0 0 0 0 Investment Grade Tax-Exempt Bond 1,000 0 290,000 283,000 0 0 0 0 Large Cap Quantitative Equity 2,000 0 7,000 **** 0 0 0 **** Large Cap Quantitative Equity 1,000 **** **** **** 0 **** **** **** Large Cap Relative Value 10,000 0 910,000 734,000 0 0 0 0 Large Cap Value Equity 3,000 0 561,000 469,000 0 0 0 0 Life Vision Aggressive Growth 4,000 **** **** **** 0 **** **** ****
57
AGGREGATE SALES CHARGE AMOUNT RETAINED BY PAYABLE TO DISTRIBUTOR ($)* DISTRIBUTOR ($)* ----------------------------------------- ----------------------------- FUND** 2006 2005*** 2004 2003 2006 2005*** 2004 2003 - ----------------------------------- ------- -------- ---------- ---------- ------ ------- ---- ------ Life Vision Conservative 2,000 **** **** **** 0 **** **** **** Life Vision Growth and Income 12,000 **** **** **** 0 **** **** **** Life Vision Moderate Growth 4,000 **** **** **** 0 **** **** **** Life Vision Target Date 2015 0 **** **** **** 0 **** **** **** Life Vision Target Date 2025 0 **** **** **** 0 **** **** **** Life Vision Target Date 2035 0 **** **** **** 0 **** **** **** Limited Duration 0 0 0 0 0 0 0 0 Limited-Term Federal Mortgage Securities 0 0 1,237,000 868,000 0 0 0 0 Maryland Municipal Bond 0 0 253,000 268,000 0 0 0 0 Mid-Cap Equity 4,000 0 153,000 115,000 0 0 0 0 Mid-Cap Value Equity 1,000 0 73,000 49,000 0 0 0 0 North Carolina Tax-Exempt Bond 0 0 **** **** 0 0 **** **** Prime Quality Money Market 0 184,000 120,000 63,000 0 0 0 0 Quality Growth Stock 3,000 0 1,054,000 1,204,000 0 0 0 0 Seix High Yield 15,000 0 0 0 0 0 0 0 Short-Term Bond **** 0 299,000 305,000 0 0 0 0 Short-Term U.S. Treasury Securities 1,000 0 975,000 1,075,000 0 0 0 0 Small Cap Growth Stock 10,000 0 370,000 233,000 0 0 0 0 Small Cap Quantitative Equity **** **** **** **** 0 **** **** **** Small Cap Value Equity 4,000 0 434,000 305,000 0 0 0 0 Strategic Income 2,000 0 1,520,000 638,000 0 0 0 0 Virginia Intermediate Municipal Bond 0 **** **** **** 0 **** **** ****
* The information in the above chart reflects gross distribution fees for the fiscal years ended May 31, 2004 and 2003 which were payable by the Funds, except the Seix Funds, pursuant to a distribution agreement between the Trust and SEI Investments Distribution Co. The information in the above chart was calculated and provided by SEI Investments Distribution Co. ** Effective February 15, 2005, the Seix Funds changed their fiscal year end from October 31 to March 31, and each other Fund changed its fiscal year end from May 31 to March 31. *** With respect to the Seix Funds, represents fees paid during the period from November 1, 2004 through March 31, 2005, with respect to the North Carolina Tax-Exempt Bond Fund, represents fees paid during the period from March 21, 2005 (the commencement of operations) through March 31, 2005 and, with respect to each other Fund listed, represents fees paid during the period from June 1, 2004 through March 31, 2005. **** Not in operation during the period. 58 A SHARES, B SHARES AND C SHARES DISTRIBUTION PLANS The Distribution Agreement and the A Plan adopted by the Trust provide that A Shares of the Funds will pay the Distributor fees 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 of Trustees 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 A PLAN DISTRIBUTION AND SERVICE FEE MAXIMUM PAYABLE FOR A PLAN DISTRIBUTION AND SHAREHOLDER FUND SERVICE FEE SERVICES* - ---------------------------------------- ----------------------- ------------------- Aggressive Growth Stock 0.35% 0.25% Balanced 0.28% 0.25% Capital Appreciation 0.35% 0.25% Core Bond 0.25% 0.25% Emerging Growth Stock 0.35% 0.25% Florida Tax-Exempt Bond 0.18% 0.15% Georgia Tax-Exempt Bond 0.18% 0.15% High Income 0.30% 0.25% Intermediate Bond 0.25% 0.25% International Equity 0.33% 0.25% International Equity Index 0.35% 0.25% Investment Grade Bond 0.35% 0.25% Investment Grade Tax-Exempt Bond 0.35% 0.25% Large Cap Quantitative Equity 0.25% 0.25% Large Cap Relative Value 0.25% 0.25% Large Cap Value Equity 0.33% 0.25% Life Vision Aggressive Growth 0.35% 0.25% Life Vision Conservative 0.35% 0.25% Life Vision Growth and Income 0.35% 0.25% Life Vision Moderate Growth 0.35% 0.25% Life Vision Target Date 2015 0.35% 0.25% Life Vision Target Date 2025 0.35% 0.25% Life Vision Target Date 2035 0.35% 0.25% Limited-Term Federal Mortgage Securities 0.23% 0.15% Maryland Municipal Bond 0.15% 0.15% Mid-Cap Equity 0.35% 0.25% Mid-Cap Value Equity 0.35% 0.25% North Carolina Tax-Exempt Bond 0.15% 0.15% Prime Quality Money Market 0.20% 0.15% Quality Growth Stock 0.35% 0.25% Seix Floating Rate High Income 0.35% 0.25% Seix High Yield 0.25% 0.25% Short-Term Bond 0.23% 0.15% Short-Term U.S. Treasury Securities 0.18% 0.15%
59
MAXIMUM AMOUNT OF A PLAN DISTRIBUTION AND SERVICE FEE MAXIMUM PAYABLE FOR A PLAN DISTRIBUTION AND SHAREHOLDER FUND SERVICE FEE SERVICES* - ---------------------------------------- ----------------------- ------------------- Small Cap Growth Stock 0.35% 0.25% Small Cap Quantitative Equity 0.35% 0.25% Small Cap Value Equity 0.33% 0.25% Strategic Income 0.35% 0.25% Tax-Exempt Money Market 0.15% 0.15% U.S. Government Securities 0.35% 0.25% U.S. Government Securities Money Market 0.17% 0.15% U.S. Treasury Money Market 0.15% 0.15% Virginia Intermediate Municipal Bond 0.15% 0.15% Virginia Tax-Free Money Market 0.20% 0.15%
* Up to the amounts 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 applicable Fund. The Board has approved the maximum amounts shown in the table above. However, the Board has currently approved the implementation of only the amounts shown in the table below. Payments under the A Plan may not exceed the amounts shown below unless the Board approves the implementation of higher amounts.
MAXIMUM AMOUNT OF A PLAN DISTRIBUTION AND SERVICE FEE CURRENT A PLAN ALLOCATED FOR DISTRIBUTION AND SHAREHOLDER FUND SERVICE FEE SERVICES - ---------------------------------------- ---------------- ---------------- Aggressive Growth Stock 0.30% 0.25% Balanced 0.28% 0.25% Capital Appreciation 0.30% 0.25% Core Bond 0.25% 0.25% Emerging Growth Stock 0.30% 0.25% Florida Tax-Exempt Bond 0.15% 0.15% Georgia Tax-Exempt Bond 0.15% 0.15% High Income 0.30% 0.25% Intermediate Bond 0.25% 0.25% International Equity 0.30% 0.25% International Equity Index 0.30% 0.25% Investment Grade Bond 0.30% 0.25% Investment Grade Tax-Exempt Bond 0.30% 0.25% Large Cap Quantitative Equity 0.25% 0.25% Large Cap Relative Value 0.25% 0.25% Large Cap Value Equity 0.30% 0.25% Life Vision Aggressive Growth 0.30% 0.25% Life Vision Conservative 0.30% 0.25%
60
MAXIMUM AMOUNT OF A PLAN DISTRIBUTION AND SERVICE FEE CURRENT A PLAN ALLOCATED FOR DISTRIBUTION AND SHAREHOLDER FUND SERVICE FEE SERVICES - ---------------------------------------- ---------------- ---------------- Life Vision Growth and Income 0.30% 0.25% Life Vision Moderate Growth 0.30% 0.25% Life Vision Target Date 2015 0.30% 0.25% Life Vision Target Date 2025 0.30% 0.25% Life Vision Target Date 2035 0.30% 0.25% Limited-Term Federal Mortgage Securities 0.20% 0.15% Maryland Municipal Bond 0.15% 0.15% Mid-Cap Equity 0.30% 0.25% Mid-Cap Value Equity 0.30% 0.25% North Carolina Tax-Exempt Bond 0.15% 0.15% Prime Quality Money Market 0.15% 0.15% Quality Growth Stock 0.30% 0.25% Seix Floating Rate High Income 0.30% 0.25% Seix High Yield 0.25% 0.25% Short-Term Bond 0.20% 0.15% Short-Term U.S. Treasury Securities 0.18% 0.15% Small Cap Growth Stock 0.30% 0.25% Small Cap Quantitative Equity 0.30% 0.25% Small Cap Value Equity 0.25% 0.25% Strategic Income 0.30% 0.25% Tax-Exempt Money Market 0.15% 0.15% U.S. Government Securities 0.30% 0.25% U.S. Government Securities Money Market 0.15% 0.15% U.S. Treasury Money Market 0.15% 0.15% Virginia Intermediate Municipal Bond 0.15% 0.15% Virginia Tax-Free Money Market 0.15% 0.15%
In addition, the Distribution Agreement, the B Plan and the C Plan adopted by the Trust provide that B Shares and C Shares of each applicable Fund will pay the Distributor a fee of up to 0.75% of the average daily net assets of that Fund. The Distributor can use these fees to compensate broker-dealers and service providers, including SunTrust and its affiliates, which provide administrative and/or distribution services to B Shares or C Shares shareholders or their customers who beneficially own B Shares or C Shares. In addition, B Shares and C Shares are subject to a service fee of up to 0.25% of the average daily net assets of the B Shares and C Shares of each Fund. This service fee will be used for services provided and expenses incurred in maintaining shareholder accounts, responding to shareholder inquiries and providing information on their investments. Services for which broker-dealers and service providers may be compensated include establishing and maintaining customer accounts and records; aggregating and processing purchase and redemption requests from customers; placing net purchase and redemption orders with the Distributor; automatically investing customer account cash balances; providing periodic statements to customers; arranging for wires; answering customer inquiries concerning their investments; assisting customers in changing dividend options, account designations, and addresses; performing 61 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, the B 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, the B 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, the B Plan and the C Plan require that quarterly written reports of amounts spent under the A Plan, the B Plan and the C Plan, respectively, and the purposes of such expenditures be furnished to and reviewed by the Trustees. The A Plan, the B 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 B Shares or C Shares, but B Shares and C Shares are subject to a contingent deferred sales charge if they are redeemed within five and one years, respectively, of purchase. Pursuant to the Distribution Agreement, the B Plan and the C Plan, B Shares and C Shares are subject to an ongoing distribution and service fee calculated on each Fund's aggregate average daily net assets attributable to its B Shares or C Shares. For the fiscal year ended March 31, 2006, the fiscal period ended March 31, 2005, and for the 2004 fiscal year, the Funds paid the following amounts pursuant to the A Plan:
DISTRIBUTION FEES - AMOUNT PAID OR REIMBURSED ($)* -------------------------------------------------- FUND** 2006 2005*** 2004 - ---------------------------------------- ------------ ------------ ------------ Aggressive Growth Stock 1,000 (3,000) (1,000)++ Balanced 19,000 19,000 10,000 Capital Appreciation 499,000 757,000 850,000 Core Bond 1,000 0 0 Emerging Growth Stock 0 (3,000) (1,000)++ Florida Tax-Exempt Bond 9,000 8,000 1,000 Georgia Tax-Exempt Bond 5,000 2,000 (7,000)++ High Income 1,000 1,000 (3,000)++ Intermediate Bond 0 0 0 International Equity 31,000 19,000 8,000 International Equity Index 25,000 37,000 51,000 Investment Grade Bond 77,000 (6,000) 97,000 Investment Grade Tax-Exempt Bond 62,000 (3,000) 67,000 Large Cap Quantitative Equity 2,000 (1,000) (5,000)++ Large Cap Relative Value 112,000 75,000 31,000 Large Cap Value Equity 217,000 201,000 212,000 Life Vision Aggressive Growth 7,000 2,000 (4,000)+ Life Vision Conservative 4,000 1,000 (4,000)++
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DISTRIBUTION FEES - AMOUNT PAID OR REIMBURSED ($)* -------------------------------------------------- FUND** 2006 2005*** 2004 - ---------------------------------------- ------------ ------------ ------------ Life Vision Growth and Income 15,000 29,000 (4,000)++ Life Vision Moderate Growth 20,000 42,000 (1,000)++ Life Vision Target Date 2015 0 + + Life Vision Target Date 2025 0 + + Life Vision Target Date 2035 0 + + Limited-Term Federal Mortgage Securities 13,000 (2,000) 9,000 Maryland Municipal Bond 0 0 + Mid-Cap Equity 51,000 61,000 38,000 Mid-Cap Value Equity 7,000 2,000 (4,000)++ North Carolina Tax-Exempt Bond 0 0 + Prime Quality Money Market 4,532,000 3,094,000 3,313,000 Quality Growth Stock 2,000 0 (4,000)++ Seix Floating Rate High Income 0 + + Seix High Yield 58,000 15,000 40,000 Short-Term Bond 12,000 9,000 (2,000)++ Short-Term U.S. Treasury Securities 9,000 10,000 6,000 Small Cap Growth Stock 151,000 139,000 72,000 Small Cap Quantitative Equity + + + Small Cap Value Equity 12,000 7,000 (3,000)++ Strategic Income 8,000 8,000 0 Tax-Exempt Money Market 923,000 386,000 327,000 U.S. Government Securities 11,000 15,000 10,000 U.S. Government Securities Money Market 377,000 (10,000) 335,000 U.S. Treasury Money Market 8,000 (2,000) (5,000)++ Virginia Intermediate Municipal Bond 9,000 4,000 (10,000)++ Virginia Tax-Free Money Market 488,000 (240,000) 185,000
* Effective August 1, 2005, the fees payable pursuant to the Funds' A Plan were reduced to the amounts previously set forth in this SAI. ** Effective February 15, 2005, the Seix Funds changed their fiscal year end from October 31 to March 31, and each other Fund changed its fiscal year end from May 31 to March 31. *** With respect to the Seix Funds, represents fees paid during the period from November 1, 2004 through March 31, 2005, with respect to the North Carolina Tax-Exempt Bond Fund, represents fees paid during the period from March 21, 2005 (the commencement of operations) through March 31, 2005 and, with respect to each other Fund listed, represents fees paid during the period from June 1, 2004 through March 31, 2005. + Not in operation during the period. ++ SEI Investments Distribution Co. reimbursed the Funds for other expenses. For the fiscal year ended March 31, 2006, the fiscal period ended March 31, 2005, and for the 2004 fiscal year, the Funds paid the following amounts pursuant to the B Plan:
DISTRIBUTION FEES - AMOUNT PAID ($) ------------------------------------ FUND* 2006 2005 2004 - ----------------------------- -------- -------- ------- Life Vision Aggressive Growth 44,000 32,000 6,000 Life Vision Conservative 41,000 33,000 11,000 Life Vision Growth and Income 134,000 98,000 39,000 Life Vision Moderate Growth 107,000 80,000 52,000
* Effective February 15, 2005, each Fund listed above changed its fiscal year end from May 31 to March 31. For the fiscal year ended March 31, 2006, the fiscal period ended March 31, 2005, and for the 2004 fiscal year, the Funds paid the following amounts pursuant to the C Plan: 63
DISTRIBUTION FEES - AMOUNT PAID ($) ----------------------------------- FUND* 2006 2005** 2004 - ---------------------------------------- --------- ---------- ------- Aggressive Growth Stock 52,000 15,000 (1,000)+ Balanced 382,000 456,000 672,000 Capital Appreciation 610,000 728,000 970,000 Emerging Growth Stock 1,000 (3,000) (1,000)+ Florida Tax-Exempt Bond 101,000 97,000 203,000 Georgia Tax-Exempt Bond 95,000 70,000 102,000 High Income 376,000 364,000 488,000 International Equity 80,000 63,000 47,000 International Equity Index 56,000 45,000 29,000 Investment Grade Bond 155,000 80,000 235,000 Investment Grade Tax-Exempt Bond 129,000 52,000 237,000 Large Cap Quantitative Equity 15,000 11,000 3,000 Large Cap Relative Value 816,000 727,000 693,000 Large Cap Value Equity 469,000 458,000 536,000 Life Vision Aggressive Growth 6,000 *** *** Life Vision Conservative 6,000 *** *** Life Vision Growth and Income 13,000 *** *** Life Vision Moderate Growth 9,000 *** *** Life Vision Target Date 2015 0 *** *** Life Vision Target Date 2025 0 *** *** Life Vision Target Date 2035 0 *** *** Limited-Term Federal Mortgage Securities 233,000 (139,000) 675,000 Maryland Municipal Bond 116,000 (3,000) 228,000 Mid-Cap Equity 139,000 52,000* 117,000 Mid-Cap Value Equity 57,000 39,000 19,000 North Carolina Tax-Exempt Bond 0 0 *** Prime Quality Money Market 15,000 26,000 49,000 Quality Growth Stock 572,000 651,000 956,000 Short-Term Bond 104,000 91,000 133,000 Short-Term U.S. Treasury Securities 213,000 169,000 349,000 Small Cap Growth Stock 340,000 309,000 337,000 Small Cap Quantitative Equity *** *** *** Small Cap Value Equity 105,000 94,000 353,000 Strategic Income 536,000 428,000 760,000 U.S. Government Securities 98,000 118,000 229,000 Virginia Intermediate Municipal Bond 13,000 0 ***
* Effective February 15, 2005, the Seix Funds changed their fiscal year end from October 31 to March 31, and each other Fund changed its fiscal year end from May 31 to March 31. ** With respect to the Seix Funds, represents fees paid during the period from November 1, 2004 through March 31, 2005, with respect to the North Carolina Tax-Exempt Bond Fund, represents fees paid during the period from March 21, 2005 (the commencement of operations) through March 31, 2005 and, with respect to each other Fund listed, represents fees paid during the period from June 1, 2004 through March 31, 2005. *** Not in operation during the period. + SEI Investments Distribution Co. reimbursed the Funds for other expenses. Other than any portion of the sales charges imposed on purchases, the following table shows the level of compensation paid by the Distributor to broker-dealers selling A Shares and C Shares (purchased prior to August 1, 2005), unless otherwise agreed upon by the Distributor and such broker-dealer. 64
ANNUAL PAYOUT ANNUAL PAYOUT 12(B)-1 EFFECTIVE INITIAL PAYMENT - 12(B)-1 EFFECTIVE IN FUND IMMEDIATELY (A)* AT TIME OF SALE (C) THE 13TH MONTH (C) - ------------------------------------ ----------------- ------------------- -------------------- EQUITY FUNDS Aggressive Growth Stock 0.15% 1.00% 1.00% Balanced 0.15% 1.00% 1.00% Capital Appreciation 0.40% 1.00% 1.00% Core Bond 0.15% 1.00% 1.00% Emerging Growth Stock 0.15% 1.00% 1.00% Intermediate Bond 0.15% 1.00% 1.00% International Equity 0.15% 1.00% 1.00% International Equity Index 0.30% 1.00% 1.00% Large Cap Quantitative Equity 0.15% 1.00% 1.00% Large Cap Relative Value 0.15% 1.00% 1.00% Large Cap Value Equity 0.25% 1.00% 1.00% Life Vision Aggressive Growth 0.15% 1.00% 1.00% Life Vision Conservative 0.15% 1.00% 1.00% Life Vision Growth and Income 0.15% 1.00% 1.00% Life Vision Moderate Growth 0.15% 1.00% 1.00% Life Vision Target Date 2015 n/a n/a n/a Life Vision Target Date 2025 n/a n/a n/a Life Vision Target Date 2035 n/a n/a n/a Limited Duration n/a 1.00% 1.00% Mid-Cap Equity 0.25% 1.00% 1.00% Mid-Cap Value Equity 0.15% 1.00% 1.00% North Carolina Tax-Exempt Bond 0.05% 1.00% 1.00% Quality Growth Stock 0.15% 1.00% 1.00% Seix Floating Rate High Income 0.25% N/A N/A Seix High Yield 0.15% 1.00% 1.00% Small Cap Growth Stock 0.25% 1.00% 1.00% Small Cap Quantitative Equity 0.25% 1.00% 1.00% Small Cap Value Equity 0.15% 1.00% 1.00% FIXED INCOME FUNDS Florida Tax-Exempt Bond 0.05% 1.00% 1.00% Georgia Tax-Exempt Bond 0.05% 1.00% 1.00% High Income 0.15% 1.00% 1.00% Investment Grade Bond 0.20% 1.00% 1.00% Investment Grade Tax-Exempt Bond 0.20% 1.00% 1.00% Limited Term Federal Mortgage Securities 0.05% 1.00% 1.00% Maryland Municipal Bond 0.05% 1.00% 1.00% Short Term Bond 0.05% 1.00% 1.00% Short-Term U.S. Treasury Securities 0.05% 1.00% 1.00%
65
ANNUAL PAYOUT ANNUAL PAYOUT 12(B)-1 EFFECTIVE INITIAL PAYMENT - 12(B)-1 EFFECTIVE IN FUND IMMEDIATELY (A)* AT TIME OF SALE (C) THE 13TH MONTH (C) - ------------------------------------ ----------------- ------------------- -------------------- Strategic Income 0.15% 1.00% 1.00% U.S. Government Securities 0.15% 1.00% 1.00% U.S. Government Securities Ultra-Short Bond n/a 1.00% 1.00% Virginia Intermediate Municipal Bond 0.05% 1.00% 1.00% MONEY MARKET FUND Prime Quality Money Market 0.17% n/a 1.00%
* Initial Front End Sales Charge for A Shares ranges from 5.75% maximum to 1.50% depending on Fund and breakpoints (outlined in prospectus). Other than any portion of the sales charges imposed on purchases, and unless otherwise agreed upon by the Distributor and such broker-dealer the Distributor pays broker-dealers selling C Shares purchased beginning August 1, 2005, an initial payment at the time of sale of 1.00% and annual 12(b)-1 payout effective in the 13th month of 1.00%. 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 custodian for all of the Funds except for the International Equity, International Equity Index and Strategic Income Funds. Brown Brothers Harriman & Co., 40 Water Street, Boston, MA 02109 serves as custodian for the International Equity, International Equity Index and Strategic Income Funds. SunTrust Bank is paid on the basis of net assets and transactions costs of the Funds. 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 1111 Pennsylvania Avenue, NW, Washington, DC 20004, serves as legal counsel to the Trust. TRUSTEES AND OFFICERS OF THE TRUST BOARD RESPONSIBILITIES. The management and affairs of the Trust and each of the Funds are supervised by the Board under the laws of the Commonwealth of Massachusetts. The Board is responsible for overseeing each of the Funds. The Trustees have approved contracts, as described above, under which certain companies provide essential management services to the Trust. 66 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 of each of the persons currently serving as Trustees of the Trust. Each Trustee is also a Trustee of the STI Classic Variable Trust which is comprised of seven series.
NUMBER OF PORTFOLIOS IN POSITION THE STI FUND HELD TERM OF OFFICE COMPLEX NAME, ADDRESS, DATE WITH THE AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY OTHER DIRECTORSHIPS OF BIRTH GROUP TIME SERVED DURING THE PAST 5 YEARS TRUSTEES HELD BY TRUSTEE - ----------------------- --------- -------------- ------------------------- ------------- ----------------------------- INTERESTED TRUSTEES*: Richard W. Courts, II Trustee Indefinite; Chairman, Atlantic 60 Genuine Parts Company; 3435 Stelzer Road since November Investment Company Piedmont Medical Center; Columbus, OH 43219 2001 SunTrust Bank DOB 01/18/36 Clarence H. Ridley Trustee Indefinite; Chairman, Haverty 60 Crawford & Co. 3435 Stelzer Road since November Furniture Companites; Columbus, OH 43219 2001 Partner, King and DOB 06/03/42 Spaulding LLP (law firm) (1977 to 2000) INDEPENDENT TRUSTEES**: Thomas Gallagher Trustee Indefinite; President, CEO, Genuine 60 Genuine Parts Company; Oxford 3435 Stelzer Road since May 2000 Parts Company Industries, Inc. Columbus, OH 43219 DOB 11/25/47 F. Wendell Gooch Trustee Indefinite; Retired 60 SEI Family of Funds 3435 Stelzer Road since May 1992 Columbus, OH 43219 DOB 12/03/32 Sidney E. Harris Trustee Indefinite; Professor (since 2004) 60 ServiceMaster Company; Total 3435 Stelzer Road since November and Dean (1997-2004), J. System Services, Inc.; Columbus, OH 43219 2004 Mack Robinson College of Transamerica Investors, Inc. DOB 07/21/49 Business, Georgia State (13 mutual funds) University Warren Y. Jobe Trustee Indefinite; Retired. EVP, Georgia 60 WellPoint, Inc.; UniSource 3435 Stelzer Road since November Power Company and SVP, Energy Corp.; HomeBanc Corp. Columbus, OH 43219 2004 Southern Company (1998 - DOB 11/12/40 2001) Connie D. McDaniel Trustee Indefinite; Vice President and 60 None 3435 Stelzer Road since May 2005 Controller, The Columbus, OH 43219 Coca-Cola Company DOB 04/10/42 James O. Robbins Trustee Indefinite; Retired. President, 60 Cox Communications; Humana, 3435 Stelzer Road since May 2000 CEO, Cox Communications, Inc. Columbus, OH 43219 Inc. (1985-2005) DOB 07/04/42 Charles D. Winslow Trustee Indefinite; Retired. Formerly 60 None 3435 Stelzer Road since November Partner, Accenture Columbus, OH 43219 2004 (consulting) DOB 07/13/35
* 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 a 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 67 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 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 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, Jobe and Robbins currently serve as members of the 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. - - VALUATION COMMITTEE. The Board has established the Trust's Valuation 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 Valuation Committee operates under procedures approved by the Board. The principal responsibility of the Valuation Committee is to determine the fair value of securities for which current market 68 quotations are not readily available. The Valuation Committee's determinations are reviewed by the Board. The Valuation 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 each of the Funds as of the end of the most recently completed calendar year. Dollar amount ranges disclosed are established by the SEC. "Beneficial ownership" is determined in accordance with Rule 16a-1(a)(2) under the 1934 Act. The "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 COMPANIES OVERSEEN BY TRUSTEE IN FAMILY OF INVESTMENT TRUSTEE/OFFICER DOLLAR RANGE OF FUND SHARES COMPANIES - --------------------- -------------------------------------------------- ---------------------- INTERESTED TRUSTEES Richard W. Courts, II $50,001-$100,000 (Aggressive Growth Stock Fund) $50,001-$100,000 $10,001-$50,000 (International Equity Fund) Clarence H. Ridley $10,001-$50,000 (Prime Quality Money Market) Over $100,000 $50,001-$100,000 (International Equity Fund) $50,001-$100,000 (Small Cap Value Equity Fund) INDEPENDENT TRUSTEES Thomas Gallagher $1-$10,000 (Aggressive Growth Stock Fund) $50,001-$100,000 $10,001-$50,000 (Capital Appreciation Fund) $1-$10,000 (Large Cap Relative Value Fund) $1-$10,000 (Large Cap Value Equity Fund) $1-$10,000 (Prime Quality Money Market Fund) $10,001-$50,000 (Quality Growth Stock Fund) $10,001-$50,000 (Small Cap Value Equity Fund) $1-$10,000 (Small Cap Growth Stock Fund) F. Wendell Gooch $1-$10,000 (Prime Quality Money Market Fund) $50,001-$100,000 $10,001-$50,000 (Aggressive Growth Stock Fund) $10,001-$50,000 (International Equity Fund) James O. Robbins $10,001-$50,000 (Large Cap Relative Value Fund) Over $100,000 $10,001-$50,000 (Small Cap Growth Stock Fund) $10,001-$50,000 (International Equity Fund) Over $100,000 (Prime Quality Money Market Fund) Over $100,000 (Tax-Exempt Money Market Fund) Sidney E. Harris $10,001-$50,000 (Small Cap Growth Stock Fund) $10,001-$50,000 $10,001-$50,000 (Prime Quality Money Market) $1-$10,000 (Large Cap Quantitative Equity Fund) Warren Jobe Over $100,000 (Prime Quality Money Market Fund) $50,001-$100,000 $50,001-$100,000 (Small Cap Growth Stock Fund) Charles D. Winslow $1-$10,000 (Prime Quality Money Market Fund $10,001-$50,000 $10,001-$50,000 (Capital Appreciation Fund) $1-$10,000 (Aggressive Growth Stock Fund) $1-$10,000 (Large Cap Value Equity Fund) $1-$10,000 (Small Cap Growth Stock Fund) Connie D. McDaniel $1-$10,000 (Small Cap Growth Stock Fund) $50,001-$100,000 $50,001-$100,000 (Prime Quality Money Market Fund) $10,001-$50,000 (Large Cap Relative Value Fund) $10,001-$50,000 (Mid-Cap Equity Fund)
69 As of July 5, 2006, the Trustees and Officers of the Trust as a group owned less that 1% of the outstanding shares of each class of each Fund except: Class C Shares of the Aggressive Growth Stock Fund, of which they owned 2.04%; Class C Shares of the International Equity Fund, of which they owned 2.01%; and Class I Shares of the Small Cap Growth Stock Fund, of which they owned 4.39%. BOARD COMPENSATION. The table below shows the compensation paid to the Trustees during the fiscal year ended March 31, 2006. The "Fund Complex" referenced in the table consists of the Trust and the STI Classic Variable Trust.
PENSION OR RETIREMENT ESTIMATED AGGREGATE BENEFITS ACCRUED ANNUAL BENEFITS TOTAL COMPENSATION FROM COMPENSATION AS PART OF FUND UPON THE TRUST AND FUND NAME OF TRUSTEE FROM THE TRUST ($) EXPENSES RETIREMENT COMPLEX ($) - --------------------- ------------------ ---------------- --------------- ----------------------- INTERESTED TRUSTEES Richard W. Courts, II 53,230 N/A N/A 53,500 Clarence H. Ridley 57,200 N/A N/A 57,500 INDEPENDENT TRUSTEES Thomas Gallagher 78,590 N/A N/A 79,000 F. Wendell Gooch 71,140 N/A N/A 71,500 Connie McDaniel 56,710 N/A N/A 57,000 James O. Robbins 63,890 N/A N/A 64,000 Jonathan T. Walton* 45,750 N/A N/A 46,000 Sidney E. Harris 60,680 N/A N/A 61,000 Warren Y. Jobe 63,660 N/A N/A 64,000 Charles D. Winslow 62,670 N/A N/A 63,000
* Mr. Walton resigned as a Trustee of the Trust effective December 31, 2005. TRUST OFFICERS. The 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.
NAME, ADDRESS TERM OF OFFICE AND DATE OF BIRTH POSITION(S) HELD AND LENGTH OFFICERS: WITH TRUST OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING THE PAST 5 YEARS R. Jeffrey Young President and Since July 2004 Senior Vice President, Relationship Management, BISYS 3435 Stelzer Road Chief Executive Fund Services (since 2002); Vice President, Client Columbus, OH 43219 Officer Services, BISYS Fund Services (1997-2002) DOB 08/22/64 Deborah A. Lamb Executive Vice Since September Chief Compliance Officer, Managing Director, Trusco 50 Hurt Plaza President; 2004; since November Capital Management, Inc. (since 2003); President, Suite 1400 Assistant 2003; since August Investment Industry Consultants, LLC (2000 - 2003); Atlanta, GA 30303 Secretary; Chief 2004 (respectively) Director of Compliance, INVESCO, Inc. (1995-2000) DOB 10/02/52 Compliance Officer
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NAME, ADDRESS TERM OF OFFICE AND DATE OF BIRTH POSITION(S) HELD AND LENGTH OFFICERS: WITH TRUST OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING THE PAST 5 YEARS Joel Engle Treasurer and Since April 2006 Director, Fund Administration, BISYS Fund Services since 3435 Stelzer Road Chief Financial February 2006; Small business owner/operator (retail) Columbus, OH 43219 Officer (2003 to 2006); Vice President, Fund Administration, DOB 10/31/65 BISYS Fund Services (1998 to 2003) Cynthia J. Surprise Secretary and Since February 2005 Senior Counsel, Legal Services, BISYS Fund Services 3435 Stelzer Road Chief Legal Officer (since 2004); Director and Counsel, Investors Bank & Columbus, OH 43219 Trust Company (1999-2004) DOB 07/08/46 Jennifer A. English Assistant Secretary Since November 2005 Assistant Counsel, Legal Services, BISYS Fund Services 3435 Stelzer Road (since 2005); Assistant Counsel, PFPC Inc. (2002-2005); Columbus, OH 43219 Associate Legal Product Manager, Fidelity Investments DOB 03/05/72 (2001) Alaina V. Metz Assistant Secretary Since July 2004 Vice President, Blue Sky Compliance, BISYS Fund Services 3435 Stelzer Road (since 2002); Chief Administrative Officer, Blue Sky Columbus, OH 43219 Compliance, BISYS Fund Services (1995-2002) DOB 04/07/67
PURCHASING AND REDEEMING SHARES Purchases and redemptions of shares of the Funds may be made on any day the New York Stock Exchange ("NYSE") is open for business. Shares of each Fund are offered and redeemed on a continuous basis. Currently, the NYSE is closed on the days the following holidays are observed: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. 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 Funds in lieu of cash. Shareholders may incur brokerage charges on the sale of any such securities so received in payment of redemptions. A shareholder will at all times be entitled to aggregate cash redemptions from all Funds of the Trust up to the lesser of $250,000 or 1% of the Trust's net assets during any 90-day period. The Board has adopted procedures which permit 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 during 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 which disposal or valuation of a Fund's portfolio securities is not reasonably practicable, or for such other periods as the SEC has by order permitted. The Trust reserves the right to postpone payment or redemption proceeds for up to seven days if the redemption would harm existing shareholders. The Trust also reserves the right to suspend sales of shares of a Fund for any period during which the NYSE, the Adviser, the Administrator and/or the Custodian are not open for business. The Trust reserves the right to waive any minimum investment requirements or sales charges for immediate family members of the Trustees or 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. Currently, the front-end sales charge is waived on A Shares purchased by Trustees or employees of the Adviser and their respective immediate family members. 71 The Trust will permit an exchange of C Shares of a Fund for A Shares of the same Fund, and will waive any sales charges that would otherwise apply, for those investors who hold 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 imposes a redemption fee of up to 2% on Market Timers as described in the Trust's prospectuses payable directly to the Fund. As of April 30, 2004 (the "Close Date"), shares of the Small Cap Value Equity Fund are no longer available to new investors; existing shareholders may continue to invest in the Fund. An existing shareholder is defined as follows: - INDIVIDUAL INVESTORS in the Fund on the Close Date; - ALL OTHER FOR-PROFIT OR NOT-FOR-PROFIT ENTITIES with whom an agreement to offer the Fund had been signed but not funded prior to the Close Date; - 401(K) PLANS with whom an agreement to offer the Fund had been signed but not funded prior to the Close Date; - DEFINED BENEFIT PLANS with whom an agreement to offer the Fund had been signed but not funded prior to the Close Date; - PENSION PLANS with whom an agreement to offer the Fund had been signed but not funded prior to the Close Date; and - NON-QUALIFIED PLANS with whom an agreement to offer the Fund had been signed but not funded prior to the Close Date. All of the above referenced shareholders are permitted to make new investments in the Fund. This includes beneficial owners, whether new or existing, of the existing 401(k) plans, defined benefit plans, pension plans and non-qualified plans. As of August 1, 2005, Class B Shares are not available for purchase, except through dividend or distribution reinvestments in Class B Shares and exchanges of Class B Shares of one Fund for Class B Shares of another Fund. RIGHTS OF ACCUMULATION. In calculating the appropriate sales charge rate, rights of accumulation allow you to add the market value (at the close of business on the day of the current purchase) of your existing holdings in any class of shares to the amount of A shares you are currently purchasing. The funds will combine the value of your current purchases with the current market value of any shares previously purchased for - your individual account(s), - your spouse's account(s), - joint account(s) with your spouse, - your minor children's trust or custodial accounts. A fiduciary purchasing shares for the same fiduciary account, trust or estate may also use this right of accumulation. To be entitled to a reduced sales charge based on shares already owned, you must let the Funds know at the time you make the purchase for which you are seeking the reduction that you qualify for such a reduction. You may be required to provide the Funds with your account number(s), account name(s), and copies of the account statements, and if applicable, the account number(s), account name(s), and copies of the account statements, for your spouse and/or 72 children (and provide the children's ages). Your financial institution may require documentation or other information in order to verify your eligibility for a reduced sales charge. The Funds may amend or terminate this right of accumulation at any time. LETTER OF INTENT. A Letter of Intent allows you to purchase shares over a 13-month period and receive the same sales charge as if you had purchased all the shares at the same time. Reinvested dividends or capital gain distributions do not apply toward these combined purchases. To be entitled to a reduced sales charge based on shares you intend to purchase over the 13-month period, you must send the Funds a Letter of Intent. In calculating the total amount of purchases, you may include in your Letter purchases made up to 90 days before the date of the Letter. The 13-month period begins on the date of the first purchase, including those purchases made in the 90-day period before the date of the Letter. Please note that the purchase price of these prior purchases will not be adjusted. You are not legally bound by the terms of your Letter of Intent to purchase the amount of shares stated in the Letter. The Letter does, however, authorize the Funds to hold in escrow 5.75% for the following Funds: Aggressive Growth Stock Fund Balanced Fund Emerging Growth Stock Fund Large Cap Quantitative Equity Fund Large Cap Relative Value Fund Large Cap Value Equity Fund Mid-Cap Equity Fund Mid-Cap Value Equity Fund Quality Growth Stock Fund Small Cap Growth Stock Fund Small Cap Quantitative Equity Fund Small Cap Value Equity Fund and 4.75% for the following Funds: Core Bond Fund Florida Tax-Exempt Bond Fund Georgia Tax-Exempt Bond Fund High Income Fund High Quality Bond Fund Intermediate Bond Fund Investment Grade Bond Fund Investment Grade Tax-Exempt Bond Fund Maryland Municipal Bond Fund North Carolina Tax-Exempt Bond Fund Seix Floating Rate High Income Fund Seix High Yield Fund Strategic Income Fund Total Return Bond Fund 73 U.S. Government Securities Ultra-Short Bond Fund Ultra-Short Bond Fund Virginia Intermediate Municipal Bond Fund of the total amount you intend to purchase. If you do not complete the total intended purchase at the end of the 13-month period, the Funds' transfer agent will redeem the necessary portion of the escrowed shares to make up the difference between the reduced rate sales charge (based on the amount you intended to purchase) and the sales charge that would normally apply (based on the actual amount you purchased). DETERMINATION OF NET ASSET VALUE GENERAL POLICY. Each of the Funds adheres to Section 2(a)(41), and Rules 2a-4 and 2a-7 thereunder, of the 1940 Act with respect to the valuation of portfolio securities. In general, securities for which market quotations are readily available are valued at current market value, and all other securities are valued at fair value as determined in good faith by the Trusts' Board of Trustees. In complying with the 1940 Act, the Trust relies on guidance provided by the SEC and by the SEC staff in various interpretive letters and other guidance. EQUITY SECURITIES. Securities listed on a securities exchange, market or automated quotation system for which quotations are readily available, including securities traded over the counter, are valued at the official closing price or the last quoted sale price on the principal exchange or market (foreign or domestic) on which they are traded on valuation date (or at approximately 4:00 p.m., Eastern Time if a security's principal exchange is normally open at that time). If there is no official closing price and there is no such reported sale on the valuation date, the security is valued at the most recent quoted bid price. If such prices are not available, the security will be valued at fair value as determined in good faith by the Trust's Board of Trustees. MONEY MARKET SECURITIES AND OTHER DEBT SECURITIES. If available, Money Market Securities and other debt securities are priced based upon valuations provided by recognized independent, third-party pricing agents. Such values generally reflect the last reported sales price if the security is actively traded. The third-party pricing agents may also value debt securities by employing methodologies that utilize actual market transactions, broker-supplied valuations, or other methodologies designed to identify the market value for such securities. Such methodologies generally consider such factors as security prices, yields, maturities, call features, ratings and developments relating to specific securities in arriving at valuations. Money Market Securities and other debt securities with remaining maturities of sixty days or less may be valued at their amortized cost, which approximates market value. If such prices are not available, the security will be valued at fair value as determined in good faith by the Trust's Board of Trustees. USE OF THIRD-PARTY INDEPENDENT PRICING AGENTS. Pursuant to contracts with the Trust's Administrator, prices for most securities held by the Funds are provided daily by third-party independent pricing agents that are approved by the Board of Trustees of the Trust. The valuations provided by third-party independent pricing agents are reviewed daily by the Administrator. AMORTIZED COST METHOD OF VALUATION. The amortized cost method involves valuing a security at its cost on the date of purchase and thereafter (absent unusual circumstances) assuming a constant amortization to maturity of any discount or premium, regardless of the impact of fluctuations in general market rates of interest on the value of the instrument. While this method provides certainty in valuation, it may result in periods during which a security's value, as determined by this method, is higher or lower than the price a Fund would receive if it sold the instrument. During periods of declining interest rates, the daily yield of a Fund may tend to be higher than a like computation made by a 74 company with identical investments utilizing a method of valuation based upon market prices and estimates of market prices for all of its portfolio securities. Thus, if the use of amortized cost by a Fund resulted in a lower aggregate portfolio value on a particular day, a prospective investor in a Fund would be able to obtain a somewhat higher yield than would result from investment in a company utilizing solely market values, and existing investors in a Fund would experience a lower yield. The converse would apply in a period of rising interest rates. A Fund's use of amortized cost and the maintenance of a Fund's net asset value at $1.00 are permitted by regulations promulgated by Rule 2a-7 under the 1940 Act, provided that certain conditions are met. The regulations also require the Trustees to establish procedures which are reasonably designed to stabilize the net asset value per share at $1.00 for the Funds. Such procedures include the determination of the extent of deviation, if any, of the Funds current net asset value per share calculated using available market quotations from the Funds amortized cost price per share at such intervals as the Trustees deem appropriate and reasonable in light of market conditions and periodic reviews of the amount of the deviation and the methods used to calculate such deviation. In the event that such deviation exceeds one half of 1%, the Trustees are required to consider promptly what action, if any, should be initiated, and, if the Trustees believe that the extent of any deviation may result in material dilution or other unfair results to shareholders, the Trustees are required to take such corrective action as they deem appropriate to eliminate or reduce such dilution or unfair results to the extent reasonably practicable. Such actions may include the sale of portfolio instruments prior to maturity to realize capital gains or losses or to shorten average portfolio maturity; withholding dividends; redeeming shares in kind; or establishing a net asset value per share by using available market quotations. In addition, if the Funds incur a significant loss or liability, the Trustees have the authority to reduce pro rata the number of shares of the Funds in each shareholder's account and to offset each shareholder's pro rata portion of such loss or liability from the shareholder's accrued but unpaid dividends or from future dividends while each other Fund must annually distribute at least 90% of its investment company taxable income. TAXES The following is a summary of certain federal income tax considerations generally affecting the Funds and their investors. No attempt is made to present a detailed explanation of the federal tax treatment of a Fund or its investors, and the discussion here and in the Trust's prospectuses is not intended as a substitute for careful tax planning. FEDERAL INCOME TAX This discussion of federal income tax considerations is based on the Internal Revenue Code of 1986, as amended, and the regulations issued thereunder, in effect on the date of this SAI. New legislation, as well as administrative changes or court decisions may change the conclusions expressed herein, and may have a retroactive effect with respect to the transactions contemplated herein. In order to qualify for treatment as a regulated investment company ("RIC") under the Code, the Funds must distribute annually to its shareholders at least the sum of 90% of its net investment income excludable from gross income plus 90% of its investment company taxable income (generally, net investment income plus the excess, if any, of net short-term capital gain) (the "Distribution Requirement") and also must meet several additional requirements. Among these requirements are the following: (i) at least 90% of a Fund's gross income each taxable year must be derived from dividends, interest, payments with respect to securities loans, and gains from the sale or other disposition of stock or securities or foreign currencies, or other income derived with respect to its business of investing in such stock, securities or currencies, and net income derived from interests in qualified publicly traded partnerships, (ii) at the close of each quarter of a Fund's taxable year, at least 50% of the value of its total assets must be represented by cash and cash items, U.S. government securities, securities of other RICs and other securities, with such other securities limited, in respect to any one issuer, to an amount that does not exceed 5% of the value of a Fund's assets and that does not represent more than 10% of the outstanding voting securities of such issuer; and (iii) at the close of each quarter of a Fund's taxable year, not more than 25% of the value of the Fund's assets may be invested in securities (other than U.S. government securities or the securities of other RICs) of any one issuer, or of two or more issuers engaged in same or similar businesses if a Fund owns at least 20% of the voting power of such 75 issuers, or of one or more qualified publicly traded partnerships, or the securities of one or more qualified publicly traded partnerships. Notwithstanding the Distribution Requirement described above, which only requires a Fund to distribute at least 90% of its annual investment company taxable income and does not require any minimum distribution of net capital gains (the excess of net long-term capital gains over net short-term capital loss), a Fund will be subject to a nondeductible 4% excise tax to the extent it fails to distribute by the end of any calendar year 98% of its ordinary income for that year and 98% of its capital gain net income for the one-year period ending on October 31 of that year (and any retained amount from that prior calendar year on which the Fund paid no federal income tax). The Funds intend to make sufficient distributions prior to the end of each calendar year to avoid liability for the federal excise tax applicable to regulated investment companies but can make no assurances that distributions will be sufficient to avoid this tax. If a Fund fails to maintain qualification as a RIC for a tax year, that Fund will be subject to federal income tax on its taxable income and gains at corporate rates, without any benefit for distributions paid to shareholders, and distributions to shareholders will be taxed as ordinary income to the extent of that Fund's current and accumulated earnings and profits. In such case, the dividends received deduction generally will be available for eligible corporate shareholders (subject to certain limitations) and the lower tax rates applicable to qualified dividend income would be available to individual shareholders. The board reserve the right not to maintain qualification of a Fund as a RIC if it determines such course of action to be beneficial to shareholders. Each Fund may invest in complex securities. These investments may be subject to numerous special and complex tax rules. These rules could affect whether gains and losses recognized by a Fund are treated as ordinary income or capital gains, accelerate the recognition of income to a Fund, and/or defer a Fund's ability to recognize losses. In turn, these rules may affect the amount, timing or character of the income distributed to shareholders by a Fund. With respect to investments in STRIPs, TRs, and other zero coupon securities which are sold at original issue discount and thus do not make periodic cash interest payments, a Fund will be required to include as part of its current income the imputed interest on such obligations even thought the Fund has not received any interest payments on such obligations during that period. Because each Fund distributes all of its nets investment income to its shareholders, a Fund may have to sell Fund securities to distribute such imputed income which may occur at a time when the Adviser would not have chosen to sell such securities and which may result in taxable gain or loss. The Fixed Income Funds receive income generally in the form of interest derived from Fund investments. This income, less expenses incurred in the operation of a Fund, constitutes its net investment income from which dividends may be paid to shareholders. Any distributions by a Fund may be taxable to shareholders regardless of whether they are received in cash or additional shares. A Fund may derive capital gains and losses in connection with sales or other dispositions of its portfolio securities. Distributions of net short-term capital gains will be taxable to shareholders as ordinary income. In general, the Fixed Income Funds do not expect to realize net-long term capital gains because the Bond Funds and the portion of such Funds' distributions are expected to be eligible for the corporate dividends received deduction. The Equity Funds receive income generally in the form of dividends and interest on Fund investments. This income, less expenses incurred in the operation of a Fund, constitutes its net investment income from which dividends may be paid to you. All or a portion of the net investment income distributions may be treated as qualified dividend income (eligible for the reduced maximum rate to individuals of 15% (5% for individuals in lower tax brackets)) to the extent that a Fund receives qualified dividend income. Qualified dividend income is, in general, dividend income from taxable domestic corporations and certain foreign corporations (e.g., foreign corporations incorporated in a possession of the United States or in certain countries with a comprehensive tax treaty with the United States, or the stock of which is readily tradable on an established securities 76 market in the United States). In order for some portion of the dividends received by a Fund shareholder to be qualified dividend income, a Fund must meet holding period and other requirements with respect to the dividend paying stocks in its portfolio, and the shareholder must meet holding period and other requirements with respect to a Fund's shares. Any distributions by a Fund may be taxable to shareholders regardless of whether they are received in cash or in additional shares. The Equity Funds may derive capital gains and losses in connection with sales or other dispositions of each Fund's portfolio securities. Distributions from net short-term capital gains will be taxable to you as ordinary income. Distributions from net long-term capital gains will be taxable to you as long-term capital gains regardless of how long you have held your shares in the fund. Currently, the maximum tax rate on long-term capital gains is 15%. Absent further legislation, the maximum 15% tax rate on qualified dividend income and long-term capital gains will cease to apply to taxable years beginning after December 31, 2010. Shareholders who have not held Fund shares for a full year should be aware that a Fund may designate and distribute, as ordinary income or capital gain, a percentage of income that is not equal to the actual amount of such income earned during the period of investment in a Fund. Each Fund will inform you of the amount of your ordinary income dividends, qualified dividend income, and capital gain distributions shortly after the close of each calendar year. If a Fund's distributions exceed its taxable income and capital gains realized during a taxable year, all or a portion of the distributions made in the same taxable year may be recharacterized as a return of capital to shareholders. A return of capital distribution will generally not be taxable, but will reduce each shareholder's cost basis in a Fund and result in higher reported capital gain or lower reported capital loss when those shares on which distribution was received are sold. If a shareholder that is a tax-exempt investor (e.g., a pension plan, individual retirement account, 401(k), similar tax-advantaged plan, charitable organization, etc.) incurs debt to finance the acquisition of its shares, a portion of the income received by that shareholder with respect to its shares would constitute unrelated business taxable income ("UBTI"). A tax-exempt investor is generally subject to federal income tax to the extent that its UBTI for a taxable year exceeds its annual $1,000 exclusion. 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 a 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 tax-exempt fund held for six months or less will be disallowed to the extent of any exempt interest dividends received by the shareholder with respect to such shares. All or a portion of any loss that you realize upon the redemption of your fund shares will be disallowed to the extent that you buy other shares in a Fund (through reinvestment of dividends or otherwise) within 30 days before or after your share redemption. Any loss disallowed under these rules will be added to your tax basis in the new shares you buy. In certain cases, a Fund will be required to withhold, at the applicable withholding rates, an amount from any distributions and redemptions to shareholders, and to remit such amount to the Internal Revenue Service ("IRS") if the 77 shareholder: (1) has failed to provide a correct taxpayer identification number, (2) is subject to backup withholding by the IRS, or (3) has failed to provide the Fund with certain certifications that are required by the IRS, or (4) has failed to certify that he or she is a U.S. person (including a U.S. resident alien). Tax-Exempt Funds If, at the close of each quarter of its taxable year, at least 50% of the value of a Fund's total assets consists of obligations the interest on which is excludable from gross income, such Fund may pay "exempt interest dividends," as defined in Section 852(b)(5) of the Code, to its shareholders. As noted in their prospectuses, the Investment Grade Tax-Exempt Bond Fund, and the State Tax-Exempt Bond Funds intend to pay exempt-interest dividends. Exempt-interest dividends are excludable from a shareholder's gross income for regular federal income tax purposes, but may nevertheless be subject to the alternative minimum tax (the "Alternative Minimum Tax") imposed by Section 55 of the Code. The Alternative Minimum Tax is imposed at a maximum rate of 28% in the case of non-corporate taxpayers and at the rate of 20% in the case of corporate taxpayers, to the extent it exceeds the taxpayer's regular tax liability. The Alternative Minimum Tax may be imposed in two circumstances. First, exempt-interest dividends derived from certain "private activity bonds" issued after August 7, 1986, will generally be an item of tax preference and therefore potentially subject to the Alternative Minimum Tax for both corporate and non-corporate taxpayers. Second, in the case of exempt-interest dividends received by corporate shareholders, all exempt-interest dividends, regardless of when the bonds from which they are derived were issued or whether they are derived from private activity bonds, will be included in the corporation's "adjusted current earnings," as defined in Section 56(g) of the Code, in calculating the corporation's alternative minimum taxable income for purposes of determining the Alternative Minimum Tax. Distributions of exempt-interest dividends may result in additional federal income tax consequences to shareholders in tax-exempt funds. For example, interest on indebtedness incurred by shareholders to purchase or carry shares of a tax-exempt fund will not be deductible for federal income tax purposes to the extent that the Fund distributes exempt interest dividends during the taxable year. The deduction otherwise allowable to property and casualty insurance companies for "losses incurred" will be reduced by an amount equal to a portion of exempt-interest dividends received or accrued during any taxable year. Certain foreign corporations engaged in a trade or business in the U. S. will be subject to a "branch profits tax" on their "dividend equivalent amount" for the taxable year, which will include exempt-interest dividends. Certain Subchapter S corporations may also be subject to taxes on their "passive investment income," which could include exempt-interest dividends. Up to 85% of the Social Security benefits or railroad retirement benefits received by an individual during any taxable year will be included in the gross income of such individual if the individual's "modified adjusted gross income" (which includes exempt-interest dividends) plus one-half of the Social Security benefits or railroad retirement benefits received by such individual during that taxable year exceeds the base amount described in Section 86 of the Code. A tax-exempt fund may not be an appropriate investment for persons (including corporations and other business entities) who are "substantial users" (or persons related to such users) of facilities financed by industrial development or private activity bonds. A "substantial user" is defined generally to include certain persons who regularly use in a trade or business a facility financed from the proceeds of industrial development bonds or private activity bonds. Such entities or persons should consult their tax advisor before purchasing shares of a tax-exempt fund. Issuers of bonds purchased by a tax-exempt fund (or the beneficiary of such bonds) may have made certain representations or covenants in connection with the issuance of such bonds to satisfy certain requirements of the Code that must be satisfied subsequent to the issuance of such bonds. Investors should be aware that exempt-interest dividends derived from such bonds may become subject to federal income taxation retroactively to the date of issuance of the bonds to which such dividends are attributable thereof if such representations are determined to have been inaccurate or if the issuer of such bonds (or the beneficiary of such bonds) fails to comply with such covenants. 78 The Funds will make annual reports to shareholders of the federal income tax status of all distributions. In certain cases, a Fund will be required to withhold, at the applicable withholding rates, an amount from any distributions and redemptions to shareholders, and to remit such amount to the Internal Revenue Service ("IRS") if the shareholder: (1) has failed to provide a correct taxpayer identification number, (2) is subject to backup withholding by the IRS, or (3) has failed to provide the Fund with certain certifications that are required by the IRS, or (4) has failed to certify that he or she is a U.S. person (including a U.S. resident alien). STATE TAXES A Fund is not liable for any income or franchise tax in Massachusetts if it qualifies as a RIC for federal income tax purposes. Distributions by the Funds to investors and the ownership of shares may be subject to state and local taxes. Shareholders are urged to consult their tax advisors regarding state and local taxes affecting an investment in shares of a Fund. Many states grant tax-free status to dividends paid to you from interest earned on direct obligations of the U.S. Government, subject in some states to minimum investment requirements that must be met by a Fund. Investments in Government National Mortgage Association and Fannie Mae securities, bankers' acceptances, commercial paper and repurchase agreements collaterized by U.S. government securities do not generally qualify for tax-free treatment. The rules on exclusion of this income are different for corporations. FOREIGN TAXES Dividends and interests received by a Fund may be subject to income, withholding or other taxes imposed by foreign countries and U.S. possessions that would reduce the yield on the Fund's stock or securities. Tax conventions between certain countries and the United States may reduce or eliminate these taxes. Foreign countries generally do not impose taxes on capital gains with respect to investments by foreign investors. If the International Equity and International Equity Index Funds meet the Distribution Requirement, and if more than 50% of the value of each such Fund's total assets at the close of their respective taxable years consist of stocks or securities of foreign corporations, each Fund will be eligible to, and will, file an election with the Internal Revenue Service that may enable shareholders, in effect, to receive either the benefit of a foreign tax credit, or a tax deduction, with respect to any foreign and U.S. possessions income taxes paid by the Funds, subject to certain limitations. Pursuant to the election, each Fund will treat those taxes as dividends paid to its shareholders. Each such shareholder will be required to include a proportionate share of those taxes in gross income as income received from a foreign source and must treat the amount so included as if the shareholder had paid the foreign tax directly. The shareholder may then either deduct the taxes deemed paid by him or her in computing his or her taxable income or, alternatively, use the foregoing information in calculating any foreign tax credit the shareholder may be entitled to use against such shareholder's federal income tax. If either of the two above-mentioned Funds make the election, such Fund will report annually to its shareholders the respective amounts per share of the Fund's income from sources within, and taxes paid to, foreign countries and U.S. possessions. The International Equity and International Equity Index Funds' transactions in foreign currencies and forward foreign currency contracts will be subject to special provisions of the Code that, among other things, may affect the character of gains and losses realized by the Funds (i.e., may affect whether gains or losses are ordinary or capital), accelerate recognition of income to the Funds and defer losses. These rules could therefore affect the character, amount and timing of distributions to shareholders. These provisions also may require the Funds to mark-to-market certain types of positions in their portfolios (i.e., treat them as if they were closed out) which may cause the Funds to recognize income without receiving cash with which to make distributions in amounts necessary to satisfy the 90% and 98% distribution requirements for avoiding income and excise taxes. Each Fund intends to monitor its transactions, intends 79 to make the appropriate tax elections, and intends to make the appropriate entries in its books and records when it acquires any foreign currency or forward foreign currency contract in order to mitigate the effect of these rules so as to prevent disqualification of the Fund as a RIC and minimize the imposition of income and excise taxes. FUND TRANSACTIONS BROKERAGE 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 a Fund. In placing orders, it is the policy of the Trust to seek to obtain the best net results taking into account such factors as price (including the applicable dealer spread), the size, type and difficulty of the transaction involved, the firm's general execution and operational facilities, and the firm's risk in positioning the securities involved. 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 Funds invest are traded primarily in the over-the-counter market. Bonds and debentures are usually traded over-the-counter, but may be traded on an exchange. Money market and debt securities are generally traded on a net basis and do not normally involve either brokerage commissions or transfer taxes. Certain Funds 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. For the fiscal year ended March 31, 2006, the fiscal period ended March 31, 2005, and for the fiscal years ended in 2004 and 2003, the Funds paid the following aggregate brokerage commissions on portfolio transactions:
AGGREGATE DOLLAR AMOUNT OF BROKERAGE COMMISSIONS PAID ($) ------------------------------------------------ FUND* 2006 2005** 2004 2003 - ------------------------------------------- ---------- ----------- ----------- ---------- Aggressive Growth Stock 262,663 224,478 26,801 *** Balanced 323,161 314,506 528,811 406,753 Capital Appreciation 3,547,454 3,276,204 4,637,119 3,468,073 Core Bond 0 0 0 0 Emerging Growth Stock 138,359 53,450 28,256 *** Florida Tax-Exempt Bond 0 0 994 188 Georgia Tax-Exempt Bond 0 0 0 44 High Income 0 1,186 0 535 High Quality Bond 0 0 864 ** Intermediate Bond 0 0 0 0 International Equity 1,922,438 388,837 1,189,052 1,127,511 International Equity Index 411,897 236,456 94,924 174,045 Investment Grade Bond 0 0 4,979 19,387 Investment Grade Tax-Exempt Bond 0 0 888 4,267 Large Cap Quantitative Equity 938,790 365,960 303,252 *** Large Cap Relative Value 1,955,667 1,120,131 1,534,256 1,693,527 Large Cap Value Equity 2,208,629 1,901,299 1,852,549 1,497,214 Life Vision Aggressive Growth 0 0 0 0 Life Vision Conservative 0 0 0 0
80
AGGREGATE DOLLAR AMOUNT OF BROKERAGE COMMISSIONS PAID ($) ------------------------------------------------ FUND* 2006 2005** 2004 2003 - ------------------------------------------- ---------- ----------- ----------- ---------- Life Vision Growth and Income 0 0 0 0 Life Vision Moderate Growth 0 0 0 0 Life Vision Target Date 2015 1 *** *** *** Life Vision Target Date 2025 0 *** *** *** Life Vision Target Date 2035 0 *** *** *** Limited Duration 0 0 0 0 Limited-Term Federal Mortgage Securities 0 0 23,608 14,392 Maryland Municipal Bond 0 0 0 0 Mid-Cap Equity 1,005,580 325,661 719,857 750,689 Mid-Cap Value Equity 955,369 686,166 535,146 519,820 North Carolina Tax-Exempt Bond 0 0 *** *** Prime Quality Money Market 0 0 46,404 49,465 Quality Growth Stock 273,108 287,028 585,220 845,910 Seix Floating Rate High Income 0 *** *** *** Seix High Yield Fund 0 0 0 0 Short-Term Bond 0 0 0 0 Short-Term U.S. Treasury Securities 0 0 0 0 Small Cap Growth Stock 4,949,471 2,735,162 4,425,364 3,038,457 Small Cap Quantitative Equity *** *** *** *** Small Cap Value Equity 1,280,455 506,958 1,256,292 926,708 Strategic Income 0 215 0 0 Tax-Exempt Money Market 0 0 0 0 Total Return Bond 0 0 364 *** U.S. Government Securities 0 0 7,952 1,634 U.S. Government Securities Money Market 0 0 127,807 194,725 U.S. Government Securities Ultra-Short Bond 0 0 6,955 4,929 U.S. Treasury Money Market 0 0 423,336 365,760 Ultra-Short Bond 0 0 10,693 6,802 Virginia Intermediate Municipal Bond 0 0 0 0 Virginia Tax-Free Money Market 0 0 0 0
* Effective February 15, 2005, the Seix Funds changed their fiscal year end from October 31 to March 31, and each other Fund changed its fiscal year end from May 31 to March 31. ** With respect to the Seix Funds, represents fees paid during the period from November 1, 2004 through March 31, 2005, with respect to the North Carolina Tax-Exempt Bond Fund, represents fees paid during the period from March 21, 2005 (the commencement of operations) through March 31, 2005 and, with respect to each other Fund listed, represents fees paid during the period from June 1, 2004 through March 31, 2005. *** Not in operation during the period. BROKERAGE SELECTION. The Trust does not expect to use one particular broker or dealer, and when one or more brokers is believed capable of providing the best combination of price and execution, the Funds' Adviser may select a broker based upon brokerage or research services provided to the Adviser. The Adviser may pay a higher commission than otherwise obtainable from other brokers in return for such services only if a good faith determination is made that the commission is reasonable in relation to the services provided. Section 28(e) of the 1934 Act permits the Adviser, under certain circumstances, to cause each Fund to pay a broker or dealer a commission for effecting a transaction in excess of the amount of commission another broker or dealer would have charged for effecting the transaction in recognition of the value of brokerage and 81 research services provided by the broker or dealer. In addition to agency transactions, the Adviser may receive brokerage and research services in connection with certain riskless principal transactions, in accordance with applicable SEC guidance. Brokerage and research services include: (1) furnishing advice as to the value of securities, the advisability of investing in, purchasing or selling securities, and the availability of securities or purchasers or sellers of securities; (2) furnishing analyses and reports concerning issuers, industries, securities, economic factors and trends, portfolio strategy, and the performance of accounts; and (3) effecting securities transactions and performing functions incidental thereto (such as clearance, settlement, and custody). In the case of research services, the Adviser believes that access to independent investment research is beneficial to their investment decision-making processes and, therefore, to each Fund. To the extent research services may be a factor in selecting brokers, such services may be in written form or through direct contact with individuals and may include information as to particular companies and securities as well as market, economic, or institutional areas and information which assists in the valuation and pricing of investments. Examples of research-oriented services for which the Adviser might utilize Fund commissions include research reports and other information on the economy, industries, sectors, groups of securities, individual companies, statistical information, political developments, technical market action, pricing and appraisal services, credit analysis, risk measurement analysis, performance and other analysis. The Adviser may use research services furnished by brokers in servicing all client accounts and not all services may necessarily be used in connection with the account that paid commissions to the broker providing such services. Information so received by the Adviser will be in addition to and not in lieu of the services required to be performed by the Funds' Adviser under the Advisory Agreement. Any advisory or other fees paid to the Adviser are not reduced as a result of the receipt of research services. In some cases the Adviser may receive a service from a broker that has both a "research" and a "non-research" use. When this occurs, the Adviser makes a good faith allocation, under all the circumstances, between the research and non-research uses of the service. The percentage of the service that is used for research purposes may be paid for with client commissions, while the Adviser will use its own funds to pay for the percentage of the service that is used for non-research purposes. In making this good faith allocation, the Adviser faces a potential conflict of interest, but the Adviser believes that its allocation procedures are reasonably designed to ensure that it appropriately allocates the anticipated use of such services to their research and non-research uses. From time to time, the Funds 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). For the fiscal year ended March 31, 2006, the fiscal period ended March 31, 2005 and for 2004 and 2003 fiscal years, the Funds paid the following commissions on brokerage transactions directed to brokers pursuant to an agreement or understanding whereby the broker provides research or other brokerage services to the Adviser:
TOTAL DOLLAR AMOUNT OF TOTAL DOLLAR AMOUNT OF TRANSACTIONS BROKERAGE COMMISSIONS FOR INVOLVING BROKERAGE COMMISSIONS RESEARCH SERVICES ($) FOR RESEARCH SERVICES ($) ---------------------------------- ---------------------------------------------- FUND 2006 2005* 2004 2006 2005* 2004 - ----------------------------- ---------- ---------- ---------- -------------- -------------- -------------- Aggressive Growth Stock 262,663 102,337 26,801 236,630,476 224,478 26,801 Balanced ** 174,391 260,351 442,893 136,298,605 214,278,034 283,926,878 Capital Appreciation 2,215,647 2,765,108 3,902,770 1,611,418,182 2,187,420,050 2,483,046,397 Emerging Growth Stock 138,359 53,450 28,256 82,586,277 28,179,719 28,256 Large Cap Quantitative Equity 123,161 0 2,570 227,557,353 0 3,686,574 Large Cap Relative Value 1,288,719 907,375 1,442,170 993,286,576 705,995,383 880,875,152 Large Cap Value Equity 1,483,120 1,733,800 1,819,815 1,149,219,210 1,284,718,333 1,080,901,945
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TOTAL DOLLAR AMOUNT OF TOTAL DOLLAR AMOUNT OF TRANSACTIONS BROKERAGE COMMISSIONS FOR INVOLVING BROKERAGE COMMISSIONS RESEARCH SERVICES ($) FOR RESEARCH SERVICES ($) ---------------------------------- ---------------------------------------------- FUND 2006 2005* 2004 2006 2005* 2004 - ----------------------------- ---------- ---------- ---------- -------------- -------------- -------------- Mid-Cap Equity 383,253 303,974 632,646 294,162,760 164,466,559 320,092,417 Mid-Cap Value Equity 592,762 681,164 522,910 408,346,450 403,795,492 254,550,199 Quality Growth Stock 173,111 241,405 528,646 178,523,532 220,577,538 334,513,042 Small Cap Growth Stock 881,381 2,351,047 3,531,664 371,086,423 721,673,071 1,199,684,809 Small Cap Value Equity 635,885 445,352 1,201,119 422,382,889 241,267,038 546,716,238
* Represents fees paid during the period from June 1, 2004 through March 31, 2005. ** Relates to the equity portion of the Balanced Fund's portfolio only. BROKERAGE WITH FUND AFFILIATES. A Fund may execute brokerage or other agency transactions through registered broker-dealer affiliates of the Fund, the Adviser or the Distributor for a commission in conformity with the 1940 Act, the 1934 Act and rules promulgated by the SEC. Under the 1940 Act and the 1934 Act, affiliated broker-dealers are permitted to receive and retain compensation for effecting portfolio transactions for the Fund on an exchange if a written contract is in effect between the affiliate and the Fund expressly permitting the affiliate to receive and retain such compensation. These rules further require that commissions paid to the affiliate by the Fund for exchange transactions not exceed "usual and customary" brokerage commissions. The rules define "usual and customary" commissions to include amounts which are "reasonable and fair compared to the commission, fee or other remuneration received or to be received by other brokers in connection with comparable transactions involving similar securities being purchased or sold on a securities exchange during a comparable period of time." The Trustees, including those who are not "interested persons" of the Fund, as defined in the 1940 Act, have adopted procedures for evaluating the reasonableness of commissions paid to affiliates and review these procedures periodically. For the fiscal year ended March 31, 2006, the fiscal period ended March 31, 2005, and for the 2004 and 2003 fiscal years, the Funds paid the following aggregate brokerage commissions on portfolio transactions effected by affiliated brokers. All amounts shown reflect fees paid in connection with Fund repurchase agreement transactions.
PERCENTAGE OF TOTAL PERCENTAGE OF TOTAL AGGREGATE DOLLAR AMOUNT OF BROKERAGE BROKERAGE COMMISSIONS BROKERAGE TRANSACTIONS COMMISSIONS PAID TO AFFILIATED BROKERS PAID TO AFFILIATED BROKERS EFFECTED THROUGH AFFILIATED ($)* (%)** BROKERS (%) -------------------------------------- --------------------------- -------------------------------- FUND*** 2006 2005+ 2004 2003 2006 2005 2004 2003 2006 2005+ 2004 2003 - ------------------------ -------- -------- -------- -------- ----- ------ ----- ----- ------ ------ ------- ------- Aggressive Growth Stock 2,158 696 176 + 0.81 0.68 0.66 + 25.60 25.58 9.64 + Balanced +++ 2,526 3,276 5,368 9,515 0.78 11.03 1.02 2.34 14.35 13.86 42.21 21.73 Capital Appreciation 8,341 21,004 17,138 13,299 0.23 0.64 0.37 0.38 16.54 21.68 25.14 25.96 Core Bond 12,291 402 0 0 100 100 0 0 100 100 0 0 Emerging Growth Stock 354 216 103 + 0.26 0.40 0.36 + 19.02 23.58 11.15 + Florida-Tax Exempt Bond 499 799 994 188 100 100 100 100 100 100 100 100 Georgia Tax-Exempt Bond 0 0 0 44 0 0 100 100 0 0 0 100 High Income 3,013 1,650 3 535 100 58.18 100 100 100 15.81 100 100 High Quality Bond 138 2,139 864 ** 100 100 100 ** 100 100 100 ** Intermediate Bond 905 4,633 0 0 100 100 0 0 100 100 0 0
83
PERCENTAGE OF TOTAL PERCENTAGE OF TOTAL AGGREGATE DOLLAR AMOUNT OF BROKERAGE BROKERAGE COMMISSIONS BROKERAGE TRANSACTIONS COMMISSIONS PAID TO AFFILIATED BROKERS PAID TO AFFILIATED BROKERS EFFECTED THROUGH AFFILIATED ($)* (%)** BROKERS (%) -------------------------------------- --------------------------- -------------------------------- FUND*** 2006 2005+ 2004 2003 2006 2005 2004 2003 2006 2005+ 2004 2003 - ------------------------ -------- -------- -------- -------- ----- ------ ----- ----- ------ ------ ------- ------- International Equity 0 0 0 0 0 0 0 0 0 0 0 0 International Equity Index 0 0 0 0 0 0 0 0 0 0 0 0 Investment Grade Bond 6,548 5,125 4,979 19,387 100 100 100 100 100 100 100 100 Investment Grade Tax-Exempt Bond 2,875 2,932 888 4,267 100 100 100 100 100 100 100 100 Large Cap Relative Value 0 0 0 0 0 0 0 0 0 0 0 0 Large Cap Value Equity 11,062 12,740 18,467 28,323 0.50 0.67 1.00 1.89 15.59 16.90 37.56 20.51 Life Vision Aggressive Growth 0 0 0 0 0 0 0 0 0 0 0 0 Life Vision Conservative 0 0 0 0 0 0 0 0 0 0 0 0 Life Vision Growth and Income 0 0 0 0 0 0 0 0 0 0 0 0 Life Vision Moderate Growth 0 0 0 0 0 0 0 0 0 0 0 0 Life Vision Target Date 2015 0 ++ ++ ++ 0 ++ ++ ++ 0 ++ ++ ++ Life Vision Target Date 2025 0 ++ ++ ++ 0 ++ ++ ++ 0 ++ ++ ++ Life Vision Target Date 2035 0 ++ ++ ++ 0 ++ ++ ++ 0 ++ ++ ++ Limited Duration 1,653 1,010 0 0 100 100 0 0 100 100 0 0 Limited-Term Federal Mortgage Securities 7,500 6,781 23,608 14,392 100 100 100 100 100 100 100 100 Maryland Municipal Bond 0 0 0 0 0 0 0 0 0 0 0 0 Mid-Cap Equity 6,163 2,113 2,726 2,888 0.61 0.64 0.38 0.38 17.76 17.17 20.39 19.10 Mid-Cap Value Equity 0 0 2,114 1,898 0 0 0.40 0.37 0 0 12.35 25.07 North Carolina Tax-Exempt Bond 0 0 ++ ++ 0 0 ++ ++ 0 0 ++ ++ Prime Quality Money Market 62,086 51,580 46,404 49,465 100 100 100 100 100 100 100 100
84
PERCENTAGE OF TOTAL PERCENTAGE OF TOTAL AGGREGATE DOLLAR AMOUNT OF BROKERAGE BROKERAGE COMMISSIONS BROKERAGE TRANSACTIONS COMMISSIONS PAID TO AFFILIATED BROKERS PAID TO AFFILIATED BROKERS EFFECTED THROUGH AFFILIATED ($)* (%)** BROKERS (%) -------------------------------------- --------------------------- -------------------------------- FUND*** 2006 2005+ 2004 2003 2006 2005 2004 2003 2006 2005+ 2004 2003 - ------------------------ -------- -------- -------- -------- ----- ------ ----- ----- ------ ------ ------- ------- Quality Growth Stock 1,251 1,033 1,712 3,724 0.46 0.36 0.29 0.44 8.70 10.08 40.98 41.97 Seix Floating Rate High Income 0 ++ ++ ++ 0 ++ ++ ++ 0 ++ ++ ++ Seix High Yield 21,140 7,941 0 0 100 100 0 0 100 100 0 0 Short-Term Bond 0 0 0 0 0 0 0 0 0 0 0 0 Short-Term U.S. Treasury Securities 0 0 0 0 0 0 0 0 0 0 0 0 Small Cap Growth Stock 20,875 8,682 10,384 3,100 0.42 0.32 0.37 0.10 17.62 16.63 4.50 5.45 Small Cap Quantitative Equity ++ ++ ++ ++ ++ ++ ++ ++ ++ ++ ++ ++ Small Cap Value Equity 5,502 3,362 4,608 5,267 0.43 0.66 0.23 0.57 16.50 27.09 28.21 28.36 Strategic Income 0 0 0 0 0 0 0 0 0 0 0 0 Strategic Quantitative Equity 1,511 206 237 + 0.16 0.06 0.08 + 9.45 5.72 2.99 + Tax-Exempt Money Market 0 0 0 0 0 0 0 0 0 0 0 0 Total Return Bond 2,089 2,145 364 ** 100 100 100 ** 100 100 100 ** U.S. Government Securities 9,787 6,057 7,952 1,634 100 100 100 100 100 100 100 100 U.S. Government Securities Money Market 114,370 67,874 127,807 194,725 100 100 100 100 100 100 100 100 U.S. Government Securities Ultra-Short Bond 3,240 3,676 6,955 4,909 100 100 100 100 100 100 100 100 U.S. Treasury Money Market 597,657 409,250 423,336 365,760 100 100 100 100 100 100 100 100 Ultra-Short Bond 3,971 4,532 10,693 6,802 100 100 100 100 100 100 100 100 Virginia Intermediate Municipal Bond 0 0 0 0 0 0 0 0 0 0 0 0 Virginia Tax-Free Money Market 0 0 0 0 0 0 0 0 0 0 0 0
* Prior to July 26, 2004, SEI Investments Distribution Co. served as the Trust's distributor. These amounts refer to brokerage commissions paid to, or brokered transactions effected through, SEI Investments Distribution Co. 85 ** For most Fixed Income Funds, transactions in repurchase agreements, which are generally traded through an affiliated broker-dealer, are the only transactions that result in the payment of commission. Therefore, it might appear, based on the percentage of commissions paid, that all of the Fixed Income Fund's portfolio transactions are made through affiliated broker-dealers. Nonetheless, transactions in repurchase agreements make up only a small part of a Fixed Income Fund's portfolio transactions. *** Effective February 15, 2005, the Seix Funds changed their fiscal year from October 31 to March 31 and each other Fund changed its fiscal year end from May 31 to March 31. +With respect to the Seix Funds, represents fees paid during the period from November 1, 2004 through March 31, 2005, with respect to the North Carolina Tax-Exempt Bond Fund, represents fees paid during the period from March 21, 2005 (the commencement of operations) through March 31, 2005 and, with respect to each other Fund, represents fees paid during the period from June 1, 2004 through March 31, 2005. ++ Not in operation during the period. +++ Relates to the equity portion of the Balanced Fund's portfolio only. SECURITIES OF "REGULAR BROKER-DEALERS." As of March 31, 2006, the Funds held securities of their "regular broker-dealers" (as such term is defined in the 1940 Act) as follows:
FUND AND SECURITY SECURITY TYPE HOLDINGS ($) - ----------------------------------- ------------- -------------- PRIME QUALITY MONEY MARKET FUND BANK OF AMERICA SECURITIES LLC Debt 205,000,000 BANK OF NEW YORK (THE) Debt 25,000,000 BEAR STEARNS Debt 124,999,000 BNP Paribas Securites Corp. Debt 29,993,000 DEUTSCHE BANK Debt 74,956,000 GOLDMAN SACHS Debt 129,346,000 HSBC SECURITIES, INC. Debt 22,676,000 LEHMAN BROTHERS, INC. Debt 25,075,000 MERRILL LYNCH & CO., INC. Debt 47,008,000 MORGAN STANLEY & CO. INC. Debt 123,500,000 UBS SECURITIES Debt 79,833,000 WACHOVIA SECURITIES, LLC. Debt 67,022,000 WELLS FARGO BROKERAGE SERVICES, LLC Debt 110,000,000 TAX-EXEMPT MONEY MARKET FUND ABN AMRO SECURITIES, INC. Debt 24,550,000 GOLDMAN SACHS Debt 36,820,000 INVESTMENT GRADE BOND FUND GOLDMAN SACHS Debt 3,170,000 CHASE SECURITIES, INC. Debt 3,925,000 MORGAN STANLEY & CO. INC. Debt 2,631,000 CITIGROUP GLOBAL MARKETS Debt 7,628,000 BANK OF AMERICA SECURITIES LLC Debt 5,250,000 WACHOVIA CORP. Debt 2,942,000 HSBC SECURITIES, INC. Debt 1,504,000 CAPITAL APPRECIATION FUND GOLDMAN SACHS Equity 22,759,000 CHASE SECURITIES, INC. Equity 29,056,000 MERRILL LYNCH & CO., INC. Equity 16,067,000 MORGAN STANLEY Equity 11,006,000 WELLS FARGO Equity 12,135,000
86
FUND AND SECURITY SECURITY TYPE HOLDINGS ($) - ----------------------------------- ------------- ------------- LARGE CAP VALUE EQUITY FUND BANK OF AMERICA SECURITIES Equity 18,499,000 BANK OF NEW YORK (THE) Equity 15,373,000 CHASE SECURITIES, INC. Equity 9,826,000 MERRILL LYNCH, INC. Equity 9,589,000 WACHOVIA SECURITIES, LLC. Equity 9,540,000 AG EDWARDS Equity 8,436,000 BEAR STEARNS & CO., INC. Equity 17,234,000 CITIGROUP GLOBAL MARKETS Equity 9,808,000 MORGAN STANLEY & CO, INC. Equity 8,641,000 SHORT-TERM BOND FUND HSBC SECURITIES, INC. Debt 3,327,000 BEAR STEARNS Debt 6,639,000 GOLDMAN SACHS Debt 6,219,000 CHASE SECURITIES, INC. Debt 2,335,000 LEHMAN BROTHERS, INC. Debt 2,723,000 MERRILL LYNCH, INC. Debt 3,360,000 MORGAN STANLEY & CO. INC. Debt 5,478,000 WACHOVIA SECURITIES, LLC. Debt 7,032,000 CITIGROUP GLOBAL MARKETS Debt 3,452,000 WELLS FARGO BROKERAGE SERVICES, LLC Debt 3,067,000 MID-CAP EQUITY FUND BEAR STEARNS Equity 6,701,000 BALANCED FUND GOLDMAN SACHS Debt 265,000 GOLDMAN SACHS Equity 1,099,000 CHASE SECURITIES, INC. Debt 326,000 CHASE SECURITIES, INC. Equity 1,041,000 MERRILL LYNCH, INC. Equity 1,213,000 MORGAN STANLEY & CO. INC. Debt 176,000 WELLS FARGO BROKERAGE SERVICES, LLC Equity 996,000 CITIGROUP Debt 672,000 HSBC SECURITIES, INC. Debt 124,000 CREDIT SUISSE FIRST BOSTON CORP. Debt 73,000 BANK OF AMERICA SECURITIES LLC Debt 188,000 WACHOVIA CORP. Debt 360,000 INTERNATIONAL EQUITY INDEX FUND ABN AMRO SECURITIES, INC. Equity 2,334,000 CREDIT SUISSE FIRST BOSTON CORP. Equity 1,388,000 DEUTSCHE BANK AG Equity 20,395,000 UBS SECURITIES Equity 2,315,000 BNP Paribas Securites Corp. Equity 5,773,000
87
FUND AND SECURITY SECURITY TYPE HOLDINGS ($) - ---------------------------------------------------- ------------- ------------- INTERNATIONAL EQUITY FUND ABN AMRO SECURITIES, INC. Equity 9,497,000 CREDIT SUISSE FIRST BOSTON CORP. Equity 10,764,000 DEUTSCHE BANK AG Equity 11,646,000 UBS SECURITIES Equity 7,143,000 BNP Paribas Securities Corp. Equity 12,157,000 HSBC SECURITIES, INC. Equity 17,658,000 CLASSIC INSTITUTIONAL CASH MANAGEMENT MONEY MARKET FUND CREDIT SUISSE FIRST BOSTON CORP. Debt 48,765,000 WELLS FARGO BROKERAGE SERVICES, LLC Debt 50,000,000 BEAR STEARNS & CO., INC. Debt 50,000,000 BANK OF AMERICA SECURITIES LLC Debt 154,960,000 CLASSIC INSTITUTIONAL U.S. TREASURY SECURITIES MONEY MARKET FUND SMALL CAP VALUE EQUITY FUND JEFFERIES & COMPANY, INC. Equity 6,096,000 QUALITY GROWTH STOCK FUND GOLDMAN SACHS Equity 1,256,000 JP Morgan Chase & Co. Equity 2,415,000 MERRILL LYNCH & CO., INC. Equity 1,181,000 LARGE CAP RELATIVE VALUE FUND BANK OF AMERICA SECURITIES LLC Equity 22,770,000 CITIGROUP GLOBAL MARKETS Equity 30,705,000 GOLDMAN SACHS & CO. Equity 14,127,000 MORGAN STANLEY & CO, INC. Equity 25,128,000 US BANCORP Equity 15,250,000 UBS Securities LLC Equity 4,399,000 WACHOVIA CORP. Equity 28,024,000 WELLS FARGO BROKERAGE SERVICES, LLC Equity 17,564,000 MID-CAP VALUE EQUITY FUND BEAR STEARNS & CO., INC. Equity 3,648,000 CLASSIC INSTITUTIONAL SHORT-TERM BOND FUND ULTRA-SHORT BOND FUND MORGAN STANLEY & CO. INC. Debt 12,348,000 JP Morgan Chase & Co. Debt 5,004,000 BANK OF AMERICA SECURITIES LLC Debt 4,851,000 BEAR STEARNS & CO., INC. Debt 4,100,000 DEUTSCHE BANK AG Debt 67,000 WELLS FARGO BROKERAGE SERVICES, LLC Debt 4,072,000
88
FUND AND SECURITY SECURITY TYPE HOLDINGS ($) - ---------------------------------------------------- ------------- ------------- GOLDMAN SACHS & CO. Debt 5,229,000 MERRILL LYNCH & CO., INC. Debt 4,562,000 WACHOVIA CORP. Debt 2,503,000 CITIGROUP GLOBAL MARKETS Debt 997,000 CREDIT SUISSE FIRST BOSTON CORP. Debt 1,089,000 HSBC SECURITIES, INC. Debt 979,000 LEHMAN BROTHERS HOLDINGS, INC. Debt 1,633,000 STRATEGIC QUANTITATIVE EQUITY FUND GOLDMAN SACHS Equity 4,849,000 LEHMAN BROTHERS, INC. Equity 4,878,000 MORGAN STANLEY & CO. INC. Equity 4,770,000 BEAR STEARNS & CO., INC. Equity 4,840,000 MERRILL LYNCH & CO., INC. Equity 4,862,000 HIGH QUALITY BOND FUND GOLDMAN SACHS Debt 383,000 CHASE SECURITIES, INC. Debt 415,000 CITIGROUP GLOBAL MARKETS Debt 860,000 MORGAN STANLEY & CO. INC. Debt 313,000 BANK OF AMERICA SECURITIES LLC Debt 476,000 CREDIT SUISSE FIRST BOSTON CORP. Debt 183,000 TOTAL RETURN BOND FUND GOLDMAN SACHS Debt 227,000 CHASE SECURITIES, INC. Debt 279,000 BANK OF AMERICA SECURITIES LLC Debt 254,000 MORGAN STANLEY & CO. INC. Debt 191,000 CITIGROUP GLOBAL MARKETS Debt 480,000 WACHOVIA CORP. Debt 222,000 HSBC SECURITIES, INC. Debt 107,000 CREDIT SUISSE FIRST BOSTON CORP. Debt 89,000 AGGRESSIVE GROWTH STOCK FUND LEGG MASON, INC. Equity 4,524,000 EMERGING GROWTH STOCK FUND LEGG MASON, INC. Equity 1,191,000 CORE BOND FUND GOLDMAN SACHS Debt 1,696,000 CHASE SECURITIES, INC. Debt 1,770,000 HSBC SECURITIES, INC. Debt 776,000 MORGAN STANLEY & CO. INC. Debt 1,389,000 WACHOVIA SECURITIES, LLC. Debt 1,833,000 CITIGROUP GLOBAL MARKETS Debt 3,798,000 BANK OF AMERICA SECURITIES LLC Debt 1,740,000 CREDIT SUISSE FIRST BOSTON CORP. Debt 632,000
89
FUND AND SECURITY SECURITY TYPE HOLDINGS ($) - ---------------------------------------------------- ------------- ------------- INTERMEDIATE BOND FUND GOLDMAN SACHS Debt 378,000 CHASE SECURITIES, INC. Debt 447,000 CITIGROUP GLOBAL MARKETS Debt 1,037,000 MORGAN STANLEY & CO. INC. Debt 411,000 WACHOVIA CORP. Debt 448,000 BANK OF AMERICA SECURITIES LLC Debt 470,000 WELLS FARGO Debt 360,000 CREDIT SUISSE FIRST BOSTON CORP. Debt 225,000
PORTFOLIO TURNOVER RATE Portfolio turnover rate is defined under SEC rules as the value of the securities purchased or securities sold, excluding all securities whose maturities at the time of acquisition were one-year or less, divided by the average monthly value of such securities owned during the year. Based on this definition, instruments with remaining maturities of less than one-year are excluded from the calculation of the portfolio turnover rate. Instruments excluded from the calculation of portfolio turnover generally would include the futures contracts and option contracts in which the Funds invest since such contracts generally have remaining maturities of less than one-year. The Funds may at times hold investments in other short-term instruments such as money market instruments and repurchase agreements, which are excluded for purposes of computing portfolio turnover. Each Fund's portfolio turnover rate for the fiscal year ended March 31, 2006, the fiscal period ended March 31, 2005, and for the 2004 fiscal year is shown in the table below. 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.
TURNOVER RATE (%) -------------------- FUND * 2006 2005** 2004 - ---------------------------------------- ----- ------ ----- Aggressive Growth Stock 30 42 2 Balanced 133 140 116 Capital Appreciation 74 72 106 Core Bond 236 150 463 Emerging Growth Stock 107 64 11 Florida Tax-Exempt Bond 90 66 56 Georgia Tax-Exempt Bond 43 52 100 High Income 208 191 49 High Quality Bond 91 290 31 Intermediate Bond 154 94 277 International Equity 59 39 58 International Equity Index 7 21 10 Investment Grade Bond 171 268 119 Investment Grade Tax-Exempt Bond 237 178 242
90
TURNOVER RATE (%) -------------------- FUND * 2006 2005** 2004 - ---------------------------------------- ----- ------ ----- Large Cap Quantitative Equity 432 346 344 Large Cap Relative Value 55 44 51 Large Cap Value Equity 104 87 67 Life Vision Aggressive Growth 31 29 44 Life Vision Conservative 29 121 138 Life Vision Growth and Income 34 59 97 Life Vision Moderate Growth 34 83 109 Life Vision Target Date 2015 25 *** *** Life Vision Target Date 2025 17 *** *** Life Vision Target Date 2035 40 *** *** Limited Duration 94 12 244 Limited-Term Federal Mortgage Securities 81 41 146 Maryland Municipal Bond 55 30 15 Mid-Cap Equity 138 68 126 Mid-Cap Value Equity 169 117 95 North Carolina Tax-Exempt Bond 85 32 *** Quality Growth Stock 82 51 49 Seix Floating Rate High Income 9 *** *** Seix High Yield 95 42 73 Short-Term Bond 94 64 66 Short-Term U.S. Treasury Securities 151 82 131 Small Cap Growth Stock 98 70 107 Small Cap Quantitative Equity *** *** *** Small Cap Value Equity 58 17 44 Strategic Income 317 305 95 Total Return Bond 231 308 121 U.S. Government Securities 118 64 240 U.S. Government Securities Ultra-Short Bond 126 42 109 Ultra-Short Bond 114 44 83 Virginia Intermediate Municipal Bond 54 46 26
* Effective February 15, 2005, the Seix Funds changed their fiscal year from October 31 to March 31 and each other Fund changed its fiscal year end from May 31 to March 31. ** With respect to the Seix Funds, represents fees paid during the period from November 1, 2004 through March 31, 2005, with respect to the North Carolina Tax-Exempt Bond Fund, represents fees paid during the period from March 21, 2005 (the commencement of operations) through March 31, 2005 and, with respect to each other Fund, represents fees paid during the period from June 1, 2004 through March 31, 2005. *** Not in operation during the period. 91 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 Funds' portfolio securities is in the best interests of Fund shareholders, and include procedures to address conflicts between the interests of the Funds' shareholders, on the one hand, and those of the Funds' investment adviser, principal underwriter or any affiliated person of the Funds, 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 Funds' portfolio holdings, as necessary, in conformity with the foregoing principles. The Funds' CCO reports quarterly to the Board regarding the implementation of such policies and procedures. Pursuant to applicable law, each 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). Each 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 Funds' Annual Reports and Semi-Annual Reports are available, free of charge, on the Trust's website at www.sticlassicfunds.com. The Trust's website also provides information about each 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 Funds. 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 a 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 Funds 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 Funds. 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 other persons, except for those who are actually engaged in, and need to know, such information to perform the analysis or evaluation of the Funds. 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 92 America Securities, LLC, BB&T Capital Markets, Bear Stearns & Co, Inc., BMO Nesbit Burns, Buckingham Research Group, Inc., Cantor Fitzgerald & Co., Credit Suisse First Boston, LLC, Davenport & Company, LLC, Empirical Research Partners, Ferris Baker Watts, Inc., Freidman, Billings, Ramsey & Co., Inc., FTN Financial, Janney Montgomery Scott, LLC, JP Morgan Securities, Inc., Lehman Brothers, Inc., McDonald Investments, Inc., Merrill Lynch Pierce Fenner & Smith, Inc., FTN Midwest Research, Moody's Investors Service, Morgan Keegan & Co., Inc., Oppenheimer & Company, Piper Jaffray & Co., Raymond James Financial, Inc., RBC Dain Rauscher, Inc, Robert W. Baird & Co., Smith Barney, Starboard Capital Markets, LLC, Sterne, Agee & Leach, Inc., UBS Financial Services, Inc., and Wachovia Bank, N.A., Zions First National 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., Towers Perrin HR Services, Watson Wyatt Investment Consulting, Inc., Wilshire Associates Incorporated. 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 Funds. Financial printers, proxy voting service providers and pricing information vendors may receive portfolio holdings information, as necessary, in connection with their services to the Funds. No compensation or other consideration is paid to or received by any party in connection with the disclosure of portfolio holdings information, including the Funds, the Adviser and its affiliates or recipient of the Funds' portfolio holdings information. DESCRIPTION OF SHARES The Declaration of Trust authorizes the issuance of an unlimited number of shares of the Funds each of which represents an equal proportionate interest in that Fund with each other share. Shares are entitled upon liquidation to a pro rata share in the net assets of the Funds. Shareholders have no preemptive rights. The Declaration of Trust provides that the Trustees of the Trust may create additional series of shares. All consideration received by the Trust for shares of any additional series and all assets in which such consideration is invested would belong to that series and would be subject to the liabilities related thereto. Share certificates representing shares will not be issued. VOTING RIGHTS Each share held entitles the shareholder of record to one vote for each dollar invested. In other words, each shareholder of record is entitled to one vote for each full share held on the record date for any shareholder meeting. Each Fund will vote separately on matters relating solely to it. As a Massachusetts business trust, the Trust is not required, and does not intend, to hold annual meetings of shareholders. Shareholders approval will be sought, however, for certain changes in the operation of the Trust and for the election of Trustees under certain circumstances. Under the Declaration of Trust, the Trustees have the power to liquidate one or more Funds without shareholder approval. While the Trustees have no present intention of exercising this power, they may do so if a Fund fails to reach or maintain a viable size or for some other extraordinary reason. In addition, a Trustee may be removed by the remaining Trustees or by shareholders at a special meeting called upon written request of shareholders owning at least 10% of the outstanding shares of the Trust. In the event that such a 93 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, Subadviser, and Distributor have adopted Codes of Ethics pursuant to Rule 17j-1. These Codes of Ethics apply to the personal investing activities of trustees, officers and certain employees ("access persons"). Rule 17j-1 and the Codes of Ethics are designed to prevent unlawful practices in connection with the purchase or sale of securities by access persons. Under each Code of Ethics, access persons are permitted to engage in personal securities transactions, but are required to report their personal securities transactions for monitoring purposes. In addition, certain access persons of the Trust, the Adviser and the Subadviser are prohibited from acquiring beneficial ownership of securities offered in connection with initial public offerings. Certain access persons of the Adviser and Subadviser are further prohibited from acquiring beneficial ownership of securities offered in connection with a limited offering. The Distributor's Code of Ethics requires certain access persons to obtain approval before investing in initial public offerings and limited offerings. Copies of these Codes of Ethics are on file with the SEC and are available to the public. PROXY VOTING The Board has delegated the responsibility for decisions regarding proxy voting for securities held by the Funds to the Adviser. The Adviser will vote such proxies in accordance with its proxy policies and procedures, summaries of which are included in Appendix B to this SAI. Information regarding how the Funds' voted proxies during the most recent twelve-month period ended June 30 has been filed with the SEC on Form N-PX. The Funds' proxy voting record, along with the Funds' full proxy voting 94 policies and procedures, is available on the Funds' website at www.sticlassicfunds.com, , without charge upon request by calling 1-888-STI-FUND, or by writing to the Funds at STI Classic Funds, c/o BISYS Fund Services, Limited Partnership, 3435 Stelzer Road, Columbus, Ohio 43219. The Funds' proxy voting record is also available on the SEC's website at www.sec.gov. 5% AND 25% SHAREHOLDERS As of July 5, 2006, the following persons were the only persons who were record owners (or to the knowledge of the Trust, beneficial owners) of 5% or more of the shares of the respective Funds. Persons who owned of record or beneficially more than 25% of a Fund's outstanding shares may be deemed to control the Fund within the meaning of the 1940 Act. The nature of ownership for each position listed is "Record" unless otherwise indicated. The Trust believes that most of the shares of the Funds were held for the record owner's fiduciary, agency or custodial customers.
PERCENT OF NAME AND ADDRESS OF OWNER CLASS OWNED - --------------------------------------- ----------- AGGRESSIVE GROWTH STOCK FUND - CLASS A NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 90.44% AGGRESSIVE GROWTH STOCK FUND - CLASS C NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 91.12% AGGRESSIVE GROWTH STOCK FUND - CLASS I SUNTRUST BANKS P O BOX 105870 CENTER 3144 COLUMBUS OH 43219 93.08% TRUSTMAN SUNTRUST BANKS P O BOX 105870 ATLANTA GA 303485870 5.04% BALANCED FUND - CLASS A NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 74.58% BALANCED FUND - CLASS C NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 97.63% BALANCED FUND - CLASS I SUNTRUST BANK AND VARIOUS BENEFIT PLANS C/O FASCORE RECORDKEEPER 8515 E ORCHARD RD 2T2 GREENWOOD VILLAGE CO 801115002 90.17%
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PERCENT OF NAME AND ADDRESS OF OWNER CLASS OWNED - --------------------------------------- ----------- SUNTRUST BANKS P O BOX 105870 CENTER 3144 ATLANTA GA 30348 8.00% CAPITAL APPRECIATION FUND - CLASS A NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 44.81% NATIONWIDE INSURANCE COMPANY TRUST PO BOX 182029 C/O IPO PORTFOLIO ACCOUNTING COLUMBUS OH 432182029 9.89% CAPITAL APPRECIATION FUND - CLASS C NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 94.14% CAPITAL APPRECIATION FUND - CLASS I SUNTRUST BANKS P O BOX 105870 CENTER 3144 COLUMBUS OH 43219 63.36% GREAT WEST LIFE & ANNUITY COMPANY 8515 E ORCHARD RD C/O FASCORP RECORDKEEPER GREENWOOD VLG CO 801115002 16.19% TRUSTMAN SUNTRUST BANKS P O BOX 105870 ATLANTA GA 303485870 8.87% SUNTRUST BANK AND VARIOUS BENEFIT PLANS C/O FASCORE RECORDKEEPER 8515 E ORCHARD RD 2T2 GREENWOOD VILLAGE CO 801115002 8.05% CORE BOND FUND - CLASS A NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 59.08% CITIGROUP GLOBAL MARKETS INC. 333 WEST 34TH STREET, 7TH FLOOR NEW YORK NY 10001 40.92% CORE BOND FUND - CLASS C NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 100.00% CORE BOND FUND - CLASS I
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PERCENT OF NAME AND ADDRESS OF OWNER CLASS OWNED - --------------------------------------- ----------- SUNTRUST BANKS P O BOX 105870 CENTER 3144 COLUMBUS OH 43219 90.34% EMERGING GROWTH STOCK FUND - CLASS A NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 63.30% FIRST CLEARING, LLC 10750 WHEAT FIRST DRIVE GLEN ALLEN VA 23060 33.23% EMERGING GROWTH STOCK FUND - CLASS C NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 79.88% SCOTTRADE, INC. ATTN: MUTUAL FUNDS DEPT 12855 FLUSHING MEADOW DR. PO BOX 31759 ST LOUIS MO 63131 11.69% FIRST CLEARING, LLC 10750 WHEAT FIRST DRIVE GLEN ALLEN VA 23060 8.42% EMERGING GROWTH STOCK FUND - CLASS I SUNTRUST BANKS P O BOX 105870 CENTER 3144 ATLANTA GA 30348 99.76% FLORIDA TAX-EXEMPT BOND FUND - CLASS A NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 83.35% G MACKENZIE RAST ESTATE OF MILDRED C RAST 8545 RIVER WALK LANDING SUWANEE GA 300241531 11.04% FLORIDA TAX-EXEMPT BOND FUND - CLASS C NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 96.19% FLORIDA TAX-EXEMPT BOND FUND - CLASS I SUNTRUST BANKS P O BOX 105870 CENTER 3144 ATLANTA GA 30348 100.00% GEORGIA TAX-EXEMPT BOND FUND - CLASS A
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PERCENT OF NAME AND ADDRESS OF OWNER CLASS OWNED - --------------------------------------- ----------- NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 78.32% NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 9.40% GEORGIA TAX-EXEMPT BOND FUND - CLASS C NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 73.60% NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 20.45% GEORGIA TAX-EXEMPT BOND FUND - CLASS I SUNTRUST BANKS P O BOX 105870 CENTER 3144 OAKS PA 30348 100.00% HIGH INCOME FUND - CLASS A NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 77.01% NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 22.99% HIGH INCOME FUND - CLASS C NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 96.61% HIGH INCOME FUND - CLASS I SUNTRUST BANKS P O BOX 105870 CENTER 3144 ATLANTA GA 30348 81.93% SUNTRUST BANK AND VARIOUS BENEFIT PLANS C/O FASCORE RECORDKEEPER 8515 E ORCHARD RD 2T2 GREENWOOD VILLAGE CO 801115002 18.07% HIGH QUALITY BOND FUND - CLASS I SUNTRUST BANKS P O BOX 105870 CENTER 3144 ATLANTA GA 30348 100.00% INTERMEDIATE BOND FUND - CLASS A
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PERCENT OF NAME AND ADDRESS OF OWNER CLASS OWNED - ----------------------------------------- ----------- JOHN C LION NANCY L LION 1550 GRANDVIEW BLVD KISSIMMEE FL 347446617 100.00% INTERMEDIATE BOND FUND - CLASS C FERRIS, BAKER WATTS INCORPORATED 1700 PENNSYLVANIA AVE NW STE 700 WASHINGTON DC 200063796 92.48% NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 7.52% INTERMEDIATE BOND FUND - CLASS I SUNTRUST BANKS P O BOX 105870 CENTER 3144 COLUMBUS OH 43219 48.96% NOITU INSURANCE TRUST FUND 148-06 HILLSIDE AVE H & W PLAN 501 CA JAMAICA NY 114350000 25.53% NOITU INDIVIDUAL ACCOUNT INDIVIDUAL ACCOUNT PLAN 148 -06 HILLSIDE AVE JAMAICA NY 114350000 9.68% WENDEL & CO A/C 515507 C/O THE BANK OF NEW YORK 2 HANSON PLACE ATLANTIC TERMINAL BROOKLYN NY 11217 8.53% INTERNATIONAL EQUITY FUND - CLASS A NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 68.37% NATIONWIDE INSURANCE COMPANY TRUST PO BOX 182029 C/O IPO PORTFOLIO ACCOUNTING COLUMBUS OH 432182029 16.62% INTERNATIONAL EQUITY FUND - CLASS C NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 96.64% INTERNATIONAL EQUITY FUND - CLASS I SUNTRUST BANKS P O BOX 105870 CENTER 3144 OAKS PA 43219 97.34% INTERNATIONAL EQUITY INDEX FUND - CLASS A
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PERCENT OF NAME AND ADDRESS OF OWNER CLASS OWNED - ----------------------------------------- ----------- NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 77.39% INTERNATIONAL EQUITY INDEX FUND - CLASS C NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 96.35% INTERNATIONAL EQUITY INDEX FUND - CLASS I SUNTRUST BANKS P O BOX 105870 CENTER 3144 COLUMBUS OH 43219 76.78% STATE STREET BANK AND TRUST CO EMORY UNIVERSITY ENDOWMENT 1776 HERITAGE DR QUINCY MA 021712119 12.53% TRUSTMAN SUNTRUST BANKS P O BOX 105870 ATLANTA GA 303485870 5.98% INVESTMENT GRADE BOND FUND - CLASS A NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 44.99% NATIONWIDE INSURANCE COMPANY TRUST PO BOX 182029 C/O IPO PORTFOLIO ACCOUNTING COLUMBUS OH 432182029 26.36% INVESTMENT GRADE BOND FUND - CLASS C NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 95.34% INVESTMENT GRADE BOND FUND - CLASS I SUNTRUST BANKS P O BOX 105870 CENTER 3144 COLUMBUS OH 43219 67.84% SUNTRUST BANK AND VARIOUS BENEFIT PLANS C/O FASCORE RECORDKEEPER 8515 E ORCHARD RD 2T2 GREENWOOD VILLAGE CO 801115002 21.43% TRUSTMAN SUNTRUST BANKS P O BOX 105870 ATLANTA GA 303485870 10.67% INVESTMENT GRADE TAX-EXEMPT BD FD - CLASS A
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PERCENT OF NAME AND ADDRESS OF OWNER CLASS OWNED - -------------------------------------------- ----------- NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 34.51% CITIGROUP GLOBAL MARKETS INC. 333 WEST 34TH STREET, 7TH FLOOR NEW YORK NY 10001 18.09% MARION G NELSON P O BOX 2531 PANAMA CITY FL 324022531 7.32% PENCE & HEATON ELECTRICAL CONTRACTI 5715 TAFT ST HOLLYWOOD FL 330214528 5.39% INVESTMENT GRADE TAX-EXEMPT BD FD - CLASS C NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 93.25% INVESTMENT GRADE TAX-EXEMPT BD FD - CLASS I SUNTRUST BANKS P O BOX 105870 CENTER 3144 ATLANTA GA 30348 84.85% NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 9.60% LARGE CAP QUANTITATIVE EQUITY FUND - CLASS A NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 90.98% LARGE CAP QUANTITATIVE EQUITY FUND - CLASS C NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 99.24% LARGE CAP QUANTITATIVE EQUITY FUND - CLASS I SUNTRUST BANKS P O BOX 105870 CENTER 3144 COLUMBUS OH 43219 99.60% LARGE CAP RELATIVE VALUE FUND - CLASS A NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 71.66%
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PERCENT OF NAME AND ADDRESS OF OWNER CLASS OWNED - -------------------------------------------- ----------- NATIONWIDE INSURANCE COMPANY TRUST PO BOX 182029 C/O IPO PORTFOLIO ACCOUNTING COLUMBUS OH 432182029 12.74% LARGE CAP RELATIVE VALUE FUND - CLASS C NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 96.73% LARGE CAP RELATIVE VALUE FUND - CLASS I SUNTRUST BANKS P O BOX 105870 CENTER 3144 COLUMBUS OH 43219 85.78% TRUSTMAN SUNTRUST BANKS P O BOX 105870 ATLANTA GA 303485870 9.80% LARGE CAP VALUE EQUITY FUND - CLASS A NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 51.86% NATIONWIDE INSURANCE COMPANY TRUST PO BOX 182029 C/O IPO PORTFOLIO ACCOUNTING COLUMBUS OH 432182029 9.30% LARGE CAP VALUE EQUITY FUND - CLASS C NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 89.26% LARGE CAP VALUE EQUITY FUND - CLASS I SUNTRUST BANKS P O BOX 105870 CENTER 3144 ATLANTA GA 30348 73.13% SUNTRUST BANK AND VARIOUS BENEFIT PLANS C/O FASCORE RECORDKEEPER 8515 E ORCHARD RD 2T2 GREENWOOD VILLAGE CO 801115002 13.90% TRUSTMAN SUNTRUST BANKS P O BOX 105870 ATLANTA GA 303485870 12.96% LIFE VISION AGGRESSIVE GROWTH FUND - CLASS A
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PERCENT OF NAME AND ADDRESS OF OWNER CLASS OWNED - -------------------------------------------- ----------- NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 99.89% LIFE VISION AGGRESSIVE GROWTH FUND - CLASS B NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 94.36% LIFE VISION AGGRESSIVE GROWTH FUND - CLASS C NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 96.55% LIFE VISION AGGRESSIVE GROWTH FUND - CLASS I SUNTRUST BANK AND VARIOUS BENEFIT PLANS C/O FASCORE RECORDKEEPER 8515 E ORCHARD RD 2T2 GREENWOOD VILLAGE CO 801115002 91.53% SUNTRUST BANKS P O BOX 105870 CENTER 3144 COLUMBUS OH 43219 8.16% LIFE VISION CONSERVATIVE FUND - CLASS A NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 100.00% LIFE VISION CONSERVATIVE FUND - CLASS B NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 93.56% LIFE VISION CONSERVATIVE FUND - CLASS C NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 100.00% LIFE VISION CONSERVATIVE FUND - CLASS I SUNTRUST BANK AND VARIOUS BENEFIT PLANS C/O FASCORE RECORDKEEPER 8515 E ORCHARD RD 2T2 GREENWOOD VILLAGE CO 801115002 88.02% SUNTRUST BANKS P O BOX 105870 CENTER 3144 ATLANTA GA 30348 11.82% LIFE VISION GROWTH AND INCOME - CLASS C
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PERCENT OF NAME AND ADDRESS OF OWNER CLASS OWNED - -------------------------------------------- ----------- NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 99.79% LIFE VISION GROWTH AND INCOME FUND - CLASS A NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 97.53% LIFE VISION GROWTH AND INCOME FUND - CLASS B NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 96.58% LIFE VISION GROWTH AND INCOME FUND - CLASS I SUNTRUST BANK AND VARIOUS BENEFIT PLANS C/O FASCORE RECORDKEEPER 8515 E ORCHARD RD 2T2 GREENWOOD VILLAGE CO 801115002 95.88% LIFE VISION MODERATE GROWTH FUND - CLASS A NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 98.42% LIFE VISION MODERATE GROWTH FUND - CLASS B NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 96.80% LIFE VISION MODERATE GROWTH FUND - CLASS C NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 99.34% LIFE VISION MODERATE GROWTH FUND - CLASS I SUNTRUST BANK AND VARIOUS BENEFIT PLANS C/O FASCORE RECORDKEEPER 8515 E ORCHARD RD 2T2 GREENWOOD VILLAGE CO 801115002 86.35% SUNTRUST BANKS P O BOX 105870 CENTER 3144 ATLANTA GA 30348 12.27% LIFE VISION TARGET DATE 2015 - CLASS A BISYS FUND SERVICES OHIO INC 3435 STELZER RD COLUMBUS OH 43219 100.00% LIFE VISION TARGET DATE 2015 - CLASS C
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PERCENT OF NAME AND ADDRESS OF OWNER CLASS OWNED - -------------------------------------------- ----------- BISYS FUND SERVICES OHIO INC 3435 STELZER RD COLUMBUS OH 43219 100.00% LIFE VISION TARGET DATE 2015 - CLASS I SUNTRUST BANK AND VARIOUS BENEFIT PLANS C/O FASCORE RECORDKEEPER 8515 E ORCHARD RD 2T2 GREENWOOD VILLAGE CO 801115002 100.00% LIFE VISION TARGET DATE 2025 - CLASS A BISYS FUND SERVICES OHIO INC 3435 STELZER RD COLUMBUS OH 43219 100.00% LIFE VISION TARGET DATE 2025 - CLASS C BISYS FUND SERVICES OHIO INC 3435 STELZER RD COLUMBUS OH 43219 100.00% LIFE VISION TARGET DATE 2025 - CLASS I SUNTRUST BANK AND VARIOUS BENEFIT PLANS C/O FASCORE RECORDKEEPER 8515 E ORCHARD RD 2T2 GREENWOOD VILLAGE CO 801115002 100.00% LIFE VISION TARGET DATE 2035 - CLASS A NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 97.31% LIFE VISION TARGET DATE 2035 - CLASS C BISYS FUND SERVICES OHIO INC 3435 STELZER RD COLUMBUS OH 43219 100.00% LIFE VISION TARGET DATE 2035 - CLASS I SUNTRUST BANK AND VARIOUS BENEFIT PLANS C/O FASCORE RECORDKEEPER 8515 E ORCHARD RD 2T2 GREENWOOD VILLAGE CO 801115002 100.00% LIMITED DURATION FUND - CLASS I SEIX INVESTMENT ADVISORS AS MANAGER PACIFIC AND ELECTRIC COMPANY 10 MOUNTAINVIEW RD STE C200 C/O SEIX INVESTMENT ADVISORS SADDLE RIVER NJ 074581937 17.24% SUNTRUST BANKS P O BOX 105870 CENTER 3144 OAKS PA 43219 14.35% SEIX INVESTMENT ADVISORS AS MANAGER FOR INDIANA PUBLIC EMPLOYEES RETIREMENT FUND 300 TICE BLVD ATTN PETER BOURKE WOODCLIFF LAKE NJ 076770000 13.82%
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PERCENT OF NAME AND ADDRESS OF OWNER CLASS OWNED - -------------------------------------------- ----------- UNION BANK OF CALIFORNIA 530 B STREET SUITE 203 SAN DIEGO CA 92101 7.77% SEIX INVESTMENT ADVISORS AS MANAGER FOR AEP RETIREE UNION MEDICAL VEBA 300 TICE BLVD ATTN PETER BOURKE WOODCLIFF LK NJ 076778406 7.70% SEIX ADVISORS AS MANAGER OHIO TUITION TRUST AUTHORITY 10 MOUNTAINVIEW RD STE C200 SADDLE RIVER NJ 074581937 6.20% SEIX INVESTMENT ADVISORS AS MANAGER FOR AEP RETIREE LIFE INSURANCE VEBA 300 TICE BLVD ATTN PETER BOURKE WOODCLIFF LK NJ 076778406 6.03% LIMITED TERM FEDERAL MORTGAGE SEC - CLASS A NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 77.05% NATIONWIDE INSURANCE COMPANY TRUST PO BOX 182029 C/O IPO PORTFOLIO ACCOUNTING COLUMBUS OH 432182029 17.25% LIMITED TERM FEDERAL MORTGAGE SEC - CLASS C NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 97.82% LIMITED TERM FEDERAL MORTGAGE SEC - CLASS I SUNTRUST BANKS P O BOX 105870 CENTER 3144 COLUMBUS OH 43219 97.76% MARYLAND MUNICIPAL BOND FUND - CLASS A NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 100.00% MARYLAND MUNICIPAL BOND FUND - CLASS C NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 98.29% MARYLAND MUNICIPAL BOND FUND - CLASS I
106
PERCENT OF NAME AND ADDRESS OF OWNER CLASS OWNED - -------------------------------------------- ----------- SUNTRUST BANKS P O BOX 105870 CENTER 3144 ATLANTA GA 30348 100.00% MID-CAP EQUITY FUND - CLASS A NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 64.28% NATIONWIDE INSURANCE COMPANY TRUST PO BOX 182029 C/O IPO PORTFOLIO ACCOUNTING COLUMBUS OH 432182029 14.90% MID-CAP EQUITY FUND - CLASS C NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 95.52% MID-CAP EQUITY FUND - CLASS I SUNTRUST BANKS P O BOX 105870 CENTER 3144 OAKS PA 43219 82.27% TRUSTMAN SUNTRUST BANKS P O BOX 105870 ATLANTA GA 303485870 14.14% MID-CAP VALUE EQUITY FUND - CLASS A NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 93.27% MID-CAP VALUE EQUITY FUND - CLASS C NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 97.48% MID-CAP VALUE EQUITY FUND - CLASS I SUNTRUST BANKS P O BOX 105870 CENTER 3144 OAKS PA 43219 99.09% NORTH CAROLINA TAX EXEMPT BOND FD - CLASS A NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 100.00% NORTH CAROLINA TAX EXEMPT BOND FD - CLASS C
107
PERCENT OF NAME AND ADDRESS OF OWNER CLASS OWNED - ---------------------------------------------- ----------- NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 100.00% NORTH CAROLINA TAX-EXEMPT BOND FUND - CLASS I SUNTRUST BANKS P O BOX 105870 CENTER 3144 ATLANTA GA 30348 100.00% PRIME QUALITY MONEY MARKET FUND - CLASS A NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY ST 4TH FLOOR, MUTUAL FUNDS NEW YORK NY 10281 99.18% PRIME QUALITY MONEY MARKET FUND - CLASS C NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 97.60% PRIME QUALITY MONEY MARKET FUND - CLASS I SUNTRUST BANK MAIL CENTER 3133 P O BOX 105504 ATTN SUSAN GRIDER ATLANTA GA 303485504 88.56% SUNTRUST BANK AND VARIOUS BENEFIT PLANS C/O FASCORE RECORDKEEPER 8515 E ORCHARD RD 2T2 GREENWOOD VILLAGE CO 801115002 7.68% QUALITY GROWTH STOCK FUND - CLASS A NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 78.17% NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 8.51% FRONT CO C O FSG BANK 817 BROAD STREET CHATTANOOGA TN 37402 6.80% PERSHING LLC 1 PERSHING PLAZA 14TH FLOOR JERSEY CITY NJ 07399 6.52% QUALITY GROWTH STOCK FUND - CLASS C
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PERCENT OF NAME AND ADDRESS OF OWNER CLASS OWNED - ---------------------------------------------- ----------- NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 95.49% QUALITY GROWTH STOCK FUND - CLASS I SUNTRUST BANKS P O BOX 105870 CENTER 3144 ATLANTA GA 30348 98.80% SEIX FLOATING RATE HIGH INCOME FUND - CLASS A NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 59.16% STIFEL, NICOLAUS & COMPANY, INCORPORATED 501 NORTH BROADWAY ST LOUIS MO 63102 40.29% SEIX FLOATING RATE HIGH INCOME FUND - CLASS I SUNTRUST BANKS P O BOX 105870 CENTER 3144 OAKS PA 30348 23.01% SEIX ADVISORS AS MANAGER FOR MISSOURI PSRS 10 MOUNTAINVIEW ROAD SUITE C-200 UPPER SADDLE RIVER NJ 07458 19.24% SEIX ADVISORS AS MANAGER FOR WYOMING RETIREMENT SYSTEM 10 MOUNTAINVIEW ROAD UPPER SADDLE RIVER NJ 07458 13.90% SEIX AS MANAGER FOR JIB-DSP DEFERRED SALARY PLAN 10 MOUNTAINVIEW ROAD SUITE C-200 ATTN MICHELLE GALLO UPPER SADDLE RIVER NJ 07458 13.22% SEIX ADVISORS AS MANAGER FOR INTERNATIONAL FELLOWSHIP FOUNDATION 10 MOUNTAINVIEW RD STE C200 C/O ELLEN WESH-SEIX ADVISORS UPPER SADDLE RIVER NJ 07458 6.89% NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 6.62% SEIX HIGH YIELD FUND - CLASS A NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 93.03% SEIX HIGH YIELD FUND - CLASS C
109
PERCENT OF NAME AND ADDRESS OF OWNER CLASS OWNED - ---------------------------------------------- ----------- NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 99.24% SEIX HIGH YIELD FUND - CLASS I MAC & CO A/C QSTF4440052 MUTUAL FUND OPS - TC PO BOX 3198 PO BOX 3198 PITTSBURGH PA 152303198 7.75% MELLON TRUST OF NEW ENGLAND NA TTEE 135 SANTILLI HWY EVERETT MA 021490000 7.41% SUNTRUST BANKS P O BOX 105870 CENTER 3144 OAKS PA 43219 6.32% STATE STREET BANK AND TRUST AS TRUSTEE INVENSYS MASTER RETIREMENT TRUST 33 COMMERCIAL ST MAIL STOP B52-SI ATTN LYNN CORDARO FOXBORO MA 020350000 5.89% SHORT-TERM BOND FUND - CLASS A NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 73.41% NATIONWIDE INSURANCE COMPANY TRUST PO BOX 182029 C/O IPO PORTFOLIO ACCOUNTING COLUMBUS OH 432182029 22.00% SHORT-TERM BOND FUND - CLASS C NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 97.64% SHORT-TERM BOND FUND - CLASS I SUNTRUST BANKS P O BOX 105870 CENTER 3144 ATLANTA GA 30348 90.29% TRUSTMAN SUNTRUST BANKS P O BOX 105870 ATLANTA GA 303485870 7.34% SHORT-TERM U.S. TREASURY SEC FUND - CLASS A NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 56.88%
110
PERCENT OF NAME AND ADDRESS OF OWNER CLASS OWNED - ---------------------------------------------- ----------- NATIONWIDE INSURANCE COMPANY TRUST PO BOX 182029 C/O IPO PORTFOLIO ACCOUNTING COLUMBUS OH 432182029 32.04% SHORT-TERM U.S. TREASURY SEC FUND - CLASS C NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 97.05% SHORT-TERM U.S. TREASURY SEC FUND - CLASS I SUNTRUST BANKS P O BOX 105870 CENTER 3144 ATLANTA GA 30348 68.02% CENCO AMG 7TH FLOOR PO BOX 10566 BIRMINGHAM AL 352960566 23.18% SUNTRUST BANK AND VARIOUS BENEFIT PLANS C/O FASCORE RECORDKEEPER 8515 E ORCHARD RD 2T2 GREENWOOD VILLAGE CO 801115002 8.80% SMALL CAP GROWTH STOCK FUND - CLASS A DAVENPORT & COMPANY LLC 901 E CARY ST RICHMOND VA 23219 35.77% NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 26.31% NATIONWIDE INSURANCE COMPANY TRUST PO BOX 182029 C/O IPO PORTFOLIO ACCOUNTING COLUMBUS OH 432182029 8.36% SMALL CAP GROWTH STOCK FUND - CLASS C NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 81.49% SMALL CAP GROWTH STOCK FUND - CLASS I SUNTRUST BANKS P O BOX 105870 CENTER 3144 OAKS PA 43219 32.74% WELLS FARGO BANK NA TRUSTEE VARIOUS FASCORP RECORD KEPT PLANS C/O FASCORE LLC 8515 E ORCHARD RD 2T2 C/O FASCORP RECORDKEEPER GREENWOOD VLG CO 801115002 13.17%
111
PERCENT OF NAME AND ADDRESS OF OWNER CLASS OWNED - ---------------------------------------------- ----------- TRUSTMAN SUNTRUST BANKS P O BOX 105870 ATLANTA GA 303485870 8.81% NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 8.74% SUNTRUST BANK AND VARIOUS BENEFIT PLANS C/O FASCORE RECORDKEEPER 8515 E ORCHARD RD 2T2 GREENWOOD VILLAGE CO 801115002 6.85% SMALL CAP QUANTITATIVE EQUITY FUND - CLASS A NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 96.85% SMALL CAP QUANTITATIVE EQUITY FUND - CLASS C NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 85.62% BISYS FUND SERVICES OHIO INC 3435 STELZER RD COLUMBUS OH 43219 14.38% SMALL CAP QUANTITATIVE EQUITY FUND - CLASS I SUNTRUST BANKS P O BOX 105870 CENTER 3144 ATLANTA GA 30348 100.00% SMALL CAP VALUE EQUITY FUND - CLASS A NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 85.51% WILMINGTON TRUST COMPANY TTEE FBO P T REBAR 401 K PLAN P O BOX 8971 C O MUTUAL FUNDS WILMINGTON DE 198998971 6.76% SMALL CAP VALUE EQUITY FUND - CLASS C NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 93.57% SMALL CAP VALUE EQUITY FUND - CLASS I SUNTRUST BANKS P O BOX 105870 CENTER 3144 OAKS PA 43219 57.20%
112
PERCENT OF NAME AND ADDRESS OF OWNER CLASS OWNED - ---------------------------------------------- ----------- SUNTRUST BANK AND VARIOUS BENEFIT PLANS C/O FASCORE RECORDKEEPER 8515 E ORCHARD RD 2T2 GREENWOOD VILLAGE CO 801115002 20.61% JPMORGAN CHASE BANK AS TRUSTEE LANSING MATCHED EMPLOYEES AND PO BOX 419784 C/O JPMORGAN RPS MGMT RPTG TEAM KANSAS CITY MO 64141 6.02% STRATEGIC INCOME FUND - CLASS A NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 93.24% NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 6.38% STRATEGIC INCOME FUND - CLASS C NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 96.87% STRATEGIC INCOME FUND - CLASS I SUNTRUST BANKS P O BOX 105870 CENTER 3144 COLUMBUS OH 43219 99.88% TAX EXEMPT MONEY MARKET FUND - CLASS A NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY ST 4TH FLOOR, MUTUAL FUNDS NEW YORK NY 10281 99.64% TAX EXEMPT MONEY MARKET FUND - CLASS I SUNTRUST BANK MAIL CENTER 3133 P O BOX 105504 ATTN SUSAN GRIDER ATLANTA GA 303485504 99.65% TOTAL RETURN BOND FUND - CLASS I SUNTRUST BANKS P O BOX 105870 CENTER 3144 COLUMBUS OH 43219 100.00% U.S. GOVERNMENT SECURITIES FUND - CLASS A NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 79.78%
113
PERCENT OF NAME AND ADDRESS OF OWNER CLASS OWNED - ---------------------------------------------- ----------- MID FLORIDA MULTIPLE LISTING SERVICE PO BOX 609400 ORLANDO FL 328609400 5.97% U.S. GOVERNMENT SECURITIES FUND - CLASS C NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 95.97% U.S. GOVERNMENT SECURITIES FUND - CLASS I SUNTRUST BANKS P O BOX 105870 CENTER 3144 ATLANTA GA 30348 92.47% SUNTRUST BANK AND VARIOUS BENEFIT PLANS C/O FASCORE RECORDKEEPER 8515 E ORCHARD RD 2T2 GREENWOOD VILLAGE CO 801115002 7.49% U.S. GOVT SECURITIES MONEY MARKET FD-A NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY ST 4TH FLOOR, MUTUAL FUNDS NEW YORK NY 10281 94.08% U.S. GOVT SECURITIES MONEY MARKET FD-I SUNTRUST BANK MAIL CENTER 3133 PO BOX 105504 ATTN SUSAN GRIDER ATLANTA GA 303485504 97.56% ULTRA-SHORT BOND FUND - CLASS I SUNTRUST BANKS P O BOX 105870 CENTER 3144 ATLANTA GA 30348 97.78% US GOVT SECURITIES ULTRA SHORT BOND FD-I SUNTRUST BANKS P O BOX 105870 CENTER 3144 ATLANTA GA 30348 91.45% NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 8.46% US TREASURY MONEY MARKET FUND - CLASS A NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY ST 4TH FLOOR, MUTUAL FUNDS NEW YORK NY 10281 100.00% US TREASURY MONEY MARKET FUND - CLASS I
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PERCENT OF NAME AND ADDRESS OF OWNER CLASS OWNED - ---------------------------------------------- ----------- SUNTRUST BANK MAIL CENTER 3133 P O BOX 105504 ATTN SUSAN GRIDER ATLANTA GA 303485504 99.49% VIRGINIA INTERMEDIATE MUNICIPAL BOND-A NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 80.13% PERSHING LLC 1 PERSHING PLAZA 14TH FLOOR JERSEY CITY NJ 07399 7.72% VIRGINIA INTERMEDIATE MUNICIPAL BOND-C NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 100.00% VIRGINIA INTERMEDIATE MUNICIPAL BOND-I SUNTRUST BANKS P O BOX 105870 CENTER 3144 ATLANTA GA 30348 99.80% VIRGINIA MUNICIPAL BOND FUND - CLASS C NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER NEW YORK NY 10281 97.06% VIRGINIA MUNICIPAL BOND FUND - CLASS I SUNTRUST BANKS P O BOX 105870 CENTER 3144 ATLANTA GA 30348 100.00% VIRGINIA TAX FREE MONEY MARKET - CLASS A NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY ST 4TH FLOOR, MUTUAL FUNDS NEW YORK NY 10281 100.00% VIRGINIA TAX FREE MONEY MARKET - CLASS I SUNTRUST BANK MAIL CENTER 3133 P O BOX 105504 ATTN SUSAN GRIDER ATLANTA GA 303485504 86.19% STI CLASSIC VA TAX FREE SUNTRUST CAPITAL MKTS 25TH FL MC 3906 ATTN JULIA HUGENOT ATLANTA GA 303083201 13.81%
115 FINANCIAL STATEMENTS The financial statements for the Trust's fiscal year ended March 31, 2006, including notes thereto and the reports of PricewaterhouseCoopers L.L.P. thereon, are incorporated into this Statement of Additional Information by reference from the 2006 Annual Report to Shareholders. Copies of the 2006 Annual Report will be provided without charge to each person receiving this Statement of Additional Information. 116 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. A-1 An S&P note rating reflects the liquidity concerns and market access risks unique to notes. Notes due in three years or less will likely receive a note rating. Notes maturing beyond three years will most likely receive a long-term debt rating. The following criteria will be used in making that assessment: - Amortization Schedule - the larger the final maturity relative to other maturities, the more likely it will be treated as a note, and - Source of Payment - the more dependent the issue is on the market for its refinancing, the more likely it will be treated as a note. S&P note rating symbols are as follows: SP-1 Strong capacity to pay principal and interest. Those issues determined to possess a very strong capacity to pay a debt service is given a plus (+) designation. SP-2 Satisfactory capacity to pay principal and interest with some vulnerability to adverse financial and economic changes over the term of the votes. DESCRIPTION OF CORPORATE BOND RATINGS S&P - --- Bonds rated AAA have the highest rating S&P assigns to a debt obligation. Such a rating indicates an extremely strong capacity to pay principal and interest. Bonds rated AA also qualify as high-quality debt obligations. Capacity to pay principal and interest is very strong, and in the majority of instances they differ from AAA issues only in small degree. Debt rated A has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories. Debt rated BB and B is regarded as having predominantly speculative characteristics with respect to capacity to pay interest and repay principal. BB indicates the least degree of speculation and C the highest degree of speculation. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. Debt rated BB has less near-term vulnerability to default than other speculative grade debt. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions that could lead to inadequate capacity to meet timely interest and principal payments. The BB rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BBB- rating. Debt rate B has greater vulnerability to default but presently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions would likely impair capacity or willingness to pay interest and repay principal. The B rating category also is used for debt subordinated to senior debt that is assigned an actual or implied BB or BB- rating. A-2 Moody's - ------- Bonds which are rated Aaa by Moody's are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large, or an exceptionally stable, margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Bonds rated Aa by Moody's are judged by Moody's to be of high quality by all standards. Together with bonds rated Aaa, they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than the Aaa securities. Bonds which are rated A possess many favorable investment attributes and are to be considered as upper-medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future. Bonds which are rated Baa are considered as medium-grade obligations (i.e., they are neither highly protected nor poorly secured). Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well-assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. Bonds which are rated B 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. A-3 Moody's ratings are opinions, not recommendations to buy or sell, and their accuracy is not guaranteed. A rating should be weighed solely as one factor in an investment decision and you should make your own study and evaluation of any issuer whose securities or debt obligations you consider buying or selling. Fitch - ----- Bonds rated AAA by Fitch are judged by Fitch to be strictly high grade, broadly marketable, suitable for investment by trustees and fiduciary institutions liable to but slight market fluctuation other than through changes in the money rate. The prime feature of an AAA bond is a showing of earnings several times or many times interest requirements, with such stability of applicable earnings that safety is beyond reasonable question whatever changes occur in conditions. Bonds rated AA by Fitch are judged by Fitch to be of safety virtually beyond question and are readily salable, whose merits are not unlike those of the AAA class, but whose margin of safety is less strikingly broad. The issue may be the obligation of a small company, strongly secured but influenced as to rating by the lesser financial power of the enterprise and more local type market. Bonds rated A are considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings. Bonds rated BBB are considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds, and therefore impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings. Bonds rated BB are considered speculative. The obligor's ability to pay interest and repay principal may be affected over time by adverse economic changes. However, business and financial alternatives can be identified which could assist the obligor in satisfying its debt service requirements. Bonds rated B are considered highly speculative. While bonds in this class are currently meeting debt service requirements, the probability of continued timely payment of principal and interest reflects the obligor's limited margin of safety and the need for reasonable business and economic activity throughout the life of the issue. Thomson - ------- 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 GRAPHIC] 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 o Trusco U.S. Domestic Proxy Policy (applied to both ERISA and Non-ERISA related accounts) o Trusco Taft Hartley Proxy Policy o 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 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 B-4 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: o there are concerns about the accounts presented or audit procedures used; or o the company is not responsive to shareholder questions about specific items that should be publicly disclosed. APPOINTMENT OF AUDITORS AND AUDITOR COMPENSATION Vote FOR the reelection of auditors and proposals authorizing the board to fix auditor fees, unless: o there are serious concerns about the accounts presented or the audit procedures used; o the auditors are being changed without explanation; or o 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: o there are serious concerns about the statutory reports presented or the audit procedures used; o questions exist concerning any of the statutory auditors being appointed; or o the auditors have previously served the company in an executive capacity or can otherwise be considered affiliated with the company. ALLOCATION OF INCOME Vote FOR approval of the allocation of income, unless: o the dividend payout ratio has been consistently below 30 percent without adequate explanation; or o the payout is excessive given the company's financial position. STOCK (SCRIP) DIVIDEND ALTERNATIVE Vote FOR most stock (scrip) dividend proposals. Vote AGAINST proposals that do not allow for a cash option unless management demonstrates that the cash option is harmful to shareholder value. AMENDMENTS TO ARTICLES OF ASSOCIATION Vote amendments to the articles of association on a CASE-BY-CASE basis. CHANGE IN COMPANY FISCAL TERM Vote FOR resolutions to change a company's fiscal term unless a company's motivation for the change is to postpone its AGM. 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. B-6 TRANSACT OTHER BUSINESS Vote AGAINST other business when it appears as a voting item. DIRECTOR ELECTIONS Vote FOR management nominees in the election of directors, unless: o Adequate disclosure has not been provided in a timely manner; o There are clear concerns over questionable finances or restatements; o There have been questionable transactions with conflicts of interest; o There are any records of abuses against minority shareholder interests; and o The board fails to meet minimum corporate governance standards. Vote FOR individual nominees unless there are specific concerns about the individual, such as criminal wrongdoing or breach of fiduciary responsibilities. Vote AGAINST shareholder nominees unless they demonstrate a clear ability to contribute positively to board deliberations. Vote AGAINST individual directors if they cannot provide an explanation for repeated absences at board meetings (in countries where this information is disclosed). Vote AGAINST labor representatives if the 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: o there are serious questions about actions of the board or management for the year in question; or o legal action is being taken against the board by other shareholders. 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. B-7 SHARE ISSUANCE REQUESTS GENERAL ISSUANCES: Vote FOR issuance requests with preemptive rights to a maximum of 100 percent over currently issued capital. Vote FOR issuance requests without preemptive rights to a maximum of 20 percent of currently issued capital. SPECIFIC ISSUANCES: Vote on a CASE-BY-CASE basis on all requests, with or without preemptive rights. INCREASES IN AUTHORIZED CAPITAL Vote FOR nonspecific proposals to increase authorized capital up to 100 percent over the current authorization unless the increase would leave the company with less than 30 percent of its new authorization outstanding. Vote FOR specific proposals to increase authorized capital to any amount, unless: o the specific purpose of the increase (such as a share-based acquisition or merger) does not meet Trusco's guidelines for the purpose being proposed; or o the increase would leave the company with less than 30 percent of its new authorization outstanding after adjusting for all proposed issuances. 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. 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. B-8 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: o clear evidence of past abuse of the authority is available; or o the plan contains no safeguards against selective buybacks. REISSUANCE OF SHARES REPURCHASED Vote FOR requests to reissue any repurchased shares unless there is clear evidence of abuse of this authority in the past. CAPITALIZATION OF RESERVES FOR BONUS ISSUES/INCREASE IN PAR VALUE Vote FOR requests to capitalize reserves for bonus issues of shares or to increase par value. REORGANIZATIONS/RESTRUCTURINGS Vote reorganizations and restructurings on a CASE-BY-CASE basis. MERGERS AND ACQUISITIONS Vote mergers and acquisitions on a CASE-BY-CASE basis. MANDATORY TAKEOVER BID WAIVERS Vote proposals to waive mandatory takeover bid requirements on a CASE-BY-CASE basis. REINCORPORATION PROPOSALS Vote reincorporation proposals on a CASE-BY-CASE basis. EXPANSION OF BUSINESS ACTIVITIES Vote FOR resolutions to expand business activities unless the new business takes the company into risky areas. RELATED-PARTY TRANSACTIONS Vote related-party transactions on a CASE-BY-CASE basis. COMPENSATION PLANS Vote compensation plans on a CASE-BY-CASE basis. ANTITAKEOVER MECHANISMS Vote AGAINST all antitakeover proposals unless they are structured in such a way that they give shareholders the ultimate decision on any proposal or offer. SHAREHOLDER PROPOSALS Vote all shareholder proposals on a CASE-BY-CASE basis. Vote FOR proposals that would improve the company's corporate governance or business profile at a reasonable cost. Vote AGAINST proposals that limit the company's business activities or capabilities or result in significant costs being incurred with little or no benefit. B-9 STATEMENT OF ADDITIONAL INFORMATION STI CLASSIC FUNDS AUGUST 1, 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 Classic Institutional Money Market Funds of the STI Classic Funds (the "Trust"), as may be supplemented from time to time. This SAI relates to the following series of the Trust (each a "Fund" and collectively, the "Funds"): CLASSIC INSTITUTIONAL CASH MANAGEMENT MONEY MARKET FUND CLASSIC INSTITUTIONAL MUNICIPAL CASH RESERVE MONEY MARKET FUND CLASSIC INSTITUTIONAL U.S. GOVERNMENT SECURITIES MONEY MARKET FUND CLASSIC INSTITUTIONAL U.S. TREASURY SECURITIES MONEY MARKET FUND This SAI is incorporated by reference into, and should be read in conjunction with, the Funds' prospectuses dated August 1, 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 TABLE OF CONTENTS THE TRUST ..................................................................... 3 DESCRIPTION OF PERMITTED INVESTMENTS ........................................... 3 INVESTMENT LIMITATIONS ........................................................ 25 THE ADVISER ................................................................... 26 THE ADMINISTRATOR ............................................................. 28 THE PORTFOLIO MANAGERS ........................................................ 29 THE DISTRIBUTOR ............................................................... 32 THE TRANSFER AGENT ............................................................ 33 THE CUSTODIAN ................................................................. 33 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ................................. 33 LEGAL COUNSEL ................................................................. 33 TRUSTEES AND OFFICERS OF THE TRUST ............................................ 33 PURCHASING AND REDEEMING SHARES ............................................... 37 DETERMINATION OF NET ASSET VALUE .............................................. 38 TAXES ......................................................................... 39 FUND TRANSACTIONS ............................................................. 41 PORTFOLIO HOLDINGS ............................................................ 44 DESCRIPTION OF SHARES ......................................................... 46 VOTING RIGHTS ................................................................. 46 SHAREHOLDER LIABILITY ......................................................... 46 LIMITATION OF TRUSTEES' LIABILITY ............................................. 46 CODES OF ETHICS ............................................................... 47 PROXY VOTING .................................................................. 47 5% AND 25% SHAREHOLDERS ....................................................... 47 FINANCIAL STATEMENTS .......................................................... 47 APPENDIX A - DESCRIPTION OF RATINGS ........................................... A-1 APPENDIX B - PROXY VOTING SUMMARIES ........................................... B-1
2 THE TRUST Each Fund is a separate series of the Trust, an open-end management investment company established under Massachusetts law as a Massachusetts business trust under a Declaration of Trust dated January 15, 1992. The Declaration of Trust permits the Trust to offer separate series (each a "Fund" and collectively, the "Funds") of units of beneficial interest ("shares") and different classes of shares of each Fund. The Trust reserves the right to create and issue shares of additional funds and/or classes. This SAI relates to shares of the Classic Institutional U.S. Treasury Securities Money Market Fund, which are offered through two separate classes (Corporate Trust Shares and Institutional Shares), and shares of the Classic Institutional Cash Management Money Market Fund, Classic Institutional Municipal Cash Reserve Money Market Fund and Classic Institutional U.S. Government Securities Money Market Fund, which are offered through a single class (Institutional Shares). Each Fund is diversified, as that term is defined in the Investment Company Act of 1940, as amended (the "1940 Act"). DESCRIPTION OF PERMITTED INVESTMENTS Each Fund's respective investment objectives and principal investment strategies are described in the prospectuses. The following information supplements, and should be read in conjunction with, the prospectuses. The following are descriptions of the permitted investments and investment practices discussed in the Funds' 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 Funds' stated investment policies. 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 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 a 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 also is the possibility that recoveries on repossessed collateral may not, in some cases, be available to support payments on those securities. Asset-backed securities entail prepayment risk, which may vary depending on the type of asset, but is generally less than the prepayment risk associated with mortgage-backed securities. In addition, credit card receivables are unsecured obligations of the card holder. ACQUISITIONAL/EQUIPMENT LINES (DELAYED-DRAW TERM LOANS). Acquisitional/equipment lines (delayed-draw term loans) are credits that may be drawn down for a given period to purchase specified assets or equipment of to make acquisitions. The issuer pays a fee during the commitment period (a ticking fee). The lines are then repaid over a specified period (the term-out period). Repaid amounts may not be re-borrowed. To avoid any leveraging concerns, the Fund will segregate or earmark liquid assets with the Fund's custodian in an amount sufficient to cover its repurchase obligations. 3 BORROWING. As required by the 1940 Act, a Fund must maintain continuous asset coverage (total assets, including assets acquired with borrowed funds, less liabilities exclusive of borrowings) of 300% of all amounts borrowed. If, at any time, the value of the Fund's assets should fail to meet this 300% coverage test, the Fund, within three days (not including Sundays and holidays), will reduce the amount of the Fund's borrowings to the extent necessary to meet this 300% coverage. Maintenance of this percentage limitation may result in the sale of portfolio securities at a time when investment considerations otherwise indicate that it would be disadvantageous to do so. In addition to the foregoing, the Funds are authorized to borrow money as a temporary measure for extraordinary or emergency purposes in amounts not in excess of 5% of the value of a Fund's total assets. This borrowing is not subject to the foregoing 300% asset coverage requirement. The Funds are authorized to pledge portfolio securities as the Adviser deems appropriate in connection with any borrowings. Borrowing may subject the Funds to interest costs, which may exceed the interest received on the securities purchased with the borrowed funds. The Funds may borrow at times to meet redemption requests rather than sell portfolio securities to raise the necessary cash. Borrowing can involve leveraging when securities are purchased with the borrowed money. BRADY BONDS. A Brady Bond is a U.S. dollar denominated bond issued by an emerging market, particularly those in Latin America, and collateralized by U.S. Treasury zero-coupon bonds. In the event of a default on collateralized Brady Bonds for which obligations are accelerated, the collateral for the payment of principal will not be distributed to investors, nor will such obligations be sold and the proceeds distributed. The collateral will be held by the collateral agent to the scheduled maturity of the defaulted Brady Bonds, which will continue to be outstanding, at which time the face amount of the collateral will equal the principal payments which would have then been due on the Brady Bonds in the normal course. 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. 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. A 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. 4 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 a Fund sells the security becomes insolvent, the Fund's right to repurchase the security may be restricted. Other risks involved in entering into dollar rolls include the risk that the value of the security may change adversely over the term of the dollar roll and that the security the Fund is required to repurchase may be worth less than the security that the Fund originally held. To avoid any leveraging concerns, the Fund will segregate or earmark liquid assets with the Fund's custodian in an amount sufficient to cover its repurchase obligations. 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. 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. FIXED INCOME SECURITIES. Fixed income securities are debt obligations issued by corporations, municipalities and other borrowers. Coupons may be fixed or adjustable, based on a pre-set formula. The market value of fixed income investments may change in response to interest rate changes and other factors. During periods of falling interest rates, the values of outstanding fixed income securities generally rise. Conversely, during periods of rising interest rates, the values of such securities generally decline. Moreover, while securities with longer maturities tend to produce higher yields, the prices of longer maturity securities are also subject to greater market fluctuations as a result of changes in interest rates. Changes by recognized agencies in the rating of any fixed income security and in the ability of an issuer to make payments of interest and principal will also affect the value of these investments. Changes in the value of portfolio securities will not affect cash income derived from these securities but will affect a 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 5 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 Funds, the Adviser evaluates the risks associated with investing Fund assets in a particular country, including risks stemming from a country's financial infrastructure and settlement practices; the likelihood of expropriation, nationalization or confiscation of invested assets; prevailing or developing custodial practices in the country; the country's laws and regulations regarding the safekeeping, maintenance and recovery of invested assets, the likelihood of government-imposed exchange control restrictions which could impair the liquidity of Fund assets maintained with custodians in that country, as well as risks from political acts of foreign governments ("country risks"). Of course, the Adviser cannot assure that the Fund will not suffer losses resulting from investing in foreign countries. Holding Fund assets in foreign countries through specific foreign custodians presents additional risks, including but not limited to the risks that a particular foreign custodian or depository will not exercise proper care with respect to Fund assets or will not have the financial strength or adequate practices and procedures to properly safeguard Fund assets. By investing in foreign securities, the Funds attempt to take advantage of differences between both economic trends and the performance of securities markets in the various countries, regions and geographic areas as prescribed by each Fund's investment objective and policies. During certain periods the investment return on securities in some or all countries may exceed the return on similar investments in the United States, while at other times the investment return may be less than that on similar U.S. securities. The international investments of a 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 a Fund's investments in one foreign market represented in its portfolio may offset potential gains from the Fund's investments in another country's markets. Emerging countries are all countries that are considered to be developing or emerging countries by the World Bank or the International Finance Corporation, as well as countries classified by the United Nations or otherwise regarded by the international financial community as developing. FORWARD FOREIGN CURRENCY CONTRACTS. Forward foreign currency contracts involve obligations to purchase or sell a specific currency amount at a future date, agreed upon by the parties, at a price set at the time of the contract. A Fund may also enter into a contract to sell, for a fixed amount of U.S. dollars or other appropriate 6 currency, the amount of foreign currency approximating the value of some or all of the Fund's securities denominated in the foreign currency. A Fund may realize a gain or loss from currency transactions. FUTURES AND OPTIONS ON FUTURES. Futures contracts provide for the future sale by one party and purchase by another party of a specified amount of a specific security at a specified future time and at a specified price. An option on a futures contract gives the purchaser the right, in exchange for a premium, to assume a position in a futures contract at a specified exercise price during the term of the option. A Fund will reduce the risk that it will be unable to close out a futures contract by only entering into futures contracts that are traded on a national futures exchange regulated by the Commodities Futures Trading Commission ("CFTC"). A 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 a 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 each 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, no Fund is 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 a Fund purchases or sells a futures contract, or sells an option thereon, the Fund is required to "cover" its position in order to limit leveraging and related risks. A long position is established when the Adviser purchases a stock outright and a short position is established when the Adviser sells a security that it has borrowed. To cover its position, a Fund will segregate or earmark liquid assets with the Fund's custodian that, when added to any amounts deposited with a futures commission merchant as margin, are equal to the market value of the futures contract or otherwise "cover" its position in a manner consistent with the 1940 Act or the rules and Securities and Exchange Commission (the "SEC"), interpretations thereunder. The segregated account functions as a practical limit on the amount of leverage which the Fund may undertake and on the potential increase in the speculative character of the Fund's outstanding portfolio securities. Additionally, such segregated accounts will generally assure the availability of adequate funds to meet the obligations of the fund arising from such investment activities. A Fund may also cover its long position in a futures contract by purchasing a put option on the same futures contract with a strike price (i.e., an exercise price) as high 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. A Fund may also cover its long position in a futures contract by taking a short position in the instruments underlying the futures contract, or by taking positions in instruments with prices, which are expected to move relatively consistently with the futures contract. A Fund may cover its short position in a futures contract by taking a long position in the instruments underlying the futures contracts, or by taking positions in instruments with prices, which are expected to move relatively consistently with the futures contract. A Fund may cover its sale of a call option on a futures contract by taking a long position in the underlying futures contract at a price less than or equal to the strike price of the call option. In the alternative, if the long position in the underlying futures contract is established at a price greater than the strike price of the written (sold) call, the Fund will maintain in a segregated account cash or liquid securities equal in value to the difference between the strike price of the call and the price of the futures contract. A Fund may also cover its sale of a call option by taking positions in instruments with prices which are expected to move relatively consistently with the call option. 7 A Fund may cover its sale of a put option on a futures contract by taking a short position in the underlying futures contract at a price greater than or equal to the strike price of the put option, or, if the short position in the underlying futures contract is established at a price less than the strike price of the written put, the fund will maintain in a segregated account cash or liquid securities equal in value to the difference between the strike price of the put and the price of the futures contract. A Fund may also cover its sale of a put option by taking positions in instruments with prices, which are expected to move relatively consistently with the put option. There are significant risks associated with a Fund's use of futures contracts and related options, including the following: (1) the success of a hedging strategy may depend on the Adviser's ability to predict movements in the prices of individual securities, fluctuations in markets and movements in interest rates, (2) there may be an imperfect or no correlation between the changes in market value of the securities held by the Fund and the prices of futures and options on futures, (3) there may not be a liquid secondary market for a futures contract or option, (4) trading restrictions or limitations may be imposed by an exchange, and (5) government regulations may restrict trading in futures contracts and options on futures. In addition, some strategies reduce a Fund's exposure to price fluctuations, while others tend to increase its market exposure. GUARANTEED INVESTMENT CONTRACTS (GICS). A GIC is a general obligation of the issuing insurance company and not a separate account. The purchase price paid for a GIC becomes part of the general assets of the issuer, and the contract is paid at maturity from the general assets of the issuer. Generally, GICs are not assignable or transferable without the permission of the issuing insurance company. For this reason, an active secondary market in GICs does not currently exist and GICs are considered to be illiquid investments. HEDGING TECHNIQUES. Hedging is an investment strategy designed to offset investment risks. Hedging activities include, among other things, the use of options and futures. There are risks associated with hedging activities, including: (i) the success of a hedging strategy may depend on an ability to predict movements in the prices of individual securities, fluctuations in markets, and movements in interest rates; (ii) there may be an imperfect or no correlation between the changes in market value of the securities held by a Fund and the prices of futures and option on futures; (iii) there may not be a liquid secondary market for a futures contract or option; and (iv) trading restrictions or limitations may be imposed by an exchange, and government regulations may restrict trading in futures contracts and options. ILLIQUID SECURITIES. Illiquid securities are securities that cannot be sold or disposed of in the ordinary course of business (within seven days) at approximately the prices at which they are valued. Because of their illiquid nature, illiquid securities must be priced at fair value as determined in good faith pursuant to procedures approved by the Trust's Board of Trustees. Despite such good faith efforts to determine fair value prices, a Fund's illiquid securities are subject to the risk that the security's fair value price may differ from the actual price, which the Fund may ultimately realize upon its sale or disposition. Difficulty in selling illiquid securities may result in a loss or may be costly to a Fund. Under the supervision of the Trust's Board of Trustees, the Adviser determines the liquidity of a Fund's investments. In determining the liquidity of a Fund's investments, the Adviser may consider various factors, including (1) the frequency and volume of trades and quotations, (2) the number of dealers and prospective purchasers in the marketplace, (3) dealer undertakings to make a market, and (4) the nature of the security and the market in which it trades (including any demand, put or tender features, the mechanics and other requirements for transfer, any letters of credit or other credit enhancement features, any ratings, the number of holders, the method of soliciting offers, the time required to dispose of the security, and the ability to assign or offset the rights and obligations of the security). A Fund will not invest more than 10% of its net assets in illiquid securities. INVESTMENT COMPANY SHARES. The Funds may invest in shares of other investment companies, to the extent permitted by applicable law and subject to certain restrictions. These investment companies typically incur fees that are separate from those fees incurred directly by the Funds. The Funds' purchase of such investment 8 company securities results in the layering of expenses, such that shareholders would indirectly bear a proportionate share of the operating expenses of such investment companies, including advisory fees, in addition to paying the Funds' expenses. Under applicable regulations, unless an exception is available, the Funds are prohibited from acquiring the securities of another investment company if, as a result of such acquisition: (1) the Funds own more than 3% of the total voting stock of the other company; (2) securities issued by any one investment company represent more than 5% of the Funds' total assets; or (3) securities (other than treasury stock) issued by all investment companies represent more than 10% of the total assets of the Funds. For hedging or other purposes, each 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, each 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 Funds. INVESTMENT GRADE OBLIGATIONS. Investment grade obligations are fixed income obligations rated by one or more of the rating agencies in one of the four highest rating categories at the time of purchase (e.g., AAA, AA, A or BBB by S&P or Fitch, Inc. ("Fitch"), or Aaa, Aa, A or Baa by Moody's or determined to be of equivalent quality by the Adviser). Securities rated BBB or Baa represent the lowest of four levels of investment grade obligations and are regarded as borderline between sound obligations and those in which the speculative element begins to predominate. Ratings assigned to fixed income securities represent only the opinion of the rating agency assigning the rating and are not dispositive of the credit risk associated with the purchase of a particular fixed income obligation. A 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. 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. 9 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. Each 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 U.S. government agencies and government-sponsored entities, such as Government National Mortgage Association ("GNMA"), Federal National Mortgage Association ("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"), commercial banks, savings and loan associations, mortgage banks, or by issuers that are affiliates of or sponsored by such entities. The payment of interest and principal on mortgage-backed obligations issued by these entities may be guaranteed by the full faith and credit of the U.S. government (in the case of GNMA), or may be guaranteed by the issuer (in the case of FNMA and MHLMC). However, these guarantees do not apply to the market prices and yields of these securities, which vary with changes in interest rates. Obligations of GNMA are backed by the full faith and credit of the U.S. Government. Obligations of Fannie Mae and FHLMC are not backed by the full faith and credit of the U.S. Government, but are considered to be of high quality since they are considered to be instrumentalities of the United States. 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 multiclass 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. 10 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. 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 LEASE OBLIGATIONS. Municipal lease obligations are securities issued by state and 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 11 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. 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 generally must be rated investment grade by at least one national securities rating agency or, if not rated, must be deemed by the Adviser to essentially have characteristics similar to those of bonds having the above rating. Bonds downgraded to below investment grade may continue to be held at the discretion of the Fund's Adviser. 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 12 during a stated period or on a certain date. Such a right is generally denoted as a "standby commitment" or a "put." The purpose of engaging in transactions involving puts is to maintain flexibility and liquidity in order to meet redemptions and remain as fully invested as possible in municipal securities. The right to put the securities depends on the writer's ability to pay for the securities at the time the put is exercised. The Funds will limit their put transactions to those with institutions which the Adviser believes present minimum credit risks, and the Adviser will use its best efforts to initially determine and thereafter monitor the financial strength of the put providers by evaluating their financial statements and such other information as is available in the marketplace. It may, however, be difficult to monitor the financial strength of the writers where adequate current financial information is not available. In the event that any writer is unable to honor a put for financial reasons, the affected Fund would be a general creditor (i.e., on parity with all other unsecured creditors) of the writer. Furthermore, particular provisions of the contract between a Fund and the writer may excuse the writer from repurchasing the securities in certain circumstances (for example, a change in the published rating of the underlying municipal securities or any similar event that has an adverse effect on the issuer's credit); or a provision in the contract may provide that the put will not be exercised except in certain special cases, for example, to maintain portfolio liquidity. A Fund could, however, sell the underlying portfolio security in the open market or wait until the portfolio security matures, at which time it should realize the full par value of the security. Municipal securities purchased subject to a put may be sold to third persons at any time, even though the put is outstanding, but the put itself, unless it is an integral part of the security as originally issued, may not be marketable or otherwise assignable. Sale of the securities to third parties or lapse of time with the put unexercised may terminate the right to put the securities. Prior to the expiration of any put option, a Fund could seek to negotiate terms for the extension of such an option. If such a renewal cannot be negotiated on terms satisfactory to a Fund, the Fund could, of course, sell the portfolio security. The maturity of the underlying security will generally be different from that of the put. There will be no limit to the percentage of portfolio securities that the Funds may purchase subject to a put. For the purpose of determining the "maturity" of securities purchased subject to an option to put, and for the purpose of determining the dollar-weighted average maturity of the Funds including such securities, the Trust will consider "maturity" to be the first date on which it has the right to demand payment from the writer of the put although the final maturity of the security is later than such date. Other types of tax-exempt instruments, which are permissible investments include floating rate notes. Investments in such floating rate instruments will normally involve industrial development or revenue bonds which provide that the rate of interest is set as a specific percentage of a designated base rate (such as the prime rate) at a major commercial bank, and that the Fund can demand payment of the obligation at all times or at stipulated dates on short notice (not to exceed 30 days) at par plus accrued interest. Such obligations are frequently secured by letters of credit or other credit support arrangements provided by banks. The quality of the underlying credit or of the bank, as the case may be, must, in the Adviser's opinion, be equivalent to the long-term bond or commercial paper ratings stated above. The Adviser will monitor the earning power, cash flow and liquidity ratios of the issuers of 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 13 the Adviser will review the proceedings relating to the issuance of municipal securities or the basis for such opinions. NON-PUBLICLY TRADED SECURITIES; RULE 144A SECURITIES. The Funds may purchase securities that are not registered under the Securities Act of 1933, as amended (the "1933 Act"), but that can be sold to "qualified institutional buyers" in accordance with Rule 144A under the 1933 Act ("Rule 144A Securities"). An investment in Rule 144A Securities will be considered illiquid and therefore subject to the Fund's limitation on the purchase of illiquid securities (usually 15% of a fund's net assets, 10% for the money market funds), unless the Fund's governing Board of Trustees determines on an ongoing basis that an adequate trading market exists for the security. In addition to an adequate trading market, the Board of Trustees will also consider factors such as trading activity, availability of reliable price information and other relevant information in determining whether a Rule 144A Security is liquid. This investment practice could have the effect of increasing the level of illiquidity in the Fund to the extent that qualified institutional buyers become uninterested for a time in purchasing Rule 144A Securities. The Board of Trustees will carefully monitor any investments by the Fund in Rule 144A Securities. The Board of Trustees may adopt guidelines and delegate to the Adviser the daily function of determining and monitoring the liquidity of Rule 144A Securities, although the Board of Trustees will retain ultimate responsibility for any determination regarding liquidity. Non-publicly traded securities (including Rule 144A Securities) may involve a high degree of business and financial risk and may result in substantial losses. These securities may be less liquid than publicly traded securities, and the Fund may take longer to liquidate these positions than would be the case for publicly traded securities. Although these securities may be resold in privately negotiated transactions, the prices realized on such sales could be less than those originally paid by the Fund. Further, companies whose securities are not publicly traded may not be subject to the disclosure and other investor protection requirements applicable to companies whose securities are publicly traded. The Fund's investments in illiquid securities are subject to the risk that should the Fund desire to sell any of these securities when a ready buyer is not available at a price that is deemed to be representative of their value, the value of the Fund's net assets could be adversely affected. OBLIGATIONS OF DOMESTIC BANKS, FOREIGN BANKS AND FOREIGN BRANCHES OF U.S. BANKS. A Fund may invest in obligations issued by banks and other savings institutions. Investments in bank obligations include obligations of domestic branches of foreign banks and foreign branches of domestic banks. Such investments in domestic branches of foreign banks and foreign branches of domestic banks may involve risks that are different from investments in securities of domestic branches of U.S. banks. These risks may include future unfavorable political and economic developments, possible withholding taxes on interest income, seizure or nationalization of foreign deposits, currency controls, interest limitations, or other governmental restrictions which might affect the payment of principal or interest on the securities held by a Fund. Additionally, these institutions may be subject to less stringent reserve requirements and to different accounting, auditing, reporting and recordkeeping requirements than those applicable to domestic branches of U.S. banks. The Funds may invest in U.S. dollar-denominated obligations of domestic branches of foreign banks and foreign branches of domestic banks only when the Adviser believes that the risks associated with such investment are minimal and that all applicable quality standards have been satisfied. Bank obligations include the following: - 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 14 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 Funds will not purchase obligations issued by the Adviser or its affiliates. OPTIONS. A Fund may purchase and write put and call options on securities or securities indices (traded on U.S. exchanges or over-the-counter markets) and enter into related closing transactions. A put option on a security gives the purchaser of the option the right to sell, and the writer of the option the obligation to buy, the underlying security at any time during the option period. A call option on a security gives the purchaser of the option the right to buy, and the writer of the option the obligation to sell, the underlying security at any time during the option period. The premium paid to the writer is the consideration for undertaking the obligations under the option contract. Put and call options on indices are similar to options on securities except that options on an index give the holder the right to receive, upon exercise of the option, an amount of cash if the closing level of the underlying index is greater than (or less than, in the case of puts) the exercise price of the option. This amount of cash is equal to the difference between the closing price of the index and the exercise price of the option, expressed in dollars multiplied by a specified number. Thus, unlike options on individual securities, all settlements are in cash, and gain or loss depends on price movements in the particular market represented by the index generally, rather than the price movements in individual securities. The initial purchase (sale) of an option contract is an "opening transaction." In order to close out an option position, a Fund may enter into a "closing transaction," which is simply the sale (purchase) of an option contract on the same security with the same exercise price and expiration date as the option contract originally opened. If a Fund is unable to effect a closing purchase transaction with respect to an option it has written, it will not be able to sell the underlying security until the option expires or the Fund delivers the security upon exercise. A Fund may purchase and write options on an exchange or over-the-counter. Over-the-counter options ("OTC options") differ from exchange-traded options in several respects. They are transacted directly with dealers and not with a clearing corporation, and therefore entail the risk of non-performance by the dealer. OTC options are available for a greater variety of securities and for a wider range of expiration dates and exercise prices than are available for exchange-traded options. Because OTC options are not traded on an exchange, pricing is done normally by reference to information from a market maker. It is the SEC's position that OTC options are generally illiquid. The market value of an option generally reflects the market price of an underlying security. Other principal factors affecting market value include supply and demand, interest rates, the pricing volatility of the underlying security and the time remaining until the expiration date. A Fund must cover all options it writes. For example, when a Fund writes an option on a security, index or foreign currency, it will segregate or earmark liquid assets with the Fund's custodian in an amount at least equal to the market value of the option and will maintain such coverage while the option is open. A Fund may otherwise cover the transaction by means of an offsetting transaction or other means permitted by the 1940 Act or the rules and SEC interpretations thereunder. 15 Each Fund may trade put and call options on securities, securities indices or currencies, as the investment adviser or sub-adviser determines is appropriate in seeking the Fund's investment objective. For example, a Fund may purchase put and call options on securities or indices to protect against a decline in the market value of the securities in its portfolio or to anticipate an increase in the market value of securities that the Fund may seek to purchase in the future. A Fund purchasing put and call options pays a premium therefor. If price movements in the underlying securities are such that exercise of the options would not be profitable for the Fund, loss of the premium paid may be offset by an increase in the value of the Fund's securities or by a decrease in the cost of acquisition of securities by the Fund. In another instance, a Fund may write covered call options on securities as a means of increasing the yield on its assets and as a means of providing limited protection against decreases in its market value. When a Fund writes an option, if the underlying securities do not increase or decrease to a price level that would make the exercise of the option profitable to the holder thereof, the option generally will expire without being exercised and the Fund will realize as profit the premium received for such option. When a call option written by the Fund is exercised, the Fund will be required to sell the underlying securities to the option holder at the strike price, and will not participate in any increase in the price of such securities above the strike price. When a put option written by the Fund is exercised, the Fund will be required to purchase the underlying securities at a price in excess of the market value of such securities. There are significant risks associated with a Fund's use of options, including the following: (1) the success of a hedging strategy may depend on the Adviser's ability to predict movements in the prices of individual securities, fluctuations in markets and movements in interest rates; (2) there may be an imperfect or no correlation between the movement in prices of options held by the Fund and the securities underlying them; (3) there may not be a liquid secondary market for options; and (4) while a Fund will receive a premium when it writes covered call options, it may not participate fully in a rise in the market value of the underlying security. OTHER INVESTMENTS. The Funds are not prohibited from investing in bank obligations issued by clients of BISYS Group, Inc., the parent company of the Funds' administrator and distributor. The purchase of Fund shares by these banks or their customers will not be a consideration in deciding which bank obligations the Funds will purchase. The Funds will not purchase obligations issued by the BISYS Group, Inc. 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. 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 passthrough 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. 16 REITs are sometimes informally characterized as Equity REITs and Mortgage REITs. An Equity REIT invests primarily in the fee ownership or leasehold ownership of land and buildings; a Mortgage REIT invests primarily in mortgages on real property, which may secure construction, development or longterm loans. REITs in which a Fund invests may be affected by changes in underlying real estate values, which may have an exaggerated effect to the extent that REITs in which a Fund invests may concentrate investments in particular geographic regions or property types. Additionally, rising interest rates may cause investors in REITs to demand a higher annual yield from future distributions, which may in turn decrease market prices for equity securities issued by REITs. Rising interest rates also generally increase the costs of obtaining financing, which could cause the value of the Fund's investments to decline. During periods of declining interest rates, certain Mortgage REITs may hold mortgages that the mortgagors elect to prepay, which prepayment may diminish the yield on securities issued by such Mortgage REITs. In addition, Mortgage REITs may be affected by the ability of borrowers to repay when due the debt extended by the REIT and Equity REITs may be affected by the ability of tenants to pay rent. Certain REITs have relatively small market capitalization, which may tend to increase the volatility of the market price of securities issued by such REITs. Furthermore, REITs are dependent upon specialized management skills, have limited diversification and are, therefore, subject to risks inherent in operating and financing a limited number of projects. By investing in REITs indirectly through the Fund, a shareholder will bear not only his proportionate share of the expenses of the Fund, but also, indirectly, similar expenses of the REITs. REITs depend generally on their ability to generate cash flow to make distributions to shareholders. In addition to these risks, Equity REITs may be affected by changes in the value of the underlying property owned by the trusts, while Mortgage REITs may be affected by the quality of any credit extended. Further, Equity and Mortgage REITs are dependent upon management skills and generally may not be diversified. Equity and Mortgage REITs are also subject to heavy cash flow dependency defaults by borrowers and self-liquidation. In addition, Equity and Mortgage REITs could possibly fail to qualify for tax free pass-through of income under the Code or to maintain their exemptions from registration under the 1940 Act. The above factors may also adversely affect a borrower's or a lessee's ability to meet its obligations to the REIT. In the event of default by a borrower or lessee, the REIT may experience delays in enforcing its rights as a mortgagee or lessor and may incur substantial costs associated with protecting its investments. REAL ESTATE SECURITIES. A Fund may be subject to the risks associated with the direct ownership of real estate because of its policy of concentration in the securities of companies principally engaged in the real estate industry. For example, real estate values may fluctuate as a result of general and local economic conditions, overbuilding and increased competition, increases in property taxes and operating expenses, demographic trends and variations in rental income, changes in zoning laws, casualty or condemnation losses, regulatory limitations on rents, changes in neighborhood values, related party risks, changes in how appealing properties are to tenants, changes in interest rates and other real estate capital market influences. The value of securities of companies, which service the real estate business sector may also be affected by such risks. Because a Fund may invest a substantial portion of its assets in REITs, a Fund may also be subject to certain risks associated with the direct investments of the REITs. REITs may be affected by changes in the value of their underlying properties and by defaults by borrowers or tenants. Mortgage REITs may be affected by the quality of the credit extended. Furthermore, REITs are dependent on specialized management skills. Some REITs may have limited diversification and may be subject to risks inherent in financing a limited number of properties. REITs depend generally on their ability to generate cash flow to make distributions to shareholders or unitholders, and may be subject to defaults by borrowers and to self-liquidations. In addition, the performance of a REIT may be affected by its failure to qualify for taxfree 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 17 value of the debt securities in which a Fund will invest. Changes in the value of portfolio securities will not necessarily affect cash income derived from these securities but will affect a Fund's net asset value. Generally, increases in interest rates will increase the costs of obtaining financing which could directly and indirectly decrease the value of a Fund's investments. REPURCHASE AGREEMENTS. A Fund may enter into repurchase agreements with financial institutions. The Funds each follow certain procedures designed to minimize the risks inherent in such agreements. These procedures include effecting repurchase transactions only with creditworthy financial institutions whose condition will be continually monitored by the Adviser. The repurchase agreements entered into by a Fund will provide that the underlying collateral at all times shall have a value at least equal to 102% of the resale price stated in the agreement. Under all repurchase agreements entered into by a Fund, the custodian or its agent must take possession of the underlying collateral. In the event of a default or bankruptcy by a selling financial institution, a Fund will seek to liquidate such collateral. However, the exercising of each Fund's right to liquidate such collateral could involve certain costs or delays and, to the extent that proceeds from any sale upon a default of the obligation to repurchase were less than the repurchase price, the Fund could suffer a loss. It is the current policy of each of the Funds, not to invest in repurchase agreements that do not mature within seven days if any such investment, together with any other illiquid assets held by that Fund, amounts to more than 15% of the Fund's net assets. The investments of each of the Funds in repurchase agreements, at times, may be substantial when, in the view of the Adviser, liquidity or other considerations so warrant. RESOURCE RECOVERY BONDS. 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. REVERSE REPURCHASE AGREEMENTS. A reverse repurchase agreement is a contract under which a Fund sells a security for cash for a relatively short period (usually not more than one week) subject to the obligation of the Fund to repurchase such security at a fixed time and price (representing the seller's cost plus interest). Reverse repurchase agreements involve the risk that the market value of the securities a Fund is obligated to repurchase under the agreement may decline below the repurchase price. In the event the buyer of securities under a reverse repurchase agreement files for bankruptcy or becomes insolvent, a Fund's use of proceeds of the agreement may be restricted pending a determination by the other party, or its trustee or receiver, whether to enforce the Fund's obligation to repurchase the securities. In addition, reverse repurchase agreements are techniques involving leverage, and are subject to asset coverage requirements. Under the requirements of the 1940 Act, a Fund is required to maintain an asset coverage (including the proceeds of the borrowings) of at least 300% of all borrowings. To avoid any leveraging concerns, the Fund will segregate or earmark liquid assets with the Fund's custodian in an amount sufficient to cover its repurchase obligations. REVOLVING CREDIT FACILITIES ("REVOLVERS"). Revolvers are borrowing arrangements in which the lender agrees to make loans up to a maximum amount upon demand by the borrower during a specified term. As the borrower repays the loan, an amount equal to the repayment may be borrowed again during the term of the Revolver and usually provides for floating or variable rates of interest. These commitments may have the effect of requiring a Fund to increase its investment in a company at a time when it might not otherwise decide to do so (including at a time when the company's financial condition makes it unlikely that such amounts will be repaid). To avoid any leveraging concerns, the Fund will segregate or earmark liquid assets with the Fund's custodian in an amount sufficient to cover its repurchase obligations. A Fund may invest in Revolvers with credit quality comparable to that of issuers of its other investments. Revolvers may be subject to restrictions on transfer, and only limited opportunities may exist to resell such instruments. As a result, a Fund may be unable to sell such investments at an opportune time or may have to resell 18 them at less than fair market value. Each Fund currently intends to treat Revolvers for which there is no readily available market as illiquid for purposes of that Fund's limitation on illiquid investments. RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS. Investments by a money market fund are subject to limitations imposed under regulations adopted by the SEC. Under these regulations, money market funds may acquire only obligations that present minimal credit risk and that are "eligible securities," which means they are (i) rated, at the time of investment, by at least two NRSROs (one if it is the only organization rating such obligation) in the highest rating category or, if unrated, determined to be of comparable quality (a "first tier security"), or (ii) rated according to the foregoing criteria in the second highest rating category or, if unrated, determined to be of comparable quality ("second tier security"). In the case of taxable money market funds, investments in second tier securities are subject to further constraints in that (i) no more than 5% of a money market fund's assets may be invested in second tier securities and (ii) any investment in securities of any one such issuer is limited to the greater of 1% of the money market fund's total assets or $1 million. A taxable money market fund may not purchase securities of any issuer (except securities issued or guaranteed by the U.S. Government, its agencies of instrumentalities) if, as a result, more than 5% of the total assets of the Fund would be invested the securities of one issuer. A taxable money market fund may also hold more than 5% of its assets in first tier securities of a single issuer for three "business days" (that is, any day other than a Saturday, Sunday or customary business holiday). SECURITIES LENDING. Each Fund may lend portfolio securities to brokers, dealers and other financial organizations that meet capital and other credit requirements or other criteria established by the Fund's Board. These loans, if and when made, may not exceed 33 1/3% of the total asset value of the Fund (including the loan collateral). No Fund will lend portfolio securities to its investment adviser, subadviser or their affiliates unless it has applied for and received specific authority to do so from the SEC. Loans of portfolio securities will be fully collateralized by cash, letters of credit or U.S. government securities, and the collateral will be maintained in an amount equal to at least 100% of the current market value of the loaned securities by marking to market daily. Any gain or loss in the market price of the securities loaned that might occur during the term of the loan would be for the account of the Fund. A Fund may pay a part of the interest earned from the investment of collateral, or other fee, to an unaffiliated third party for acting as the Fund's securities lending agent. By lending its securities, a Fund may increase its income by receiving payments from the borrower that reflect the amount of any interest or any dividends payable on the loaned securities as well as by either investing cash collateral received from the borrower in short-term instruments or obtaining a fee from the borrower when U.S. government securities or letters of credit are used as collateral. Each Fund will adhere to the following conditions whenever its portfolio securities are loaned: (i) the Fund must receive at least 100% cash collateral or equivalent securities of the type discussed in the preceding paragraph from the borrower; (ii) the borrower must increase such collateral whenever the market value of the securities rises above the level of such collateral; (iii) the Fund must be able to terminate the loan on demand; (iv) the Fund must receive reasonable interest on the loan, as well as any dividends, interest or other distributions on the loaned securities and any increase in market value; (v) the Fund may pay only reasonable fees in connection with the loan (which fees may include fees payable to the lending agent, the borrower, the Fund's administrator and the custodian); and (vi) voting rights on the loaned securities may pass to the borrower, provided, however, that if a matter comes up for a vote which would have a material effect on a 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 a 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 a Fund's ability to recover the loaned securities or dispose of the collateral for the loan, which could give rise to loss because of adverse market action, expenses and/or delays in connection with the disposition of the underlying securities. 19 SHORT-TERM OBLIGATIONS. Short-term obligations are debt obligations maturing (becoming payable) in 397 days or less, including commercial paper and short-term corporate obligations. Short-term corporate obligations are short-term obligations issued by corporations. STANDBY COMMITMENTS AND PUTS. The Funds may purchase securities at a price which would result in a yield to maturity lower than that generally offered by the seller at the time of purchase when they can simultaneously acquire the right to sell the securities back to the seller, the issuer or a third-party (the "writer") at an agreed-upon price at any time during a stated period or on a certain date. Such a right is generally denoted as a "standby commitment" or a "put." The purpose of engaging in transactions involving puts is to maintain flexibility and liquidity to permit the Funds to meet redemptions and remain as fully invested as possible in municipal securities. The Funds reserve the right to engage in put transactions. The right to put the securities depends on the writer's ability to pay for the securities at the time the put is exercised. A Fund would limit its put transactions to institutions which the Adviser believes present minimal credit risks, and the Adviser would use its best efforts to initially determine and continue to monitor the financial strength of the sellers of the options by evaluating their financial statements and such other information as is available in the marketplace. It may, however be difficult to monitor the financial strength of the writers because adequate current financial information may not be available. In the event that any writer is unable to honor a put for financial reasons, a Fund would be a general creditor (i.e., on a parity with all other unsecured creditors) of the writer. Furthermore, particular provisions of the contract between the Fund and the writer may excuse the writer from repurchasing the securities; for example, a change in the published rating of the underlying securities or any similar event that has an adverse effect on the issuer's credit or a provision in the contract that the put will not be exercised except in certain special cases, for example, to maintain portfolio liquidity. The Fund could, however, at any time sell the underlying portfolio security in the open market or wait until the portfolio security matures, at which time it should realize the full par value of the security. The securities purchased subject to a put may be sold to third persons at any time, even though the put is outstanding, but the put itself, unless it is an integral part of the security as originally issued, may not be marketable or otherwise assignable. Therefore, the put would have value only to the Fund. Sale of the securities to third parties or lapse of time with the put unexercised may terminate the right to put the securities. Prior to the expiration of any put option, the Fund could seek to negotiate terms for the extension of such an option. If such a renewal cannot be negotiated on terms satisfactory to the Fund, the Fund could, of course, sell the portfolio security. The maturity of the underlying security will generally be different from that of the put. There will be no limit to the percentage of portfolio securities that the Fund may purchase subject to a standby commitment or put, but the amount paid directly or indirectly for all standby commitments or puts which are not integral parts of the security as originally issued held in the Fund will not exceed one-half of 1% of the value of the total assets of such Fund calculated immediately after any such put is acquired. STRIPS. Separately Traded Interest and Principal Securities ("STRIPS") are component parts of U.S. Treasury securities traded through the federal book-entry system. An Adviser will only purchase STRIPS that it determines are liquid or, if illiquid, do not violate the affected Fund's investment policy concerning investments in illiquid securities. Consistent with Rule 2a-7 under the 1940 Act, the Adviser will only purchase STRIPS for money market funds that have a remaining maturity of 397 days or less; therefore, the money market funds currently may only purchase interest component parts of U.S. Treasury securities. While there is no limitation on the percentage of a Fund's assets that may be comprised of 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 20 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 tailor its investments to the specific risks and returns the Adviser wishes to accept while avoiding or reducing certain other risks. SUPRANATIONAL AGENCY OBLIGATIONS. Supranational agency obligations are obligations of supranational entities established through the joint participation of several governments, including the Asian Development Bank, Inter-American Development Bank, International Bank for Reconstruction and Development (also known as the "World Bank"), African Development Bank, European Union, European Investment Bank, and the Nordic Investment Bank. SWAP AGREEMENTS. The Funds may enter into equity index or interest rate swap agreements for purposes of attempting to gain exposure to the stocks making up an index of securities in a market without actually purchasing those stocks, or to hedge a position. Swap agreements are two-party contracts entered into primarily by institutional investors for periods ranging from a day to more than one-year. In a standard "swap" transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or instruments. The gross returns to be exchanged or "swapped" between the parties are calculated with respect to a "notional amount," i.e., the return on or increase in value of a particular dollar amount invested in a "basket" of securities representing a particular index. Forms of swap agreements include interest rate caps, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates exceed a specified rate, or "cap," interest rate floors, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates fall below a specified level, or "floor;" and interest rate dollars, under which a party sells a cap and purchases a floor or vice versa in an attempt to protect itself against interest rate movements exceeding given minimum or maximum levels. 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. The Select Aggregate Market Index ("SAMI") is a basket of credit default swaps whose underlying reference obligations are floating rate loans. Investments in SAMIs increase exposure to risks that are not typically associated with investments in other floating rate debt instruments, and involve many of the risks associated with investments in derivative instruments. The liquidity of the market for SAMIs is subject to liquidity in the secured loan and credit derivatives markets. The Select Aggregate Market Index ("SAMI") is a basket of credit default swaps whose underlying reference obligations are floating rate loans. Investments in SAMIs increase exposure to risks that are not typically associated with investments in other floating rate debt instruments, and involve many of the risks associated with investments in derivative instruments. The liquidity of the market for SAMIs is subject to liquidity in the secured loan and credit derivatives markets. A Fund's current obligations under a swap agreement will be accrued daily (offset against any amounts owing to the Fund) and any accrued but unpaid net amounts owed to a swap counterparty will be covered by segregating assets determined to be liquid. Obligations under swap agreements so covered will not be construed to be "senior securities" for purposes of a Fund's investment restriction concerning senior securities. Because they are two 21 party contracts and because they may have terms of greater than seven days, swap agreements may be considered to be illiquid for the Fund's illiquid investment limitations. A Fund will not enter into any swap agreement unless the Adviser believes that the other party to the transaction is creditworthy. A Fund bears the risk of loss of the amount expected to be received under a swap agreement in the event of the default or bankruptcy of a swap agreement counterparty. Each Fund may enter into swap agreements to invest in a market without owning or taking physical custody of securities in circumstances in which direct investment is restricted for legal reasons or is otherwise impracticable. The counterparty to any swap agreement will typically be a bank, investment banking firm or broker/dealer. The counter-party will generally agree to pay the Fund the amount, if any, by which the notional amount of the swap agreement would have increased in value had it been invested in the particular stocks, plus the dividends that would have been received on those stocks. The Fund will agree to pay to the counter-party a floating rate of interest on the notional amount of the swap agreement plus the amount, if any, by which the notional amount would have decreased in value had it been invested in such stocks. Therefore, the return to the Fund on any swap agreement should be the gain or loss on the notional amount plus dividends on the stocks less the interest paid by the Fund on the notional amount. Swap agreements typically are settled on a net basis, which means that the two payment streams are netted out, with the Fund receiving or paying, as the case may be, only the net amount of the two payments. Payments may be made at the conclusion of a swap agreement or periodically during its term. Swap agreements do not involve the delivery of securities or other underlying assets. Accordingly, the risk of loss with respect to swap agreements is limited to the net amount of payments that a Fund is contractually obligated to make. If the other party to a swap agreement defaults, a Fund's risk of loss consists of the net amount of payments that such Fund is contractually entitled to receive, if any. The net amount of the excess, if any, of a Fund's obligations over its entitlements with respect to each equity swap will be accrued on a daily basis and cash or liquid assets, having an aggregate net asset value at least equal to such accrued excess will be maintained in a segregated account by a Fund's custodian. In as much as these transactions are entered into for hedging purposes or are offset by segregated cash of liquid assets, as permitted by applicable law, the Funds and their Adviser believe that these transactions do not constitute senior securities under the 1940 Act and, accordingly, will not treat them as being subject to a Fund's borrowing restrictions. The swap market has grown substantially in recent years with a large number of banks and investment banking firms acting both as principals and as agents utilizing standardized swap documentation. As a result, the swap market has become relatively liquid in comparison with the markets for other similar instruments, which are traded in the over-the-counter market. The Adviser, under the supervision of the Board of Trustees, is responsible for determining and monitoring the liquidity of Fund transactions in swap agreements. The use of equity swaps is a highly specialized activity, which involves investment techniques and risks different from those associated with ordinary portfolio securities transactions. 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 22 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. Examples of types of U.S. government obligations in which the Funds may invest include U.S. Treasury obligations and the obligations of U.S. government agencies such as Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, the Federal Housing Administration, Farmers Home Administration, Export-Import Bank of the United States, Small Business Administration, Federal National Mortgage Association, Government National Mortgage Association, General Services Administration, Student Loan Marketing Association, Central Bank for Cooperatives, Freddie Mac (formerly Federal Home Loan Mortgage Corporation), Federal Intermediate Credit Banks, Maritime Administration, and other similar agencies. Whether backed by the full faith and credit of the U.S. Treasury or not, U.S. government securities are not guaranteed against price movements due to fluctuating interest rates. 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 23 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." - U.S. GOVERNMENT AGENCIES. Some obligations issued or guaranteed by agencies of the U.S. Government are supported by the full faith and credit of the U.S. Treasury, others are supported by the right of the issuer to borrow from the Treasury, while still others are supported only by the credit of the instrumentality. Guarantees of principal by agencies or instrumentalities of the U.S. Government may be a guarantee of payment at the maturity of the obligation so that in the event of a default prior to maturity there might not be a market and thus no means of realizing on the obligation prior to maturity. Guarantees as to the timely payment of principal and interest do not extend to the value or yield of these securities nor to the value of a Fund's shares. VARIABLE AND FLOATING RATE INSTRUMENTS. Certain of the obligations purchased by the Funds may carry variable or floating rates of interest, may involve a conditional or unconditional demand feature and may include variable amount master demand notes. Such instruments bear interest at rates that are not fixed, but which vary with changes in specified market rates or indices. The interest rates on these securities may be reset daily, weekly, quarterly or some other reset period, and may have a floor or ceiling on interest rate changes. There is a risk that the current interest rate on such obligations may not accurately reflect existing market interest rates. A demand instrument with a demand notice exceeding seven days may be considered illiquid if there is no secondary market for such securities. VARIABLE RATE MASTER DEMAND NOTES. Variable rate master demand notes permit the investment of fluctuating amounts at varying market rates of interest pursuant to direct arrangements between a Fund, as lender, and a borrower. Such notes provide that the interest rate on the amount outstanding varies on a daily, weekly or monthly basis depending upon a stated short-term interest rate index. Both the lender and the borrower have the right to reduce the amount of outstanding indebtedness at any time. There is no secondary market for the notes and it is not generally contemplated that such instruments will be traded. The quality of the note or the underlying credit must, in the opinion of the Adviser, be equivalent to the ratings applicable to permitted investments for the particular Fund. The Adviser will monitor on an ongoing basis the earning power, cash flow and liquidity ratios of the issuers of such instruments and will similarly monitor the ability of an issuer of a demand instrument to pay principal and interest on demand. Variable rate master demand notes may or may 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 to purchase. 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. To avoid any leveraging concerns, a Fund will segregate or earmark liquid assets in an amount at least equal in value to its commitments to purchase when-issued and forward commitment securities. 24 INVESTMENT LIMITATIONS FUNDAMENTAL POLICIES In addition to the 80% investment policy of the Classic Institutional Municipal Cash Reserve Money Market Fund, the following investment limitations are fundamental policies of the Funds. Fundamental policies cannot be changed without the consent of the holders of a majority of each Fund's outstanding shares. The term "majority of the outstanding shares" means the vote of (i) 67% or more of the Fund's shares present at a meeting, if more than 50% of the outstanding shares of the Fund are present or represented by proxy, or (ii) more than 50% of the Fund's outstanding shares, whichever is less. No Fund may: 1. With respect to 75% of each Fund's total assets, invest more than 5% of the value of the total assets of a Fund in the securities of any one issuer (other than securities issued or guaranteed by the U.S. Government or any of its agencies or instrumentalities, repurchase agreements involving such securities, and securities issued by investment companies), or purchase the securities of any one issuer if such purchase would cause more than 10% of the voting securities of such issuer to be held by a Fund. 2. Borrow money in an amount exceeding 33 1/3% of the value of its total assets, provided that, for the purposes of this limitation, investment strategies that either obligate a Fund to purchase securities or require a Fund to segregate assets are not considered to be borrowing. Asset coverage of at least 300% is required for all borrowing, except where the Fund has borrowed money for temporary purposes (less than 60 days), and in an amount not exceeding 5% of its total assets. 3. Underwrite securities issued by others, except to the extent that the Fund may be considered an underwriter within the meaning of the 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. This limitation does not apply to obligations issued by domestic branches of U.S. banks or U.S. branches of foreign banks subject to the same regulations as U.S. banks. 6. Purchase or sell real estate, unless acquired as a result of ownership of securities or other instruments (but this shall not prevent a Fund from investing in securities or other instruments either issued by companies that invest in real estate, backed by real estate or securities of companies engaged in the real estate business). 7. Purchase or sell physical commodities, unless acquired as a result of ownership of securities or other instruments. 25 8. Make loans, except that a Fund may: (i) purchase or hold debt instruments in accordance with its investment objectives and policies; (ii) enter into repurchase agreements; and (iii) lend its portfolio securities. NON-FUNDAMENTAL POLICIES The following investment policies are non-fundamental policies of the Funds and may be changed by the Funds' Board of Trustees: 1. With respect to each Fund, except the Classic Institutional Municipal Cash Reserve Money Market Fund, any change to a Fund's investment policy of investing at least 80% of such Fund's net assets in securities of companies in a specific market sector is subject to 60 days prior notice to shareholders. 2. No Fund may purchase or hold illiquid securities (i.e., securities that cannot be disposed of for their approximate carrying value in seven days or less (which term includes repurchase agreements and time deposits maturing in more than seven days) if, in the aggregate, more than 10% 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 Funds. The Adviser is responsible for making investment decisions for the Funds and continuously reviews, supervises and administers each Fund's respective investment program. The Board of Trustees supervises the Adviser and establishes policies that the Adviser must follow in its management activities. The principal business address of the Adviser is 50 Hurt Plaza, Suite 1400, Atlanta, Georgia 30303. As of June 30, 2006, the Adviser had discretionary management authority with respect to approximately $71 billion of assets under management. ADVISORY AGREEMENTS WITH THE TRUST. The Adviser serves as investment adviser for each Fund under the terms of investment advisory agreements with the Trust (each, an "Advisory Agreement" and, together, the "Advisory Agreements"). Under the terms of each Advisory Agreement, the Adviser serves as the investment adviser and makes the investment decisions for each of the Funds and continuously reviews, supervises and administers the investment program of each Fund, subject to the supervision of, and policies established by, the Board. The continuance of each 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 each 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. Each Advisory Agreement will terminate automatically in the event of its assignment, and each is terminable at any time without penalty by the Board or, with respect to any Fund, by a majority of the outstanding shares of that 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 Agreements provide that the Adviser shall not be protected against any liability to the Trust or its shareholders by reason of willful misfeasance, bad faith or gross negligence on its part in the performance of its duties or from reckless disregard of its obligations or duties thereunder. The Advisory Agreements provide that if, for any fiscal year, the ratio of expenses of any Fund (including amounts payable to the Adviser but excluding interest, taxes, brokerage, litigation, and other extraordinary expenses) exceed 26 limitations established by certain states, the Adviser and/or the Administrator will bear the amount of such excess. The Adviser will not be required to bear expenses of the Trust to an extent which would result in a Fund's inability to qualify as a regulated investment company under provisions of the Internal Revenue Code of 1986, as amended. ADVISORY FEES PAID TO THE ADVISER. For its services under the Advisory Agreements, the Adviser is entitled to a fee, which is calculated daily and paid monthly, at the specified annual rate of each Fund's average daily net assets:
FUND FEES - --- ------ Classic Institutional Cash Management Money Market Fund 0.12% Classic Institutional Municipal Cash Reserve Money Market Fund 0.15% Classic Institutional U.S. Government Securities Money Market Fund 0.15% Classic Institutional U.S. Treasury Securities Money Market Fund 0.14%
The above fees are also subject to the following breakpoint discounts: Money Market Funds: First $1.0 billion = full fee Next $1.5 billion = 5% discount from full fee Next $2.5 billion = 10% discount from full fee Over $5.0 billion = 20% discount from full fee As discussed in the prospectuses, the Adviser has contractually agreed to waive a portion of its fees or reimburse expenses, with respect to the Funds, in order to limit Fund expenses. For the fiscal period ended March 31, 2006, the period from June 1, 2004 through March 31, 2005, and for the fiscal periods ended May 31, 2004 and 2003, the Trust paid the following advisory fees:
FEES PAID ($) FEES WAIVED ($) --------------------------------------------- --------------------------------------------- 6/1/04- 6/1/04 - FUND* 2006 3/31/05 2004 2003 2006 3/31/05 2004 2003 - ----- --------- --------- --------- --------- --------- --------- --------- --------- Classic Institutional Cash Management Money Market Fund 4,413,000 4,372,000 5,543,000 5,493,000 626,000 1,483,000 740,000 857,000 Classic Institutional Municipal Cash Reserve Money Market Fund 82,000 ** ** ** 7,000 ** ** ** Classic Institutional U.S. Government Securities Money Market Fund 1,520,000 1,492,000 1,967,000 2,008,000 3,000 73,000 84,000 92,000 Classic Institutional U.S. Treasury Securities Money Market Fund 4,426,000 3,487,000 3,982,000 3,745,000 8,000 185,000 274,000 282,000
* Effective February 15, 2005, each Fund changed its fiscal year end from May 31 to March 31. ** Not in operation during the period. 27 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, STI Classic Variable Trust and the Administrator have entered into a master services agreement (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 each Fund's operations, maintenance of records and the books of the Trust, preparation of reports, assistance with compliance monitoring of the Funds' activities, and certain supplemental services in connection with the Trust's obligations under the Sarbanes-Oxley Act of 2002; fund accounting services, transfer agency services and shareholder services. 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 Trustees of the Trust unless terminated by either party on not less than 90 days written notice to the other party. ADMINISTRATION FEES TO BE PAID TO THE ADMINISTRATOR. Under the Master Services Agreement, the Administrator is entitled to receive an asset-based fee for administration, fund accounting, transfer agency and shareholder services (expressed as a percentage of the combined average daily net assets of the Trust and the STI Classic Variable Trust) of 2.75 basis points (0.0275%) on the first $25 billion, 2.25 basis points (0.0225%) on the next $5 billion, and 1.75 basis points (0.0175%) on the amounts over $30 billion, plus an additional class fee of $2,593 per class annually, applicable to each additional class of shares over 145 classes of shares. The Administrator may waive a portion of its fee. The Master Services Agreement provides for the Administrator to pay certain insurance premiums for the Trust and STI Classic Variable Trust, including $300,000 toward the premium for Directors and Officers Liability/Errors and Omissions insurance coverage, and $25,000 toward the premium for Fidelity Bond coverage. The Administrator has agreed, under the terms of the Master Services Agreement, to pay certain legal expenses for the benefit of the Trust and the STI Classic Variable Trust relating to administrative service matters. The Master Services Agreement further provides for the Administrator to waive a portion of its fees for the benefit of shareholders. Such payments and fee waivers are expected to total approximately $400,000 to $650,000 annually, and will not be recouped by the Administrator in subsequent years. Prior to July 26, 2004, the Funds, except the Seix Funds, were subject to an administration agreement (the "Administration Agreement") between the Funds and SEI Investments Global Funds Services ("SEI"). Under the Administration Agreement, SEI was entitled to an annual fee (expressed as a percentage of the combined average daily net assets of the Trust and the STI Classic Variable Trust) of 0.12% up to $1 billion, 0.09% on the next $4 billion, 0.07% on the next $3 billion, 0.065% on the next $2 billion and 0.06% for over $10 billion. Prior to October 11, 2004, the Predecessor Funds were subject to a separate administration agreement (the "Predecessor Administration Agreement") between the Predecessor Funds and Investors Bank & Trust Company ("IBT"). Under the Predecessor Administration Agreement, IBT was entitled to a fee, at an annual rate of 0.07% of net assets, but with a minimum annual payment of $100,000 for the four Predecessor Funds together, and reimbursement of out-of-pocket expenses. For the fiscal year ended March 31, 2006 and the fiscal period from July 26, 2004 through March 31, 2005, the Funds paid the following administrative fees to the Administrator: 28
FEES PAID ($) FEES WAIVED ($) FEES PAID ($) FEES WAIVED ($) FUND* 2006 2006 7/26/04-3/31/05 7/26/04-3/31/05 - ----- ------------- --------------- --------------- --------------- Classic Institutional Cash Management Money Market Fund 786,000 15,000 487,000 0 Classic Institutional Municipal Cash Reserve Money Market Fund 14,000 14,000 ** ** Classic Institutional U.S. Government Securities Money Market Fund 241,000 3,000 166,000 0 Classic Institutional U.S. Treasury Securities Money Market Fund 721,000 16,000 397,000 0
* Effective February 15, 2005, each Fund changed its fiscal year end from May 31 to March 31. ** Not in operation during the period. For the periods June 1, 2004 through July 25, 2004 and from commencement of operations to the fiscal periods ended May 31, 2004 and 2003, the Funds paid the following administrative fees to SEI:
FEES PAID ($) FEES WAIVED ($) ----------------------------------- ----------------------------------- 6/1/04- 6/1/04- FUND* 7/25/04 2004 2003 7/25/04 2004 2003 - ---- --------- --------- --------- --------- --------- --------- Classic Institutional Cash Management Money Market Fund 267,000 1,899,000 1,860,000 78,000 321,000 328,000 Classic Institutional Municipal Cash Reserve Money Market Fund ** ** ** ** ** ** Classic Institutional U.S. Government Securities Money Market Fund 92,000 674,000 546,000 27,000 170,000 177,000 Classic Institutional U.S. Treasury Securities Money Market Fund 189,000 1,364,000 1,064,000 55,000 329,000 324,000
* Effective February 15, 2005, each Fund changed its fiscal year end from May 31 to March 31. ** Not in operation during the period. THE PORTFOLIO MANAGERS Set forth below is information regarding the individuals who are primarily responsible for the day-to-day management of the Funds ("portfolio managers"). All information is as of March 31, 2005. MANAGEMENT OF OTHER ACCOUNTS. The table below shows the number of other accounts managed by each portfolio manager and the approximate total assets in the accounts in each of the following categories: registered investment companies, other pooled investment vehicles and other accounts. For each category, the table also 29 shows the number of accounts and the approximate total assets in the accounts with respect to which the advisory fee is based on account performance.
OTHER ACCOUNTS WITH NUMBER OF OTHER ACCOUNTS MANAGED/ PERFORMANCE-BASED TOTAL ASSETS IN ACCOUNTS ($) FEES ------------------------------------------------------ ------------------------- NAME OF PORTFOLIO REGISTERED OTHER POOLED NUMBER MANAGER/NAME OF INVESTMENT INVESTMENT OTHER & TOTAL FUND(S) COMPANIES VEHICLES ACCOUNTS CATEGORY ASSETS($) - ------------------------------------- ---------- ---------------- ---------------- -------- --------- ROBERT S. BOWMAN, CFA - Classic Institutional Cash Management Money Market Fund - Classic Institutional Municipal Cash Reserve Money Market Fund - Classic Institutional U.S. Government Securities Money Market Fund None 1/$570 million 5/$150 million None None GREGORY E. HALLMAN - Classic Institutional U.S. Treasury Securities Money Market Fund None 2/$540.0 million None None None KIMBERLY C. MAICHLE, CFA - Classic Institutional U.S. Treasury Securities Money Market Fund None 3/$758 million 14/$357 million None None E. DEAN SPEER, CFA, CPA - Classic Institutional U.S. Treasury Securities Money Market Fund None None 2/$404.8 million None None
POTENTIAL CONFLICTS OF INTEREST. A portfolio manager's dual management of both a Fund and the other accounts appearing in the table above may give rise to potential conflicts of interest. If a 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 a 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. 30 Portfolio managers earn competitive salaries from the Adviser. In addition, portfolio managers are eligible to receive bonuses based on the performance of the specific Funds they manage and not on the performance of all Funds of the Trust or of other accounts they manage. Investment results are the basis for determining if such bonuses are paid. Investment results are determined by comparing the relevant Fund's pre-tax total returns to that same Fund's benchmarks and peer groups over multi-year periods, as applicable. Where a 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 Funds' portfolio managers, 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. - 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 or Funds managed by the portfolio manager. 31
RANGE OF NAME OF PORTFOLIO MANAGER NAME OF FUND(S) MANAGED SECURITIES OWNED - ------------------------- -------------------------------------------------------- ---------------- Robert S. Bowman, CFA Classic Institutional Cash Management Money Market Fund None Classic Institutional Municipal Cash Reserve Money Market Fund None Classic Institutional U.S. Government Securities Money Market Fund None Gregory E. Hallman Classic Institutional U.S. Treasury Securities Money Market Fund None Kimberly C. Maichle, CFA Classic Institutional U.S. Treasury Securities Money Market Fund None E. Dean Speer, CFA, CPA Classic Institutional U.S. Treasury Securities Money Market Fund 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. The Distributor receives compensation for shareholder services provided to Corporate Trust Shares of the Funds pursuant to a shareholder service plan and agreement as described below. After an 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 Funds 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, the Distributor, or, with respect to any Fund, by a majority of the outstanding shares of that Fund, upon not more than 60 days written notice by either party. SHAREHOLDER SERVICING PLANS. The Trust has adopted a shareholder service plan for the Classic Institutional U.S. Treasury Securities Money Market Fund's Corporate Trust Shares (the "Service Plan"). Until August 1, 2005, the Service Plan also applied to the Funds' Institutional Shares. Under the Service Plan, the Classic Institutional U.S. Treasury Securities Money Market Fund will pay SunTrust Bank ("SunTrust") a fee of up to 0.25% of the average daily net assets attributable to the Corporate Trust Shares. SunTrust may perform, or may compensate other service providers for performing, the following shareholder services: maintaining client accounts; arranging for bank wires; responding to client inquiries concerning services provided on investments; assisting clients in changing dividend options, account designations and addresses; sub-accounting; providing information on share positions to clients; forwarding shareholder communications to clients; processing purchase, exchange and redemption orders; and processing dividend payments. Under the Service Plan, the Distributor may retain as a profit any difference between the fee it receives and the amount it pays to third parties. For the fiscal period ended March 31, 2006, the fiscal period from June 1, 2004 through March 31, 2005, and the fiscal years ended May 31, 2004 and 2003, the Classic Institutional U.S. Treasury Securities Money Market Fund paid the following amount pursuant to the Service Plan: 32
FEES - AMOUNT PAID ($) FEES - AMOUNT WAIVED ($) ------------------------------------------------------ ------------------------------- 6/1/04- 6/1/04- FUND* 2006 3/31/05 2004 2003 2006 3/31/05 2004 2003 - ----- ---- ------- ---- ---- ---- ------- ---- ---- Classic Institutional U.S. Treasury Securities Money Market Fund - Corporate Trust Shares 4,603,000 2,577,000 2,947,000 2,928,000 0 0 0 0
* Effective February 15, 2005, the Fund changed its fiscal year end from May 31 to March 31. 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 custodian for the Funds. SunTrust Bank is paid on the basis of net assets and transaction costs of the Funds. 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 1111 Pennsylvania Avenue, NW, Washington, DC 20004, serves as legal counsel to the Trust. TRUSTEES AND OFFICERS OF THE TRUST BOARD RESPONSIBILITIES. The management and affairs of the Trust and each of the Funds are supervised by the Board under the laws of the Commonwealth of Massachusetts. The Board is responsible for overseeing each of the Funds. 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 of each of the persons currently serving as Trustees of the Trust.
NUMBER OF PORTFOLIOS IN POSITION THE STI FUND HELD TERM OF OFFICE COMPLEX NAME, ADDRESS, DATE WITH THE AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY OTHER DIRECTORSHIPS OF BIRTH GROUP TIME SERVED DURING THE PAST 5 YEARS TRUSTEES HELD BY TRUSTEE - ----------------------- -------- --------------- --------------------------- ------------- ----------------------------------- INTERESTED TRUSTEES*: Richard W. Courts, II Trustee Indefinite; Chairman, Atlantic 60 Genuine Parts Company; Piedmont 3435 Stelzer Road since November Investment Company Medical Center; SunTrust Bank Columbus, OH 43219 2001 DOB 01/18/36 Clarence H. Ridley Trustee Indefinite; Chairman, Haverty Furniture 60 Crawford & Co. 3435 Stelzer Road since November Companites; Partner, King Columbus, OH 43219 2001 and Spaulding LLP (law firm) DOB 06/03/42 (1977 to 2000) INDEPENDENT TRUSTEES**:
33
NUMBER OF PORTFOLIOS IN POSITION THE STI FUND HELD TERM OF OFFICE COMPLEX NAME, ADDRESS, DATE WITH THE AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY OTHER DIRECTORSHIPS OF BIRTH GROUP TIME SERVED DURING THE PAST 5 YEARS TRUSTEES HELD BY TRUSTEE - ----------------------- -------- --------------- --------------------------- ------------- ----------------------------------- Thomas Gallagher Trustee Indefinite; President, CEO, Genuine 60 Genuine Parts Company; Oxford 3435 Stelzer Road since May 2000 Parts Company Industries, Inc. Columbus, OH 43219 DOB 11/25/47 F. Wendell Gooch Trustee Indefinite; Retired 60 SEI Family of Funds 3435 Stelzer Road since May 1992 Columbus, OH 43219 DOB 12/03/32 Sidney E. Harris Trustee Indefinite; Professor (since 2004) and 60 ServiceMaster Company; Total System 3435 Stelzer Road since November Dean (1997-2004), J. Mack Services, Inc.; Transamerica Columbus, OH 43219 2004 Robinson College of Investors, Inc. (13 mutual funds) DOB 07/21/49 Business, Georgia State University Warren Y. Jobe Trustee Indefinite; Retired. EVP, Georgia Power 60 WellPoint, Inc.; UniSource Energy 3435 Stelzer Road since November Company and SVP, Southern Corp.; HomeBanc Corp. Columbus, OH 43219 2004 Company (1998 - 2001) DOB 11/12/40 Connie D. McDaniel Trustee Indefinite; Vice President and 60 None 3435 Stelzer Road since May 2005 Controller, The Coca-Cola Columbus, OH 43219 Company DOB 04/10/42 James O. Robbins Trustee Indefinite; Retired. President, CEO, 60 Cox Communications; Humana, Inc. 3435 Stelzer Road since May 2000 Cox Communications, Inc. Columbus, OH 43219 (1985-2005) DOB 07/04/42 Charles D. Winslow Trustee Indefinite; Retired. Formerly Partner, 60 None 3435 Stelzer Road since November Accenture (consulting) Columbus, OH 43219 2004 DOB 07/13/35
* 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 a 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 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 34 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 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, Jobe and Robbins currently serve as members of the 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. - VALUATION COMMITTEE. The Board has established the Trust's Valuation 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 Valuation Committee operates under procedures approved by the Board. The principal responsibility of the Valuation Committee is to determine the fair value of securities for which current market quotations are not readily available. The Valuation Committee's determinations are reviewed by the Board. The Valuation 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 each of the Funds as of the end of the most recently completed calendar year. Dollar amount ranges disclosed are established by the SEC. "Beneficial ownership" is determined in accordance with Rule 16a-1(a)(2) under the 1934 Act. The "Family of Investment Companies" referenced in the table consists of the Trust and the STI Classic Variable Trust. 35
AGGREGATE DOLLAR RANGE OF SHARES IN ALL INVESTMENT COMPANIES OVERSEEN BY TRUSTEE IN FAMILY OF INVESTMENT TRUSTEE/OFFICER DOLLAR RANGE OF FUND SHARES COMPANIES --------------- --------------------------- ----------------------- INTERESTED TRUSTEES Richard W. Courts, II None $50,001-$100,000 Clarence H. Ridley None Over $100,000 INDEPENDENT TRUSTEES Thomas Gallagher None $50,001-$100,000 F. Wendell Gooch None $50,001-$100,000 James O. Robbins None Over $100,000 Sidney E. Harris None $10,001-$50,000 Warren Jobe None $50,001-$100,000 Charles D. Winslow None $10,001-$50,000 Connie D. McDaniel None $50,001-$100,000
As of July 5, 2006, the Trustees and Officers of the Trust owned less than 1% of the outstanding shares of the Trust. BOARD COMPENSATION. The table below shows the compensation paid to the Trustees during the fiscal period ended March 31, 2005. The "Fund Complex" referenced in the table consists of the Trust and the STI Classic Variable Trust.
PENSION OR AGGREGATE RETIREMENT BENEFITS ESTIMATED ANNUAL COMPENSATION FROM ACCRUED AS PART OF BENEFITS UPON TOTAL COMPENSATION FROM THE NAME OF TRUSTEE THE TRUST ($) FUND EXPENSES RETIREMENT TRUST AND FUND COMPLEX ($) --------------- ----------------- ------------------- ---------------- --------------------------- INTERESTED TRUSTEES Richard W. Courts, II 53,230 N/A N/A 53,500 Clarence H. Ridley 57,200 N/A N/A 57,500 INDEPENDENT TRUSTEES Thomas Gallagher 78,590 N/A N/A 79,000 F. Wendell Gooch 71,140 N/A N/A 71,500 Sidney E. Harris 60,680 N/A N/A 61,000 Warren Y. Jobe 63,660 N/A N/A 64,000 Connie McDaniel 56,710 N/A N/A 57,000 James O. Robbins 63,890 N/A N/A 64,000 Jonathan T. Walton* 45,750 N/A N/A 46,000 Charles D. Winslow 62,670 N/A N/A 63,000
* Mr. Walton resigned as a Trustee of the Trust effective December 31, 2005. TRUST OFFICERS. The 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. 36
NAME, ADDRESS TERM OF OFFICE AND DATE OF BIRTH POSITION(S) HELD AND LENGTH OFFICERS: WITH TRUST OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING THE PAST 5 YEARS R. Jeffrey Young President and Chief Since July 2004 Senior Vice President, Relationship Management, BISYS Fund 3435 Stelzer Road Executive Officer Services (since 2002); Vice President, Client Services, BISYS Fund Columbus, OH 43219 Services (1997-2002) DOB 08/22/64 Deborah A. Lamb Executive Vice Since September 2004; Chief Compliance Officer, Managing Director, Trusco Capital 50 Hurt Plaza President; Assistant since November 2003; Management, Inc. (since 2003); President, Investment Industry Suite 1400 Secretary; Chief since August 2004 Consultants, LLC (2000 - 2003); Director of Compliance, INVESCO, Atlanta, GA 30303 Compliance Officer (respectively) Inc. (1995-2000) DOB 10/02/52 Joel Engle Treasurer and Chief Since April 2006 Director, Fund Administration, BISYS Fund Services since February 3435 Stelzer Road Financial Officer 2006; Small business owner/operator (retail) (2003 to 2006); Vice Columbus, OH 43219 President, Fund Administration, BISYS Fund Services (1998 to 2003) DOB 10/31/65 Cynthia J. Surprise Secretary and Chief Since February 2005 Senior Counsel, Legal Services, BISYS Fund Services (since 2004); 3435 Stelzer Road Legal Officer Director and Counsel, Investors Bank & Trust Company (1999-2004) Columbus, OH 43219 DOB 07/08/46 Jennifer A. English Assistant Secretary Since November 2005 Assistant Counsel, Legal Services, BISYS Fund Services (since 3435 Stelzer Road 2005); Assistant Counsel, PFPC Inc. (2002-2005); Associate Legal Columbus, OH 43219 Product Manager, Fidelity Investments (2001) DOB 03/05/72 Alaina V. Metz Assistant Secretary Since July 2004 Vice President, Blue Sky Compliance, BISYS Fund Services (since 3435 Stelzer Road 2002); Chief Administrative Officer, Blue Sky Compliance, BISYS Columbus, OH 43219 Fund Services (1995-2002) DOB 04/07/67
PURCHASING AND REDEEMING SHARES Purchases and redemptions of shares of the Funds may be made on any day the New York Stock Exchange ("NYSE") is open for business. Shares of each Fund are offered and redeemed on a continuous basis. Currently, the NYSE is closed on the days the following holidays are observed: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. 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 Funds in lieu of cash. Shareholders may incur brokerage charges on the sale of any such securities so received in payment of redemptions. A shareholder will at all times be entitled to aggregate cash redemptions from all Funds of the Trust up to the lesser of $250,000 or 1% of the Trust's net assets during any 90-day period. The Board has adopted procedures which permit the Trust to make in-kind redemptions to those shareholders of 37 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 during 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 which disposal or valuation of a Fund's portfolio securities is not reasonably practicable, or for such other periods as the SEC has by order permitted. The Trust reserves the right to postpone payment or redemption proceeds for up to seven days if the redemption would harm existing shareholders. The Trust also reserves the right to suspend sales of shares of a Fund for any period during which the NYSE, the Adviser, the Administrator and/or the Custodian are not open for business. The Trust reserves the right to waive any minimum investment requirements or sales charges for immediate family members of the Trustees or employees of the Adviser. "Immediate Family" means a spouse, mother, father, mother-in-law, father-in-law or children (including step children) age 21 years or under. DETERMINATION OF NET ASSET VALUE GENERAL POLICY. Each of the Funds adheres to Section 2(a)(41), and Rules 2a-4 and 2a-7 thereunder, of the 1940 Act with respect to the valuation of portfolio securities. In general, securities for which market quotations are readily available are valued at current market value, and all other securities are valued at fair value as determined in good faith by the Trusts' Board of Trustees. In complying with the 1940 Act, the Trust relies on guidance provided by the SEC and by the SEC staff in various interpretive letters and other guidance. MONEY MARKET SECURITIES AND OTHER DEBT SECURITIES. If available, money market securities and other debt securities are priced based upon valuations provided by recognized independent, third-party pricing agents. Such values generally reflect the last reported sales price if the security is actively traded. The third-party pricing agents may also value debt securities by employing methodologies that utilize actual market transactions, broker-supplied valuations, or other methodologies designed to identify the market value for such securities. Such methodologies generally consider such factors as security prices, yields, maturities, call features, ratings and developments relating to specific securities in arriving at valuations. Money market securities and other debt securities with remaining maturities of sixty days or less may be valued at their amortized cost, which approximates market value. If such prices are not available, the security will be valued at fair value as determined in good faith by the Trust's Board of Trustees. USE OF THIRD-PARTY INDEPENDENT PRICING AGENTS. Pursuant to contracts with the Trust's Administrator, prices for most securities held by the Funds are provided daily by third-party independent pricing agents that are approved by the Board of Trustees of the Trust. The valuations provided by third-party independent pricing agents are reviewed daily by the Administrator. AMORTIZED COST METHOD OF VALUATION. The amortized cost method involves valuing a security at its cost on the date of purchase and thereafter (absent unusual circumstances) assuming a constant amortization to maturity of any discount or premium, regardless of the impact of fluctuations in general market rates of interest on the value of the instrument. While this method provides certainty in valuation, it may result in periods during which a security's value, as determined by this method, is higher or lower than the price a Fund would receive if it sold the instrument. During periods of declining interest rates, the daily yield of a Fund may tend to be higher than a like computation made by a company with identical investments utilizing a method of valuation based upon market prices and estimates of market prices for all of its portfolio securities. Thus, if the use of amortized cost by a Fund resulted in a lower aggregate portfolio value on a particular day, a prospective investor in a Fund would be able to obtain a somewhat higher yield than would result from investment in a company utilizing solely market values, 38 and existing investors in a Fund would experience a lower yield. The converse would apply in a period of rising interest rates. A Fund's use of amortized cost and the maintenance of a Fund's net asset value at $1.00 are permitted by regulations promulgated by Rule 2a-7 under the 1940 Act, provided that certain conditions are met. The regulations also require the Trustees to establish procedures, which are reasonably designed to stabilize the net asset value per share at $1.00 for the Funds. Such procedures include the determination of the extent of deviation, if any, of the Funds current net asset value per share calculated using available market quotations from the Funds amortized cost price per share at such intervals as the Trustees deem appropriate and reasonable in light of market conditions and periodic reviews of the amount of the deviation and the methods used to calculate such deviation. In the event that such deviation exceeds one-half of 1%, the Trustees are required to consider promptly what action, if any, should be initiated, and, if the Trustees believe that the extent of any deviation may result in material dilution or other unfair results to shareholders, the Trustees are required to take such corrective action as they deem appropriate to eliminate or reduce such dilution or unfair results to the extent reasonably practicable. Such actions may include the sale of portfolio instruments prior to maturity to realize capital gains or losses or to shorten average portfolio maturity; withholding dividends; redeeming shares in kind; or establishing a net asset value per share by using available market quotations. In addition, if the Funds incur a significant loss or liability, the Trustees have the authority to reduce pro rata the number of shares of the Funds in each shareholder's account and to offset each shareholder's pro rata portion of such loss or liability from the shareholder's accrued but unpaid dividends or from future dividends while each other Fund must annually distribute at least 90% of its investment company taxable income. TAXES The following is a summary of certain federal income tax considerations generally affecting the Funds and their investors. No attempt is made to present a detailed explanation of the federal tax treatment of a Fund or its investors, and the discussion here and in the Trust's prospectuses is not intended as a substitute for careful tax planning. FEDERAL INCOME TAX This discussion of federal income tax considerations is based on the Internal Revenue Code of 1986, as amended, 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, a 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 the excess, if any, of net short-term capital gain over net long-term capital losses) (the "Distribution Requirement") and also must meet several additional requirements. Among these requirements are the following: (i) at least 90% of a Fund's gross income each taxable year must be derived from dividends, interest, payments with respect to securities loans, and gains from the sale or other disposition of stock or securities or foreign currencies, or other income derived with respect to its business of investing in such stock, securities or currencies, and net income derived from interests in qualified publicly traded partnerships, (ii) at the close of each quarter of a Fund's taxable year, at least 50% of the value of its total assets must be represented by cash and cash items, U.S. government securities, securities of other RICs and other securities, with such other securities limited, in respect to any one issuer, to an amount that does not exceed 5% of the value of a Fund's assets and that does not represent more than 10% of the outstanding voting securities of such issuer; and (iii) at the close of each quarter of a Fund's taxable year, not more than 25% of the value of the Fund's assets may be invested in securities (other than U.S. 39 government securities or the securities of other RICs) of any one issuer, or of two or more issuers engaged in same or similar businesses if a Fund owns at least 20% of the voting power of such issuers, or the securities of one or more qualified publicly traded partnerships. Notwithstanding the Distribution Requirement described above, which only requires a Fund to distribute at least 90% of its annual investment company taxable income and does not require any minimum distribution of net capital gains (the excess of net long-term capital gains over net short-term capital loss), a Fund will be subject to a nondeductible 4% excise tax to the extent it fails to distribute by the end of any calendar year 98% of its ordinary income for that year and 98% of its capital gain net income for the one-year period ending on October 31 of that year (and any retained amount from that prior calendar year on which the Fund paid no federal income tax). The Funds intend to make sufficient distributions prior to the end of each calendar year to avoid liability for the federal excise tax applicable to regulated investment companies but can make no assurances that distributions will be sufficient to avoid this tax. If a Fund fails to maintain qualification as a RIC for a tax year, that Fund will be subject to federal income tax on its taxable income and gains at corporate rates, without any benefit for distributions paid to shareholders, and distributions to shareholders will be taxed as ordinary income to the extent of that Fund's current and accumulated earnings and profits. In such case, the dividends received deduction generally will be available for eligible corporate shareholders (subject to certain limitations) 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 a Fund as a RIC if it determines such course of action to be beneficial to shareholders. Each Fund may invest in complex securities. These investments may be subject to numerous special and complex tax rules. These rules could affect whether gains and losses recognized by a Fund are treated as ordinary income or capital gains, accelerate the recognition of income to a Fund, and/or defer a Fund's ability to recognize losses. In turn, these rules may affect the amount, timing or character of the income distributed to shareholders by a Fund. With respect to investments in STRIPs, TRs, and other zero coupon securities which are sold at original issue discount and thus do not make periodic cash interest payments, a Fund will be required to include as part of its current income the imputed interest on such obligations even thought the Fund has not received any interest payments on such obligations during that period. Because each Fund distributes all of its nets investment income to its shareholders, a Fund may have to sell Fund securities to distribute such imputed income which may occur at a time when the Adviser would not have chosen to sell such securities and which may result in taxable gain or loss. The Funds receive income generally in the form of interest derived from Fund investments. This income, less expenses incurred in the operation of a Fund, constitutes its net investment income from which dividends may be paid to shareholders. Any distributions by a Fund may be taxable to shareholders regardless of whether they are received in cash or additional shares. A Fund may derive capital gains and losses in connection with sales or other dispositions of its portfolio securities. Distributions of net short-term capital gains will be taxable to shareholders as ordinary income. Distributions of net long-term capital gains will be taxable to shareholders at rates applicable to long-term capital gains. In general, the Funds do not expect to receive any dividend income from corporations. Therefore, none of the Funds' distributions is expected to be eligible for the corporate dividends received deduction or for the lower tax rates applicable to qualified dividend income. If a 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 a Fund and result in higher reported capital gain or lower reported capital loss when those shares on which distribution was received are sold. 40 Sale, Redemption or Exchange of Fund Shares Sales, redemptions and exchanges of Fund shares are generally taxable transactions for federal, state and local income tax purposes. Any gain or loss recognized on a sale or redemption of shares of a Fund by a shareholder who holds 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. Because each Fund seeks to maintain a stable $1.00 net asset value per share, you should not expect to realize a capital gain or loss upon redemption or exchange of your Fund shares. STATE TAXES A Fund is not liable for any income or franchise tax in Massachusetts if it qualifies as a RIC for federal income tax purposes. Distributions by the Funds to investors and the ownership of shares may be subject to state and local taxes. Shareholders are urged to consult their tax advisors regarding state and local taxes affecting an investment in shares of a Fund. Many states grant tax-free status to dividends paid to you from interest earned on direct obligations of the U.S. Government, subject in some states to minimum investment requirements that must be met by a Fund. Investments in Government National Mortgage Association and Fannie Mae securities, bankers' acceptances, commercial paper and repurchase agreements collaterized by U.S. government securities do not generally qualify for tax-free treatment. The rules on exclusion of this income are different for corporations. FOREIGN TAXES Interest received by a Fund may be subject to income, withholding or other taxes imposed by foreign countries and U.S. possessions that would reduce the yield on the Fund's stock or securities. Tax conventions between certain countries and the United States may reduce or eliminate these taxes. Foreign countries generally do not impose taxes on capital gains with respect to investments by foreign investors. 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 a Fund. In placing orders, it is the policy of the Trust to seek to obtain the best net results taking into account such factors as price (including the applicable dealer spread), the size, type and difficulty of the transaction involved, the firm's general execution and operational facilities, and the firm's risk in positioning the securities involved. 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 Funds invest are traded primarily in the over-the-counter market. Bonds and debentures are usually traded over-the-counter, but may be traded on an exchange. Money market and debt securities are generally traded on a net basis and do not normally involve either brokerage commissions or transfer taxes. Certain Funds may also enter into financial futures and option contracts, which normally involve 41 brokerage commissions. The cost of executing portfolio securities transactions of the Trust will primarily consist of dealer spreads and underwriting commissions. For the fiscal year ended March 31, 2005, the fiscal period ended March 31, 2005, and for the fiscal years ended in 2004 and 2003, the Funds paid the following aggregate brokerage commissions on portfolio transactions:
AGGREGATE DOLLAR AMOUNT OF BROKERAGE COMMISSIONS PAID ($) ------------------------------------------------------------------ 6/1/04- FUND* 2006 3/31/05 2004 2003 - --------------------------------------------------- ---- ------- ---- ---- Classic Institutional Cash Management Money Market Fund 0 94,000 201,722 272,676 Classic Institutional Municipal Cash Reserve Money Market Fund 0 ** ** ** Classic Institutional U.S. Government Securities Money Market Fund 0 67,000 133,911 157,997 Classic Institutional U.S. Treasury Securities Money Market Fund 0 633,000 751,820 719,903
* Effective February 15, 2005, each Fund changed its fiscal year end from May 31 to March 31. ** Not in operation during the period. BROKERAGE SELECTION. The Trust does not expect to use one particular broker or dealer, and when one or more brokers is believed capable of providing the best combination of price and execution, the Funds' Adviser may select a broker based upon brokerage or research services provided to the Adviser. The Adviser may pay a higher commission than otherwise obtainable from other brokers in return for such services only if a good faith determination is made that the commission is reasonable in relation to the services provided. Section 28(e) of the 1934 Act permits the Adviser, under certain circumstances, to cause each Fund to pay a broker or dealer a commission for effecting a transaction in excess of the amount of commission another broker or dealer would have charged for effecting the transaction in recognition of the value of brokerage and research services provided by the broker or dealer. In addition to agency transactions, the Adviser may receive brokerage and research services in connection with certain riskless principal transactions, in accordance with applicable SEC guidance. Brokerage and research services include: (1) furnishing advice as to the value of securities, the advisability of investing in, purchasing or selling securities, and the availability of securities or purchasers or sellers of securities; (2) furnishing analyses and reports concerning issuers, industries, securities, economic factors and trends, portfolio strategy, and the performance of accounts; and (3) effecting securities transactions and performing functions incidental thereto (such as clearance, settlement, and custody). In the case of research services, the Adviser believes that access to independent investment research is beneficial to their investment decision-making processes and, therefore, to each Fund. To the extent research services may be a factor in selecting brokers, such services may be in written form or through direct contact with individuals and may include information as to particular companies and securities as well as market, economic, or institutional areas and information, which assists in the valuation and pricing of investments. Examples of research-oriented services for which the Adviser might utilize Fund commissions include research reports and other information on the economy, industries, sectors, groups of securities, individual companies, statistical information, political developments, technical market action, pricing and appraisal services, credit analysis, risk measurement analysis, performance and other analysis. The Adviser may use research services furnished by brokers in servicing all client accounts and not all services may necessarily be used in connection with the account that paid commissions to the broker providing such services. Information so received by the Adviser will be in addition to and not in lieu of the services required to be performed by the Funds' 42 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 Funds 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. A Fund may execute brokerage or other agency transactions through registered broker-dealer affiliates of either the Fund, the Adviser or the Distributor for a commission in conformity with the 1940 Act, the 1934 Act and rules promulgated by the SEC. Under the 1940 Act and the 1934 Act, affiliated broker-dealers are permitted to receive and retain compensation for effecting portfolio transactions for the Fund on an exchange if a written contract is in effect between the affiliate and the Fund expressly permitting the affiliate to receive and retain such compensation. These rules further require that commissions paid to the affiliate by the Fund for exchange transactions not exceed "usual and customary" brokerage commissions. The rules define "usual and customary" commissions to include amounts which are "reasonable and fair compared to the commission, fee or other remuneration received or to be received by other brokers in connection with comparable transactions involving similar securities being purchased or sold on a securities exchange during a comparable period of time." The Trustees, including those who are not "interested persons" of the Fund, as defined in the 1940 Act, have adopted procedures for evaluating the reasonableness of commissions paid to affiliates and review these procedures periodically. For the fiscal year ended March 31, 2006, the fiscal period ended March 31, 2005, and for the fiscal years ended 2004 and 2003, the Funds paid the following aggregate brokerage commissions on portfolio transactions effected by affiliated brokers. All amounts shown reflect fees paid in connection with Fund repurchase agreement transactions. 43
PERCENTAGE OF TOTAL PERCENTAGE OF TOTAL AGGREGATE DOLLAR AMOUNT OF BROKERAGE COMMISSIONS BROKERAGE TRANSACTIONS BROKERAGE COMMISSIONS PAID TO PAID TO AFFILIATED BROKERS EFFECTED THROUGH AFFILIATED AFFILIATED BROKERS ($) (%) BROKERS ------------------------------------- -------------------------- --------------------------- 6/1/05- 6/1/05- 6/1/05- FUND* 2006 3/31/05 2004 2003 2006 3/31/05 2004 2003 2006 3/31/05 2004 2003 - ----- --------- ------- -------- ------- ---- ------- ---- ---- ---- ------- ---- ---- Classic Institutional Cash Management Money Market Fund 165,723 94,372 201,722 272,676 100 100 100 100 100 100 100 100 Classic Institutional Municipal Cash Reserve Money Market Fund 0 ** ** ** 0 ** ** ** 0 ** ** ** Classic Institutional U.S. Government Securities Money Market Fund 173,557 66,839 133,911 157,997 100 100 100 100 100 100 100 100 Classic Institutional U.S. Treasury Securities Money Market Fund 1,111,413 633,481 751,820 719,903 100 100 100 100 100 100 100 100
* Effective February 15, 2005, each Fund changed its fiscal year from May 31 to March 31. ** Not in operation during the period. SECURITIES OF "REGULAR BROKER-DEALERS." The Funds are required to identify any securities of its "regular brokers and dealers" (as such term is defined in the 1940 Act), which the Funds may hold at the close of their most recent fiscal year. As of March 31, 2006, the following Fund held the following securities:
FUND SECURITY TYPE SECURITY HOLDINGS - ----- -------------- -------------------------------- ------------ Debt Credit Suisse First Boston LLC $ 48,765,000 Classic Institutional Cash Debt Wells Fargo Brokerage Management Money Market Fund Services, LLC $ 50,000,000 Debt Bear Stearns & Co., Inc. $ 50,000,000 Debt Bank of America Securities LLC $154,960,000
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 Funds' portfolio securities is in the best interests of Fund shareholders, and include procedures to address conflicts between the interests of the Funds' shareholders, on the one hand, and those of the Funds' investment adviser, principal underwriter or any affiliated person of the Funds, 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 Funds' portfolio holdings, as necessary, in conformity with the foregoing principles. The Funds' CCO reports quarterly to the Board regarding the implementation of such policies and procedures. Pursuant to applicable law, each 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). Each 44 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 Funds' Annual Reports and Semi-Annual Reports are available, free of charge, on the Trust's website at www.sticlassicfunds.com. The Trust's website also provides information about each 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 Funds. 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 a 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 Funds 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 Funds. 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 other persons, except for those who are actually engaged in, and need to know, such information to perform the analysis or evaluation of the Funds. 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, Bear Stearns & Co, Inc., BMO Nesbit Burns, Buckingham Research Group, Inc., Cantor Fitzgerald & Co., Credit Suisse First Boston, LLC, Davenport & Company, LLC, Empirical Research Partners, Ferris Baker Watts, Inc., Freidman, Billings, Ramsey & Co., Inc., FTN Financial, Janney Montgomery Scott, LLC, JP Morgan Securities, Inc., Lehman Brothers, Inc., McDonald Investments, Inc., Merrill Lynch Pierce Fenner & Smith, Inc., FTN Midwest Research, Moody's Investors Service, Morgan Keegan & Co., Inc., Oppenheimer & Company, Piper Jaffray & Co., Raymond James Financial, Inc., RBC Dain Rauscher, Inc, Robert W. Baird & Co., Smith Barney, Starboard Capital Markets, LLC, Sterne, Agee & Leach, Inc., UBS Financial Services, Inc., and Wachovia Bank, N.A., Zions First National 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., Towers Perrin HR Services, Watson Wyatt Investment Consulting, Inc., Wilshire Associates Incorporated. 45 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 Funds. Financial printers, proxy voting service providers and pricing information vendors may receive portfolio holdings information, as necessary, in connection with their services to the Funds. No compensation or other consideration is paid to or received by any party in connection with the disclosure of portfolio holdings information, including the Funds, the Adviser and its affiliates or recipient of the Funds' portfolio holdings information. DESCRIPTION OF SHARES The Declaration of Trust authorizes the issuance of an unlimited number of shares of the Funds each of which represents an equal proportionate interest in that Fund with each other share. Shares are entitled upon liquidation to a pro rata share in the net assets of the Funds. Shareholders have no preemptive rights. The Declaration of Trust provides that the Trustees of the Trust may create additional series of shares. All consideration received by the Trust for shares of any additional series and all assets in which such consideration is invested would belong to that series and would be subject to the liabilities related thereto. Share certificates representing shares will not be issued. VOTING RIGHTS Each share held entitles the shareholder of record to one vote for each dollar invested. In other words, each shareholder of record is entitled to one vote for each full share held on the record date for any shareholder meeting. Each Fund will vote separately on matters relating solely to it. As a Massachusetts business trust, the Trust is not required, and does not intend, to hold annual meetings of shareholders. Shareholders approval will be sought, however, for certain changes in the operation of the Trust and for the election of Trustees under certain circumstances. Under the Declaration of Trust, the Trustees have the power to liquidate one or more Funds without shareholder approval. While the Trustees have no present intention of exercising this power, they may do so if a Fund fails to reach or maintain a viable size or for some other extraordinary reason. In addition, a Trustee may be removed by the remaining Trustees or by shareholders at a special meeting called upon written request of shareholders owning at least 10% of the outstanding shares of the Trust. In the event that such a meeting is requested, the Trust will provide appropriate assistance and information to the shareholders requesting the meeting. SHAREHOLDER LIABILITY The Trust is an entity of the type commonly known as a "Massachusetts business trust." Under Massachusetts law, shareholders of such a trust could, under certain circumstances, be held personally liable as partners for the obligations of the trust. Even if, however, the Trust were held to be a partnership, the possibility of the shareholders' incurring financial loss for that reason appears remote because the Trust's Declaration of Trust contains an express disclaimer of shareholder liability for obligations of the Trust and requires that notice of such disclaimer be given in each agreement, obligation or instrument entered into or executed by or on behalf of the Trust or the Trustees, and because the Declaration of Trust provides for indemnification out of the Trust property for any investor held personally liable for the obligations of the Trust. 46 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 wit 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. PROXY VOTING The Board has delegated the responsibility for decisions regarding proxy voting for securities held by the Funds to the Adviser. The Adviser will vote such proxies in accordance with its proxy policies and procedures, summaries of which are included in Appendix B to this SAI. Information regarding how the Funds' voted proxies during the most recent twelve-month period ended June 30 has been filed with the SEC on Form N-PX. The Funds' proxy voting record, along with the Funds' full proxy voting policies and procedures, is available on the Funds' website at www.sticlassicfunds.com, , without charge upon request by calling 1-888-STI-FUND, or by writing to the Funds at STI Classic Funds, c/o BISYS Fund Services, Limited Partnership, 3435 Stelzer Road, Columbus, Ohio 43219. The Funds' proxy voting record is also available on the SEC's website at www.sec.gov. 5% AND 25% SHAREHOLDERS As of July 5, 2006, the following persons were the only persons who were record owners (or to the knowledge of the Trust, beneficial owners) of 5% or more of the shares of the respective Funds. Persons who owned of record or beneficially more than 25% of a Fund's outstanding shares may be deemed to control the Fund within the meaning of the 1940 Act. The nature of ownership for each position listed is "Record" unless otherwise indicated. The Trust believes that most of the shares of the Funds were held for the record owner's fiduciary, agency or custodial customers. 47
PERCENT OF CLASS NAME AND ADDRESS OF OWNER OWNED - ------------------------- ---------------- CLASSIC INST MUNI CASH RESERVE MM - INSTITUTIONAL CLASS SUNTRUST BANK MAIL CENTER 3133 P O BOX 105504 ATTN SUSAN GRIDER ATLANTA GA 303485504 99.97% CLASSIC INST US TREAS SEC MNY MRKT FD - INSTITUTIONAL CLASS SUNTRUST BANKS MAIL CENTER 3133 P O BOX 105504 ATTN SUSAN GRIDER ATLANTA GA 303485504 59.02% SUNTRUST CAPITAL MARKETS ACH 303 PEACHTREE ST ATTN AUTHERINE WILLIAMS MC GA-ATL 3906 ATLANTA GA 303083201 27.92% NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY ST 4TH FLOOR, MUTUAL FUNDS NEW YORK NY 10281 13.07% CLASSIC INSTL CASH MGMT MNY MRKT - INSTITUTIONAL CLASS SUNTRUST BANK MAIL CENTER 3133 PO BOX 105504 ATTN SUSAN GRIDER ATLANTA GA 303485504 52.65% SUNTRUST CAPITAL MARKETS ACH 303 PEACHTREE ST ATTN AUTHERINE WILLIAMS MC GA-ATL 3906 ATLANTA GA 303083201 38.87% NATIONAL FINANCIAL SERVICES LLC 200 LIBERTY ST 4TH FLOOR, MUTUAL FUNDS NEW YORK NY 10281 7.25% CLASSIC INSTL US GOVT SEC MNY MRKT FD - INSTITUTIONAL CLASS SUNTRUST BANK MAIL CENTER 3133 P O BOX 105504 ATTN SUSAN GRIDER ATLANTA GA 303485504 65.75% SUNTRUST CAPITAL MARKETS ACH 303 PEACHTREE ST ATTN AUTHERINE WILLIAMS MC GA-ATL 3906 ATLANTA GA 303083201 34.25%
48
PERCENT OF CLASS NAME AND ADDRESS OF OWNER OWNED - ------------------------- ---------------- CLASSIC INSTL US TREAS SEC MNY MKT FD - CORPORATE TRUST SHARES SUNTRUST BANK MAIL CENTER 3133 P O BOX 105504 ATTN SUSAN GRIDER ATLANTA GA 303485504 100.00%
FINANCIAL STATEMENTS The financial statements for the Trust's fiscal year ended March 31, 2006, including notes thereto and the reports of PricewaterhouseCoopers L.L.P. thereon, are herein incorporated by reference from the 2006 Annual Report to Shareholders. Copies of the 2006 Annual Report will be provided without charge to each person receiving this Statement of Additional Information. 49 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. A-1 An S&P note rating reflects the liquidity concerns and market access risks unique to notes. Notes due in three years or less will likely receive a note rating. Notes maturing beyond three years will most likely receive a long-term debt rating. The following criteria will be used in making that assessment: - Amortization Schedule - the larger the final maturity relative to other maturities, the more likely it will be treated as a note, and - Source of Payment - the more dependent the issue is on the market for its refinancing, the more likely it will be treated as a note. S&P note rating symbols are as follows: SP-1 Strong capacity to pay principal and interest. Those issues determined to possess a very strong capacity to pay a debt service is given a plus (+) designation. SP-2 Satisfactory capacity to pay principal and interest with some vulnerability to adverse financial and economic changes over the term of the votes. DESCRIPTION OF CORPORATE BOND RATINGS S&P - --- Bonds rated AAA have the highest rating S&P assigns to a debt obligation. Such a rating indicates an extremely strong capacity to pay principal and interest. Bonds rated AA also qualify as high-quality debt obligations. Capacity to pay principal and interest is very strong, and in the majority of instances they differ from AAA issues only in small degree. Debt rated A has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories. Debt rated BB and B is regarded as having predominantly speculative characteristics with respect to capacity to pay interest and repay principal. BB indicates the least degree of speculation and C the highest degree of speculation. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. Debt rated BB has less near-term vulnerability to default than other speculative grade debt. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions that could lead to inadequate capacity to meet timely interest and principal payments. The BB rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BBB- rating. Debt rate B has greater vulnerability to default but presently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions would likely impair capacity or willingness to pay interest and repay principal. The B rating category also is used for debt subordinated to senior debt that is assigned an actual or implied BB or BB- rating. A-2 Moody's - ------- Bonds which are rated Aaa by Moody's are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large, or an exceptionally stable, margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Bonds rated Aa by Moody's are judged by Moody's to be of high quality by all standards. Together with bonds rated Aaa, they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than the Aaa securities. Bonds which are rated A possess many favorable investment attributes and are to be considered as upper-medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future. Bonds which are rated Baa are considered as medium-grade obligations (i.e., they are neither highly protected nor poorly secured). Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well-assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. Bonds which are rated B 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. A-3 Moody's ratings are opinions, not recommendations to buy or sell, and their accuracy is not guaranteed. A rating should be weighed solely as one factor in an investment decision and you should make your own study and evaluation of any issuer whose securities or debt obligations you consider buying or selling. Fitch - ----- Bonds rated AAA by Fitch are judged by Fitch to be strictly high grade, broadly marketable, suitable for investment by trustees and fiduciary institutions liable to but slight market fluctuation other than through changes in the money rate. The prime feature of an AAA bond is a showing of earnings several times or many times interest requirements, with such stability of applicable earnings that safety is beyond reasonable question whatever changes occur in conditions. Bonds rated AA by Fitch are judged by Fitch to be of safety virtually beyond question and are readily salable, whose merits are not unlike those of the AAA class, but whose margin of safety is less strikingly broad. The issue may be the obligation of a small company, strongly secured but influenced as to rating by the lesser financial power of the enterprise and more local type market. Bonds rated A are considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings. Bonds rated BBB are considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds, and therefore impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings. Bonds rated BB are considered speculative. The obligor's ability to pay interest and repay principal may be affected over time by adverse economic changes. However, business and financial alternatives can be identified which could assist the obligor in satisfying its debt service requirements. Bonds rated B are considered highly speculative. While bonds in this class are currently meeting debt service requirements, the probability of continued timely payment of principal and interest reflects the obligor's limited margin of safety and the need for reasonable business and economic activity throughout the life of the issue. Thomson - ------- 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 GRAPHIC] 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 o Trusco U.S. Domestic Proxy Policy (applied to both ERISA and Non-ERISA related accounts) o Trusco Taft Hartley Proxy Policy o 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 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 B-4 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: o there are concerns about the accounts presented or audit procedures used; or o the company is not responsive to shareholder questions about specific items that should be publicly disclosed. APPOINTMENT OF AUDITORS AND AUDITOR COMPENSATION Vote FOR the reelection of auditors and proposals authorizing the board to fix auditor fees, unless: o there are serious concerns about the accounts presented or the audit procedures used; o the auditors are being changed without explanation; or o 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: o there are serious concerns about the statutory reports presented or the audit procedures used; o questions exist concerning any of the statutory auditors being appointed; or o the auditors have previously served the company in an executive capacity or can otherwise be considered affiliated with the company. ALLOCATION OF INCOME Vote FOR approval of the allocation of income, unless: o the dividend payout ratio has been consistently below 30 percent without adequate explanation; or o the payout is excessive given the company's financial position. STOCK (SCRIP) DIVIDEND ALTERNATIVE Vote FOR most stock (scrip) dividend proposals. Vote AGAINST proposals that do not allow for a cash option unless management demonstrates that the cash option is harmful to shareholder value. AMENDMENTS TO ARTICLES OF ASSOCIATION Vote amendments to the articles of association on a CASE-BY-CASE basis. CHANGE IN COMPANY FISCAL TERM Vote FOR resolutions to change a company's fiscal term unless a company's motivation for the change is to postpone its AGM. 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. B-6 TRANSACT OTHER BUSINESS Vote AGAINST other business when it appears as a voting item. DIRECTOR ELECTIONS Vote FOR management nominees in the election of directors, unless: o Adequate disclosure has not been provided in a timely manner; o There are clear concerns over questionable finances or restatements; o There have been questionable transactions with conflicts of interest; o There are any records of abuses against minority shareholder interests; and o The board fails to meet minimum corporate governance standards. Vote FOR individual nominees unless there are specific concerns about the individual, such as criminal wrongdoing or breach of fiduciary responsibilities. Vote AGAINST shareholder nominees unless they demonstrate a clear ability to contribute positively to board deliberations. Vote AGAINST individual directors if they cannot provide an explanation for repeated absences at board meetings (in countries where this information is disclosed). Vote AGAINST labor representatives if the 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: o there are serious questions about actions of the board or management for the year in question; or o legal action is being taken against the board by other shareholders. 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. B-7 SHARE ISSUANCE REQUESTS GENERAL ISSUANCES: Vote FOR issuance requests with preemptive rights to a maximum of 100 percent over currently issued capital. Vote FOR issuance requests without preemptive rights to a maximum of 20 percent of currently issued capital. SPECIFIC ISSUANCES: Vote on a CASE-BY-CASE basis on all requests, with or without preemptive rights. INCREASES IN AUTHORIZED CAPITAL Vote FOR nonspecific proposals to increase authorized capital up to 100 percent over the current authorization unless the increase would leave the company with less than 30 percent of its new authorization outstanding. Vote FOR specific proposals to increase authorized capital to any amount, unless: o the specific purpose of the increase (such as a share-based acquisition or merger) does not meet Trusco's guidelines for the purpose being proposed; or o the increase would leave the company with less than 30 percent of its new authorization outstanding after adjusting for all proposed issuances. 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. 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. B-8 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: o clear evidence of past abuse of the authority is available; or o the plan contains no safeguards against selective buybacks. REISSUANCE OF SHARES REPURCHASED Vote FOR requests to reissue any repurchased shares unless there is clear evidence of abuse of this authority in the past. CAPITALIZATION OF RESERVES FOR BONUS ISSUES/INCREASE IN PAR VALUE Vote FOR requests to capitalize reserves for bonus issues of shares or to increase par value. REORGANIZATIONS/RESTRUCTURINGS Vote reorganizations and restructurings on a CASE-BY-CASE basis. MERGERS AND ACQUISITIONS Vote mergers and acquisitions on a CASE-BY-CASE basis. MANDATORY TAKEOVER BID WAIVERS Vote proposals to waive mandatory takeover bid requirements on a CASE-BY-CASE basis. REINCORPORATION PROPOSALS Vote reincorporation proposals on a CASE-BY-CASE basis. EXPANSION OF BUSINESS ACTIVITIES Vote FOR resolutions to expand business activities unless the new business takes the company into risky areas. RELATED-PARTY TRANSACTIONS Vote related-party transactions on a CASE-BY-CASE basis. COMPENSATION PLANS Vote compensation plans on a CASE-BY-CASE basis. ANTITAKEOVER MECHANISMS Vote AGAINST all antitakeover proposals unless they are structured in such a way that they give shareholders the ultimate decision on any proposal or offer. SHAREHOLDER PROPOSALS Vote all shareholder proposals on a CASE-BY-CASE basis. Vote FOR proposals that would improve the company's corporate governance or business profile at a reasonable cost. Vote AGAINST proposals that limit the company's business activities or capabilities or result in significant costs being incurred with little or no benefit. B-9 PART C: OTHER INFORMATION POST-EFFECTIVE AMENDMENT NO. 65 ITEM 23. EXHIBITS: (a) Declaration of Trust as originally filed with the STI Classic Funds' (the "Registrant") Registration Statement on Form N-1A, filed on February 12, 1992, is incorporated herein by reference to Exhibit 1 of Post-Effective Amendment No. 15 to the Registrant's Registration Statement filed with the Securities and Exchange Commission (the "SEC") via EDGAR Accession No. 0000912057-96-015938 on July 31, 1996. (b) Amended and Restated By-Laws, as approved by the Board of Trustees on August 15, 2000, are incorporated herein by reference to Exhibit (b) of Post-Effective Amendment No. 37 to the Registrant's Registration Statement with the SEC via EDGAR Accession No. 0000935069-00-000528 on September 21, 2000. (c) Not applicable. (d)(1) Revised Investment Advisory Agreement between the Registrant and Trusco Capital Management, Inc., dated June 15, 1993, as originally filed with the Registrant's Post-Effective Amendment No. 5, filed on August 2, 1993, is incorporated herein by reference to Exhibit 5(c) of Post-Effective Amendment No. 15 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000912057-96-015938 on July 31, 1996. (d)(2) Investment Advisory Agreement with Sun Bank Capital Management, National Association (now Trusco Capital Management, Inc.) as originally filed with the Registrant's Post-Effective Amendment No. 6, filed on October 22, 1993, is incorporated herein by reference to Exhibit 5(e) of Post-Effective Amendment No. 15 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000912057-96-015938 on July 31, 1996. (d)(3) Investment Advisory Agreement with Trust Company Bank (now Trusco Capital Management, Inc.) as originally filed with the Registrant's Post-Effective Amendment No. 6, filed on October 22, 1993, is incorporated herein by reference to Exhibit D(4) of Post-Effective Amendment No. 24 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0001047469-98-028802 on July 30, 1998. (d)(4) Revised Schedule A dated February 14, 2006 to the Investment Advisory Agreement between the Registrant and Trusco Capital Management, Inc. dated June 15, 1993 is incorporated herein by reference to Exhibit (d)(4) of Post-Effective Amendment No. 64 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000950152-06-004792 on May 30, 2006. (d)(5) Form of Expense Limitation Agreement dated August 1, 2006 between STI Classic Funds and Trusco Capital Management, Inc. is filed herewith. (d)(6) Investment Subadvisory Agreement dated November 19, 2004, between Trusco Capital Management, Inc. and Zevenbergen Capital Investments, LLC is incorporated herein by reference to Exhibit (d)(4) of Post-Effective Amendment No. 55 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000950152-05-001587 on February 28, 2005. (e)(1) Distribution Services Agreement dated November 18, 2005 between the Registrant and BISYS Fund Services Limited Partnership is incorporated herein by reference to exhibit (e)(1) of Post Effective Amendment No. 63 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000950152-06-002527 on March 24, 2006. (f) Not applicable. (g)(1) Custodian Agreement between the Registrant and Trust Company Bank (now SunTrust Bank) dated February 1, 1994, as originally filed with the Registrant's Post-Effective Amendment No. 13, filed on September 28, 1995, is incorporated herein by reference to Exhibit 8(b) of Post-Effective Amendment No. 15 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000912057-96-015938 on July 31, 1996. (g)(2) Securities Lending Amendment dated October 1, 2002 to the Custodian Agreement dated February 1, 1994 between the Registrant and SunTrust Bank is incorporated herein by reference to Exhibit (g)(2) of Post-Effective Amendment No. 47 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000935069-03-001371 on September 30, 2003. (g)(3) Amendment to the Custodian Agreement between the Registrant and SunTrust Bank, formerly Trust Company Bank, dated as of February 1, 1994, as amended October 1, 2002, and Schedule A of such Agreement amended as of August 16, 1995 and January 1, 1996, is incorporated herein by reference to Exhibit (g)(3) of Post-Effective Amendment No. 48 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000935069-03-001651 on December 10, 2003. (g)(4) Amendment dated November 25, 2003 to the Custodian Agreement dated February 1, 1994 between the Registrant and SunTrust Bank, formerly Trust Company Bank, is incorporated herein by reference to Exhibit (g)(6) of Post-Effective Amendment No. 50 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000950152-04-005770 on July 30, 2004. (g)(5) Amendment dated August 19, 2005 to the Custodian Agreement dated February 1, 1994 between the Registrant and SunTrust Bank, formerly Trust Company Bank, is incorporated herein by reference to Exhibit (g)(5) of Post-Effective Amendment No. 60 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000950152-05-009415 on November 18, 2005. (g)(6) Amended Schedule A dated February 14, 2006 to the Custodian Agreement dated February 1, 1994 between the Registrant and SunTrust Bank, formerly Trust Company Bank, is incorporated herein by reference to Exhibit (g)(6) of Post-Effective Amendment No. 64 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000950152-06-004792 on May 30, 2006. (g)(7) Custodian Agreement dated January 29, 2003 between the Registrant, STI Classic Variable Trust and Brown Brothers Harriman & Co., with respect to the International Equity Fund, International Equity Index Fund and Strategic Income Fund, is incorporated herein by reference to Exhibit g(7) of Post-Effective Amendment No. 13 to the Registration Statement of the STI Classic Variable Trust (SEC No. 033-91476) filed with the SEC via EDGAR Accession No. 0000935069-03-00052 on April 25, 2003. (h)(1) Master Services Agreement between the Registrant and BISYS Fund Services Ohio, Inc., dated July 16, 2004, is incorporated herein by reference to Exhibit (h)(1) of Post-Effective Amendment No. 51 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000950152-04-007101 on September 28, 2004. (h)(2) Amendment dated as of August 11, 2004 to the Master Services Agreement between the Registrant and BISYS Fund Services Ohio, Inc., dated July 16, 2004, is incorporated herein by reference to Exhibit (h)(2) of Post-Effective Amendment No. 51 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000950152-04-007101 on September 28, 2004. (h)(3) Amendment dated November 5, 2004 to the Master Services Agreement between the Registrant and BISYS Fund Services, Ohio, Inc., dated July 16, 2004 is incorporated by reference to Exhibit (h)(3) of Post-Effective Amendment No. 53 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000950152-04-009220 on December 30, 2004. (h)(4) Amendment dated November 18, 2005 to the Master Services Agreement between the Registrant and BISYS Fund Services Ohio, Inc., dated July 16, 2004, is incorporated herein by reference to exhibit (h)(4) of Post Effective Amendment No. 63 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000950152-06-002527 on March 24, 2006. (h)(5) Revised Schedule A dated November 18, 2005 to the Master Services Agreement between the Registrant and BISYS Fund Services Ohio, Inc. dated July 16, 2004 is incorporated herein by reference to Exhibit (h)(5) of Post-Effective Amendment No. 61 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000912057-06-000105 on January 6, 2006. (h)(6) Shareholder Service Plan and Agreement relating to Corporate Trust Shares is incorporated herein by reference to Exhibit (h)(7) of Post-Effective Amendment No. 47 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000935069-03-001371 on September 30, 2003. (h)(7) Securities Lending Management Agreement between the Registrant and Credit Suisse First Boston dated March 1, 2005, is incorporated herein by reference to Exhibit (h)(10) of Post-Effective Amendment No. 57 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000950152-05-004581 on May 18, 2005. (h)(8) Compliance Services Agreement among the Registrant, STI Classic Variable Trust and BISYS Fund Services, Inc. dated November 18, 2005 is incorporated herein by reference to Exhibit (h)(8) of Post-Effective Amendment No. 64 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000950152-06-004792 on May 30, 2006. (i) Opinion and Consent of Counsel is filed herewith. (j) Consent of independent registered public accounting firm is filed herewith. (k) Not applicable. (l) Not applicable. (m)(1) Distribution and Service Plan relating to C Shares (formerly, L Shares and Flex Shares) dated May 17, 2005 is incorporated herein by reference to Exhibit (m)(1) of Post-Effective Amendment No. 59 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000950152-05-006336 on August 1, 2005. (m)(2) Distribution and Service Plan relating to B Shares dated February 11, 2003 is incorporated herein by reference to Exhibit (m)(3) of Post-Effective Amendment No. 47 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000935069-03-001371 on September 30, 2003. (m)(3) Distribution and Service Plan for A Shares dated May 17, 2005 is incorporated herein by reference to Exhibit (m)(6) of Post-Effective Amendment No. 58 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000950152-05-0048058 on May 27, 2005. (m)(4) Amended Schedule A to the Distribution and Service Plan for Class A Shares dated November 18, 2005 is incorporated herein by reference to Exhibit (m)(4) of Post-Effective Amendment No. 61 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000912057-06-000105 on January 6, 2006. (n)(1) Rule 18f-3 Multiple Class Plan adopted May 24, 1995, last amended May 17, 2005, is incorporated herein by reference to Exhibit (n)(2) of Post-Effective Amendment No. 57 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000950152-05-004581 on May 18, 2005. (o) Not applicable. (p)(1) Registrant's Code of Ethics dated February 2000, last amended January 28, 2006, is incorporated herein by reference to exhibit (p)(1) of Post Effective Amendment No. 63 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000950152-06-002527 on March 24, 2006. (p)(2) Code of Ethics for BISYS Fund Services Limited Partnership dated January 1, 2006 is incorporated herein by reference to Exhibit (p)(2) of Post-Effective Amendment No. 64 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000950152-06-004792 on May 30, 2006. (p)(3) Code of Ethics for Trusco Capital Management, Inc., as approved by the Board of Trustees on August 15, 2000, is incorporated herein by reference to Exhibit (p)(4) of Post-Effective Amendment No. 37 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000935069-00-000528 on September 21, 2000. (p)(4) Code of Ethics for Zevenbergen Capital Investments LLC, as approved by the Board of Trustees on May 9, 2006, is incorporated herein by reference to Exhibit (p)(4) of Post-Effective Amendment No. 64 to the Registrant's Registration Statement filed with the SEC via EDGAR Accession No. 0000950152-06-004792 on May 30, 2006. ITEM 24. Persons Controlled by or under Common Control with Registrant: See the prospectus and Statement of Additional Information regarding the Registrant's control relationships. The administrator is a subsidiary of BISYS Group, Inc. which also controls the distributor of the Registrant, BISYS Fund Services Limited Partnership, and other corporations engaged in providing various financial and record keeping services, primarily to bank trust departments, pension plan sponsors, and investment managers. ITEM 25. Indemnification: Article VIII of the Agreement and Declaration of Trust filed as Exhibit (a) to the Registrant's Registration Statement is incorporated herein by reference. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to trustees, directors, officers and controlling persons of the Registrant by the Registrant pursuant to the Declaration of Trust or otherwise, the Registrant is aware that in the opinion of the U.S. Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and, therefore, is unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by trustees, directors, officers or controlling persons of the Registrant in connection with the successful defense of any act, suit or proceeding) is asserted by such trustees, directors, officers or controlling persons in connection with the shares being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issues. ITEM 26. Business and Other Connections of the Investment Adviser: Trusco Capital Management, Inc. is the investment adviser (the "Adviser") for the STI Classic Funds. The principal address of Trusco Capital Management, Inc. is 50 Hurt Plaza, Suite 1400, Atlanta, Georgia 30303. Other business, profession, vocation, or employment of a substantial nature in which each director or principal officer of the adviser is or has been, at any time during the last two fiscal years, engaged for his own account or in the capacity of director, officer, employee, partner or trustee are as follows:
NAME NAME OF OTHER COMPANY CONNECTION WITH OTHER COMPANY - ---- ----------------------------------- ----------------------------- David Eidson SunTrust Banks, Inc. Senior Vice President Chairman & Chief Executive Officer SunTrust Bank Executive Vice President SunTrust Capital Markets Board Member First Mercantile Trust Board Member Zevenbergen Capital Investments LLC Board Member Lighthouse Partners Board Member William H. Rogers SunTrust Banks, Inc. Executive Vice President Director Paul L. Robertson, III SunTrust Banks, Inc. Vice President Executive Vice SunTrust Bank Vice President President/Secretary/Treasurer Andrew J. Muldoon, III SunTrust Bank Executive Vice President Executive Vice President Elizabeth G. Pola Zevenbergen Capital Investments LLC Director Executive Vice President Robert J. Rhodes SunTrust Bank Officer Executive Vice President Christina Seix SunTrust Bank Vice President Executive Vice President John Talty SunTrust Bank Vice President Executive Vice President David C. Anderson SunTrust Bank Vice President Director Seth L. Antiles SunTrust Bank Officer Vice President Charles B. Arrington SunTrust Bank Officer Director Frances J. Aylor -- -- Director Brett L. Barner SunTrust Bank Officer Managing Director Richard M. Bemis SunTrust Bank Vice President Director Edward E. Best SunTrust Bank Officer Managing Director Glen H. Blackston -- -- Director Gordon R. Boardway -- -- Vice President Matthew R. Boden -- -- Vice President Noel Crissman Boggan SunTrust Bank Officer
NAME NAME OF OTHER COMPANY CONNECTION WITH OTHER COMPANY - ---- ----------------------------------- ----------------------------- Vice President Robert S. Bowman SunTrust Bank Officer Managing Director John C. Brennan -- -- Vice President Casey C. Brogdon SunTrust Bank Officer Managing Director Daniel J. Bromstad -- -- Vice President Marlon W. Brown SunTrust Bank Officer Vice President Joseph F. Calabrese -- -- Managing Director George E. Calvert, Jr. SunTrust Bank Officer Vice President Matthew B. Carney -- -- Vice President Christopher D. Carter SunTrust Bank Vice President Vice President Carlos J. Catoya -- -- Vice President Benjamin M. Clark SunTrust Bank Vice President Vice President Shane Coldren SunTrust Bank Officer Managing Director Robert W. Corner SunTrust Bank Officer Managing Director Scott E. Craig -- -- Vice President Stacy L. Culver -- -- Vice President William R. Davis -- -- Vice President J. Chadwick Deakins SunTrust Bank Officer Managing Director Robin C. Divers -- -- Vice President Ami B. Dogra -- -- Vice President Colleen H. Doremus SunTrust Bank Vice President Vice President Louis Joseph Douglass, IV -- -- Vice President Martin J. Duffy SunTrust Bank Officer Vice President Mary J. Durkin SunTrust Bank Officer Vice President Todd C. Early -- -- Vice President Rebecca G. Ehrhart -- -- Vice President Bob M. Farmer SunTrust Bank Vice President
NAME NAME OF OTHER COMPANY CONNECTION WITH OTHER COMPANY - ---- ----------------------------------- ----------------------------- Managing Director Douglas J. Farmer -- -- Vice President Robert N. Felice SunTrust Bank Officer Managing Director James A. Fitzpatrick -- -- Vice President John B. Floyd SunTrust Bank Officer Managing Director James P. Foster SunTrust Bank Officer Managing Director Laura B. Friend -- -- Director Kirsten M. Fuller SunTrust Bank Officer Vice President Elena Fyodorova -- -- Vice President Michelle Gallo -- -- Vice President Alan M. Gayle -- -- Managing Director Eunice Gillespie SunTrust Bank Vice President Director Scott B. Goldberg SunTrust Bank Vice President Vice President George Goudelias -- -- Managing Director Gregory E. Hallman SunTrust Officer Vice President Neil L. Halpert -- -- Vice President Melvin E. Hamilton SunTrust Bank Vice President Managing Director Preston A. Hays -- -- Vice President Michael Todd Hill SunTrust Bank Officer Director Michael J. Honsharuk SunTrust Bank Officer Vice President Debra M. Hooper SunTrust Bank Vice President Vice President Deborah A. Hopkins -- -- Vice President David L. Hunt -- -- Director Christopher A. Jones SunTrust Bank Vice President Managing Director Christine Y. Keefe SunTrust Bank Vice President Director Nathaniel J. King -- -- Vice President Michael Kirkpatrick -- --
NAME NAME OF OTHER COMPANY CONNECTION WITH OTHER COMPANY - ---- ----------------------------------- ----------------------------- Vice President James E. Kofron SunTrust Bank Officer Director Raymond A. Kramer -- -- Vice President Kenneth Kresch -- -- Vice President Deborah A. Lamb SunTrust Banks, Inc. Officer Managing Director SunTrust Bank Officer Wayne G. Larochelle SunTrust Bank Vice President Managing Director Gerard Leen -- -- Vice President Charles B. Leonard SunTrust Bank Officer Managing Director Carla Leslie SunTrust Bank Officer Managing Director Biron O. Lim -- -- Vice President Walter L. Lindsay -- -- Managing Director Tina Y. Long -- -- Vice President William J. Longan SunTrust Bank Officer Vice President J. Randy Loving -- -- Vice President Scott F. Luxton SunTrust Bank Officer Vice President Kimberly C. Maichle SunTrust Bank Officer Director James B. Mallory SunTrust Bank Vice President Vice President Jennifer Love Mann SunTrust Bank Vice President Vice President Jeffrey E. Markunas SunTrust Bank Officer Managing Director Patrick K. Mason SunTrust Bank Vice President Vice President Michael L. McEachern -- -- Managing Director Andrew S. McGhee SunTrust Bank Vice President Managing Director Steven McGinty -- -- Vice President Evan B. Melcher SunTrust Bank Officer Director Thomas A. Meyers -- -- Managing Director R. Douglas Mitchell SunTrust Bank Officer Vice President Sharon E. Moran -- --
NAME NAME OF OTHER COMPANY CONNECTION WITH OTHER COMPANY - ---- ----------------------------------- ----------------------------- Vice President Stephen J. Murrin -- -- Vice President Blake E. Myton SunTrust Bank Officer Vice President Timothy James Nash SunTrust Bank Vice President Vice President Robert H. Neinken SunTrust Bank Vice President Managing Director Harold F. Nelson SunTrust Bank Officer Managing Director Brian M. Nold -- -- Vice President Brian P. O'Connell -- -- Director Thomas J. O'Neil -- -- Vice President Cynthia A. Panebianco -- -- Vice President Patrick A. Paparelli SunTrust Banks, Inc. Vice President Managing Director SunTrust Bank Vice President Sheri L. Paquette SunTrust Bank Officer Director Ty E. Parrish SunTrust Bank Vice President Director Ronnie G. Pennell Vice President SunTrust Bank Officer Elliott A. Perny SunTrust Bank Officer Managing Director Gregory S. Peters -- -- Vice President James M. Phebus Jr. SunTrust Bank Officer Director Gregory L. Phillips -- -- Vice President Gary A. Plourde SunTrust Bank Vice President Managing Director Charles L. Poage -- -- Vice President Sean D. Porrello -- -- Vice President Raymond A. Prophater -- -- Vice President Curtis A. Pryor -- -- Vice President Joe E. Ransom SunTrust Bank Officer Managing Director Boyce G. Reid SunTrust Bank Officer Vice President David W. Reidy -- -- Vice President Kristin Hildebrand Ribic -- --
NAME NAME OF OTHER COMPANY CONNECTION WITH OTHER COMPANY - ---- ----------------------------------- ----------------------------- Vice President Mills A. Riddick SunTrust Bank Officer Managing Director Dina E. Romeo -- -- Vice President Josie C. Rosson SunTrust Bank Officer Managing Director Michael C. Sahakian SunTrust Bank Officer Director James L. Savage SunTrust Bank Officer Director Diane F. Schmidt -- -- Vice President Marc H. Schneidau SunTrust Bank Officer Managing Director Ronald H. Schwartz SunTrust Bank Officer Managing Director Michael G. Sebesta SunTrust Bank Officer Managing Director Dusty L. Self SunTrust Bank Officer Director Robert I. Sherman SunTrust Bank Officer Managing Director Julia R. Short -- -- Managing Director Robin J. Shulman -- -- Managing Director Atul Sibal -- -- Vice President Garrett P. Smith SunTrust Bank Officer Managing Director George D. Smith, Jr. SunTrust Bank Officer Managing Director Stephen Smith -- -- Vice President E. Dean Speer SunTrust Bank Officer Director Ellen E. Spong Managing Director SunTrust Bank Vice President Jeffrey P. St. Amand -- -- Director Celia S. Stanley -- -- Vice President John H. Stebbins SunTrust Banks, Inc. Vice President Managing Director SunTrust Bank Vice President Chad K. Stephens SunTrust Bank Officer Vice President Eric D. Storch -- -- Managing Director E. Sonny Surkin SunTrust Bank Officer Director William F. Tarry SunTrust Bank Officer
NAME NAME OF OTHER COMPANY CONNECTION WITH OTHER COMPANY - ---- ----------------------------------- ----------------------------- Vice President Parker W. Thomas Jr. SunTrust Bank Officer Vice President J. Maurice Thomas SunTrust Bank Vice President Vice President Merlin W. Tolstyk -- -- Vice President Perry A. Troisi -- -- Managing Director William A. Turner -- -- Director Stuart F. Van Arsdale SunTrust Bank Officer Managing Director David Walley SunTrust Bank Officer Vice President David M. Walrod -- -- Vice President R. Casey Walsh -- -- Vice President Francis P. Walsh -- -- Director Joseph P. Walsh SunTrust Bank Vice President Vice President Angela V. Watterson -- -- Vice President George M. Way SunTrust Bank Vice President Director Adrien D. Webb -- -- Managing Director Gregory W. Webster -- -- Vice President Darren C. Weems -- -- Vice President Matthew H. Welden -- -- Vice President Ellen Welsh -- -- Managing Director Elizabeth Wilson -- -- Managing Director William L. Wilson, Jr. SunTrust Bank Officer Director Tom J. Winters -- -- Managing Director Donald A. Wordell SunTrust Bank Officer Director Natalie A. Wright -- -- Vice President Stephen M. Yarbrough SunTrust Banks, Inc. Vice President Managing Director Joseph P. Yarusinski -- -- Vice President Steven M. Yates SunTrust Bank Officer
NAME NAME OF OTHER COMPANY CONNECTION WITH OTHER COMPANY - ---- ----------------------------------- ----------------------------- Managing Director Jay A. Young -- -- Vice President Jonathan M.Yozzo -- -- Vice President Scott Yuschak -- -- Vice President Sam J. Zona -- -- Managing Director
Zevenbergen Capital Investments LLC is the investment subadviser for the Aggressive Growth Stock and Emerging Growth Stock Funds. The principal address of Zevenbergen Capital Investments LLC is 601 Union Street, Seattle, Washington 98101. Other business, profession, vocation, or employment of a substantial nature in which each director or principal officer of the subadviser is or has been, at any time during the last two fiscal years, engaged for his own account or in the capacity of director, officer, employee, partner or trustee are as follows:
NAME NAME OF OTHER COMPANY CONNECTION WITH OTHER COMPANY - ---- ---------------------- ----------------------------- Brooke de Boutray Rivendell Capital Inc. Principal Managing Director, Portfolio Manager Lisa Foley Rivendell Capital Inc. Principal Managing Director, Investment Officer Leslie Tubbs Rivendell Capital Inc. Principal Managing Director, Portfolio Manager and Chief Compliance Officer Jim Fasano Rivendell Capital Inc. Principal Managing Director, Investment Officer Herb Albin Rivendell Capital Inc. Principal Managing Director, Investment Officer Nancy A. Zevenbergen Rivendell Capital Inc. President President and Chief Investment Officer
ITEM 27. Principal Underwriters: (a) BISYS Fund Services Limited Partnership ("BISYS"), the Registrant's distributor, acts as principal underwriter for the following investment companies (other than the Registrant): American Independence Funds Trust American Performance Funds The Bjurman, Barry Funds The Coventry Group Coventry Funds Trust Excelsior Funds, Inc. Excelsior Funds Trust Excelsior Tax-Exempt Funds, Inc. First Focus Funds, Inc. HSBC Advisor Funds Trust HSBC Investor Funds Legacy Funds Group Pacific Capital Funds STI Classic Variable Trust Allianz Variable Insurance Products Fund of Funds Trust Allianz Variable Insurance Products Trust Vintage Mutual Funds, Inc. BISYS is registered with the U.S. Securities and Exchange Commission as a broker-dealer and is a member of the National Association of Securities Dealers. BISYS' main address is 100 Summer Street 15th Floor, Boston, Massachusetts 02110. Office of Supervisory Jurisdiction (OSJ) Branch is at 3435 Stelzer Road, Columbus, Ohio 43219. BISYS is an indirect wholly-owned subsidiary of The BISYS Group, Inc. (b) Each director, officer or partner of the principal underwriter named in the answer to Item 19 of Part B is listed below. The business address of each director or officer is 3435 Stelzer Road, Columbus, Ohio 43219.
NAME POSITION AND OFFICE WITH UNDERWRITER POSITION AND OFFICE WITH REGISTRANT - ---- ----------------------------------------------------- ----------------------------------- Elliott Dobin Secretary None Bryan Bey Vice President, Director and Chief Compliance Officer None James L. Smith President and Director None James E. (Ed) Pike Financial and Operations Principal None
ITEM 28. Location of Accounts and Records: Books or other documents required to be maintained by Section 31(a) of the Investment Company Act of 1940, and the rules promulgated thereunder, are maintained as follows: (a) With respect to Rules 31a-1(a); 31a-1(b)(1); (2)(a) and (b); (3); (6); (8); (12); and 31a-1(d), the required books and records are maintained at the offices of Registrant's custodians: SunTrust Bank 303 Peachtree Street, N.E. Atlanta, GA 30308 Brown Brothers Harriman & Co. 40 Water Street Boston, MA 02109 (International Equity Fund, International Equity Index Fund and Strategic Income Fund) (b) With respect to Rules 31a-1(a); 31a-1(b)(1),(4); (2)(C) and (D); (4); (5); (6); (8); (9); (10); (11); and 31a-1(f), the required books and records are maintained at the offices of Registrant's administrator: BISYS Fund Services, Ohio, Inc. 3435 Stelzer Road Columbus, Ohio 43219 (c) With respect to Rules 31a-1(b)(5), (6), (9) and (10) and 31a-1(f), the required books and records are maintained at the principal offices of the Registrant's adviser and subadviser: Trusco Capital Management, Inc. 50 Hurt Plaza, Suite 1400 Atlanta, Georgia 30303 Trusco Capital Management, Inc. 10 Mountain View Road Suite C-200 Upper Saddle River, New Jersey 07458 Zevenbergen Capital Investments LLC 601 Union Street Seattle, Washington 98101 ITEM 29. Management Services: None. ITEM 30. Undertakings: None. NOTICE A copy of the Agreement and Declaration of Trust for the STI Classic Funds is on file with the Secretary of State of the Commonwealth of Massachusetts and notice is hereby given that this Registration Statement has been executed on behalf of the Registrant by an officer of the Registrant as an officer and by its trustees as trustees and not individually and the obligations of or arising out of this Registration Statement are not binding upon any of the trustees, officers, or shareholders individually but are binding only upon the assets and property of the Registrant. SIGNATURES Pursuant to the requirements of the Securities Act of 1933 (the "Securities Act") and the Investment Company Act of 1940, as amended, the Registrant certifies that it meets all of the requirements for effectiveness of this Post-Effective Amendment No. 65 to the Registrant's Registration Statement (the "Registration Statement") under rule 485(b) of the Securities Act and has duly caused this Registration Statement to be signed on its behalf by the undersigned, duly authorized, in the City of Columbus, State of Ohio on the 31st day of July, 2006. By: /s/ R. Jeffrey Young ------------------------------------ R. Jeffrey Young, President Pursuant to the requirements of the Securities Act, this Registration Statement has been signed below by the following persons in the capacity and on the dates indicated. /s/ F. Wendell Gooch* Trustee July 31, 2006 - ------------------------------------- F. Wendell Gooch /s/ James O. Robbins* Trustee July 31, 2006 - ------------------------------------- James O. Robbins /s/ Thomas Gallagher* Trustee July 31, 2006 - ------------------------------------- Thomas Gallagher /s/ Richard W. Courts, II* Trustee July 31, 2006 - ------------------------------------- Richard W. Courts, II /s/ Clarence H. Ridley* Trustee July 31, 2006 - ------------------------------------- Clarence H. Ridley /s/ Warren Y. Jobe* Trustee July 31, 2006 - ------------------------------------- Warren Y. Jobe /s/ Charles D. Winslow* Trustee July 31, 2006 - ------------------------------------- Charles D. Winslow /s/ Sidney E. Harris* Trustee July 31, 2006 - ------------------------------------- Sidney E. Harris /s/ Connie D. McDaniel* Trustee July 31, 2006 - ------------------------------------- Connie D. McDaniel /s/ R. Jeffrey Young President July 31, 2006 - ------------------------------------- R. Jeffrey Young /s/ Joel B. Engle Treasurer & Chief July 31, 2006 - ------------------------------------- Financial Officer Joel B. Engle * By /s/ Cynthia Surprise -------------------------------- Cynthia Surprise, pursuant to the powers of attorney filed herewith.
STI CLASSIC FUNDS STI CLASSIC VARIABLE TRUST POWER OF ATTORNEY KNOWN ALL MEN BY THESE PRESENTS, that each of the undersigned as trustees of STI Classic Funds and STI Classic Variable Trust (each, a "Trust"), business trusts organized under the laws of the Commonwealth of Massachusetts, hereby constitutes and appoints Jennifer English and Cynthia Surprise, and each of them singly, his or her true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, to sign for him or her and in his or her name, place and stead, and in the capacity indicated below, to sign any and all Registration Statements and all amendments thereto relating to the offering of each Trust's shares under the provisions of the Investment Company Act of 1940 and/or the Securities Act of 1933, each such Act as amended, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, acting alone, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned have herewith set their names as of the 14th day of February, 2006. /s/ Richard W. Courts, II /s/ Thomas Gallagher - ------------------------------------- ---------------------------------------- Richard W. Courts, II, Trustee Thomas Gallagher, Trustee /s/ F. Wendell Gooch /s/ Sidney E. Harris - ------------------------------------- ---------------------------------------- F. Wendell Gooch, Trustee Sidney E. Harris, Trustee /s/ Warren Y. Jobe /s/ Connie D. McDaniel - ------------------------------------- ---------------------------------------- Warren Y. Jobe, Trustee Connie D. McDaniel, Trustee /s/ Clarence H. Ridley /s/ James O. Robbins - ------------------------------------- ---------------------------------------- Clarence H. Ridley, Trustee James O. Robbins, Trustee /s/ Charles D. Winslow - ------------------------------------- Charles D. Winslow, Trustee EXHIBIT INDEX
EXHIBIT DOCUMENT - ------- -------- (d)(5) Form of Expense Limitation Agreement (i) Opinion and Consent of Counsel (j) Consent of independent registered public accounting firm
EX-99.D.5 2 l21615aexv99wdw5.txt EX-99.D.5 (d)(5) Form of EXPENSE LIMITATION AGREEMENT AGREEMENT made as of the 1st day of August 2006 by and between STI Classic Funds (the "Trust"), a Massachusetts business trust, and Trusco Capital Management Inc. (the "Adviser"). The Adviser hereby agrees to waive its fee and/or reimburse expenses to the extent necessary to limit total operating expenses for the series of the Trust (the "Funds") set forth on Schedule A to the levels set forth on Schedule A until August 1, 2007. If at any point before August 1, 2009, it becomes unnecessary for the Adviser to make reimbursements for a particular Fund, the Adviser may retain the difference between the Total Annual Fund Operating Expenses of that Fund and the applicable expense cap to recapture any of its prior reimbursements. The Trust acknowledges that the Adviser may engage in brokerage transactions using Fund assets with brokers who agree to pay a portion of the Fund's expenses, and that the Adviser's guarantee of Fund expense ratios takes into account these expenses-limiting arrangements. IN WITNESS WHEREOF, the parties hereto have caused this Expense Limitation Agreement to be executed as of the day and year first written above. STI CLASSIC FUNDS TRUSCO CAPITAL MANAGEMENT INC. By: By: --------------------------------- ------------------------------------ Title: Title: ------------------------------ --------------------------------- (d)(5) Form of EXPENSE LIMITATION AGREEMENT SCHEDULE A
FUND SHARE CLASS EXPENSE LIMITATION ---- ----------- ------------------ North Carolina Tax-Exempt Bond I 0.71% North Carolina Tax-Exempt Bond A 0.86% North Carolina Tax-Exempt Bond C 1.71% Seix Floating Rate High Income I 0.55% Seix Floating Rate High Income A 0.85% Virginia Intermediate Municipal Bond I 0.60% Virginia Intermediate Municipal Bond A 0.75% Virginia Intermediate Municipal Bond C 1.60% Classic Institutional Cash Management Money Market Institutional 0.17% Classic Institutional Municipal Cash Reserve Money Market Institutional 0.20% Classic Institutional U.S. Government Securities Money Market Institutional 0.20% Classic Institutional U.S. Treasury Securities Money Market Institutional 0.20% Classic Institutional U.S. Treasury Securities Money Market Corporate Trust 0.45% Life Vision Aggressive Growth I 0.20% Life Vision Aggressive Growth A 0.50% Life Vision Aggressive Growth B 0.95% Life Vision Aggressive Growth C 1.20% Life Vision Conservative Growth I 0.20% Life Vision Conservative Growth A 0.50% Life Vision Conservative Growth B 0.95% Life Vision Conservative Growth C 1.20% Life Vision Growth & Income I 0.20% Life Vision Growth & Income A 0.50% Life Vision Growth & Income B 0.95% Life Vision Growth & Income C 1.20%
(d)(5) Form of EXPENSE LIMITATION AGREEMENT SCHEDULE A (CONTINUED)
FUND SHARE CLASS EXPENSE LIMITATION ---- ----------- ------------------ Life Vision Moderate Growth I 0.20% Life Vision Moderate Growth A 0.50% Life Vision Moderate Growth B 0.95% Life Vision Moderate Growth C 1.20% Life Vision Target Date 2015 I 0.20% Life Vision Target Date 2015 A 0.50% Life Vision Target Date 2015 C 1.20% Life Vision Target Date 2025 I 0.20% Life Vision Target Date 2025 A 0.50% Life Vision Target Date 2025 C 1.20% Life Vision Target Date 2035 I 0.20% Life Vision Target Date 2035 A 0.50% Life Vision Target Date 2035 C 1.20%
EX-99.I 3 l21615aexv99wi.txt EX-99.I (I) Morgan, Lewis & Bockius LLP 1111 Pennsylvania Avenue NW Washington, DC 20004 July 31, 2006 STI Classic Funds 101 Federal Street Boston, MA 02110 Re: Opinion of Counsel Regarding Post-Effective Amendment No. 65 to the ------------------------------------------------------------------- Registration Statement Filed on Form N-1A Under the Securities Act of 1933 -------------------------------------------------------------------------- (File No. 033-45671) -------------------- Ladies and Gentlemen: We have acted as counsel to the STI Classic Funds (the "Trust"), a Massachusetts business trust, in connection with the above-referenced registration statement on Form N-1A (as amended, the "Registration Statement"), which relates to the Trust's shares of beneficial interest, without par value (collectively, the "Shares"). This opinion is being delivered to you in connection with the Trust's filing of Post-Effective Amendment No. 65 to the Registration Statement (the "Amendment") to be filed with the U.S. Securities and Exchange Commission (the "SEC") pursuant to Rule 485(b) under the Securities Act of 1933 (the "1933 Act"). With your permission, all assumptions and statements of reliance herein have been made without any independent investigation or verification on our part except to the extent otherwise expressly stated, and we express no opinion with respect to the subject matter or accuracy of such assumptions or items relied upon. In connection with this opinion, we have reviewed, among other things, copies of the following documents: (a) a certificate of the Commonwealth of Massachusetts as to the existence of the Trust, which is duly authorized and validly existing under the laws of the Commonwealth of Massachusetts; (b) copies of the Trust's Agreement and Declaration of Trust and of all amendments and all supplements thereto (the "Declaration of Trust"); (c) a certificate executed by Cynthia Surprise, the Secretary of the Trust, certifying to and attaching copies of the Trust's Declaration of Trust and Amended and Restated By-Laws (the "By-Laws"), and certain resolutions STI Classic Funds July 31, 2006 Page 2 adopted by the Board of Trustees of the Trust authorizing the issuance of the Shares; and (d) a printer's proof of the Amendment. In our capacity as counsel to the Trust, we have examined the originals, or certified, conformed or reproduced copies, of all records, agreements, instruments and documents as we have deemed relevant or necessary as the basis for the opinion hereinafter expressed. In all such examinations, we have assumed the legal capacity of all natural persons executing documents, the genuineness of all signatures, the authenticity of all original or certified copies, and the conformity to original or certified copies of all copies submitted to us as conformed or reproduced copies. As to various questions of fact relevant to such opinion, we have relied upon, and assume the accuracy of, certificates and oral or written statements of public officials and officers or representatives of the Trust. We have assumed that the Amendment, as filed with the SEC, will be in substantially the form of the printer's proof referred to in paragraph (d) above. Based upon, and subject to, the limitations set forth herein, we are of the opinion that the Shares, when issued and sold in accordance with the Trust's Declaration of Trust and By-Laws, and for the consideration described in the Registration Statement, will be legally issued, fully paid and non-assessable under the laws of the Commonwealth of Massachusetts. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement. In giving this consent, we do not concede that we are in the category of persons whose consent is required under Section 7 of the 1933 Act. Very truly yours, Morgan, Lewis & Bockius LLP EX-99.J 4 l21615aexv99wj.txt EX-99.J (J) CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We hereby consent to the incorporation by reference in this Registration Statement on Form N-1A of our report dated May 25, 2006, relating to the financial statements and financial highlights which appears in the March 31, 2006 Annual Report to Shareholders of STI Classic Funds, which is also incorporated by reference into the Registration Statement. We also consent to the references to us under the headings "Financial Highlights", "Independent Registered Public Accounting Firm" and "Financial Statements" in such Registration Statement. PricewaterhouseCoopers Philadelphia, Pennsylvania July 28, 2006 -----END PRIVACY-ENHANCED MESSAGE-----