-----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, LSOtmgleyjN68uvhIY+L4VOVic+b6XtpYUAF0fAAf4sWVrLqIM+/6nSKDib+fo8C MmAdaBuZLcAD44u4xOZdMQ== 0000950152-07-004809.txt : 20070530 0000950152-07-004809.hdr.sgml : 20070530 20070530171823 ACCESSION NUMBER: 0000950152-07-004809 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 20070530 DATE AS OF CHANGE: 20070530 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: 485APOS SEC ACT: 1933 Act SEC FILE NUMBER: 033-45671 FILM NUMBER: 07888402 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: 485APOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-06557 FILM NUMBER: 07888403 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 S000004658 STI Classic Capital Appreciation Fund C000012678 A Shares STCIX C000012679 C Shares STCFX 0000883939 S000004660 STI Classic Large Cap Relative Value Fund C000012686 A Shares CFVIX C000012687 C Shares CVIBX 0000883939 S000004661 STI Classic International Equity Fund C000012689 A Shares SCIIX C000012690 C Shares SIEFX 0000883939 S000004662 STI Classic International Equity Index Fund C000012692 A Shares SIIIX C000012693 C Shares SIIFX 0000883939 S000004663 STI Classic Mid-Cap Equity Fund C000012695 A Shares SCAIX C000012696 C Shares SCMEX 0000883939 S000004664 STI Classic Mid-Cap Value Equity Fund C000012698 A Shares SAMVX C000012699 C Shares SMVFX 0000883939 S000004665 STI Classic Small Cap Growth Stock Fund C000012701 A Shares SCGIX C000012702 C Shares SSCFX 0000883939 S000004666 STI Classic Small Cap Value Equity Fund C000012704 A Shares SASVX C000012705 C Shares STCEX 0000883939 S000004667 STI Classic Large Cap Quantitative Equity Fund C000012707 A Shares SQEAX C000012708 C Shares SQELX 0000883939 S000004668 STI Classic Select Large Cap Growth Stock Fund C000012710 A Shares SXSAX C000012711 C Shares STTFX 0000883939 S000004669 STI Classic Large Cap Value Equity Fund C000012713 A Shares SVIIX C000012714 C Shares SVIFX 0000883939 S000004673 STI Classic Aggressive Growth Stock Fund C000012728 A Shares SAGAX C000012729 C Shares SAGLX 0000883939 S000004674 STI Classic Emerging Growth Stock Fund C000012731 A Shares SCEAX C000012732 C Shares SEGLX 0000883939 S000004675 STI Classic U.S. Government Securities Ultra-Short Bond Fund C000012734 I Shares SIGVX 0000883939 S000004677 STI Classic Ultra-Short Bond Fund C000012736 I Shares SISSX 0000883939 S000004679 STI Classic High Grade Municipal Bond Fund C000012738 A Shares SFLTX C000012739 C Shares SCFEX 0000883939 S000004680 STI Classic Georgia Tax-Exempt Bond Fund C000012741 A Shares SGTEX C000012742 C Shares SCGTX 0000883939 S000004681 STI Classic High Income Fund C000012744 A Shares SAHIX C000012745 C Shares STHIX 0000883939 S000004692 STI Classic Investment Grade Bond Fund C000012757 A Shares STGIX C000012758 C Shares SCIGX 0000883939 S000004693 STI Classic Investment Grade Tax-Exempt Bond Fund C000012760 A Shares SISIX C000012761 C Shares SCITX 0000883939 S000004694 STI Classic Limited-Term Federal Mortgage Securities Fund C000012763 A Shares SLTMX C000012764 C Shares SCLFX 0000883939 S000004695 STI Classic Maryland Municipal Bond Fund C000012766 A Shares SMMAX C000012767 C Shares CMDBX 0000883939 S000004696 STI Classic North Carolina Tax-Exempt Bond Fund C000012769 A Shares SNCIX C000012770 C Shares SNCLX 0000883939 S000004697 STI Classic Short-Term Bond Fund C000012772 A Shares STSBX C000012773 C Shares SCBSX 0000883939 S000004698 STI Classic Short-Term U.S. Treasury Securities Fund C000012775 A Shares STSFX C000012776 C Shares SSUSX 0000883939 S000004699 STI Classic Strategic Income Fund C000012778 A Shares SAINX C000012779 C Shares STIFX 0000883939 S000004700 STI Classic U.S. Government Securities Fund C000012781 A Shares SCUSX C000012782 C Shares SGUSX 0000883939 S000004701 STI Classic Virginia Intermediate Municipal Bond Fund C000012784 A Shares CVIAX C000012785 C Shares SVILX 0000883939 S000004723 STI Total Return Bond Fund C000012868 A Shares CBPSX C000012869 C Shares SCBLX 0000883939 S000004724 STI Classic Intermediate Bond Fund C000012871 A Shares IBASX C000012872 C Shares IBLSX 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 0000883939 S000004727 STI Classic Tax-Exempt Money Market Fund C000012878 A Shares SEIXX 0000883939 S000004728 STI Classic U.S. Government Securities Money Market Fund C000012880 A Shares SUIXX 0000883939 S000004729 STI Classic U.S. Treasury Money Market Fund C000012882 A Shares SATXX 0000883939 S000004730 STI Classic Virginia Tax-Free Money Market Fund C000012884 A Shares CIAXX 0000883939 S000004733 STI Classic Institutional U.S. Treasury Securities Money Market Fund C000012888 Corporate Trust Shares 0000883939 S000004735 STI Classic Life Vision Aggressive Growth Fund C000012891 A Shares SLAAX C000012894 C Shares CLVLX 0000883939 S000004736 STI Classic Life Vision Conservative Fund C000012895 A Shares SVCAX C000012898 C Shares SCCLX 0000883939 S000004737 STI Classic Life Vision Growth and Income Fund C000012899 A Shares SGIAX C000012902 C Shares SGILX 0000883939 S000004738 STI Classic Life Vision Moderate Growth Fund C000012903 A Shares SVMAX C000012906 C Shares SVGLX 0000883939 S000004739 STI Classic Life Vision Target Date 2015 Fund C000012907 A Shares LVFAX C000012908 C Shares LVFCX 0000883939 S000004740 STI Classic Life Vision Target Date 2025 Fund C000012910 A Shares LVTAX C000012911 C Shares LVTCX 0000883939 S000004741 STI Classic Life Vision Target Date 2035 Fund C000012913 A Shares LVRAX C000012914 C Shares LVRCX 0000883939 S000004750 Seix High Yield Fund C000012926 A Shares HYPSX C000012927 C Shares HYLSX 0000883939 S000011297 Seix Floating Rate High Income Fund C000031119 A Shares SFRAX C000031120 C Shares 0000883939 S000011298 STI Classic Small Cap Quantitative Equity Fund C000031122 A Shares SCQAX C000031123 C Shares SCQEX 485APOS 1 l26347ae485apos.txt STI CLASSIC FUNDS 485APOS AS FILED WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION ON MAY 30, 2007 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. 67 [X] AND REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ] AMENDMENT NO. 69 [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) [ ] On [date] pursuant to paragraph (b) [ ] 60 days after filing pursuant to paragraph (a)(1) [X] On July 30, 2007 pursuant to paragraph (a)(1) [ ] 75 days after filing pursuant to paragraph (a)(2) [ ] On [date] pursuant to paragraph (a)(2) of Rule 485 STI CLASSIC FUNDS A SHARES C SHARES PROSPECTUS STI CLASSIC EQUITY FUNDS Aggressive Growth Stock Fund Emerging Growth Stock Fund International Equity Fund International Equity Index Fund Large Cap Core Equity Fund (formerly, Large Cap Relative Value Fund) Large Cap Growth Stock Fund (formerly, Capital Appreciation Fund) Large Cap Quantitative Equity 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 Core Equity Fund Mid-Cap Value Equity Fund Select Large Cap Growth Stock Fund (formerly, 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, 2007 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 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 C SHARES - -------- -------- - Front-end sales charge - Contingent deferred sales charge - 12b-1 fees - Higher 12b-1 fees - $2,000 minimum initial investment - $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: Aggressive Growth Stock Fund [__________] Emerging Growth Stock Fund [__________] International Equity Fund [__________] International Equity Index Fund [__________] Large Cap Core Equity Fund [__________] Large Cap Growth Stock Fund [__________] Large Cap Quantitative Equity 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 Core Equity Fund [__________] Mid-Cap Value Equity Fund [__________] Select Large Cap Growth Stock Fund [__________] Small Cap Growth Stock Fund [__________] Small Cap Quantitative Equity Fund [__________] Small Cap Value Equity Fund [__________] More Information About Risk [__________] More Information About Fund Investments [__________] Information About Portfolio Holdings [__________] Investment Adviser [__________] Investment Subadviser [__________] Portfolio Managers [__________] Purchasing, Selling and Exchanging Fund Shares [__________] Market Timing Policies and Procedures [__________] Dividends and Distributions [__________]
Taxes [__________] Financial Highlights [__________] Privacy Policy [__________] How to Obtain More Information About the STI Classic Funds [__________]
August 1, 2007
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 Large Cap Growth Stock Fund A Shares 6/9/92 STCIX 784766859 Large Cap Growth Stock 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 Core Equity Fund A Shares 5/7/93 CFVIX 784766180 Large Cap Core Equity 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 Life Vision Aggressive Growth Fund A Shares 10/16/03 SLAAX 784767360 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 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 C Shares 4/6/05 SGILX 78476A744 Life Vision Moderate Growth Fund A Shares 10/10/03 SVMAX 784767345 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 Mid-Cap Core Equity Fund A Shares 1/31/94 SCAIX 784766743 Mid-Cap Core 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 Select Large Cap Growth Stock Fund A Shares 10/14/03 SXSAX 784767394 Select Large Cap 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 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 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 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 fundamental research 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. 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. 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. Because the Fund may invest in derivatives, it is exposed to additional volatility and potential loss. For further information about these and other risks, see "More Information About Risk." 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. 2005 6.85% 2006 [___]
BEST QUARTER WORST QUARTER - ----------------- ----------------- [_____] [_____] [_____] [_____]
* The performance information above is based on a calendar year. The Fund's total return from 1/1/07 to 6/30/07 was [___]%. AVERAGE ANNUAL TOTAL RETURNS This table compares the Fund's average annual total returns for the periods ended December 31, 2006 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.
A SHARES 1 YEAR SINCE INCEPTION* - -------- ------ ----------------- Fund Returns Before Taxes [____] [____] Fund Returns After Taxes on Distributions [____] [____] Fund Returns After Taxes on Distributions and Sale of Fund Shares [____] [____] Russell 3000(R) Growth Index (reflects no deduction for fees, expenses or taxes) [____] [____]
C SHARES* 1 YEAR SINCE INCEPTION** - --------- ------ ----------------- Fund Returns Before Taxes [____] [____] Russell 3000(R) Growth Index (reflects no deduction for fees, expenses or taxes) [____] [____]
* 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). 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. 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%
* 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." ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
A Shares C Shares -------- -------- Investment Advisory Fees 1.10% 1.10% Distribution and Service (12b-1) Fees 0.30%(1) 1.00% Other Expenses [____] [____] -------- -------- Total Annual Operating Expenses(2) [____] [____]
(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) 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 [____] [_____] [_____] [______] C Shares [____] [_____] [_____] [______]
If you do not sell your shares at the end of the period:
1 Year 3 Years 5 Years 10 Years ------ ------- ------- -------- A Shares [____] [_____] [_____] [______] C Shares [____] [_____] [_____] [______]
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 [_____], the table below reflects the Fund's results calculated without sales charges.
A Shares 1 Year Since Inception* - -------- ------ ---------------- Fund Returns Before Taxes [____] [____] Fund Returns After Taxes on Distributions [____] [____] Fund Returns After Taxes on Distributions and Sale of Fund Shares [____] [____] Russell 3000(R) Growth Index (reflects no deduction for fees, expenses or taxes) [____] [____]
* 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). EMERGING GROWTH STOCK FUND 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 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 fundamental research 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. 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. 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. Because the Fund may invest in derivatives, it is exposed to additional volatility and potential loss. For further information about these and other risks, see "More Information About Risk." 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. 2005 14.85% 2006 [___]
BEST QUARTER WORST QUARTER - ----------------- ----------------- [_____] [_____] [_____] [_____]
* The performance information above is based on a calendar year. The Fund's total return from 1/1/07 to 6/30/07 was [_____]%. AVERAGE ANNUAL TOTAL RETURNS This table compares the Fund's average annual total returns for the periods ended December 31, 2006 to those of the Russell Mid-Cap(R) Growth Index. These returns reflect applicable sales charges and assume shareholders redeem all of their shares at the end of the period indicated.
A Shares 1 Year Since Inception* - -------- ------ ---------------- Fund Returns Before Taxes [____] [____] Fund Returns After Taxes on Distributions [____] [____] Fund Returns After Taxes on Distributions and Sale of Fund Shares [____] [____] Russell Mid-Cap(R) Growth Index (reflects no deduction for fees, expenses or taxes) [____] [____]
* Since inception of the A Shares on February 23, 2004.
C Shares 1 Year Since Inception* - -------- ------ ---------------- Fund Returns Before Taxes [____] [____] Russell Mid-Cap(R) Growth Index (reflects no deduction for fees, expenses or taxes) [____] [____]
* Since inception of the C Shares on February 27, 2004. 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 Mid-Cap(R) Growth Index measures the performance of those companies in the Russell universe with higher price-to-book ratios and higher forecasted growth values. 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%
* 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." ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
A Shares C Shares -------- -------- Investment Advisory Fees 1.10% 1.10% Distribution and Service (12b-1) Fees 0.30%(1) 1.00% Other Expenses [__] [__] ---- ---- Total Annual Operating Expenses(2) [__] [__]
(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 0.35% 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) 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 [____] [_____] [_____] [______] C Shares [____] [_____] [_____] [______]
If you do not sell your shares at the end of the period:
1 Year 3 Years 5 Years 10 Years ------ ------- ------- -------- A Shares [____] [_____] [_____] [______] C Shares [____] [_____] [_____] [______]
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 [__________], the table below reflects the Fund's results calculated without sales charges.
A Shares 1 Year Since Inception* - -------- ------ ---------------- Fund Returns Before Taxes [____] [____] Fund Returns Before Taxes [____] [____] Fund Returns After Taxes on Distributions [____] [____] Fund Returns After Taxes on Distributions and Sale of Fund Shares [____] [____] Russell Mid-Cap(R) Growth Index (reflects no deduction for fees, expenses or taxes) [____] [____]
* Since inception of the A Shares on February 23, 2004. INTERNATIONAL EQUITY FUND 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 actively managed international stocks 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. 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. Because the Fund may invest in derivatives, it is exposed to additional volatility and potential loss. For further information about these and other risks, see "More Information About Risk." 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. 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% 2006 [____]
BEST QUARTER WORST QUARTER - ------------------- ------------------- [______] [______] [______] [______]
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/07 to 6/30/07 was [_____]%. AVERAGE ANNUAL TOTAL RETURNS This table compares the Fund's average annual total returns for the periods ended December 31, 2006, 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 [______] [______] [______] Fund Returns After Taxes on Distributions [______] [______] [______] Fund Returns After Taxes on Distributions and Sale of Fund Shares [______] [______] [______]
Morgan Stanley Capital International Europe, Australasia, and Far East (MSCI(R) EAFE(R)) Index (reflects no deduction for fees, expenses or taxes) [______] [______] [______]
C Shares* 1 Year 5 Years 10 Years - --------- -------- -------- -------- Fund Returns Before Taxes [______] [______] [______] Morgan Stanley Capital International Europe, Australasia, and Far East (MSCI(R) EAFE(R)) Index (reflects no deduction for fees, expenses or taxes) [______] [______] [______]
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. 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%
* 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." ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
A Shares C Shares -------- -------- Investment Advisory Fees 1.13% 1.13% Distribution and Service (12b-1) Fees 0.30%(1) 1.00% Other Expenses [______] [______] ------ -------
Total Annual Operating Expenses(2) [______] [______]
(1) 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. (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 [______] [______] [______] [______] C Shares [______] [______] [______] [______]
If you do not sell your shares at the end of the period:
1 Year 3 Years 5 Years 10 Years -------- -------- -------- -------- A Shares [______] [______] [______] [______] C Shares [______] [______] [______] [______]
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 [______], the table below reflects the Fund's results calculated without sales charges.
A Shares 1 Year 5 Years 10 Years - -------- -------- -------- -------- Fund Returns Before Taxes [______] [______] [______] Fund Returns After Taxes on Distributions [______] [______] [______] Fund Returns After Taxes on Distributions and Sale of Fund Shares [______] [______] [______]
Morgan Stanley Capital International Europe, Australasia, and Far East (MSCI(R) EAFE(R)) Index (reflects no deduction for fees, expenses or taxes) [______] [______] [______]
INTERNATIONAL EQUITY INDEX FUND 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 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 passively managed international stocks 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. 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. 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. Because the Fund may invest in derivatives, it is exposed to additional volatility and potential loss. For further information about these and other risks, see "More Information About Risk." 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. 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% 2006 [____]
BEST QUARTER WORST QUARTER - ------------------- ------------------- [______] [______] [______] [______]
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/07 to 6/30/07 was [____]%. AVERAGE ANNUAL TOTAL RETURNS This table compares the Fund's average annual total returns for the periods ended December 31, 2006, 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 [______] [______] [______]
Fund Returns After Taxes on Distributions [______] [______] [______] Fund Returns After Taxes on Distributions and Sale of Fund Shares [______] [______] [______] MSCI(R) EAFE(R)GDP Weighted Index (Price Return) (reflects no deduction for fees, expenses or taxes) [______] [______] [______]
C Shares* 1 Year 5 Years 10 Years - --------- -------- -------- -------- Fund Returns Before Taxes [______] [______] [______] MSCI(R) EAFE(R) GDP Weighted Index (Price Return) (reflects no deduction for fees, expenses or taxes) [______] [______] [______]
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. 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%
* 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." ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
A Shares C Shares -------- -------- Investment Advisory Fees 0.50% 0.50% Distribution and Service (12b-1) Fees 0.30%(1) 1.00% Other Expenses [____] [____] ------ ------ Total Annual Operating Expenses(2) [____] [____]
(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) 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 [______] [______] [______] [______] C Shares [______] [______] [______] [______]
If you do not sell your shares at the end of the period:
1 Year 3 Years 5 Years 10 Years -------- -------- -------- -------- A Shares [______] [______] [______] [______] C Shares [______] [______] [______] [______]
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 [______], the table below reflects the Fund's results calculated without sales charges.
A Shares* 1 Year 5 Years 10 Years - --------- -------- -------- -------- Fund Returns Before Taxes [______] [______] [______] Fund Returns After Taxes on Distributions [______] [______] [______]
Fund Returns After Taxes on Distributions and Sale of Fund Shares [______] [______] [______] MSCI(R) EAFE(R)GDP Weighted Index (Price Return) (reflects no deduction for fees, expenses or taxes) [______] [______] [______]
LARGE CAP CORE EQUITY FUND 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 INVESTMENT STRATEGY Under normal circumstances, the Large Cap Core 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 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. 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. 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. 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. Because the Fund may invest in derivatives, it is exposed to additional volatility and potential loss. For further information about these and other risks, see "More Information About Risk." 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. 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% 2006 [______]%
BEST QUARTER WORST QUARTER - ------------------- ------------------- [______] [______] [______] [______]
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/07 to 6/30/07 was [______]%. AVERAGE ANNUAL TOTAL RETURNS This table compares the Fund's average annual total returns for the periods ended December 31, 2006, to those of the S&P 500(R) Index and the Russell 1000(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 A Shares. After-tax returns for other classes will vary.
A Shares 1 Year 5 Years 10 Years - -------- -------- -------- -------- Fund Returns Before Taxes [______] [______] [______] Fund Returns After Taxes on Distributions [______] [______] [______] Fund Returns After Taxes on Distributions and Sale of Fund Shares [______] [______] [______] S&P 500(R) Index (reflects no deduction for fees, expenses or taxes)* [______] [______] [______] Russell 1000(R) Value Index (reflects no deduction for fees, expenses or taxes) [______] [______] [______]
* Effective May 31, 2007, the Fund's primary and secondary benchmarks transitioned so that the S&P 500(R) Index is the Fund's primary benchmark and the Russell 1000(R) Value Index is the Fund's secondary benchmark to better reflect the current and ongoing investment style of the Fund.
C Shares 1 Year 5 Years 10 Years - -------- -------- -------- -------- Fund Returns Before Taxes [______] [______] [______] S&P 500(R) Index (reflects no deduction for fees, expenses or taxes)* [______] [______] [______] Russell 1000(R) Value Index (reflects no deduction for fees, expenses or taxes) [______] [______] [______]
* Effective May 31, 2007, the Fund's primary and secondary benchmarks transitioned so that the S&P 500(R) Index is the Fund's primary benchmark and the Russell 1000(R) Value Index is the Fund's secondary benchmark to better reflect the current and ongoing investment style of the Fund. 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) 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. 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%
* 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." ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
A Shares C Shares -------- -------- Investment Advisory Fees 0.81% 0.81% Distribution and Service (12b-1) Fees 0.25% 1.00% Other Expenses [______] [______] -------- -------- Total Annual Operating Expenses(1) [______] [______]
(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. 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 [______] [______] [______] [______] C Shares [______] [______] [______] [______]
If you do not sell your shares at the end of the period:
1 Year 3 Years 5 Years 10 Years -------- -------- -------- -------- A Shares [______] [______] [______] [______] C Shares [______] [______] [______] [______]
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 [______], the table below reflects the Fund's results calculated without sales charges.
A Shares 1 Year 5 Years 10 Years - -------- -------- -------- -------- Fund Returns Before Taxes [______] [______] [______] Fund Returns After Taxes on Distributions [______] [______] [______] Fund Returns After Taxes on Distributions and Sale of Fund Shares [______] [______] [______] S&P 500(R) Index (reflects no deduction for fees, expenses or taxes)* [______] [______] [______] Russell 1000(R) Value Index (reflects no deduction for fees, expenses or taxes) [______] [______] [______]
* Effective May 31, 2007, the Fund's primary and secondary benchmarks transitioned so that the S&P 500(R) Index is the Fund's primary benchmark and the Russell 1000(R) Value Index is the Fund's secondary benchmark to better reflect the current and ongoing investment style of the Fund. LARGE CAP GROWTH STOCK FUND 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 INVESTMENT STRATEGY Under normal circumstances, the Large Cap Growth Stock 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 Adviser will seek out securities it believes have strong business fundamentals, such as revenue growth, improving cash flows, increasing margins and positive earning trends. In selecting investments for the Fund, the Adviser chooses companies that it believes have above average potential to beat expectations. The Adviser applies proprietary quantitative models to rank stocks based on improving fundamentals, valuation, capital deployment and efficiency and sentiment or behavior factors. It then performs in-depth fundamental analysis to determine the quality and sustainability of expectations to determine whether or not the company is poised to beat expectations. The Adviser uses a "bottom-up" process based on company fundamentals. Risk controls are in place to assist in maintaining a portfolio that is diversified by sector and minimizes unintended risks relative to the primary 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. 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. 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. Because the Fund may invest in derivatives, it is exposed to additional volatility and potential loss. For further information about these and other risks, see "More Information About Risk." 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. 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% 2006 [______]
BEST QUARTER WORST QUARTER - ------------------- ------------------- [______] [______] [______] [______]
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/07 to 6/30/07 was [______]%. AVERAGE ANNUAL TOTAL RETURNS This table compares the Fund's average annual total returns for the periods ended December 31, 2006, to those of the S&P 500(R) Index and the Russell 1000(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 A Shares. After-tax returns for other classes will vary.
A Shares 1 Year 5 Years 10 Years - -------- -------- -------- -------- Fund Returns Before Taxes [______] [______] [______] Fund Returns After Taxes on Distributions [______] [______] [______] Fund Returns After Taxes on Distributions and Sale of Fund Shares [______] [______] [______] Russell 1000(R) Growth Index* (reflects no deduction for fees, expenses or taxes) [______] [______] [______] S&P 500(R) Index (reflects no deduction for fees, expenses or taxes) [______] [______] [______]
* Effective May 31, 2007, the Fund transitioned its benchmark from the S&P 500(R) Index to the Russell 1000(R) Growth Index to better reflect the ongoing investment style of the Fund.
C Shares 1 Year 5 Years 10 Years - -------- -------- -------- -------- Fund Returns Before Taxes [______] [______] [______] Russell 1000(R) Growth Index* (reflects no deduction for fees, expenses or taxes) [______] [______] [______] S&P 500(R) Index (reflects no deduction for fees, expenses or taxes) [______] [______] [______]
* Effective May 31, 2007, the Fund transitioned its benchmark from the S&P 500(R) Index to the Russell 1000(R) Growth Index to better reflect the ongoing investment style of the Fund. 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) Growth Index measures the performance of those Russell 1000(R) companies with higher price-to-book ratios and higher forecasted growth values. The Russell 1000(R) Index is a comprehensive large cap index measuring the performance of the largest 1,000 U.S. incorporated companies. 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. 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%
* 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." ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
A Shares C Shares -------- -------- Investment Advisory Fees 0.92% 0.92% Distribution and Service (12b-1) Fees 0.30%(1) 1.00% Other Expenses [_____] [_____] ------- ------- Total Annual Operating Expenses(3) [_____] [_____]
(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 0.35% 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) 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 [______] [______] [______] [______] C Shares [______] [______] [______] [______]
If you do not sell your shares at the end of the period:
1 Year 3 Years 5 Years 10 Years -------- -------- -------- -------- A Shares [______] [______] [______] [______] C Shares [______] [______] [______] [______]
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 [______], the table below reflects the Fund's results calculated without sales charges.
A Shares 1 Year 5 Years 10 Years - -------- -------- -------- -------- Fund Returns Before Taxes [______] [______] [______] Fund Returns After Taxes on Distributions [______] [______] [______] Fund Returns After Taxes on Distributions and Sale of Fund Shares [______] [______] [______] Russell 1000(R) Growth Index* (reflects no deduction for fees, expenses or taxes) [______] [______] [______] S&P 500(R) Index (reflects no deduction for fees, expenses or taxes) [______] [______] [______]
* Effective May 31, 2007, the Fund transitioned its benchmark from the S&P 500(R) Index to the Russell 1000(R) Growth Index to better reflect the ongoing investment style of the Fund. LARGE CAP QUANTITATIVE EQUITY FUND FUND SUMMARY INVESTMENT GOAL Long-term capital appreciation INVESTMENT FOCUS U.S. common stocks of companies with positive fundamental and market characteristics SHARE PRICE VOLATILITY High PRINCIPAL INVESTMENT STRATEGY Attempts to identify companies with above average price appreciation potential within specific market sectors by utilizing quantitative methods, 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 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 fundamental and market factors within each sector. Those factors vary by sector. In some sectors, attractive stocks are selected based on a narrow range of factors. In other sectors, a broad range of factors may be used to identify attractive stocks. This approach is based on the philosophy that a stock selection method that evaluates multiple quantitative factors is superior to a less rigorous approach. 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. 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. Because the Fund may invest in derivatives, it is exposed to additional volatility and potential loss. For further information about these and other risks, see "More Information About Risk." 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. 2004 16.01% 2005 8.04% 2006 [______]%
BEST QUARTER WORST QUARTER - ------------------- ------------------- [______] [______] [______] [______]
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/07 to 6/30/07 was [______]%. AVERAGE ANNUAL TOTAL RETURNS This table compares the Fund's average annual total returns for the periods ended December 31, 2006, 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 Since Inception* - -------- -------- ---------------- Fund Returns Before Taxes [______] [______] Fund Returns After Taxes on Distributions [______] [______] Fund Returns After Taxes on Distributions and Sale of Fund Shares [______] [______] S&P 500 (R) Index (reflects no deduction for fees, expenses or taxes) [______] [______]
* 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).
C Shares 1 Year Since Inception* - -------- -------- ---------------- Fund Returns Before Taxes [______] [______] S&P 500 (R) Index (reflects no deduction for fees, expenses or taxes) [______] [______]
* 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). 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. 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%
* 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." ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
A Shares C Shares -------- -------- Investment Advisory Fees 0.85% 0.85% Distribution and Service (12b-1) Fees 0.25% 1.00% Other Expenses [______] [______] -------- -------- Total Annual Operating Expenses(1) [______] [______]
(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. 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 [______] [______] [______] [______] C Shares [______] [______] [______] [______]
If you do not sell your shares at the end of the period:
1 Year 3 Years 5 Years 10 Years -------- -------- -------- -------- A Shares [______] [______] [______] [______] C Shares [______] [______] [______] [______]
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 [______], the table below reflects the Fund's results calculated without sales charges.
A Shares 1 Year Since Inception* - -------- -------- ---------------- Fund Returns Before Taxes [______] [______] Fund Returns After Taxes on Distributions [______] [______] Fund Returns After Taxes on Distributions and Sale of Fund Shares [______] [______] S&P 500 (R) Index (reflects no deduction for fees, expenses or taxes) [______] [______]
* 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 VALUE EQUITY FUND 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 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 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 cause an upward re-rating of the stock's valuation. Additionally, all common stocks purchased for the Fund are required to pay cash dividends. 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. 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. Because the Fund may invest in derivatives, it is exposed to additional volatility and potential loss. For further information about these and other risks, see "More Information About Risk." 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. 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. 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% 2006 [_____]%
BEST QUARTER WORST QUARTER - ------------------- ------------------- [______] [______] [______] [______]
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/07 to 6/30/07 was [______]%. AVERAGE ANNUAL TOTAL RETURNS This table compares the Fund's average annual total returns for the periods ended December 31, 2006, to those of the Russell 1000(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 A Shares. After-tax returns for other classes will vary.
A Shares 1 Year 5 Years 10 Years - -------- -------- -------- -------- Fund Returns Before Taxes [______] [______] [______] Fund Returns After Taxes on Distributions [______] [______] [______] Fund Returns After Taxes on Distributions and Sale of Fund Shares [______] [______] [______] Russell 1000(R) Value Index (reflects no deduction for fees, expenses or taxes) [______] [______] [______]
C Shares* 1 Year 5 Years 10 Years - --------- -------- -------- -------- Fund Returns Before Taxes [______] [______] [______] Russell 1000(R) Value Index (reflects no deduction for fees, expenses or taxes) [______] [______] [______]
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. 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%
* 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." ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
A Shares C Shares -------- -------- Investment Advisory Fees 0.78% 0.78% Distribution and Service (12b-1) Fees 0.30%(1) 1.00% Other Expenses [______] [______] -------- -------- Total Annual Operating Expenses(2) [______] [______]
(1) 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. (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 [______] [______] [______] [______] C Shares [______] [______] [______] [______]
If you do not sell your shares at the end of the period:
1 Year 3 Years 5 Years 10 Years -------- -------- -------- -------- A Shares [______] [______] [______] [______] C Shares [______] [______] [______] [______]
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 [______], the table below reflects the Fund's results calculated without sales charges.
A Shares 1 Year 5 Years 10 Years - -------- -------- -------- -------- Fund Returns Before Taxes [______] [______] [______] Fund Returns After Taxes on Distributions [______] [______] [______] Fund Returns After Taxes on Distributions and Sale of Fund Shares [______] [______] [______] Russell 1000(R) Value Index (reflects no deduction for fees, expenses or taxes) [______] [______] [______]
LIFE VISION AGGRESSIVE GROWTH FUND FUND SUMMARY 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 and exchange traded funds (together, "Underlying 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 INVESTMENT STRATEGY Under normal circumstances, the Life Vision Aggressive Growth Fund invests at least 80% of its assets in Underlying 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, short-term paper. In selecting a diversified portfolio of Underlying Funds, the Adviser analyzes many factors, including the Underlying Funds' investment objectives, total return, volatility and expenses. The Fund currently plans to invest in shares of the following Underlying Funds within the percentage ranges indicated:
INVESTMENT RANGE (PERCENTAGE OF THE LIFE VISION AGGRESSIVE ASSET CLASS GROWTH FUND'S ASSETS) - ----------- ----------------------- EQUITY FUNDS 80-100% Emerging Growth Stock Fund International Equity Fund International Equity Index Fund Large Cap Core Equity Fund Large Cap Growth Stock Fund Large Cap Quantitative Equity Fund Large Cap Value Equity Fund Mid-Cap Core Equity Fund Mid-Cap Value Equity Fund Select Large Cap Growth Stock Fund Small Cap Growth Stock Fund Small Cap Quantitative Equity Fund Small Cap Value Equity Fund ETFs MONEY MARKET FUND 0-20% Prime Quality Money Market Fund
Other Underlying Funds may be utilized. Because companies tend to shift in relative attractiveness, the Fund holds Underlying 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. 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 Funds and the allocation of the Fund's assets among them. Since it purchases Underlying Funds that invest in equities, 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 Underlying 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 Fund will vary depending upon how the assets are allocated among the Underlying Funds. 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. Because the Underlying Funds may invest in derivatives, the Fund is exposed to additional volatility and potential loss. For further information about these and other risks, see "More Information About Risk." 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. 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. 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% 2006 [_____]%
BEST QUARTER WORST QUARTER - ----------------- ----------------- [_____] [_____] [_____] [_____]
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/07 to 6/30/07 was [_____]%. AVERAGE ANNUAL TOTAL RETURNS This table compares the average annual total returns of the Fund's shares for the periods ended December 31, 2006, 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 [_____] [_____] [_____] [_____] Fund Returns After Taxes on Distributions [_____] [_____] [_____] [_____]+
Fund Returns After Taxes on Distributions and Sale of Fund Shares [_____] [_____] [_____] [_____]+ Hybrid 90/10 Blend of the Following Market Benchmarks (reflects no deduction for fees, expenses or taxes) [_____] [_____] [_____] [_____] S&P 500(R) Index (reflects no deduction for fees, expenses or taxes) [_____] [_____] [_____] [_____] Citigroup 3-Month Treasury Bill Index (reflects no deduction for fees, expenses or taxes) [_____] [_____] [_____] [_____]
* 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. 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. FUND FEES AND EXPENSES This table describes the fees and expenses that you may pay if you buy and hold Fund shares. 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)* None Maximum Deferred Sales Charge (as a percentage of net asset value)** None
* 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." 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 [_____] [_____] Acquired Fund Fees and Expenses(2) [_____] [_____] ------- ------- Total Annual Operating Expenses(3) [_____] [_____]
(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) In addition to the Fund's direct expenses, the Fund indirectly bears a pro-rata share of the expenses of the underlying Funds in which it invests. These acquired fund fees and expenses are not included in the Financial Highlights section of this Prospectus, which reflects only the operating expenses of each Fund. (3) The Adviser has contractually agreed to waive fees and reimburse expenses until at least August 1, 2009 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, 2010, 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, 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 [_____] [_____] [_____] [_____] C Shares [_____] [_____] [_____] [_____]
* Without waivers and reimbursements, Year 1 costs would be: A Shares [_____] C Shares [_____]
If you do not sell your shares at the end of the period:
1 Year* 3 Years 5 Years 10 Years ------- ------- ------- -------- A Shares [_____] [_____] [_____] [_____] C Shares [_____] [_____] [_____] [_____]
* Without waivers and reimbursements, Year 1 costs would be: A Shares [_____] C Shares [_____]
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 [_____] 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 [_____] [_____] [_____] [_____] Fund Returns After Taxes on Distributions [_____] [_____] [_____] [_____]+ Fund Returns After Taxes on Distributions and Sale of Fund Shares [_____] [_____] [_____] [_____]+ Hybrid 90/10 Blend of the Following Market Benchmarks (reflects no deduction for fees, expenses or taxes) [_____] [_____] [_____] [_____] S&P 500(R) Index (reflects no deduction for fees, expenses or taxes) [_____] [_____] [_____] [_____] Citigroup 3-Month Treasury Bill Index (reflects no deduction for fees, expenses or taxes) [_____] [_____] [_____] [_____]
* 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 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 exchange traded funds ("ETFs") that invest in bonds (together, "Underlying Bond Funds"), and to a lesser extent, STI Classic Equity Funds and ETFs that invest in equities (together, "Underlying 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 INVESTMENT STRATEGY The Life Vision Conservative Fund invests primarily in Underlying Bond Funds, but may invest up to 35% of the Fund's assets in Underlying Equity Funds. 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, short-term paper. In selecting a diversified portfolio of Underlying Bond and Equity Funds (together, "Underlying Funds"), the Adviser analyzes many factors, including the Underlying Funds' investment objectives, total return, volatility and expenses. The Fund currently plans to invest in shares of the following Underlying Funds within the percentage ranges indicated:
INVESTMENT RANGE (PERCENTAGE OF THE LIFE VISION CONSERVATIVE ASSET CLASS FUND'S ASSETS) - ----------- ------------------------ BOND FUNDS 60-100% High Income Fund Intermediate Bond Fund Investment Grade Bond Fund Limited Duration 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 ETFs
INVESTMENT RANGE (PERCENTAGE OF THE LIFE VISION CONSERVATIVE ASSET CLASS FUND'S ASSETS) - ----------- ------------------------ EQUITY FUNDS 20-40% Aggressive Growth Stock Fund Emerging Growth Stock Fund International Equity Fund International Equity Index Fund Large Cap Core Equity Fund Large Cap Growth Stock Fund Large Cap Quantitative Equity Fund Large Cap Value Equity Fund Mid-Cap Core Equity Fund Mid-Cap Value Equity Fund Select Large Cap Growth Stock Fund Small Cap Growth Stock Fund Small Cap Quantitative Equity Fund Small Cap Value Equity Fund ETFs MONEY MARKET FUND 0-20% Prime Quality Money Market Fund
Other Underlying Funds may be utilized. Because securities tend to shift in relative attractiveness, the Fund holds Underlying 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, 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. 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 Funds and the allocation of the Fund's assets among them. The prices of an Underlying Bond 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 Bond 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 Underlying 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 Equity 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 Funds. 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. Because the Underlying Funds may invest in derivatives, the Fund is exposed to additional volatility and potential loss. For further information about these and other risks, see "More Information About Risk." 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 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. 2004 5.71% 2005 2.87% 2006 [_____]%
BEST QUARTER WORST QUARTER - ----------------- ----------------- [_____] [_____] [_____] [_____]
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/07 to 6/30/07 was [_____]%. AVERAGE ANNUAL TOTAL RETURNS This table compares the average annual total return for the Fund's shares for the periods ended December 31, 2006, 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 [_____] [_____] Fund Returns After Taxes on Distributions [_____] [_____] Fund Returns After Taxes on Distributions and Sale of Fund Shares [_____] [_____] Hybrid 70/20/10 Blend of the Following Market Benchmarks (reflects no deduction for fees, expenses or taxes) [_____] [_____]
Lehman Brothers U.S. Aggregate Index [_____] [_____] S&P 500 Index [_____] [_____] Citigroup 3-Month Treasury Bill Index [_____] [_____]
* 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). 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. FUND FEES AND EXPENSES This table describes the fees and expenses that you may pay if you buy and hold Fund shares. 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%
* 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." 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 [_____] [_____] Acquired Fund Fees and Expenses(2) [_____] [_____] ------- ------- Total Annual Operating Expenses(3) [_____] [_____]
(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) In addition to the Fund's direct expenses, the Fund indirectly bears a pro-rata share of the expenses of the underlying Funds in which it invests. These acquired fund fees and expenses are not included in the Financial Highlights section of this Prospectus, which reflects only the operating expenses of each Fund. (3) The Adviser has contractually agreed to waive fees and reimburse expenses until at least August 1, 2008 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, 2010, 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, 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 [_____] [_____] [_____] [_____] C Shares [_____] [_____] [_____] [_____]
* Without waivers and reimbursements, Year 1 costs would be: A Shares [_____] C Shares [_____]
If you do not sell your shares at the end of the period:
1 Year* 3 Years 5 Years 10 Years ------- ------- ------- -------- A Shares [_____] [_____] [_____] [_____] C Shares [_____] [_____] [_____] [_____]
* Without waivers and reimbursements, Year 1 costs would be: A Shares [_____] C Shares [_____]
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 [_____], the table below reflects the Fund's results calculated without sales charges.
Since A Shares 1 Year Inception* - -------- ------- ---------- Fund Returns Before Taxes [_____] [_____]
Fund Returns After Taxes on Distributions [_____] [_____] Fund Returns After Taxes on Distributions and Sale of Fund Shares [_____] [_____] Hybrid 70/20/10 Blend of the Following Market Benchmarks (reflects no deduction for fees, expenses or taxes) [_____] [_____] Lehman Brothers U.S. Aggregate Index [_____] [_____] S&P 500 Index [_____] [_____] Citigroup 3-Month Treasury Bill Index [_____] [_____]
* 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 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 exchange traded funds ("ETFs") that invest in equities (together, "Underlying Equity Funds"), and, to a lesser extent, STI Classic Bond Funds and ETFs that invest in bonds (together, "Underlying 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 INVESTMENT STRATEGY The Life Vision Growth and Income Fund invests at least 70% to 80% of its assets in Underlying Equity Funds and Underlying Bond Funds (together, "Underlying Funds"). 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, short-term paper. In selecting a diversified portfolio of Underlying Funds, the Adviser analyzes many factors, including the Underlying Funds' investment objectives, total returns, volatility and expenses. The Fund currently plans to invest in shares of the following Underlying Funds within the percentage ranges indicated:
INVESTMENT RANGE (PERCENTAGE OF THE LIFE VISION GROWTH AND ASSET CLASS INCOME FUND'S ASSETS) - ----------- ---------------------- EQUITY FUNDS 60-80% Aggressive Growth Stock Fund Emerging Growth Stock Fund International Equity Fund International Equity Index Fund Large Cap Core Equity Fund Large Cap Growth Stock Fund Large Cap Quantitative Equity Fund Large Cap Value Equity Fund Mid-Cap Core Equity Fund Mid-Cap Value Equity Fund Select Large Cap Growth Stock Fund Small Cap Growth Stock Fund Small Cap Quantitative Equity Fund Small Cap Value Equity Fund ETFs
INVESTMENT RANGE (PERCENTAGE OF THE LIFE VISION GROWTH AND ASSET CLASS INCOME FUND'S ASSETS) - ----------- ---------------------- BOND FUNDS 10-40% High Income Fund Intermediate Bond Fund Investment Grade Bond Fund Limited Duration 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 ETFs MONEY MARKET FUND 0-20% Prime Quality Money Market Fund
Other Underlying Funds may be utilized. Because securities tend to shift in relative attractiveness, the Fund holds Underlying 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. 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 Funds and the allocation of the Fund's assets among them. Since it purchases Underlying 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 Equity Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The prices of an Underlying Bond 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 Bond 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 Funds. 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. Because the Underlying Funds may invest in derivatives, the Fund is exposed to additional volatility and potential loss. For further information about these and other risks, see "More Information About Risk." 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. 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. 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% 2006 [_____]%
BEST QUARTER WORST QUARTER - --------------- --------------- [____] [____] [____] [____]
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/07 to 6/30/07 was [____]%. AVERAGE ANNUAL TOTAL RETURNS This table compares the average annual total returns of the Fund's Shares for the periods ended December 31, 2006, 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 [_____] [_____] [_____] [_____] Fund Returns After Taxes on Distributions [_____] [_____] [_____] [_____]+ Fund Returns After Taxes on Distributions and Sale of Fund Shares [_____] [_____] [_____] [_____]+ Hybrid 65/25/10 Blend of the Following Market Benchmarks (reflects no deduction for fees, expenses or taxes) [_____] [_____] [_____] [_____] S&P 500(R) Index (reflects no deduction for fees, expenses or taxes) [_____] [_____] [_____] [_____] Lehman Brothers U.S. Aggregate Index (reflects no deduction for fees, expenses or taxes) [_____] [_____] [_____] [_____] Citigroup 3-Month Treasury Bill Index (reflects no deduction for fees, expenses or taxes) [_____] [_____] [_____] [_____]
* 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. 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. FUND FEES AND EXPENSES This table describes the fees and expenses that you may pay if you buy and hold Fund shares. 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%
* 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." 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 [_____] [_____] Acquired Fund Fees and Expenses(2) [_____] [_____] ------- ------- Total Annual Operating Expenses(3) [_____] [_____]
(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) In addition to the Fund's direct expenses, the Fund indirectly bears a pro-rata share of the expenses of the underlying Funds in which it invests. These acquired fund fees and expenses are not included in the Financial Highlights section of this Prospectus, which reflects only the operating expenses of each Fund. (3) The Adviser has contractually agreed to waive fees and reimburse expenses until at least August 1, 2008 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, 2010, 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, 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 [_____] [_____] [_____] [_____] C Shares [_____] [_____] [_____] [_____]
* Without waivers and reimbursements, Year 1 costs would be: A Shares [_____] C Shares [_____]
If you do not sell your shares at the end of the period:
1 Year* 3 Years 5 Years 10 Years ------- -------- -------- -------- A Shares [______] [______] [______] [______] C Shares [______] [______] [______] [______]
* Without waivers and reimbursements, Year 1 costs would be: A Shares [______] C Shares [______]
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 [____], 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 [______] [______] [______] [______] Fund Returns After Taxes on Distributions [______] [______] [______] [______]+ Fund Returns After Taxes on Distributions and Sale of Fund Shares [______] [______] [______] [______]+ Hybrid 65/25/10 Blend of the Following Market Benchmarks (reflects no deduction for fees, expenses or taxes) [______] [______] [______] [______] S&P 500(R) Index (reflects no deduction for fees, expenses or taxes) [______] [______] [______] [______] Lehman Brothers U.S. Aggregate Index (reflects no deduction for fees, expenses or taxes) [______] [______] [______] [______] Citigroup 3-Month Treasury Bill Index (reflects no deduction for fees, expenses or taxes) [______] [______] [______] [______]
* 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 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 Fund, STI Classic Bond Funds and exchange-traded funds ("ETFs") (together, "Underlying 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 INVESTMENT STRATEGY The Life Vision Moderate Growth Fund principally invests in Underlying 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, short-term paper. In selecting a diversified portfolio of Underlying Funds, the Adviser analyzes many factors, including the Underlying Funds' investment objectives, total returns, volatility and expenses. The Fund currently plans to invest in shares of the following Underlying Funds within the percentage ranges indicated:
INVESTMENT RANGE (PERCENTAGE OF THE LIFE VISION MODERATE ASSET CLASS GROWTH FUND'S ASSETS) - ----------- --------------------- EQUITY FUNDS Aggressive Growth Stock Fund 35-65% Emerging Growth Stock Fund International Equity Fund International Equity Index Fund Large Cap Core Equity Fund Large Cap Growth Stock Fund Large Cap Quantitative Equity Fund Large Cap Value Equity Fund Mid-Cap Core Equity Fund Mid-Cap Value Equity Fund Select Large Cap Growth Stock Fund Small Cap Growth Stock Fund Small Cap Quantitative Equity Fund Small Cap Value Equity Fund ETFs
INVESTMENT RANGE (PERCENTAGE OF THE LIFE VISION MODERATE ASSET CLASS GROWTH FUND'S ASSETS) - ----------- --------------------- BOND FUNDS 35-65% High Income Fund Intermediate Bond Fund Investment Grade Bond Fund Limited Duration 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 ETFs MONEY MARKET FUND 0-20% Prime Quality Money Market Fund
Other Underlying Funds may be utilized. Because securities tend to shift in relative attractiveness, the Fund holds Underlying 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) 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. 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 Funds and the allocation of the Fund's assets among them. Since it purchases Underlying Funds that invest in equities, 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 such an Underlying Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The prices of an Underlying 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 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 Funds. 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. Because the Underlying Funds may invest in derivatives, the Fund is exposed to additional volatility and potential loss. For further information about these and other risks, see "More Information About Risk." 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. 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. 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% 2006 [______]%
BEST QUARTER WORST QUARTER - ------------------- ------------------- [______] [______] [______] [______]
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/07 to 6/30/07 was [____]%. AVERAGE ANNUAL TOTAL RETURNS This table compares the average annual total returns of the Fund's shares for the periods ended December 31, 2006, 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 [______] [______] [______] [______]
Fund Returns After Taxes on Distributions [______] [______] [______] [______]+ Fund Returns After Taxes on Distributions and Sale of Fund Shares [______] [______] [______] [______]+ Hybrid 50/40/10 Blend of the Following Market Benchmarks (reflects no deduction for fees, expenses or taxes) [______] [______] [______] [______] S&P 500(R) Index (reflects no deduction for fees, expenses or taxes) [______] [______] [______] [______] Lehman Brothers U.S. Aggregate Index (reflects no deduction for fees, expenses or taxes) [______] [______] [______] [______] Citigroup 3-Month Treasury Bill Index (reflects no deduction for fees, expenses or taxes) [______] [______] [______] [______]
* 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. 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. FUND FEES AND EXPENSES This table describes the fees and expenses that you may pay if you buy and hold Fund shares. 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%
* 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." 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 [_____] [_____] Acquired Fund Fees and Expenses(2) [_____] [_____] ------- ------- Total Annual Operating Expenses(3) [_____] [_____]
(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) In addition to the Fund's direct expenses, the Fund indirectly bears a pro-rata share of the expenses of the underlying Funds in which it invests. These acquired fund fees and expenses are not included in the Financial Highlights section of this Prospectus, which reflects only the operating expenses of each Fund. (3) The Adviser has contractually agreed to waive fees and reimburse expenses until at least August 1, 2008 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, 2010, 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. EXAMPLE This Example is intended to help you compare the cost of investing in the Fund with 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 [______] [______] [______] [______] C Shares [______] [______] [______] [______]
If you do not sell your shares at the end of the period:
1 Year 3 Years 5 Years 10 Years ------- -------- -------- -------- A Shares [______] [______] [______] [______] C Shares [______] [______] [______] [______]
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 [____], 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 [______] [______] [______] [______] Fund Returns After Taxes on Distributions [______] [______] [______] [______]+ Fund Returns After Taxes on Distributions and Sale of Fund Shares [______] [______] [______] [______]+ Hybrid 50/40/10 Blend of the Following Market Benchmarks (reflects no deduction for fees, expenses or taxes) [______] [______] [______] [______] S&P 500(R) Index (reflects no deduction for fees, expenses or taxes) [______] [______] [______] [______] Lehman Brothers U.S. Aggregate Index (reflects no deduction for fees, expenses or taxes) [______] [______] [______] [______] Citigroup 3-Month Treasury Bill Index (reflects no deduction for fees, expenses or taxes) [______] [______] [______] [______]
* 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 FUND SUMMARY INVESTMENT GOAL High total return INVESTMENT FOCUS Equity funds, fixed income funds, index funds, money market funds and exchange-traded funds ("ETFs") (together, "Underlying Funds") SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Investing pursuant to an asset allocation strategy in a combination of Underlying Funds INVESTOR PROFILE Investors who expect to retire or require income around the year 2015 INVESTMENT STRATEGY The Life Vision Target Date 2015 Fund invests in a mix of Underlying 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 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. 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 Funds 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 Emerging Growth Stock Fund International Equity Fund International Equity Index Fund Large Cap Core Equity Fund Large Cap Growth Stock Fund Large Cap Quantitative Equity Fund Large Cap Value Equity Fund Mid-Cap Core Equity Fund Mid-Cap Value Equity Fund Select Large Cap Growth Stock Fund Small Cap Growth Stock Fund Small Cap Quantitative Equity Fund iShares Russell 2000 Value Index Fund* ETFs
BOND FUNDS 0-30% High Income Fund Intermediate Bond Fund Investment Grade Bond Fund Limited Duration 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 ETFs 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 Underlying Funds may be utilized. Due to its investment strategy, the Fund holds Underlying 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. 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 Funds and the allocation of the Fund's assets among them. Since it purchases Underlying Funds that invest in equities, 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 such an Underlying Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The prices of an Underlying 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 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 Funds. 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. To the extent that the Underlying Funds include index funds, the Fund is subject to the risk that the index fund may not be able to match the performance of its benchmark. Because the Underlying Funds may invest in derivatives, the Fund is exposed to additional volatility and potential loss. For further information about these and other risks, see "More Information About Risk." PERFORMANCE INFORMATION No performance information is included because the Fund does not have performance history for a full calendar year. FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. 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%
* 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." 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 [____] [____] Acquired Fund Fees and Expenses(2) ----- ----- Total Annual Operating Expenses(3) [____] [____]
(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) In addition to the Fund's direct expenses, the Fund indirectly bears a pro-rata share of the expenses of the underlying Funds in which it invests. These acquired fund fees and expenses are not included in the Financial Highlights section of this Prospectus, which reflects only the operating expenses of each Fund. Acquired Fund Fees and Expenses are estimated for the current fiscal year. (3) The Adviser has contractually agreed to waive fees and reimburse expenses until at least August 1, 2008 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, 2010, 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 -------- -------- A Shares [____] [____] C Shares [____] [____]
* Without waivers and reimbursements, Year 1 costs would be: A Shares [____] C Shares [____]
If you do not sell your shares at the end of the period:
1 Year* 3 Years -------- -------- A Shares [____] [____] C Shares [____] [____]
* Without waivers and reimbursements, Year 1 costs would be: A Shares [____] C Shares [____]
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 FUND SUMMARY INVESTMENT GOAL High total return INVESTMENT FOCUS Equity funds, fixed income funds, index funds, money market funds and exchange-traded funds ("ETFs") (together, "Underlying Funds") SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Investing pursuant to an asset allocation strategy in a combination of Underlying Funds INVESTOR PROFILE Investors who expect to retire or require income around the year 2025 INVESTMENT STRATEGY The Life Vision Target Date 2025 Fund invests in a mix of Underlying 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 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. 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 Funds 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 Emerging Growth Stock Fund International Equity Fund International Equity Index Fund Large Cap Core Equity Fund Large Cap Growth Stock Fund Large Cap Quantitative Equity Fund Large Cap Value Equity Fund Mid-Cap Core Equity Fund Mid-Cap Value Equity Fund Select Large Cap Growth Stock Fund Small Cap Growth Stock Fund Small Cap Quantitative Equity Fund iShares Russell 2000 Value Index Fund* ETFs
BOND FUNDS 0-20% High Income Fund Intermediate Bond Fund Investment Grade Bond Fund Limited Duration 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 ETFs 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 Underlying Funds may be utilized. Due to its investment strategy, the Fund holds Underlying 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. 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 Funds and the allocation of the Fund's assets among them. Since it purchases Underlying Funds that invest in equities, 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 such an Underlying Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The prices of an Underlying 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 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 Funds. 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. To the extent that the Underlying Funds include index funds, the Fund is subject to the risk that the index fund may not be able to match the performance of its benchmark. Because the Underlying Funds may invest in derivatives, the Fund is exposed to additional volatility and potential loss. For further information about these and other risks, see "More Information About Risk." PERFORMANCE INFORMATION No performance information is included because the Fund does not have performance history for a full calendar year. 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 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%
* 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." 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 [____] [____] Acquired Fund Fees and Expenses(2) [____] [____] ------ ------ Total Annual Operating Expenses(3) [____] [____]
(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) In addition to the Fund's direct expenses, the Fund indirectly bears a pro-rata share of the expenses of the underlying Funds in which it invests. These acquired fund fees and expenses are not included in the Financial Highlights section of this Prospectus, which reflects only the operating expenses of each Fund. (3) The Adviser has contractually agreed to waive fees and reimburse expenses until at least August 1, 2008 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, 2010, 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 [____] [____] [____] [____] C Shares [____] [____] [____] [____]
* Without waivers and reimbursements, Year 1 costs would be: A Shares [____] C Shares [____]
If you do not sell your shares at the end of the period:
1 Year* 3 Years 5 Years 10 Years ------- ------- ------- -------- A Shares [____] [____] [____] [____] C Shares [____] [____] [____] [____]
* Without waivers and reimbursements, Year 1 costs would be: A Shares [____] C Shares [____]
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 FUND SUMMARY INVESTMENT GOAL High total return INVESTMENT FOCUS Equity funds, fixed income funds, index funds, money market funds and exchange-traded funds ("ETFs") (together, "Underlying Funds") SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Investing pursuant to an asset allocation strategy in a combination of Underlying Funds INVESTOR PROFILE Investors who expect to retire or require income around the year 2035 INVESTMENT STRATEGY The Life Vision Target Date 2035 Fund invests in a mix of Underlying 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 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. 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 Funds 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 Emerging Growth Stock Fund International Equity Fund International Equity Index Fund Large Cap Quantitative Equity Fund Large Cap Value Equity Fund Large Cap Core Equity Fund Large Cap Growth Stock Fund Mid-Cap Core Equity Fund Mid-Cap Value Equity Fund Small Cap Growth Stock Fund Small Cap Quantitative Equity Fund iShares Russell 2000 Value Index Fund* ETFs
BOND FUNDS 0-10% High Income Fund Intermediate Bond Fund Investment Grade Bond Fund Limited Duration 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 ETFs 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 Underlying Funds may be utilized. Due to its investment strategy, the Fund holds Underlying 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. 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 Funds. The value of an investment in the Fund is based primarily on the performance of the Underlying Funds and the allocation of the Fund's assets among them. Since it purchases Underlying Funds that invest in equities, 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 such an Underlying Fund's securities may fluctuate drastically from day to day. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These factors contribute to price volatility, which is the principal risk of investing in the Fund. The prices of an Underlying 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 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 Funds. 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. To the extent that the Underlying Funds include index funds, the Fund is subject to the risk that the index fund may not be able to match the performance of its benchmark. Because the Underlying Funds may invest in derivatives, the Fund is exposed to additional volatility and potential loss. For further information about these and other risks, see "More Information About Risk." PERFORMANCE INFORMATION No performance information is included because the Fund does not have performance history for a full calendar year. FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. 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%
* 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." 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 [___] [___] Acquired Fund Fees and Expenses [___] [___] ----- ----- Total Annual Operating Expenses(2) [___] [___]
(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) In addition to the Fund's direct expenses, the Fund indirectly bears a pro-rata share of the expenses of the underlying Funds in which it invests. These acquired fund fees and expenses are not included in the Financial Highlights section of this Prospectus, which reflects only the operating expenses of each Fund. (3) The Adviser has contractually agreed to waive fees and reimburse expenses until at least August 1, 2008 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, 2010, 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 [_____] [_____] [_____] [_____] C Shares [_____] [_____] [_____] [_____]
* Without waivers and reimbursements, Year 1 costs would be: A Shares [_____] C Shares [_____]
If you do not sell your shares at the end of the period:
1 Year* 3 Years 5 Years 10 Years ------- ------- ------- -------- A Shares [_____] [_____] [_____] [_____] C Shares [_____] [_____] [_____] [_____]
* Without waivers and reimbursements, Year 1 costs would be: A Shares [_____] C Shares [_____]
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 CORE EQUITY FUND 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 INVESTMENT STRATEGY Under normal circumstances, the Mid-Cap Core 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 [____], 2007, the market capitalization range of companies in the Russell Midcap Index was between approximately $[____] billion and $[_____] billion. The Adviser believes that a portfolio of stocks with attractive fundamental 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 appreciation potential 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 earnings, cash flows and balance sheet measures. The Adviser utilizes fundamental research to evaluate securities for the portfolio. The Adviser believes a diversified approach to portfolio management is a critical component of the overall investment process. 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. 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. Because the Fund may invest in derivatives, it is exposed to additional volatility and potential loss. For further information about these and other risks, see "More Information About Risk." 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 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% 2006 [____]%
BEST QUARTER WORST QUARTER - --------------- --------------- [____] [____] [____] [____]
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/07 to 6/30/07 was [____]%. AVERAGE ANNUAL TOTAL RETURNS This table compares the Fund's average annual total returns for the periods ended December 31, 2006, to those of the Russell Mid-cap(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 [____] [____] [____] Fund Returns After Taxes on Distributions [____] [____] [____] Fund Returns After Taxes on Distributions and Sale of Fund Shares [____] [____] [____] Russell Mid-cap(R) Index (reflects no deduction for fees, expenses or taxes) [____] [____] [____]
C Shares 1 Year 5 Years 10 Years - -------- ------ ------- -------- Fund Returns Before Taxes [____] [____] [____] Russell Mid-cap(R) Index (reflects no deduction for fees, expenses or taxes) [____] [____] [____]
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 Mid-cap(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. 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%
* 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." ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
A Shares C Shares -------- -------- Investment Advisory Fees 1.00% 1.00% Distribution and Service (12b-1) Fees 0.30%(1) 1.00% Other Expenses [____] [____] ------ ------ Total Annual Operating Expenses(2) [____] [____]
(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) 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 [_____] [_____] [_____] [_____] C Shares [_____] [_____] [_____] [_____]
If you do not sell your shares at the end of the period:
1 Year 3 Years 5 Years 10 Years ------- ------- ------- -------- A Shares [_____] [_____] [_____] [_____] C Shares [_____] [_____] [_____] [_____]
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 [____], the table below reflects the Fund's results calculated without sales charges.
A Shares 1 Year 5 Years 10 Years - -------- ------- ------- -------- Fund Returns Before Taxes [_____] [_____] [_____] Fund Returns After Taxes on Distributions
Fund Returns After Taxes on Distributions and Sale of Fund Shares [_____] [_____] [_____] Russell Mid-cap(R) Index (reflects no deduction for fees, expenses or taxes) [_____] [_____] [_____]
MID-CAP VALUE EQUITY FUND 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 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 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 cause an upward re-rating of the stock's valuation. Additionally, all common stocks purchased for the Fund are required to pay cash dividends. 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. 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. Because the Fund may invest in derivatives, it is exposed to additional volatility and potential loss.. For further information about these and other risks, see "More Information About Risk." 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. 2002 21.78% 2003 28.75% 2004 19.37% 2005 8.67% 2005 [____]%
BEST QUARTER WORST QUARTER - -------------- --------------- [____] [____] [____] [____]
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/07 to 6/30/07 was [____]%. AVERAGE ANNUAL TOTAL RETURNS This table compares the Fund's average annual total returns for the periods ended December 31, 2006, to those of the Russell Mid-cap(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 5 Years Inception* - -------- ------ ------- ---------- Fund Returns Before Taxes [____] [____] [____] Fund Returns After Taxes on Distributions [____] [____] [____] Fund Returns After Taxes on Distributions and Sale of Fund Shares [____] [____] [____] Russell Mid-cap(R) Value Index (reflects no deduction for fees, expenses or taxes) [____] [____] [____]
* 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 5 Years Inception** - --------- ------ ------- ----------- Fund Returns Before Taxes [____] [____] [____] Russell Mid-cap(R) Value Index (reflects no deduction for fees, expenses or taxes) [____] [____] [____]
* Since inception of the C Shares on November 30, 2001. 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 Mid-cap(R) Value Index is a widely-recognized index that measures the performance of those Russell Mid-cap 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. 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%
* 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." ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
A Shares C Shares -------- -------- Investment Advisory Fees 1.00% 1.00% Distribution and Service (12b-1) Fees 0.30%(1) 1.00% Other Expenses [____] [____] ------ ------ Total Annual Operating Expenses(2) [____] [____]
(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 0.35% 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) 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 [____] [____] [____] [____] C Shares [____] [____] [____] [____]
If you do not sell your shares at the end of the period:
1 Year 3 Years 5 Years 10 Years ------ ------- ------- -------- A Shares [____] [____] [____] [____] C Shares [____] [____] [____] [____]
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 [____], the table below reflects the Fund's results calculated without sales charges.
Since A Shares 1 Year 5 Years Inception* - -------- ------ ------- ---------- Fund Returns Before Taxes [____] [____] [____] Fund Returns After Taxes on Distributions [____] [____] [____] Fund Returns After Taxes on Distributions and Sale of Fund Shares [____] [____] [____] Russell Mid-cap(R) Value Index (reflects no deduction for fees, expenses or taxes) [____] [____] [____]
* 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). SELECT LARGE CAP GROWTH STOCK FUND FUND SUMMARY INVESTMENT GOAL Long-term capital appreciation INVESTMENT FOCUS U.S. large cap common stocks with higher than average growth potential SHARE PRICE VOLATILITY Moderate PRINCIPAL INVESTMENT STRATEGY Attempts to identify large 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 INVESTMENT STRATEGY Under normal circumstances, the Select Large Cap Growth Stock 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's investment philosophy is based on the premise that a portfolio of large cap stocks of companies with strong revenue growth, earnings, cash flow trends, and strong fundamentals will provide superior returns over time. The Adviser applies proprietary quantitative models to rank stocks based on improving fundamentals, valuation, capital deployment and efficiency and sentiment or behavior factors. The Adviser then uses fundamental research to select the portfolio of stocks it believes has the best current risk/return characteristics. In selecting investments for the Fund, the Adviser seeks companies with strong current earnings, growth in revenue, improving profitability, strong balance sheet, strong current and projected business fundamentals, and reasonable valuation. The Adviser believes in executing a very disciplined and objective investment process in controlling risk through a broadly diversified portfolio. Generally, the Fund will hold 40 securities or less. 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 of 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. 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. 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. Because the Fund may invest in derivatives, it is exposed to additional volatility and potential loss. For further information about these and other risks, see "More Information About Risk." 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. 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% 2006 [____]%
BEST QUARTER WORST QUARTER - --------------- --------------- [____] [____] [____] [____]
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/07 to 6/30/07 was [____]%. AVERAGE ANNUAL TOTAL RETURNS This table compares the Fund's average annual total returns for the periods ended December 31, 2006, to those of the Russell 1000(R) Growth 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 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 [____] [____] [____] [____] Russell 1000(R) Growth Index*** (reflects no deduction for fees, expenses or taxes) [____] [____] [____] [____] S&P 500(R) Index (reflects no deduction for fees, expenses or taxes) [____] [____] [____] [____]
* 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. *** Effective February 1, 2007 the Fund transitioned its benchmark from the S&P 500(R) to the Russell 1000(R) Growth Index in accordance with a change to the Fund's principal investment strategy.
Since Inception of the Registered Mutual C Shares* 1 Year 5 Years Fund* 10 Years** --------- ------ ------- ---------- ---------- Fund Returns Before Taxes [____] [____] [____] [____] Fund Returns After Taxes on Distributions [____] [____] [____] [____]+ Fund Returns After Taxes on Distributions and Sale of Fund Shares [____] [____] [____] [____]+ Russell 1000(R) Growth Index*** (reflects no deduction for fees, expenses or taxes) [____] [____] [____] [____] S&P 500(R) Index (reflects no deduction for fees, expenses or taxes) [____] [____] [____] [____]
* 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. *** Effective February 1, 2007 the Fund transitioned its benchmark from the S&P 500(R) to the Russell 1000(R) Growth Index in accordance with a change to the Fund's principal investment strategy. 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) Growth Index measures the performance of those Russell 1000(R) companies with higher price-to-book ratios and higher forecasted growth values. The Russell 1000(R) Index is comprehensive large cap index measuring the performance of the largest 1,000 U.S. incorporated companies. 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. 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%
* 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." ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
A Shares C Shares -------- -------- Investment Advisory Fees 0.85% 0.85% Distribution and Service (12b-1) Fees 0.30%(1) 1.00% Other Expenses(2) [____] [____] ------ ------
(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 0.35% 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) 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 [____] [____] [____] [____] C Shares [____] [____] [____] [____]
If you do not sell your shares at the end of the period:
1 Year 3 Years 5 Years 10 Years ------ ------- ------- -------- A Shares [____] [____] [____] [____] C Shares [____] [____] [____] [____]
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 [____], 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 [____] [____] [____] [____] Russell 1000(R) Growth Index*** (reflects no deduction for fees, expenses or taxes) [____] [____] [____] [____] S&P 500(R) Index (reflects no deduction for fees, expenses or taxes) [____] [____] [____] [____]
* 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. *** Effective February 1, 2007 the Fund transitioned its benchmark from the S&P 500(R) to the Russell 1000(R) Growth Index in accordance with a change to the Fund's principal investment strategy. SMALL CAP GROWTH STOCK FUND 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 Attempts to identify 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 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 generally considers small cap companies to be companies with market capitalizations below $3 billion. The Adviser will seek out securities it believes have strong business fundamentals, such as revenue growth, improving cash flows, increasing margins and positive earning trends. In selecting investments for the Fund, the Adviser chooses companies that it believes have above average potential to beat expectations. The Adviser applies proprietary quantitative models to rank stocks based on improving fundamentals, valuation, capital deployment and efficiency and sentiment or behavior factors. It then performs in-depth fundamental analysis to determine the quality and sustainability of expectations to determine whether or not the company is poised to beat expectations. The Adviser uses a "bottom-up" process based on company fundamentals. Risk controls are in place to assist in maintaining a portfolio that is diversified by sector and minimizes unintended risks relative to the primary 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. 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. Because the Fund may invest in derivatives, it is exposed to additional volatility and potential loss. For further information about these and other risks, see "More Information About Risk." 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. 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. 1999 19.29% 2000 10.74% 2001 1.86% 2002 23.56% 2003 44.15% 2004 18.00% 2005 6.88% 2006 [____]%
BEST QUARTER WORST QUARTER - --------------- --------------- [____] [____] [____] [____]
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/07 to 6/30/07 was [____]%. AVERAGE ANNUAL TOTAL RETURNS This table compares the Fund's average annual total returns for the periods ended December 31, 2006, 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 Years Inception* - -------- ------ ------- ---------- Fund Returns Before Taxes [____] [____] [____] Russell 2000(R) Growth Index (reflects no deduction for fees, expenses or taxes) [____] [____] [____]
* 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 [____] [____] [____] Fund Returns After Taxes on Distributions [____] [____] [____] Fund Returns After Taxes on Distributions and Sale of Fund Shares [____] [____] [____] Russell 2000(R) Growth Index (reflects no deduction for fees, expenses or taxes) [____] [____] [____]
* 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). 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. 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%
* 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." ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
A Shares C Shares -------- -------- Investment Advisory Fees(2) 1.10% 1.10% Distribution and Service (12b-1) Fees 0.30%(1) 1.00% Other Expenses [____] [____] ------ ------ Total Annual Operating Expenses [____] [____]
(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) 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 [____] [____] [____] [____] C Shares [____] [____] [____] [____]
If you do not sell your shares at the end of the period:
1 Year 3 Years 5 Years 10 Years ------ ------- ------- -------- A Shares [____] [____] [____] [____] C Shares [____] [____] [____] [____]
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 [____], the table below reflects the Fund's results calculated without sales charges.
Since A Shares 1 Year 5 Years Inception* - -------- ------ ------- ---------- Fund Returns Before Taxes [____] [____] [____] Russell 2000(R) Growth Index (reflects no deduction for fees, expenses or taxes) [____] [____] [____]
* 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). SMALL CAP QUANTITATIVE EQUITY FUND FUND SUMMARY INVESTMENT GOAL Long-term capital appreciation INVESTMENT FOCUS U.S. common stocks of small cap companies with positive fundamental and market characteristics SHARE PRICE VOLATILITY High PRINCIPAL INVESTMENT STRATEGY Attempts to identify small cap companies with above average price appreciation potential within specific market sectors by utilizing quantitative methods 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 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 generally 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 fundamental and market factors within each sector. Those factors vary by sector. In some sectors, attractive stocks are selected based on a narrow range of factors. In other sectors, a broad range of factors may be used to identify attractive stocks. This approach is based on the philosophy that a stock selection method that evaluates multiple quantitative factors is superior to a less rigorous approach. 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. 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. Because the Fund may invest in derivatives, it is exposed to additional volatility and potential loss. For further information about these and other risks, see "More Information About Risk." PERFORMANCE INFORMATION No performance information is included because the Fund does not have performance history for a full calendar year. FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. 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%
* 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." 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 [____] [____] ------ ------ Total Annual Operating Expenses(2) [____] [____]
(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) 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 [____] [____] [____] [____] C Shares [____] [____] [____] [____]
If you do not sell your shares at the end of the period:
1 Year 3 Years 5 Years 10 Years ------ ------- ------- -------- A Shares [____] [____] [____] [____] C Shares [____] [____] [____] [____]
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 * 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." 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 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 generally 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 cause an upward re-rating of the stock's valuation. Additionally, all common stocks purchased for the Fund are required to pay cash dividends. 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. 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. Because the Fund may invest in derivatives, it is exposed to additional volatility and potential loss. For further information about these and other risks, see "More Information About Risk." 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. 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% 2006 [____]%
BEST QUARTER WORST QUARTER - --------------- --------------- [____] [____] [____] [____]
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/07 to 6/30/07 was [____]%. AVERAGE ANNUAL TOTAL RETURNS This table compares the Fund's average annual total returns for the periods ended December 31, 2006, 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 A Shares 1 Year 5 Years Mutual Fund* 10 Years** -------- ------ ------- ----------------- ---------- Fund Returns Before Taxes [____] [____] [____] [____] Russell 2000(R) Value Index (reflects no deduction for fees, expenses or taxes) [____] [____] [____] [____]
* 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 C Shares* 1 Year 5 Years Mutual Fund* 10 Years** --------- ------ ------- ----------------- ---------- Fund Returns Before Taxes [____] [____] [____] [____] Fund Returns After Taxes on Distributions [____] [____] [____] [____]+ Fund Returns After Taxes on Distributions and Sale of Fund Shares [____] [____] [____] [____]+ Russell 2000(R) Value Index (reflects no deduction for fees, expenses or taxes) [____] [____] [____] [____]
* 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. 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. 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%
* 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." ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
A Shares C Shares -------- -------- Investment Advisory Fees 1.13% 1.13% Distribution and Service (12b-1) Fees(1) 0.25% 0.25% Other Expenses [____] [____] ------ ------ Total Annual Operating Expenses(2) [____] [____]
(1) 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. (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 [____] [____] [____] [____] C Shares [____] [____] [____] [____]
If you do not sell your shares at the end of the period:
1 Year 3 Years 5 Years 10 Years ------ ------- ------- -------- A Shares [____] [____] [____] [____] C Shares [____] [____] [____] [____]
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 [____], 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 [____] [____] [____] [____] Russell 2000(R) Value Index (reflects no deduction for fees, expenses or taxes) [____] [____] [____] [____]
* 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 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 creditworthiness. 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 attempting to maintain liquidity. These positions may be established for hedging or speculation 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 premiums or totals paid or received on derivatives are small in relation to the market value of the underlying investments, buying and selling derivatives can be more speculative than investing directly in securities. In addition, many types of derivatives have limited investment lives and may expire or necessitate being sold at inopportune times. 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. To limit leveraging risk, a Fund observes asset segregation requirements to cover its obligations under derivative instruments. By setting aside assets equal only to its net obligations under certain derivative instruments, a Fund will have the ability to employ leverage to a greater extent than if it were required to segregate assets equal to the full notional value of such derivative instruments. EMERGING MARKETS RISK 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, 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"). 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 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 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. An additional risk of debt securities is reinvestment risk, which is the possibility that a Fund may not be able to reinvest interest or dividends earned from an investment in such a way that they earn the same rate of return as the invested funds that generated them. For example, falling interest rates may prevent bond coupon payments from earning the same rate of return as the original bond. Furthermore, pre-funded loans and issues may cause a Fund to reinvest those assets at a rate lower than originally anticipated. FLOATING RATE LOAN RISK 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 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 Emerging Growth Stock Fund International Equity Fund International Equity Index Fund Large Cap Core Equity Fund Large Cap Growth Stock Fund Large Cap Quantitative Equity 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 Core Equity Fund Mid-Cap Value Equity Fund Select Large Cap 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 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 nonrecovered portion will reduce the income received from the securities comprising the portfolio. LARGE COMPANY RISK Aggressive Growth Stock Fund International Equity Fund International Equity Index Fund Large Cap Core Equity Fund Large Cap Growth Stock Fund Large Cap Quantitative Equity 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 Core Equity Fund Mid-Cap Value Equity Fund Select Large Cap 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 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 the Fund. SECURITIES LENDING RISK All Funds A Fund may lend securities to broker-dealers to earn additional income. Risks include the potential insolvency of the borrower that could result in delays in recovering securities and capital losses. Additionally, losses could result from the reinvestment of collateral received on loaned securities in investments that default or do not perform well. It is also possible that if a security on loan is sold and a Fund is unable to timely recall the security, the Fund may be required to repurchase the security in the market place, which may result in a potential loss to shareholders. As securities on loan may not be voted by the Fund, there is a risk that the Fund may not be able to recall the securities in sufficient time to vote on material proxy matters. 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 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 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. 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 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. When a Fund invests in another mutual fund, in addition to directly bearing expenses associated with its own operations, it will bear a pro rata portion of the other mutual fund's expenses. 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 investment adviser to the Funds. As of June 30, 2007, the Adviser had approximately $[____] billion in assets under management. For the fiscal year ended March 31, 2007, 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 [____]% Emerging Growth Stock Fund [____]% International Equity Fund [____]% International Equity Index Fund [____]% Large Cap Core Equity Fund [____]% Large Cap Growth Stock Fund [____]% Large Cap Quantitative Equity 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 2025 Fund [____]% Life Vision Target Date 2035 Fund [____]% Mid-Cap Core Equity Fund [____]% Mid-Cap Value Equity Fund [____]% Select Large Cap Growth Stock Fund [____]% Small Cap Growth Stock Fund [____]% Small Cap Quantitative Equity Fund [____]% Small Cap Value Equity Fund [____]%
For its advisory services to the Life Vision Target Date 2015 Fund, the Adviser is entitled to receive an annual advisory fee of 0.10% based on each Fund's average daily net assets. The following breakpoints are 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, 2007, 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: [To be updated] * 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' annual report to shareholders for the period ended March 31, 2007. 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. 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 sub-adviser 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 daytoday 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 daytoday 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 comanaging 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. Alan Gayle has served as Managing Director of Trusco since July 2000 and Director of Asset Allocation since March 2006. He has served 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 Target Date 2015 Fund, Life Vision Target Date 2025 Fund and the Life Vision Target Date 2035 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 CORE EQUITY 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 LARGE CAP GROWTH STOCK 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 managed the LARGE CAP GROWTH STOCK 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. Parker W. Thomas, Jr. has served as Vice President since joining Trusco in April 2004. He has managed the SELECT LARGE CAP 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. 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 comanaging 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. 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") The Funds do not accept cash, credit card checks, thirdparty 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 CUTOFF 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 CUTOFF 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 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. 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 antimoney laundering compliance program designed to prevent the Funds from being used for money laundering or the financing of terrorist activities. In this regard, the Funds reserve the right to (i) refuse, cancel or rescind any purchase or exchange order, (ii) freeze any account and/or suspend account services, or (iii) involuntarily redeem your account in cases of threatening conduct or suspected fraudulent or illegal activity. These actions will be taken when, in the sole discretion of Fund management, they are deemed to be in the best interest of the Funds or in cases when the Funds are requested or compelled to do so by governmental or law enforcement authority. SALES CHARGES FRONT-END SALES CHARGES A SHARES The offering price of A Shares is the NAV next calculated after a Fund receives your request 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 AS A YOUR SALES CHARGE AS A IF YOUR INVESTMENT IS: PERCENTAGE OF OFFERING PRICE* PERCENTAGE OF 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 stepchildren) 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; 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 repaying 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 13month 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 firstin, firstout (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 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 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 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 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. 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, semiannual 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 C Shares $5,000 ($2,000 for IRA accounts)
But, the Funds will always give you at least 60 days written notice to give you time to add to your account and avoid the sale of your shares. SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES A Fund may suspend your right to sell your shares if the NYSE restricts trading, the SEC declares an emergency or for other reasons approved by the SEC. More information about this is in the Statement of Additional Information. HOW TO EXCHANGE YOUR SHARES You may exchange your shares on any Business Day by contacting 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 shortterm 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 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 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. 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. Purchase and redemption transactions submitted to the Funds by these intermediaries reflect the transactions of multiple beneficial owners whose individual transactions are not automatically disclosed to the Funds. Therefore, the Funds rely in large part on the intermediaries to aid in their effort to detect and deter frequent trading. If an intermediary notifies a Fund, or the Fund otherwise becomes aware, that frequent trading activity has been detected, the Fund will request the intermediary to take steps to prevent any future frequent trading by such individual. The Funds cannot guarantee the accuracy of the information provided by the intermediaries and may not always be able to track frequent trading effected through these intermediaries. The Funds have the right to terminate an intermediary's ability to invest in the Funds if excessive trading activity persists and the Funds or their Adviser reasonably believes that such termination would be in the best interests of long-term shareholders. Further, the Funds seek to discourage frequent trading by using fair value pricing procedures to fair value certain investments under some circumstances. In addition to the Funds' market timing policies and procedures described above, you may be subject to the market timing policies and procedures of the intermediary through which you invest. Please consult with your intermediary for additional information regarding its frequent trading restrictions. 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 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% 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 Core Equity Fund 0.25% 0.25% Large Cap Growth Stock Fund 0.35% 0.30% Large Cap Quantitative Equity Fund 0.25% 0.25% Large Cap Value Equity Fund 0.33% 0.30% Mid-Cap Core Equity Fund 0.35% 0.30% Mid-Cap Value Equity Fund 0.35% 0.30% Select Large Cap 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 Emerging Growth Stock Fund Large Cap Core Equity Fund Large Cap Growth Stock Fund Large Cap Quantitative Equity 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 Core Equity Fund Mid-Cap Value Equity Fund Select Large Cap 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 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 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 [____] LLP. 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 2007 Annual Report is available upon request and without charge by calling 1-888-STI-FUND or on the Funds' website at www.sticlassicfunds.com. [To be updated] 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 A SHARES C SHARES PROSPECTUS STI CLASSIC BOND FUNDS Georgia Tax Exempt Bond Fund High Grade Municipal Bond Fund (formerly, Florida 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 Total Return Bond Fund (formerly, Core Bond Fund) U.S. Government Securities Fund Virginia Intermediate Municipal Bond Fund Investment Adviser: Trusco Capital Management, Inc. (the "Adviser") AUGUST 1, 2007 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 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 C SHARES - -------- -------- - Front-end sales charge - Contingent deferred sales charge - 12b-1 fees - Higher 12b-1 fees - $2,000 minimum initial investment - $5,000 minimum initial investment
This prospectus has been arranged into different sections so that you can easily review this important information. On 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: Georgia Tax Exempt Bond Fund [__________] High Grade Municipal 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 [__________] Seix Floating Rate High Income Fund [__________] Seix High Yield Fund [__________] Short Term Bond Fund [__________] Short Term U.S. Treasuries Securities Fund [__________] Strategic Income Fund [__________] Total Return Bond Fund [__________] U.S. Government Securities Fund [__________] Virginia Intermediate Municipal Bond Fund [__________] More Information About Risk [__________] More Information About Fund Investments [__________] Information About Portfolio Holdings [__________] Investment Adviser [__________] Portfolio Managers [__________] Purchasing, Selling and Exchanging Fund Shares [__________] Market Timing Policies and Procedures [__________] Dividends and Distributions [__________] Taxes [__________] Financial Highlights [__________] Privacy Policy [__________] How to Obtain More Information About the STI Classic Funds [__________]
August 1, 2007
FUND NAME CLASS INCEPTION TICKER CUSIP - --------- -------- --------- ------ --------- Total Return Bond Fund A Shares 10/11/04 CBPSX 78476A835 Total Return Bond Fund C Shares 10/11/04 SCBLX 78476A504 High Grade Municipal Bond Fund A Shares 1/18/94 SFLTX 784766693 High Grade Municipal 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 Floating Rate High Income Fund C Shares 8/1/2007 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. 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 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 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. GEORGIA TAX EXEMPT BOND FUND 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 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. 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, 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. 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 may invest in derivatives, it is exposed to additional volatility and potential loss. For further information about these and other risks, see "More Information About Risk." 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. 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% 2006 [____]
BEST QUARTER WORST QUARTER - ----------------- ----------------- [_____] [_____] [_____] [_____]
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/07 to 6/30/07 was [____]%. AVERAGE ANNUAL TOTAL RETURNS This table compares the Fund's average annual total returns for the periods ended December 31, 2006, 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 [____] [_____] [_____] Fund Returns After Taxes on Distributions [____] [_____] [_____]
Fund Returns After Taxes on Distributions and Sale of Fund Shares [____] [_____] [_____] Lehman Brothers 10 Year Municipal Bond Index (reflects no deduction for fees, expenses or taxes) [____] [_____] [_____] Lipper Georgia Municipal Debt Funds Objective (reflects no deduction for taxes) [____] [_____] [_____]
C Shares 1 Year 5 Years 10 Years - -------- ------ ------- -------- Fund Returns Before Taxes [____] [_____] [_____] Lehman Brothers 10 Year Municipal Bond Index (reflects no deduction for fees, expenses or taxes) [____] [_____] [_____] Lipper Georgia Municipal Debt Funds Objective (reflects no deduction for taxes) [____] [_____] [_____]
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. 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%
* 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." ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
A Shares C Shares -------- -------- Investment Advisory Fees 0.55% 0.55% Distribution and Service (12b-1) Fees 0.15%(1) 1.00% Other Expenses [__] [__] Total Annual Operating Expenses(2) [__] [__]
(1) 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. (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 [____] [_____] [_____] [______] C Shares [____] [_____] [_____] [______]
If you do not sell your shares at the end of the period:
1 Year 3 Years 5 Years 10 Years ------ ------- ------- -------- A Shares [____] [_____] [_____] [______] C Shares [____] [_____] [_____] [______]
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 [__________] the table below reflects the Fund's results calculated without sales charges.
A Shares 1 Year 5 Years 10 Years - -------- ------ ------- -------- Fund Returns Before Taxes [____] [_____] [_____] Fund Returns After Taxes on Distributions [____] [_____] [_____] Fund Returns After Taxes on Distributions and Sale of Fund Shares [____] [_____] [_____] Lehman Brothers 10 Year Municipal Bond Index (reflects no deduction for fees, expenses or taxes) [____] [_____] [_____] Lipper Georgia Municipal Debt Funds Objective (reflects no deduction for taxes) [____] [_____] [_____]
HIGH GRADE MUNICIPAL BOND FUND FUND SUMMARY Investment Goal: Yield driven by seeking current income exempt from federal income taxes other than the alternative minimum tax while preserving capital Investment Focus: Insured investment grade municipal securities Share Price Volatility: Moderate Principal Investment Strategy: Invest in investment grade municipal securities Investor Profile: Investors who want income exempt from federal income taxes INVESTMENT STRATEGY Under normal circumstances, the Fund invests at least 80% of its net assets in investment grade municipal securities, including securities subject to the alternative minimum tax, with income exempt from federal income taxes. The Fund may invest up to 20% of its assets in securities rated below investment grade by either Moody's Investor Services, Inc. or Standard and Poor's Rating Services or unrated securities that the Adviser believes are of comparable quality. Up to 20% of the Fund's assets may also be invested 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 the investment grade municipal securities market, however the Adviser may invest greater than 25% of the Fund's assets in Florida municipal securities. The Adviser anticipates that the Fund's average weighted maturity will range from 6 to 25 years. Under normal circumstances, the Fund will invest at least 65% of its assets in municipal securities insured as to timely payment of principal and interest. Municipal bond insurance is issued by a municipal bond insurance company that insures the Fund will receive payment of principal and interest due on a bond in a timely manner. Municipal bond insurance reduces (but does not eliminate) credit 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 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. 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. 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 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 may invest in derivatives, it is exposed to additional volatility and potential loss. For further information about these and other risks, see "More Information About Risk." 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 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 - ----------------- ----------------- [_____] [_____] [_____] [_____]
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/07 to 6/30/07 was [__]%. AVERAGE ANNUAL TOTAL RETURNS This table compares the Fund's average annual total returns for the periods ended December 31, 2006, 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 [____] [_____] [_____] Fund Returns After Taxes on Distributions [____] [_____] [_____] Fund Returns After Taxes on Distributions and Sale of Fund Shares [____] [_____] [_____]
Lehman Brothers 10 Year Municipal Bond Index (reflects no deduction for fees, expenses or taxes) [____] [_____] [_____] Lipper Florida Municipal Debt Funds Objective (reflects no deduction for taxes) [____] [_____] [_____]
C Shares 1 Year 5 Years 10 Years - -------- ------ ------- -------- Fund Returns Before Taxes [____] [_____] [_____] Lehman Brothers 10 Year Municipal Bond Index (reflects no deduction for fees, expenses or taxes) [____] [_____] [_____] Lipper Florida Municipal Debt Funds Objective (reflects no deduction for taxes) [____] [_____] [_____]
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. 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%
* 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." ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
A Shares C Shares -------- -------- Investment Advisory Fees 0.55% 0.55% Distribution and Service (12b-1) Fees 0.15%(1) 1.00% ---- ---- Other Expenses [__] [__] Total Annual Operating Expenses [__] [__]
(1) 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. EXAMPLE This Example is intended to help you compare the cost of investing in the Fund with 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 [____] [_____] [_____] [______] C Shares [____] [_____] [_____] [______]
If you do not sell your shares at the end of the period:
1 Year 3 Years 5 Years 10 Years ------ ------- ------- -------- A Shares [____] [_____] [_____] [______] C Shares [____] [_____] [_____] [______]
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 [__________] the table below reflects the Fund's results calculated without sales charges.
A Shares 1 Year 5 Years 10 Years - -------- ------ ------- -------- Fund Returns Before Taxes [____] [_____] [_____] Fund Returns After Taxes on Distributions [____] [_____] [_____] Fund Returns After Taxes on Distributions and Sale of Fund Shares [____] [_____] [_____] Lehman Brothers 10 Year Municipal Bond Index (reflects no deduction for fees, expenses or taxes) [____] [_____] [_____] Lipper Florida Municipal Debt Funds Objective (reflects no deduction for taxes) [____] [_____] [_____]
HIGH INCOME FUND 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 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) 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. 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. 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 may invest in derivatives, it is exposed to additional volatility and potential loss. For further information about these and other risks, see "More Information About Risk." 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. 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% 2006 [____]
BEST QUARTER WORST QUARTER - --------------- --------------- [____] [____] [____] [____]
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/07 to 6/30/07 was [____]%. AVERAGE ANNUAL TOTAL RETURNS This table compares the Fund's average annual total returns for the periods ended December 31, 2006, 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.
Since A Shares 1 Year Inception* - -------- ------ ---------- Fund Returns Before Taxes [____] [____] Fund Returns After Taxes on Distributions [____] [____] Fund Returns After Taxes on Distributions and Sale of Fund Shares [____] [____] Lehman Brothers U.S. Corporate High Yield Bond Index (reflects no deduction for fees, expenses or taxes) [____] [____]
* 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 [____] [____] [____] Lehman Brothers U.S. Corporate High Yield Bond Index (reflects no deduction for fees, expenses or taxes) [____] [____] [____]
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. 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%
* 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." ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
A Shares C Shares -------- -------- Investment Advisory Fees 0.60% 0.60% Distribution and Service (12b-1) Fees 0.30% 1.00% Other Expenses [____] [____] ----- ------ Total Annual Operating Expenses(1) [____] [____]
(1) 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 [____] [____] [____] [____] C Shares [____] [____] [____] [____]
If you do not sell your shares at the end of the period:
1 Year 3 Years 5 Years 10 Years ------ ------- ------- -------- A Shares [____] [____] [____] [____] C Shares [____] [____] [____] [____]
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 [____] the table below reflects the Fund's results calculated without sales charges.
Since A Shares 1 Year Inception* - -------- ------ ---------- Fund Returns Before Taxes [____] [____] Fund Returns After Taxes on Distributions [____] [____] Fund Returns After Taxes on Distributions and Sale of Fund Shares [____] [____] Lehman Brothers U.S. Corporate High Yield Bond Index (reflects no deduction for fees, expenses or taxes) [____] [____]
* 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 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 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) 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. 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. 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 may invest in derivatives, it is exposed to additional volatility and potential loss. For further information about these and other risks, see "More Information About Risk." 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. 2000 10.19% 2001 7.03% 2002 7.19% 2003 4.03% 2004 3.60% 2005 0.97% 2006 [____]
BEST QUARTER WORST QUARTER - --------------- --------------- [____] [____] [____] [____]
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/07 to 6/30/07 was [____]%. AVERAGE ANNUAL TOTAL RETURNS This table compares the Fund's average annual total returns for the periods ended December 31, 2006, 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.
Since A Shares* 1 Year 5 Years Inception** - --------- ------ ------- ----------- Fund Returns Before Taxes [____] [____] [____] Fund Returns After Taxes on Distributions [____] [____] [____] Fund Returns After Taxes on Distributions and Sale of Fund Shares [____] [____] [____] Lehman Brothers Intermediate Government/ Credit Bond Index (reflects no deduction for fees, expenses or taxes) [____] [____] [____]
* 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.
Since C Shares* 1 Year 5 Years Inception** - --------- ------ ------- ----------- Fund Returns Before Taxes [____] [____] [____]
Lehman Brothers Intermediate Government/ Credit Bond Index (reflects no deduction for fees, expenses or taxes) [____] [____] [____]
* 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. 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. 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%
* 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." 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 [____] [____] ------ ------ Total Annual Operating Expenses(1) [____] [____]
(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. 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 [____] [____] [____] [____] C Shares [____] [____] [____] [____]
If you do not sell your shares at the end of the period: 1 Year 3 Years 5 Years 10 Years ------ ------- ------- -------- A Shares [____] [____] [____] [____] C Shares [____] [____] [____] [____]
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 [____] the table below reflects the Fund's results calculated without sales charges.
Since A Shares* 1 Year 5 Years Inception** - --------- ------ ------- ----------- Fund Returns Before Taxes [____] [____] [____] Fund Returns After Taxes on Distributions [____] [____] [____] Fund Returns After Taxes on Distributions and Sale of Fund Shares [____] [____] [____] Lehman Brothers Intermediate Government/ Credit Bond Index (reflects no deduction for fees, expenses or taxes) [____] [____] [____]
* 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 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 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) 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. 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, 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 may invest in derivatives, it is exposed to additional volatility and potential loss. For further information about these and other risks, see "More Information About Risk." 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. 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% 2006 [____]
BEST QUARTER WORST QUARTER - --------------- --------------- [____] [____] [____] [____]
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/07 to 6/30/07 was [___]%. AVERAGE ANNUAL TOTAL RETURNS This table compares the Fund's average annual total returns for the periods ended December 31, 2006, 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 [____] [____] [____] Fund Returns After Taxes on Distributions [____] [____] [____] Fund Returns After Taxes on Distributions and Sale of Fund Shares [____] [____] [____] Lehman Brothers U.S. Government/ Credit Index (reflects no deduction for fees, expenses or taxes) [____] [____] [____] Lehman Brothers U.S. Aggregate Index (reflects no deduction for fees, expenses or taxes) [____] [____] [____] Lipper Intermediate Investment Grade Debt Funds Objective (reflects no deduction for taxes) [____] [____] [____]
C Shares 1 Year 5 Years 10 Years - -------- ------ ------- -------- Fund Returns Before Taxes [____] [____] [____]
Lehman Brothers U.S. Government/ Credit Index (reflects no deduction for fees, expenses or taxes) [____] [____] [____] Lehman Brothers U.S. Aggregate Index (reflects no deduction for fees, expenses or taxes) [____] [____] [____] Lipper Intermediate Investment Grade Debt Funds Objective (reflects no deduction for taxes) [____] [____] [____]
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. 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%
* 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." ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
A Shares C Shares -------- -------- Investment Advisory Fees 0.50% 0.50% Distribution and Service (12b-1) Fees 0.30%(1) 1.00% Other Expenses [____] [____] ------ ------ Total Annual Operating Expenses(2) [____] [____]
(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) 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 [____] [____] [____] [____] C Shares [____] [____] [____] [____]
If you do not sell your shares at the end of the period:
1 Year 3 Years 5 Years 10 Years ------ ------- ------- -------- A Shares [____] [____] [____] [____] C Shares [____] [____] [____] [____]
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 [_____] the table below reflects the Fund's results calculated without sales charges.
A Shares 1 Year 5 Years 10 Years - -------- ------ ------- -------- Fund Returns Before Taxes [____] [____] [____] Fund Returns After Taxes on Distributions [____] [____] [____]
Fund Returns After Taxes on Distributions and Sale of Fund Shares [____] [____] [____] Lehman Brothers U.S. Government/ Credit Index (reflects no deduction for fees, expenses or taxes) [____] [____] [____] Lehman Brothers U.S. Aggregate Index (reflects no deduction for fees, expenses or taxes) [____] [____] [____] Lipper Intermediate Investment Grade Debt Funds Objective (reflects no deduction for taxes) [____] [____] [____]
INVESTMENT GRADE TAX EXEMPT BOND FUND 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 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 Fund invests in 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 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. 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 may invest in derivatives, it is exposed to additional volatility and potential loss. For further information about these and other risks, see "More Information About Risk." 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. 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% 2006 [____]
BEST QUARTER WORST QUARTER - --------------- --------------- [____] [____] [____] [____]
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/07 to 6/30/07 was [____]%. AVERAGE ANNUAL TOTAL RETURNS This table compares the Fund's average total returns for the periods ended December 31, 2006, 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 [____] [____] [____] Fund Returns After Taxes on Distributions [____] [____] [____]
Fund Returns After Taxes on Distributions and Sale of Fund Shares [____] [____] [____] Lehman Brothers 5 Year Municipal Bond Index (reflects no deduction for fees, expenses or taxes) [____] [____] [____] Lipper Intermediate Municipal Debt Funds Objective (reflects no deduction for taxes) [____] [____] [____]
C Shares 1 Year 5 Years 10 Years - -------- ------ ------- -------- Fund Returns Before Taxes [____] [____] [____] Lehman Brothers 5 Year Municipal Bond Index (reflects no deduction for fees, expenses or taxes) [____] [____] [____] Lipper Intermediate Municipal Debt Funds Objective (reflects no deduction for taxes) [____] [____] [____]
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. 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%
* 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." ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
A Shares C Shares -------- -------- Investment Advisory Fees 0.50% 0.50% Distribution and Service (12b-1) Fees 0.30%(1) 1.00% Other Expenses [____] [____] ------ ------ Total Annual Operating Expenses(2) [____] [____]
(1) 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) 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 [____] [____] [____] [____] C Shares [____] [____] [____] [____]
If you do not sell your shares at the end of the period:
1 Year 3 Years 5 Years 10 Years ------ ------- ------- -------- A Shares [____] [____] [____] [____] C Shares [____] [____] [____] [____]
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 [____] the table below reflects the Fund's results calculated without sales charges.
A Shares 1 Year 5 Years 10 Years - -------- ------ ------- -------- Fund Returns Before Taxes [____] [____] [____] Fund Returns After Taxes on Distributions [____] [____] [____] Fund Returns After Taxes on Distributions and Sale of Fund Shares [____] [____] [____] Lehman Brothers 5 Year Municipal Bond Index (reflects no deduction for fees, expenses or taxes) [____] [____] [____] Lipper Intermediate Municipal Debt Funds Objective (reflects no deduction for taxes) [____] [____] [____]
LIMITED TERM FEDERAL MORTGAGE SECURITIES FUND 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 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. 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. Because the Fund may invest in derivatives, it is exposed to additional volatility and potential loss. For further information about these and other risks, see "More Information About Risk." 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. 1997 .37% 1998 .73% 1999 .96% 2000 .29% 2001 .14% 2002 .23% 2003 .16% 2004 .02% 2005 .33% 2006 [____]
BEST QUARTER WORST QUARTER - --------------- --------------- [____] [____] [____] [____]
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/07 to 6/30/07 was [_____]%. AVERAGE ANNUAL TOTAL RETURNS This table compares the Fund's average annual total returns for the periods ended December 31, 2006, 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 [____] [____] [____] Fund Returns After Taxes on Distributions [____] [____] [____] Fund Returns After Taxes on Distributions and Sale of Fund Shares [____] [____] [____] Merrill Lynch 1 5 Year AAA U.S. Treasuries/ Agencies Index (reflects no deduction for fees, expenses or taxes) [____] [____] [____] Merrill Lynch 1 5 Year U.S. Treasuries Index (reflects [____] [____] [____] no deduction for fees, expenses or taxes)
C Shares 1 Year 5 Years 10 Years - -------- ------ ------- -------- Fund Returns Before Taxes [____] [____] [____] Merrill Lynch 1 5 Year AAA U.S. Treasuries/ Agencies Index (reflects no deduction for fees, expenses or taxes) [____] [____] [____] Merrill Lynch 1 5 Year U.S. Treasuries Index (reflects no deduction for fees, expenses or taxes) [____] [____] [____]
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. 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%
* 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." ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
A Shares C Shares -------- -------- Investment Advisory Fees 0.50% 0.50% Distribution and Service (12b-1) Fees 0.20%(1) 1.00% Other Expenses [____] [____] ----- ----- Total Annual Operating Expenses(3) [____] [____]
(1) 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. (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 [____] [____] [____] [____] C Shares [____] [____] [____] [____]
If you do not sell your shares at the end of the period:
1 Year 3 Years 5 Years 10 Years ------ ------- ------- -------- A Shares [____] [____] [____] [____] C Shares [____] [____] [____] [____]
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 [____] the table below reflects the Fund's results calculated without sales charges.
A Shares 1 Year 5 Years 10 Years - -------- ------ ------- -------- Fund Returns Before Taxes [____] [____] [____] Fund Returns After Taxes on Distributions [____] [____] [____] Fund Returns After Taxes on Distributions and Sale of Fund Shares [____] [____] [____] Merrill Lynch 1 5 Year AAA U.S. Treasuries/ Agencies Index (reflects no deduction for fees, expenses or taxes) [____] [____] [____] Merrill Lynch 1 5 Year U.S. Treasuries Index (reflects no deduction for fees, expenses or taxes) [____] [____] [____]
MARYLAND MUNICIPAL BOND FUND 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 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. 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, 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. 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 may invest in derivatives, it is exposed to additional volatility and potential loss. For further information about these and other risks, see "More Information About Risk." 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. 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% 2006 [____]
BEST QUARTER WORST QUARTER - --------------- --------------- [____] [____] [____] [____]
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/07 to 6/30/07 was [____]%. AVERAGE ANNUAL TOTAL RETURNS This table compares the Fund's average annual total returns for the periods ended December 31, 2006, 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 [____] [____] [____] Fund Returns After Taxes on Distributions [____] [____] [____]
Fund Returns After Taxes on Distributions and Sale of Fund Shares [____] [____] [____] Lehman Brothers 10 Year Municipal Bond Index (reflects no deduction for fees, expenses or taxes) [____] [____] [____] Lipper Maryland Municipal Debt Funds Objective (reflects no deduction for taxes) [____] [____] [____]
* 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).
A Shares 1 Year Since Inception* - -------- ------ ---------------- Fund Returns Before Taxes [____] [____] Lehman Brothers 10 Year Municipal Bond Index (reflects no deduction for fees, expenses or taxes) [____] [____] Lipper Maryland Municipal Debt Funds Objective (reflects no deduction for taxes) [____] [____]
* Since inception date of the A Shares on April 13, 2005. Benchmark returns since March 31, 2005 (benchmark returns available only on a month end basis). 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. 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%
* 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." ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
A Shares C Shares -------- -------- Investment Advisory Fees 0.55% 0.55% Distribution and Service (12b-1) Fees 0.15% 1.00% Other Expenses [____] [____] ----- ----- Total Annual Operating Expenses(1) [____] [____]
(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. 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 [____] [____] [____] [____] C Shares [____] [____] [____] [____]
If you do not sell your shares at the end of the period:
1 Year 3 Years 5 Years 10 Years ------ ------- ------- -------- A Shares [____] [____] [____] [____] C Shares [____] [____] [____] [____]
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 [____] the table below reflects the Fund's results calculated without sales charges.
A Shares 1 Year Since Inception* - -------- ------ ---------------- Fund Returns Before Taxes [____] [____] Lehman Brothers 10 Year Municipal Bond Index (reflects no deduction for fees, expenses or taxes) [____] [____] Lipper Maryland Municipal Debt Funds Objective (reflects no deduction for taxes) [____] [____]
* Since inception date of the A Shares on April 13, 2005. Benchmark returns since March 31, 2005 (benchmark returns available only on a month end basis). NORTH CAROLINA TAX EXEMPT BOND FUND 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 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. 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, 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. 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 may invest in derivatives, it is exposed to additional volatility and potential loss. For further information about these and other risks, see "More Information About Risk." 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. 2005 2.62% 2006 [____]
BEST QUARTER WORST QUARTER - --------------- --------------- [____] [____] [____] [____]
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/07 to 6/30/07 was [____]%. AVERAGE ANNUAL TOTAL RETURNS This table compares the Fund's average annual total returns for the periods ended December 31, 2006, 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 [____] [____] Fund Returns After Taxes on Distributions [____] [____] Fund Returns After Taxes on Distributions and Sale of Fund Shares [____] [____] Lehman Brothers 10 Year Municipal Bond Index (reflects no deduction for fees, expenses or taxes) [____] [____]
* 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 [____] [____] Fund Returns After Taxes on Distributions [____] [____] Fund Returns After Taxes on Distributions and Sale of Fund Shares [____] [____] Lehman Brothers 10 Year Municipal Bond Index (reflects no deduction for fees, expenses or taxes) [____] [____]
* 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.) 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. 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%
* 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." ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
A Shares C Shares -------- -------- Investment Advisory Fees 0.55% 0.55% Distribution and Service (12b-1) Fees 0.15% 1.00% Other Expenses [____] [____] ----- ----- Total Annual Operating Expenses(1) [____] [____]
(1) The Adviser has contractually agreed to waive fees and reimburse expenses until at least August 1, 2008 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, 2010, 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 [____] [____] [____] [____] C Shares [____] [____] [____] [____]
If you do not sell your shares at the end of the period:
1 Year 3 Years 5 Years 10 Years ------ ------- ------- -------- A Shares [____] [____] [____] [____] C Shares [____] [____] [____] [____]
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 [____] the table below reflects the Fund's results calculated without sales charges.
A Shares* 1 Year Since Inception** - --------- ------ ----------------- Fund Returns Before Taxes [____] [____] Fund Returns After Taxes on Distributions [____] [____] Fund Returns After Taxes on Distributions and Sale of Fund Shares [____] [____] Lehman Brothers 10 Year Municipal Bond Index (reflects no deduction for fees, expenses or taxes) [____] [____]
* 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 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. 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 the portfolio's 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. 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, credit linked notes 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 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. 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. Because the Fund may invest in derivatives, it is exposed to additional volatility and potential loss. For further information about these and other risks, see "More Information About Risk." PERFORMANCE INFORMATION No performance information is included because the Fund does not have performance history for a full calendar year. FUND FEES AND EXPENSES This table describes the Fund's fees and expenses that you may pay if you buy and hold Fund shares. 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%
* 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." ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
A Shares C Shares -------- -------- Investment Advisory Fees 0.45% 0.45% Distribution and Service (12b-1) Fees(1) 0.30% 1.00% Other Expenses [____] [____] ----- ----- Total Annual Operating Expenses(2) [____] [____]
(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) The Adviser has contractually agreed to waive fees and reimburse expenses until at least August 1, 2008 in order to keep Total Annual Operating Expenses from exceeding 0.85%. If at any point before August 1, 2010, 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. If you sell your shares at the end of the period:
1 Year 3 Years 5 Years 10 Years ------ ------- ------- -------- A Shares [____] [____] [____] [____]
If you do not sell your shares at the end of the period:
1 Year 3 Years 5 Years 10 Years ------ ------- ------- -------- A Shares [____] [____] [____] [____]
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 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 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) 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. 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. 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 may invest in derivatives, it is exposed to additional volatility and potential loss. For further information about these and other risks, see "More Information About Risk." 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. 2001 11.24% 2002 6.01% 2003 15.16% 2004 8.07% 2005 2.61% 2006 [____]
BEST QUARTER WORST QUARTER - --------------- --------------- [____] [____] [____] [____]
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/07 to 6/30/07 was [____]%. AVERAGE ANNUAL TOTAL RETURNS This table compares the Fund's average annual total returns for the periods ended December 31, 2006, 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 [____] [____] [____] Fund Returns After Taxes on Distributions [____] [____] [____] Fund Returns After Taxes on Distributions and Sale of Fund Shares [____] [____] [____] Merrill Lynch High Yield Master Index (reflects no deduction for fees, expenses or taxes) [____] [____] [____]
* 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 [____] [____] [____] Merrill Lynch High Yield Master Index (reflects no deduction for fees, expenses or taxes) [____] [____] [____]
* 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). 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. 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%
* 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." ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
A Shares C Shares -------- -------- Investment Advisory Fees 0.43% 0.43% Distribution and Service (12b-1) Fees 0.25% 1.00% Other Expenses(1) [____] [____] ----- ----- Total Annual Operating Expenses(2) [____] [____]
(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 [____] [____] [____] [____] C Shares [____] [____] [____] [____]
If you do not sell your shares at the end of the period:
1 Year 3 Years 5 Years 10 Years ------ ------- ------- -------- A Shares [____] [____] [____] [____] C Shares [____] [____] [____] [____]
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 [____] the table below reflects the Fund's results calculated without sales charges.
A Shares* 1 Year 5 Years Since Inception** - --------- ------ ------- ----------------- Fund Returns Before Taxes [____] [____] [____] Fund Returns After Taxes on Distributions [____] [____] [____] Fund Returns After Taxes on Distributions and Sale of Fund Shares [____] [____] [____] Merrill Lynch High Yield Master Index (reflects no deduction for fees, expenses or taxes) [____] [____] [____]
* 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 FUND SUMMARY INVESTMENT GOAL High current income, while preserving capital INVESTMENT FOCUS Short-term investment grade fixed income securities. SHARE PRICE VOLATILITY Low PRINCIPAL INVESTMENT STRATEGY Attempts to identify securities that offer a comparably better return than similar securities for a given level of credit risk INVESTOR PROFILE Income oriented investors who are willing to accept increased risk for the possibility of returns greater than money market investing INVESTMENT STRATEGY 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. These securities may be rated investment grade by at least one national securities rating agency or unrated securities that the Adviser believes are of comparable quality. The Fund expects that it will normally maintain an effective maturity of 3 years or less. The Fund may invest in foreign securities. 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. 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. 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. Because the Fund may invest in derivatives, it is exposed to additional volatility and potential loss. For further information about these and other risks, see "More Information About Risk." 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. 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% 2006 [____]
BEST QUARTER WORST QUARTER - --------------- --------------- [____] [____] [____] [____]
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/07 to 6/30/07 was [____]%. AVERAGE ANNUAL TOTAL RETURNS This table compares the Fund's average annual total returns for the periods ended December 31, 2006, 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 [____] [____] [____] Fund Returns After Taxes on Distributions [____] [____] [____] Fund Returns After Taxes on Distributions and Sale of Fund Shares [____] [____] [____] Citigroup 1 3 Year Government/Credit Index (reflects no deduction for fees, expenses or taxes) [____] [____] [____]
C Shares 1 Year 5 Years 10 Years - -------- ------ ------- -------- Fund Returns Before Taxes [____] [____] [____] Citigroup 1 3 Year Government/Credit Index (reflects no deduction for fees, expenses or taxes) [____] [____] [____]
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. 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%
* 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." ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
A Shares C Shares -------- -------- Investment Advisory Fees 0.40% 0.40% Distribution and Service (12b-1) Fees 0.20%(1) 1.00% Other Expenses [____] [____] ------ ------ Total Annual Operating Expenses(2) [____] [____]
(1) 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. (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 [____] [____] [____] [____] C Shares [____] [____] [____] [____]
If you do not sell your shares at the end of the period:
1 Year 3 Years 5 Years 10 Years ------ ------- ------- -------- A Shares [____] [____] [____] [____] C Shares [____] [____] [____] [____]
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 [____] the table below reflects the Fund's results calculated without sales charges.
A Shares 1 Year 5 Years 10 Years - -------- ------ ------- -------- Fund Returns Before Taxes [____] [____] [____]
Fund Returns After Taxes on Distributions [____] [____] [____] Fund Returns After Taxes on Distributions and Sale of Fund Shares [____] [____] [____] Citigroup 1 3 Year Government/Credit Index (reflects no deduction for fees, expenses or taxes) [____] [____] [____]
SHORT TERM U.S. TREASURY SECURITIES FUND 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 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. 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 interest rate risk. 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. Because the Fund may invest in derivatives, it is exposed to additional volatility and potential loss. For further information about these and other risks, see "More Information About Risk." 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. 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% 2006 [____]
BEST QUARTER WORST QUARTER - --------------- --------------- [____] [____] [____] [____]
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/07 to 6/30/07 was [____]%. AVERAGE ANNUAL TOTAL RETURNS This table compares the Fund's average annual total returns for the periods ended December 31, 2006, 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 [____] [____] [____] Fund Returns After Taxes on Distributions [____] [____] [____] Fund Returns After Taxes on Distributions and Sale of Fund Shares [____] [____] [____]
Citigroup 1 3 Year Treasury Index (reflects no deduction for fees, expenses or taxes) [____] [____] [____] Citigroup 6 Month Treasury Bill Index (reflects no deduction for fees, expenses or taxes) [____] [____] [____]
C Shares 1 Year 5 Years 10 Years - -------- ------ ------- -------- Fund Returns Before Taxes [____] [____] [____] Citigroup 1 3 Year Treasury Index (reflects no deduction for fees, expenses or taxes) [____] [____] [____] Citigroup 6 Month Treasury Bill Index (reflects no deduction for fees, expenses or taxes) [____] [____] [____]
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. 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%
* 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." ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
A Shares C Shares -------- -------- Investment Advisory Fees 0.40% 0.40% Distribution and Service (12b-1) Fees 0.18% 1.00% Other Expenses [____] [____] ----- ----- Total Annual Operating Expenses(1) [____] [____]
(1) 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. EXAMPLE This Example is intended to help you compare the cost of investing in the Fund with 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 [____] [____] [____] [____] C Shares [____] [____] [____] [____]
If you do not sell your shares at the end of the period:
1 Year 3 Years 5 Years 10 Years ------ ------- ------- -------- A Shares [____] [____] [____] [____] C Shares [____] [____] [____] [____]
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 [____] the table below reflects the Fund's results calculated without sales charges.
A Shares 1 Year 5 Years 10 Years - -------- ------ ------- -------- Fund Returns Before Taxes [____] [____] [____] Fund Returns After Taxes on Distributions [____] [____] [____]
Fund Returns After Taxes on Distributions and Sale of Fund Shares [____] [____] [____] Citigroup 1 3 Year Treasury Index (reflects no deduction for fees, expenses or taxes) [____] [____] [____] Citigroup 6 Month Treasury Bill Index (reflects no deduction for fees, expenses or taxes) [____] [____] [____]
STRATEGIC INCOME FUND 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 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 minimum average credit quality of the fixed income securities in which the Fund invests will be BBB as rated by at least one national securities rating agency or unrated securities that the Adviser believes are of comparable quality. 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) 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. 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. 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. 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. Because the Fund may invest in derivatives, it is exposed to additional volatility and potential loss. For further information about these and other risks, see "More Information About Risk." 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. 2002 3.08% 2003 10.91% 2004 10.07% 2005 2.27% 2006 [___]
BEST QUARTER WORST QUARTER - ----------------- ----------------- [_____] [_____] [_____] [_____]
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/07 to 6/30/07 was [__]%. AVERAGE ANNUAL TOTAL RETURNS This table compares the Fund's average annual total returns for the periods ended December 31, 2006, 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 5 Years Since Inception* - -------- ------ ------- ---------------- Fund Returns Before Taxes [____] [_____] [_____] Fund Returns After Taxes on Distributions [____] [_____] [_____] Fund Returns After Taxes on Distributions and Sale of Fund Shares [____] [_____] [_____] Hybrid 34/33/33 Blend of the Following Market Benchmarks [____] [_____] [_____] Merrill Lynch AAA U.S. Treasury/Agency Master Index (reflects no deduction for fees, expenses or taxes) [____] [_____] [_____] Merrill Lynch U.S. High Yield Master II Index (reflects no deduction for fees, expenses or taxes) [____] [_____] [_____] Merrill Lynch Global Government Bond II ex U.S. Index (reflects no deduction for fees, expenses or taxes) [____] [_____] [_____]
* 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).
C Shares 1 Year 5 Years Since Inception* - -------- ------ ------- ---------------- Fund Returns Before Taxes [____] [_____] [_____] Hybrid 34/33/33 Blend of the Following Market Benchmarks [____] [_____] [_____]
Merrill Lynch AAA U.S. Treasury/Agency Master Index (reflects no deduction for fees, expenses or taxes) [____] [_____] [_____] Merrill Lynch U.S. High Yield Master II Index (reflects no deduction for fees, expenses or taxes) [____] [_____] [_____] Merrill Lynch Global Government Bond II ex U.S. Index (reflects no deduction for fees, expenses or taxes) [____] [_____] [_____]
* Since inception of the C Shares on November 30, 2001. 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. 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%
* 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." ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
A Shares C Shares -------- -------- Investment Advisory Fees 0.60% 0.60% Distribution and Service (12b-1) Fees 0.30%(1) 1.00% Other Expenses [__] [__] ---- ---- Total Annual Operating Expenses(2) [__] [__]
(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) 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 [____] [_____] [_____] [______] C Shares [____] [_____] [_____] [______]
If you do not sell your shares at the end of the period:
1 Year 3 Years 5 Years 10 Years ------ ------- ------- -------- A Shares [____] [_____] [_____] [______] C Shares [____] [_____] [_____] [______]
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 [__________] the tables below reflect the Fund's results calculated without sales charges.
A Shares 1 Year 5 Years Since Inception* - -------- ------ ------- ---------------- Fund Returns Before Taxes [____] [_____] [_____] Fund Returns After Taxes on Distributions [____] [_____] [_____] Fund Returns After Taxes on Distributions and Sale of Fund Shares [____] [_____] [_____] Hybrid 34/33/33 Blend of the Following Market Benchmarks [____] [_____] [_____] Merrill Lynch AAA U.S. Treasury/Agency Master Index (reflects no deduction for fees, expenses or taxes) [____] [_____] [_____] Merrill Lynch U.S. High Yield Master II Index (reflects no deduction for fees, expenses or taxes) [____] [_____] [_____] Merrill Lynch Global Government Bond II ex U.S. Index (reflects no deduction for fees, expenses or taxes) [____] [_____] [_____]
* 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). TOTAL RETURN BOND FUND 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 INVESTMENT STRATEGY The Total Return 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) 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. 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. 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 may invest in derivatives, it is exposed to additional volatility and potential loss. For further information about these and other risks, see "More Information About Risk." 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. 1998 7.81% 1999 0.53% 2000 10.40% 2001 6.83% 2002 7.23% 2003 4.58% 2004 4.26% 2005 1.82% 2006 [___]
BEST QUARTER WORST QUARTER - ----------------- ----------------- [_____] [_____] [_____] [_____]
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/07 to 6/30/07 was [_____]%. AVERAGE ANNUAL TOTAL RETURNS This table compares the Fund's average annual total returns for the periods ended December 31, 2006, 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.
A Shares* 1 Year 5 Years Since Inception** - --------- ------ ------- ----------------- Fund Returns Before Taxes [____] [_____] [_____] Fund Returns After Taxes on Distributions [____] [_____] [_____]
Fund Returns After Taxes on Distributions and Sale of Fund Shares [____] [_____] [_____] Lehman Brothers U.S. Aggregate Index (reflects no deduction for fees, expenses or taxes) [____] [_____] [_____]
* 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 [____] [_____] [_____] Lehman Brothers U.S. Aggregate Index (reflects no deduction for fees, expenses or taxes) [____] [_____] [_____]
* 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. 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. 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%
* 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." 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 [__] [__] Total Annual Operating Expenses [__] [__]
EXAMPLE This Example is intended to help you compare the cost of investing in the Fund with 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 [____] [_____] [_____] [______] C Shares [____] [_____] [_____] [______]
If you do not sell your shares at the end of the period:
1 Year 3 Years 5 Years 10 Years ------ ------- ------- -------- A Shares [____] [_____] [_____] [______] C Shares [____] [_____] [_____] [______]
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 [__________] the table below reflects the Fund's results calculated without sales charges.
A Shares* 1 Year 5 Years Since Inception** - --------- ------ ------- ----------------- Fund Returns Before Taxes [____] [_____] [_____] Fund Returns After Taxes on Distributions [____] [_____] [_____] Fund Returns After Taxes on Distributions and Sale of Fund Shares [____] [_____] [_____]
Lehman Brothers U.S. Aggregate Index (reflects no deduction for fees, expenses or taxes) [____] [_____] [_____]
* 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. U.S. GOVERNMENT SECURITIES FUND 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 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 and shares of registered money market mutual funds that invest in the foregoing. In an attempt to provide a consistently high dividend without adding undue risk, the Fund focuses its investments in mortgage-backed securities. 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 interest rate risk. 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. Because the Fund may invest in derivatives, it is exposed to additional volatility and potential loss. For further information about these and other risks, see "More Information About Risk." 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. 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% 2006 [___]
BEST QUARTER WORST QUARTER - ----------------- ----------------- [_____] [_____] [_____] [_____]
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/07 to 6/30/07 was [__]%. AVERAGE ANNUAL TOTAL RETURNS This table compares the Fund's average total returns for the periods ended December 31, 2006, 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 [____] [_____] [_____] Fund Returns After Taxes on Distributions [____] [_____] [_____] Fund Returns After Taxes on Distributions and Sale of Fund Shares [____] [_____] [_____]
Merrill Lynch Government/Mortgage Custom Index (reflects no deduction for fees, expenses or taxes) [____] [_____] [_____] Lehman Brothers Intermediate U.S. Government Bond Index (reflects no deduction for fees, expenses or taxes) [____] [_____] [_____]
C Shares 1 Year 5 Years 10 Years - -------- ------ ------- -------- Fund Returns Before Taxes [____] [_____] [_____] Merrill Lynch Government/Mortgage Custom Index (reflects no deduction for fees, expenses or taxes) [____] [_____] [_____] Lehman Brothers Intermediate U.S. Government Bond Index (reflects no deduction for fees, expenses or taxes) [____] [_____] [_____]
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. 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%
* 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." ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
A Shares C Shares -------- -------- Investment Advisory Fees 0.50% 0.50% Distribution and Service (12b-1) Fees 0.30%(1) 1.00% Other Expenses [____] [____] ----- ----- Total Annual Operating Expenses(2) [____] [____]
(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) 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 [____] [_____] [_____] [______] C Shares [____] [_____] [_____] [______]
If you do not sell your shares at the end of the period:
1 Year 3 Years 5 Years 10 Years ------ ------- ------- -------- A Shares [____] [_____] [_____] [______] C Shares [____] [_____] [_____] [______]
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 [__________] the table below reflects the Fund's results calculated without sales charges.
A Shares 1 Year 5 Years 10 Years - -------- ------ ------- -------- Fund Returns Before Taxes [____] [_____] [_____] Fund Returns After Taxes on Distributions [____] [_____] [_____] Fund Returns After Taxes on Distributions and Sale of Fund Shares [____] [_____] [_____] Merrill Lynch Government/Mortgage Custom Index (reflects no deduction for fees, expenses or taxes) [____] [_____] [_____] Lehman Brothers Intermediate U.S. Government Bond Index (reflects no deduction for fees, expenses or taxes) [____] [_____] [_____]
VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND 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 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. 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, 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. 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 may invest in derivatives, it is exposed to additional volatility and potential loss. For further information about these and other risks, see "More Information About Risk." 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. 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% 2006 [____]
BEST QUARTER WORST QUARTER - ----------------- ----------------- [_____] [_____] [_____] [_____]
* The performance information shown above is based on a calendar year. The Fund's total return from 1/1/07 to 6/30/07 was [____]%. AVERAGE ANNUAL TOTAL RETURNS This table compares the Fund's average annual total returns for the periods ended December 31, 2006, 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 Since Inception10 - -------- ------ ------- ----------------- Fund Returns Before Taxes [____] [_____] [_____] Fund Returns After Taxes on Distributions [____] [_____] [_____]
Fund Returns After Taxes on Distributions and Sale of Fund Shares [____] [_____] [_____] Lehman Brothers 5 Year Municipal Bond Index (reflects no deduction for fees, expenses or taxes) [____] [_____] [_____] Lipper Other States Intermediate Municipal Debt Funds Objective (reflects no deduction for taxes) [____] [_____] [_____]
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. 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%
* 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." ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)
A Shares C Shares -------- -------- Investment Advisory Fees 0.55% 0.55%
Distribution and Service (12b-1) Fees 0.15% 1.00% Other Expenses [____] [____] ---- ---- Total Annual Operating Expenses(1) [____] [____]
(1) 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 - -------- -------- 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 [____] [_____] [_____] [______] C Shares [____] [_____] [_____] [______]
If you do not sell your shares at the end of the period:
1 Year 3 Years 5 Years 10 Years ------ ------- ------- -------- A Shares [____] [_____] [_____] [______] C Shares [____] [_____] [_____] [______]
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 [__________] the table below reflects the Fund's results calculated without sales charges.
A Shares 1 Year 5 Years Since Inception10 - -------- ------ ------- ----------------- Fund Returns Before Taxes [____] [_____] [_____] Fund Returns After Taxes on Distributions [____] [_____] [_____] Fund Returns After Taxes on Distributions and Sale of Fund Shares [____] [_____] [_____] Lehman Brothers 5 Year Municipal Bond Index (reflects no deduction for fees, expenses or taxes) [____] [_____] [_____] Lipper Other States Intermediate Municipal Debt Funds Objective (reflects no deduction for taxes) [____] [_____] [_____]
MORE INFORMATION ABOUT RISK BELOW INVESTMENT GRADE RISK 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 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 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 attempting to maintain liquidity. These positions may be established for hedging or speculation 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 premiums or totals paid or received on derivatives are small in relation to the market value of the underlying investments, buying and selling derivatives can be more speculative than investing directly in securities. In addition, many types of derivatives have limited investment lives and may expire or necessitate being sold at inopportune times. 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. To limit leveraging risk, a Fund observes asset segregation requirements to cover its obligations under derivative instruments. By setting aside assets equal only to its net obligations under certain derivative instruments, a Fund will have the ability to employ leverage to a greater extent than if it were required to segregate assets equal to the full notional value of such derivative instruments. EMERGING MARKETS RISK 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 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 gain exposure to a particular portion of the market. 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. An additional risk of debt securities is reinvestment risk, which is the possibility that a Fund may not be able to reinvest interest or dividends earned from an investment in such a way that they earn the same rate of return as the invested funds that generated them. For example, falling interest rates may prevent bond coupon payments from earning the same rate of return as the original bond. Furthermore, pre-funded loans and issues may cause a Fund to reinvest those assets at a rate lower than originally anticipated. FLOATING RATE LOAN RISK 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 or similar investments or receive equal or better individual investment allocations at any given time. FOREIGN SECURITY RISK High Income Fund Intermediate Bond Fund Investment Grade Bond Fund Seix Floating Rate High Income Fund Seix High Yield Fund Short-Term Bond Fund Strategic Income Fund Total Return 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 SECURITIES RISK 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 Total Return Bond 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 Georgia Tax Exempt Bond Fund High Grade Municipal 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. 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 Georgia Tax Exempt Bond Fund High Grade Municipal 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. SECURITIES LENDING RISK All Funds A Fund may lend securities to broker-dealers to earn additional income. Risks include the potential insolvency of the borrower that could result in delays in recovering securities and capital losses. Additionally, losses could result from the reinvestment of collateral received on loaned securities in investments that default or do not perform well. It is also possible that if a security on loan is sold and a Fund is unable to timely recall the security, the Fund may be required to repurchase the security in the market place, which may result in a potential loss to shareholders. As securities on loan may not be voted by the Fund, there is a risk that the Fund may not be able to recall the securities in sufficient time to vote on material proxy matters. 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. When a Fund invests in another mutual fund, in addition to directly bearing expenses associated with its own operations, it will bear a pro rata portion of the other mutual fund's expenses. 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 investment adviser to the Funds. Seix Advisors, a fixed income division of Trusco Capital Management, Inc., manages the following STI Classic Funds: Total Return 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, 2007, Trusco had approximately $[____] 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: Georgia Tax Exempt Bond Fund [____]% High Grade Municipal 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 [____]% Total Return Bond Fund [____]% U.S. Government Securities Fund [____]% Virginia Intermediate Municipal Bond Fund [____]%*
* The Adviser has contractually agreed to waive fees and reimburse expenses of the North Carolina Tax Exempt Bond Fund, the Seix Floating Rate High Income Fund and the Virginia Intermediate Municipal Bond Fund until at least August 1, 2008 in order to keep total operating expenses from exceeding the applicable expense cap. If at any point before August 1, 2010, 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. The following breakpoints are 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, 2007, the asset level 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: [To be updated] * 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' annual report to shareholders for the period ended March 31, 2007. 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 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 High Grade Municipal 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 TOTAL RETURN 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 TOTAL RETURN 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. 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. 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 Adviser reserves the right to open the Funds when the Federal Reserve Bank of New York and/or principal bond markets are open, even if the NYSE 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 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, 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 current day's price and remit proceeds to you via check. The Funds reserve the further right to hold your proceeds until your original check clears the bank. In such an instance, you may be subject to a gain or loss on Fund shares and will be subject to corresponding tax implications. ANTI MONEY LAUNDERING PROGRAM Customer identification and verification is part of the Funds' overall obligation to deter money laundering under federal law. The Funds have adopted an anti money laundering compliance program designed to prevent the Funds from being used for money laundering or the financing of terrorist activities. In this regard, the Funds reserve the right to (i) refuse, cancel or rescind any purchase or exchange order, (ii) freeze any account and/or suspend account services, or (iii) involuntarily redeem your account in cases of threatening conduct or suspected fraudulent or illegal activity. These actions will be taken when, in the sole discretion of Fund management, they are deemed to be in the best interest of the Funds or in cases when the Funds are requested or compelled to do so by governmental or law enforcement authority. SALES CHARGES FRONT END SALES CHARGES A SHARES The offering price of A Shares is the NAV next calculated after a Fund receives your request 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: Total Return Bond Fund High Grade Municipal 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 AS A YOUR SALES CHARGE AS A IF YOUR INVESTMENT IS: PERCENTAGE OF OFFERING PRICE* PERCENTAGE OF YOUR NET INCOME - ---------------------- ----------------------------- ----------------------------- 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 AS A YOUR SALES CHARGE AS A IF YOUR INVESTMENT IS: PERCENTAGE OF OFFERING PRICE* PERCENTAGE OF YOUR NET INCOME - ---------------------- ----------------------------- ----------------------------- 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 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 stepchildren) 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; 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 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. 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 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 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 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. 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 C Shares $5,000 ($2,000 for IRA accounts)
But, the Funds will always give you at least 60 days written notice to give you time to add to your account and avoid the sale of your shares. SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES A Fund may suspend your right to sell your shares if the NYSE restricts trading, the SEC declares an emergency or for other reasons approved by the SEC. More information about this is in the Statement of Additional Information. HOW TO EXCHANGE YOUR SHARES You may exchange your shares on any Business Day by contacting 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. 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 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. 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. Purchase and redemption transactions submitted to the Funds by these intermediaries reflect the transactions of multiple beneficial owners whose individual transactions are not automatically disclosed to the Funds. Therefore, the Funds rely in large part on the intermediaries to aid in their effort to detect and deter frequent trading. If an intermediary notifies a Fund, or the Fund otherwise becomes aware, that frequent trading activity has been detected, the Fund will request the intermediary to take steps to prevent any future frequent trading by such individual. The Funds cannot guarantee the accuracy of the information provided by the intermediaries and may not always be able to track frequent trading effected through these intermediaries. The Funds have the right to terminate an intermediary's ability to invest in the Funds if excessive trading activity persists and the Funds or their Adviser reasonably believes that such termination would be in the best interests of long-term shareholders. Further, the Funds seek to discourage frequent trading by using fair value pricing procedures to fair value certain investments under some circumstances. In addition to the Funds' market timing policies and procedures described above, you may be subject to the market timing policies and procedures of the intermediary through which you invest. Please consult with your intermediary for additional information regarding its frequent trading restrictions. 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 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 ------- -------- Total Return Bond Fund 0.25% 0.25% High Grade Municipal 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 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 High Grade Municipal 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 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 [____] except the information for the period ended May 31, 2004 for the North Carolina Tax Exempt Bond Fund, and the information for each of the three years (or periods) ended October 31, 2003 for the Total Return Bond Fund, Intermediate Bond Fund and Seix High Yield Fund, 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 2007 Annual Report is available upon request and without charge by calling 1-888-STI-FUND or on the Funds' website at www.sticlassicfunds.com. [To be updated] 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 I SHARES PROSPECTUS STI CLASSIC BOND FUNDS Limited Duration Fund Ultra-Short Bond Fund U.S. Government Securities Ultra-Short Bond Fund Investment Adviser: Trusco Capital Management, Inc. (the "Adviser") AUGUST 1, 2007 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 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: Limited Duration Fund [____] Ultra-Short Bond Fund [____] U.S. Government Securities Ultra-Short Bond Fund [____] More Information About Risk [____] More Information About Fund Investments [____] Information About Portfolio Holdings [____] Investment Adviser [____] Portfolio Managers [____] Purchasing, Selling and Exchanging Fund Shares [____] Market Timing Policies and Procedures [____] Dividends and Distributions [____] Taxes [____] Financial Highlights [____] Privacy Policy [____] How to Obtain More Information About the STI Classic Funds [____]
August 1, 2007
FUND NAME CLASS INCEPTION* TICKER CUSIP - --------- -------- ---------- ------ --------- Limited Duration Fund I Shares 10/11/04 SAMLX 78476A405 Ultra-Short Bond Fund I Shares 4/15/02 SISSX 784767642 U.S. Government Securities Ultra-Short Bond Fund I Shares 4/11/02 SIGVX 784767634
* 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 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. 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 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 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. 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. Because the Fund may invest in derivatives, it is exposed to additional volatility and potential loss. For further information about these and other risks, see "More Information About Risk." 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.* 2003 0.97% 2004 1.20% 2005 3.20% 2006 [____]%
BEST QUARTER WORST QUARTER - --------------- --------------- [____] [____] [____] [____]
* The performance information above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/07 was [____]%. AVERAGE ANNUAL TOTAL RETURNS This table compares the Fund's average annual total returns for the periods ended December 31, 2006, 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 [____] [____] Merrill 3 Month Treasury Bill Index [____] [____]
* 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). 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. 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 [____] ------ Total Annual Operating Expenses(1) [____]
(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 - ------ ------- ------- -------- [____] [____] [____] [____]
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 FUND SUMMARY INVESTMENT GOAL High current income consistent with preserving capital and maintaining liquidity INVESTMENT FOCUS Short duration investment grade money market and fixed income securities SHARE PRICE VOLATILITY Low PRINCIPAL INVESTMENT STRATEGY Attempts to identify short duration securities that offer a comparably better return potential and yield than money market funds INVESTOR PROFILE Conservative investors seeking to maximize income consistent with limited share price volatility INVESTMENT STRATEGY 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. 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 interest rate risk. 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. 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. Because the Fund may invest in derivatives, it is exposed to additional volatility and potential loss. For further information about these and other risks, see "More Information About Risk." 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.* 2003 1.16% 2004 1.22% 2005 3.00% 2006 [____]%
BEST QUARTER WORST QUARTER - --------------- --------------- [____] [____] [____] [____]
* The performance information above is based on a calendar year. The Fund's total return from 1/1/06 to 6/30/07 was [____]%. AVERAGE ANNUAL TOTAL RETURNS This table compares the Fund's average annual total returns for the periods ended December 31, 2006, 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.
I SHARES 1 YEAR SINCE INCEPTION* - -------- ------ ---------------- Ultra-Short Bond Fund [____] [____] Citigroup 6-Month Treasury Bill Index [____] [____] iMoneyNet, Inc. First Tier Institutional Average [____] [____] Lipper Ultra-Short Obligation Funds Average [____] [____]
* 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). 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. 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 0.22% Other Expenses [____] ------ Total Annual Operating Expenses(1) [____]
(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 - ------ ------- ------- -------- [____] [____] [____] [____]
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 FUND SUMMARY INVESTMENT GOAL High current income consistent with preserving capital and maintaining liquidity INVESTMENT FOCUS Short duration U.S. government securities SHARE PRICE VOLATILITY Low PRINCIPAL INVESTMENT STRATEGY Attempts to identify short duration U.S. government securities that offer a comparably better return potential and yield than money market funds INVESTOR PROFILE Conservative investors seeking to maximize income consistent with limited share price volatility and the relative safety of U.S. government securities INVESTMENT STRATEGY 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, other U.S. government securities and shares of registered money market mutual funds that invest in the foregoing. 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. 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 interest rate risk. 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. Because the Fund may invest in derivatives, it is exposed to additional volatility and potential loss. For further information about these and other risks, see "More Information About Risk." 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.* 2003 0.72% 2004 1.81% 2005 2.45% 2006 [____]%
BEST QUARTER WORST QUARTER - --------------- --------------- [____] [____] [____] [____]
* The performance information above is based on a calendar year. The Fund's total return from 1/1/07 to 6/30/07 was [____]%. AVERAGE ANNUAL TOTAL RETURNS This table compares the Fund's average annual total returns for the periods ended December 31, 2006, 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 [____] [____] Citigroup 6-Month Treasury Bill Index [____] [____] iMoneyNet, Inc. Government Institutional Average [____] [____] Lipper Ultra-Short Obligation Funds Average [____] [____]
* 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). 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. 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 0.20% Other Expenses [____] ------ Total Annual Operating Expenses(1) [____]
(1) 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 - ------ ------- ------- -------- [____] [____] [____] [____]
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 BELOW INVESTMENT GRADE RISK Limited Duration 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 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 attempting to maintain liquidity. These positions may be established for hedging or speculation 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 premiums or totals paid or received on derivatives are small in relation to the market value of the underlying investments, buying and selling derivatives can be more speculative than investing directly in securities. In addition, many types of derivatives have limited investment lives and may expire or necessitate being sold at inopportune times. 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. To limit leveraging risk, a Fund observes asset segregation requirements to cover its obligations under derivative instruments. By setting aside assets equal only to its net obligations under certain derivative instruments, a Fund will have the ability to employ leverage to a greater extent than if it were required to segregate assets equal to the full notional value of such derivative instruments. EXCHANGE TRADED FUND RISK All Funds The Funds may purchase shares of exchange-traded funds ("ETFs") to gain exposure to a particular portion of the market. 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. An additional risk of debt securities is reinvestment risk, which is the possibility that a Fund may not be able to reinvest interest or dividends earned from an investment in such a way that they earn the same rate of return as the invested funds that generated them. For example, falling interest rates may prevent bond coupon payments from earning the same rate of return as the original bond. Furthermore, pre-funded loans and issues may cause a Fund to reinvest those assets at a rate lower than originally anticipated. FOREIGN SECURITY RISKS Limited Duration Bond 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. MORTGAGE-BACKED SECURITY RISK Ultra-Short Bond 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. SECURITIES LENDING RISK All Funds A Fund may lend securities to broker-dealers to earn additional income. Risks include the potential insolvency of the borrower that could result in delays in recovering securities and capital losses. Additionally, losses could result from the reinvestment of collateral received on loaned securities in investments that default or do not perform well. It is also possible that if a security on loan is sold and a Fund is unable to timely recall the security, the Fund may be required to repurchase the security in the market place, which may result in a potential loss to shareholders. As securities on loan may not be voted by the Fund, there is a risk that the Fund may not be able to recall the securities in sufficient time to vote on material proxy matters. 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. 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. When a Fund invests in another mutual fund, in addition to directly bearing expenses associated with its own operations, it will bear a pro rata portion of the other mutual fund's expenses. 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 investment adviser to the Funds. Seix Advisors, a fixed income division of Trusco Capital Management, Inc., manages the Limited Duration Fund and is located at 10 Mountainview Road, Suite C-200, Upper Saddle River, NJ 07458. As of June 30, 2007, the Adviser had approximately $[ ] billion in assets under management. For the fiscal year ended March 31, 2007, the following Funds paid the Adviser advisory fees (after waivers) based on the respective Fund's average daily net assets of: Limited Duration Fund [____]% Ultra-Short Bond Fund [____]% U.S. Government Securities Ultra-Short Bond Fund [____]%
The following breakpoints are 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: [To be updated] * 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' annual report to shareholders for the period ended March 31, 2007. The Adviser is responsible for making investment decisions for the Funds and continuously reviews, supervises and administers each Fund's respective investment program. 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. 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- 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. 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 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. H. Rick Nelson has served as Managing Director of Trusco since March 2002. He has co-managed 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. Chad Stephens has served as Vice President of Trusco since December 2000 and has co-managed 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 LIMITED DURATION FUND since inception, after serving as Portfolio Manager for the Fund's predecessor Fund, the Seix Limited Duration Fund. 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. 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. 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. 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 Adviser reserves the right to open the Funds when the Federal Reserve Bank of New York and/or principal bond markets are open, even if the NYSE 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, 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 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, 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 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. 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 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. * 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. 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 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. 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. Purchase and redemption transactions submitted to the Funds by these intermediaries reflect the transactions of multiple beneficial owners whose individual transactions are not automatically disclosed to the Funds. Therefore, the Funds rely in large part on the intermediaries to aid in their effort to detect and deter frequent trading. If an intermediary notifies a Fund, or the Fund otherwise becomes aware, that frequent trading activity has been detected, the Fund will request the intermediary to take steps to prevent any future frequent trading by such individual. The Funds cannot guarantee the accuracy of the information provided by the intermediaries and may not always be able to track frequent trading effected through these intermediaries. The Funds have the right to terminate an intermediary's ability to invest in the Funds if excessive trading activity persists and the Funds or their Adviser reasonably believes that such termination would be in the best interests of long-term shareholders. Further, the Funds seek to discourage frequent trading by using fair value pricing procedures to fair value certain investments under some circumstances. In addition to the Funds' market timing policies and procedures described above, you may be subject to the market timing policies and procedures of the intermediary through which you invest. Please consult with your intermediary for additional information regarding its frequent trading restrictions. 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 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. 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 [____], except the information for each of the three years (or periods) ended October 31, 2003 for the Limited Duration Fund. 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 2007 Annual Report is available upon request and without charge by calling 1-888-STI-FUND or on the Funds' website at www.sticlassicfunds.com. 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 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, 2007 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 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: 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 [____] More Information About Risk [____] More Information About Fund Investments [____] Third Party Ratings [____] Investment Adviser [____] Portfolio Managers [____] Purchasing, Selling and Exchanging Fund Shares [____] Market Timing Policies and Procedures [____] Dividends and Distributions [____] Taxes [____] Financial Highlights [____] Privacy Policy [____] How to Obtain More Information About the STI Classic Funds [____]
August 1, 2007
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 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 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 identify money market instruments with the most attractive risk/return trade-off INVESTOR PROFILE Conservative investors seeking current income through a liquid investment 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. 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. For further information about these and other risks, see "More Information About Risk." 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.* 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% 2006 [___]
BEST QUARTER WORST QUARTER - --------------- --------------- [____] [____] [____] [____]
* The performance information above is based on a calendar year. The Fund's total return from 1/1/07 to 6/30/07 was [____]%. AVERAGE ANNUAL TOTAL RETURNS This table compares the Fund's average annual total returns for the periods ended December 31, 2006, 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 [____] [____] [____] iMoneyNet, Inc. First Tier Retail Average [____] [____] [____]
SINCE C SHARES 1 YEAR 5 YEARS INCEPTION* - -------- ------ ------- ---------- Prime Quality Money Market Fund [____] [____] [____] iMoneyNet, Inc. First Tier Retail Average [____] [____] [____]
* 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. 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. 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%
* This 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 0.50% 0.50% Distribution and Service (12b-1) Fees 0.15%(1) 0.25% Other Expenses [____] [____] ------ ------ Total Annual Operating Expenses(2) [____] [____]
(1) 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. 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 [____] [____] [____] [____] C Shares [____] [____] [____] [____]
If you do not sell your shares at the end of the period:
1 Year 3 Years 5 Years 10 Years ------ ------- ------- -------- A Shares [____] [____] [____] [____] C Shares [____] [____] [____] [____]
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 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 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. 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. For further information about these and other risks, see "More Information About Risk." 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.* 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 - --------------- --------------- [____] [____] [____] [____]
* The performance information above is based on a calendar year. The Fund's total return from 1/1/07 to 6/30/07 was [____]%. AVERAGE ANNUAL TOTAL RETURNS This table compares the Fund's average annual total returns for the periods ended December 31, 2006, 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 [____] [____] [____] iMoneyNet, Inc. Tax-Free Retail Average [____] [____] [____]
To obtain information about the Fund's current yield, call 1-888-STI-FUND. 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. 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 1.10% Distribution and Service (12b-1) Fees 0.30% Other Expenses [____] ------ Total Annual Operating Expenses(1) [____]
(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 - ------ ------- ------- -------- [____] [____] [____] [____]
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 FUND SUMMARY INVESTMENT GOAL High current income to the extent consistent with the preservation of capital and the maintenance of liquidity. INVESTMENT FOCUS U.S. Treasury and government agency securities, and repurchase agreements PRINCIPAL INVESTMENT STRATEGY Attempts to increase income without adding undue risk by analyzing yields INVESTOR PROFILE Conservative investors seeking current income through a liquid investment. INVESTMENT STRATEGY The U.S. Government Securities Money Market Fund invests exclusively in U.S. Treasury obligations, obligations issued or guaranteed as to principal and interest by agencies or instrumentalities of the U.S. Government, repurchase agreements involving these securities, and shares of registered money market funds that invest in the foregoing. In selecting investments for the Fund, the Adviser tries to increase income without adding undue risk by analyzing yields. The Adviser actively manages the maturity of the Fund and its portfolio to maximize the Fund's yield based on current market interest rates and the Adviser's outlook on the market. As a money market fund, the Fund follows strict rules about credit risk, maturity and diversification of its investments. WHAT ARE THE 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. For further information about these and other risks, see "More Information About Risk." 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.* 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% 2006 [____]
BEST QUARTER WORST QUARTER - --------------- --------------- [____] [____] [____] [____]
* The performance information above is based on a calendar year. The Fund's total return from 1/1/07 to 6/30/07 was [____]%. AVERAGE ANNUAL TOTAL RETURNS This table compares the Fund's average annual total returns for the periods ended December 31, 2006, 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 [____] [____] [____] iMoneyNet, Inc. Government & Agencies Retail Average [____] [____] [____]
To obtain information about the Fund's current yield, call 1-888-STI-FUND. 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. 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 0.55% Distribution and Service (12b-1) Fees(1) 0.15% Other Expenses [____] ------ Total Annual Operating Expenses(2) [____]
(1) 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. (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 - ------ ------- ------- -------- [____] [____] [____] [____]
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 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 issued and guaranteed by the U.S. Treasury PRINCIPAL INVESTMENT STRATEGY Attempts to increase income without adding undue risk by analyzing yields INVESTOR PROFILE Conservative investors seeking current income through a liquid investment INVESTMENT STRATEGY The U.S. Treasury Money Market Fund invests exclusively in U.S. Treasury obligations, repurchase agreements 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). 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 to maximize the Fund's yield based on current market interest rates and the Adviser's outlook on the market. As a money market fund, the Fund follows strict rules about credit risk, maturity and diversification of its investments. WHAT ARE THE 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. For further information about these and other risks, see "More Information About Risk." 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.* 2004 0.57% 2005 2.34% 2006 [____]
BEST QUARTER WORST QUARTER - ----------------- ----------------- [____] [____] [____] [____]
* The performance information above is based on a calendar year. The Fund's total return from 1/1/07 to 6/30/07 was [____]%. AVERAGE ANNUAL TOTAL RETURNS This table compares the Fund's average annual total returns for the periods ended December 31, 2006, 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 [____] [____] iMoneyNet, Inc. Treasury & Repo Retail Average [____] [____]
* 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. 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. 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 0.54% Distribution and Service (12b-1) Fees 0.15%
Other Expenses [____] ---- Total Annual Operating Expenses(1) [____]
(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 - ------ ------- ------- -------- [____] [____] [____] [____]
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 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 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. 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. 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.* 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 2006 [____]
BEST QUARTER WORST QUARTER - --------------- --------------- [____] [____] [____] [____]
* The performance information above is based on a calendar year. The Fund's total return from 1/1/07 to 6/30/07 was [____]%. AVERAGE ANNUAL TOTAL RETURNS This table compares the Fund's average annual total returns for the periods ended December 31, 2006, 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 [____] [____] [____] iMoneyNet, Inc. Tax-Free Retail Average [____] [____] [____]
To obtain information about the Fund's current yield, call 1-888-STI-FUND. 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. 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 [____] ------ Total Annual Operating Expenses(2) [____]
(1) 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 - ------ ------- ------- -------- [____] [____] [____] [____]
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 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. 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 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. SECURITIES LENDING RISK All Funds A Fund may lend securities to broker-dealers to earn additional income. Risks include the potential insolvency of the borrower that could result in delays in recovering securities and capital losses. Additionally, losses could result from the reinvestment of collateral received on loaned securities in investments that default or do not perform well. It is also possible that if a security on loan is sold and a Fund is unable to timely recall the security, the Fund may be required to repurchase the security in the market place, which may result in a potential loss to shareholders. As securities on loan may not be voted by the Fund, there is a risk that the Fund may not be able to recall the securities in sufficient time to vote on material proxy matters. When a Fund invests in another mutual fund, in addition to directly bearing expenses associated with its own operations, it will bear a pro rata portion of the other mutual fund's expenses. 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
NATIONAL ASSOCIATION STANDARD & POOR'S MOODY'S INVESTOR OF INSURANCE FUND RATING SERVICES SERVICES, INC. COMMISSIONERS ---- ----------------- ---------------- -------------------- U.S. Government Securities AAAm Aaa Class 1 Approved U.S. Treasury Securities AAAm Aaa Class 1 Approved
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 investment adviser to the Funds. As of June 30, 2007, the Adviser had approximately $[____] 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 [____]% Tax-Exempt Money Market Fund [____]% U.S. Government Securities Money Market Fund [____]% U.S. Treasury Money Market Fund [____]% Virginia Tax-Free Money Market Fund [____]%
The following breakpoints are 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, 2007, 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: [To be updated] * 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' annual report to shareholders for the period ended March 31, 2007. 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 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. 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 Bank of New York (the "Fed") are open for business (a "Business Day"). The Adviser reserves the right to open the Funds when the Fed and/or principal bond markets are open, even if the NYSE 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 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 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. 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. 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 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 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 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 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 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. 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 the table that follows. Fees are shown as a percentage of the average daily net assets of A Shares.
Maximum Fee Current 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 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. 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 [____] 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. [To be updated] 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 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, 2007 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 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: Fund Summary [____] Investment Strategy [____] What are the Principal Risks of Investing in this Fund? [____] Performance Information [____] Fund Fees and Expenses [____] More Information About Risk [____] More Information About Fund Investments [____] Third Party Ratings [____] Information About Portfolio Holdings [____] Investment Adviser [____] Portfolio Managers [____] Purchasing and Selling Fund Shares [____] Market Timing Policies and Procedures [____] Dividends and Distributions [____] Taxes [____] Financial Highlights [____] Privacy Policy [____] How to Obtain More Information About the STI Classic Funds [____]
August 1, 2007
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 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 issued and guaranteed by the U.S. Treasury PRINCIPAL INVESTMENT STRATEGY Attempts to increase income without adding undue risk by analyzing yields INVESTOR PROFILE Conservative investors seeking current income through a liquid investment INVESTMENT STRATEGY The Classic Institutional U.S. Treasury Securities Money Market Fund invests exclusively in U.S. Treasury obligations, 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 to maximize the Fund's yield based on current market interest rates and the Adviser's outlook on the market. As a money market fund, the Fund follows strict rules about credit risk, maturity and diversification of its investments. WHAT ARE THE 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. 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.* 2000 5.85% 2001 3.45% 2002 1.35% 2003 0.70%
2004 0.88% 2005 2.66% 2006 [____]
BEST QUARTER WORST QUARTER - --------------- --------------- [____] [____] [____] [____]
* The performance information above is based on a calendar year. The Fund's total return from 1/1/07 to 6/30/07 was [____]%. AVERAGE ANNUAL TOTAL RETURNS This table compares the Fund's average annual total returns for the periods ended December 31, 2006 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.
CORPORATE TRUST SHARES 1 YEAR 5 YEARS SINCE INCEPTION* - ---------------------- ------ ------- ---------------- Classic Institutional U.S. Treasury Securities Money Market Fund [____] [____] [____] iMoneyNet, Inc. Treasury & Repo Retail Average [____] [____] [____]
* 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. 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. 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 0.14% Distribution and Service (12b-1) Fees 0.29% Other Expenses [____] ----- Total Annual Operating Expenses(1) [____]
(1) The Adviser has contractually agreed to waive fees and reimburse expenses until at least August 1, 2008 in order to keep Total Annual Operating Expenses from exceeding 0.45%. If at any point before August 1, 2010, 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 - ------ ------- ------- -------- [____] [____] [____] [____]
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 SECURITIES LENDING RISK The Fund may lend securities to broker-dealers to earn additional income. Risks include the potential insolvency of the borrower that could result in delays in recovering securities and capital losses. Additionally, losses could result from the reinvestment of collateral received on loaned securities in investments that default or do not perform well. It is also possible that if a security on loan is sold and the Fund is unable to timely recall the security, the Fund may be required to repurchase the security in the market place, which may result in a potential loss to shareholders. As securities on loan may not be voted by the Fund, there is a risk that the Fund may not be able to recall the securities in sufficient time to vote on material proxy matters. 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. When a Fund invests in another mutual fund, in addition to directly bearing expenses associated with its own operations, it will bear a pro rata portion of the other mutual fund's expenses. 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. 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, 2007, the Adviser had approximately $[____] billion in assets under management. For the fiscal year ended March 31, 2007, the Adviser received advisory fees (after waivers) of [____]% of the Fund's average daily net assets. The following breakpoints are 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, 2007, 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 annual report to shareholders for the period ended March 31, 2007. 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 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. 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 Bank of New York (the "Fed") are open for business (a "Business Day"). The Adviser reserves the right to open the Fund when the Fed and/or principal bond markets are open, even if the NYSE is closed. 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. 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* 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 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. 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 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. 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 [____]. 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 2007 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. [To be updated] 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 STATEMENT OF ADDITIONAL INFORMATION STI CLASSIC FUNDS AUGUST 1, 2007 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, 2007, 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"):
CORPORATE INSTITUTIONAL TRUST A SHARES B SHARES C SHARES I SHARES SHARES SHARES -------- -------- -------- -------- ------------- --------- EQUITY FUNDS Aggressive Growth Stock 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 Core Equity Fund (formerly, Large Cap Relative Value Fund) [X] [ ] [X] [X] [ ] [ ] Large Cap Growth Stock Fund (formerly, Capital Appreciation Fund) [X] [ ] [X] [X] [ ] [ ] Large Cap Quantitative Equity Fund [X] [ ] [X] [X] [ ] [ ] Large Cap Value Equity Fund [X] [ ] [X] [X] [ ] [ ] Mid-Cap Core Equity Fund (formerly, Mid-Cap Equity Fund) [X] [ ] [X] [X] [ ] [ ] Mid-Cap Value Equity Fund [X] [ ] [X] [X] [ ] [ ] Select Large Cap Growth Stock Fund (formerly, 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 High Income Fund [X] [ ] [X] [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] [X] [ ] [ ] Seix High Yield Fund [X] [ ] [X] [X] [ ] [ ] Short-Term Bond Fund [X] [ ] [X] [X] [ ] [ ] Short-Term U.S. Treasury Securities Fund [X] [ ] [X] [X] [ ] [ ] Strategic Income Fund [X] [ ] [X] [X] [ ] [ ] Total Return Bond Fund (formerly, Core Bond Fund) [ ] [ ] [ ] [X] [ ] [ ]
CORPORATE INSTITUTIONAL TRUST A SHARES B SHARES C SHARES I SHARES SHARES SHARES -------- -------- -------- -------- ------------- --------- 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 Georgia Tax-Exempt Bond Fund [X] [ ] [X] [X] [ ] [ ] High Grade Municipal Bond Fund (formerly, Florida 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 Classic Institutional Cash Management Money Market Fund [ ] [ ] [ ] [ ] [X] [ ] Classic Institutional Municipal Reserve Cash Management Money Market Fund [ ] [ ] [ ] [ ] [X] [ ] Classic Institutional U.S. Government Securities Money Market Fund [ ] [ ] [ ] [ ] [X] [ ] Classic Institutional U.S. Treasury [ ] [ ] [ ] [ ] [X] [X] Securities Money Market Fund [ ] 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 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 dated August 1, 2007. 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.................................................................... DESCRIPTION OF PERMITTED INVESTMENTS......................................... INVESTMENT LIMITATIONS....................................................... THE ADVISER.................................................................. THE SUBADVISER............................................................... THE PORTFOLIO MANAGERS....................................................... THE ADMINISTRATOR............................................................ THE DISTRIBUTOR.............................................................. THE TRANSFER AGENT........................................................... THE CUSTODIAN................................................................ INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM................................ LEGAL COUNSEL................................................................ TRUSTEES AND OFFICERS OF THE TRUST........................................... PURCHASING AND REDEEMING SHARES.............................................. DETERMINATION OF NET ASSET VALUE............................................. TAXES........................................................................ FUND TRANSACTIONS............................................................ PORTFOLIO TURNOVER RATE...................................................... PORTFOLIO HOLDINGS........................................................... DESCRIPTION OF SHARES........................................................ VOTING RIGHTS................................................................ SHAREHOLDER LIABILITY........................................................ LIMITATION OF TRUSTEES' LIABILITY............................................ CODES OF ETHICS.............................................................. PROXY VOTING................................................................. 5% AND 25% SHAREHOLDERS...................................................... FINANCIAL STATEMENTS......................................................... 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 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. 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. 1 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. 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. 2 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 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 3 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: 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. 4 Consequently, the securities of smaller companies are less likely to be liquid, may have limited market stability, and may be subject to more abrupt or erratic market movements than securities of larger, more established growth companies or the market averages in general. EQUITY-LINKED SECURITIES. A Fund may invest in equity-linked securities, including, among others, PERCS, ELKS or LYONs, which are securities that are convertible into, or the value of which is based upon the value of, equity securities upon certain terms and conditions. The amount received by an investor at maturity of such securities is not fixed but is based on the price of the underlying common stock. It is impossible to predict whether the price of the underlying common stock will rise or fall. Trading prices of the underlying common stock will be influenced by the issuer's operational results, by complex, interrelated political, economic, financial or other factors affecting the capital markets, the stock exchanges on which the underlying common stock is traded and the market segment of which the issuer is a part. In addition, it is not possible to predict how equity-linked securities will trade in the secondary market. The market for such securities may be shallow, and high volume trades may be possible only with discounting. In addition to the foregoing risks, the return on such securities depends on the creditworthiness of the issuer of the securities, which may be the issuer of the underlying securities or a third-party investment banker or other lender. The creditworthiness of such third-party issuer equity-linked securities may, and often does, exceed the creditworthiness of the issuer of the underlying securities. The advantage of using equity-linked securities over traditional equity and debt securities is that the former are income producing vehicles that may provide a higher income than the dividend income on the underlying equity securities while allowing some participation in the capital appreciation of the underlying equity securities. Another advantage of using equity-linked securities is that they may be used for hedging to reduce the risk of investing in the generally more volatile underlying equity securities. The following are three examples of equity-linked securities. A Fund may invest in the securities described below or other similar equity-linked securities. 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 5 yield on LYONs, typically, is lower-than-market rate for debt securities of the same maturity, due in part to the fact that the LYONs are convertible into common stock of the issuer at any time at the option of the holder of the LYONs. Commonly, the LYONs are redeemable by the issuer at any time after an initial period or if the issuer's common stock is trading at a specified price level or better, or, at the option of the holder, upon certain fixed dates. The redemption price typically is the purchase price of the LYONs plus accrued original issue discount to the date of redemption, which amounts to the lower-than-market yield. 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(R), DIAMONDSSM, NASDAQ 100 Index Tracking StockSM ("QQQs SM") and iShares(R). A Fund could purchase an ETF to gain exposure to a portion of the U.S. or foreign market. 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 6 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 ("Forward 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 Forward 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. When a Fund purchases or sells a Forward Contract, the Fund is required to "cover" its position in order to limit leveraging and related risks. To cover its long position, a Fund will segregate or earmark liquid assets with the Fund's custodian that, when added to any amounts deposited as margin, are equal to the value of the Forward Contract or otherwise "cover" its position in a manner consistent with the 1940 Act or the rules and Securities and Exchange Commission ("SEC") interpretations thereunder. To cover its short position, a Fund will segregate or earmark liquid assets with the Fund's custodian that, when added to any amounts deposited as margin, are equal to the value of the currencies underlying the Forward Contract (but are not less than the market price at which the short position was established). The segregated account functions as a practical limit on the amount of leverage which the Fund may 7 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. 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 long position, a Fund will segregate or earmark liquid assets with the Fund's custodian that, when added to any amounts deposited as margin, are equal to the purchase price of the futures contract or otherwise "cover" its position in a manner consistent with the 1940 Act or the rules and SEC interpretations thereunder. To cover its short position, a Fund will segregate or earmark liquid assets with the Fund's custodian that, when added to any amounts deposited as margin, are equal to the value of the instruments or currencies underlying the futures contract (but are not less than the market price at which the short position was established). 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 8 instruments with prices which are expected to move relatively consistently with the call option. A Fund may cover its sale of a put option on a futures contract by taking a short position in the underlying futures contract at a price greater than or equal to the strike price of the put option, or, if the short position in the underlying futures contract is established at a price less than the strike price of the written put, the fund will maintain in a segregated account cash or liquid securities equal in value to the difference between the strike price of the put and the price of the futures contract. A Fund may also cover its sale of a put option by taking positions in instruments with prices, which are expected to move relatively consistently with the put option. There are significant risks associated with a Fund's use of futures contracts and related options, including the following: (1) the success of a hedging strategy may depend on the Adviser's ability to predict movements in the prices of individual securities, fluctuations in markets and movements in interest rates, (2) there may be an imperfect or no correlation between the changes in market value of the securities held by the Fund and the prices of futures and options on futures, (3) there may not be a liquid secondary market for a futures contract or option, (4) trading restrictions or limitations may be imposed by an exchange, and (5) government regulations may restrict trading in futures contracts and options on futures. In addition, some strategies reduce a Fund's exposure to price fluctuations, while others tend to increase its market exposure. GUARANTEED INVESTMENT CONTRACTS (GICS). A GIC is a general obligation of the issuing insurance company and not a separate account. The purchase price paid for a GIC becomes part of the general assets of the issuer, and the contract is paid at maturity from the general assets of the issuer. Generally, GICs are not assignable or transferable without the permission of the issuing insurance company. For this reason, an active secondary market in GICs does not currently exist and GICs are considered to be illiquid investments. HEDGING TECHNIQUES. Hedging is an investment strategy designed to offset investment risks. Hedging activities include, among other things, the use of options and futures. There are risks associated with hedging activities, including: (i) the success of a hedging strategy may depend on an ability to predict movements in the prices of individual securities, fluctuations in markets, and movements in interest rates; (ii) there may be an imperfect or no correlation between the changes in market value of the securities held by a Fund and the prices of futures and option on futures; (iii) there may not be a liquid secondary market for a futures contract or option; and (iv) trading restrictions or limitations may be imposed by an exchange, and government regulations may restrict trading in futures contracts and options. HIGH YIELD SECURITIES. High yield securities, commonly referred to as junk bonds, are debt obligations rated below investment grade, i.e., below BBB by Standard & Poor's Ratings Group ("S&P") or Baa by Moody's Investors Service, Inc. ("Moody's"), or their unrated equivalents. The risks associated with investing in high yield securities include: 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. 9 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 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 Money Market Funds) 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 10 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(R) 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(R) 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 11 direct obligation of the borrower. Under the terms of a Loan Participation, the Fund may be regarded as a creditor of the intermediary bank (rather than of the underlying corporate borrower), so that the Fund may also be subject to the risk that the intermediary bank may become insolvent. The secondary market for loan participations is limited and any such participation purchased by the Fund may be regarded as illiquid. MEDIUM-TERM NOTES. Medium-term notes are periodically or continuously offered corporate or agency debt that differs from traditionally underwritten corporate bonds only in the process by which they are issued. MONEY MARKET SECURITIES. Money market securities include short-term U.S. government securities; custodial receipts evidencing separately traded interest and principal components of securities issued by the U.S. Treasury; commercial paper rated in the highest short-term rating category by a nationally recognized statistical ratings organization ("NRSRO"), such as S&P or Moody's, or determined by the Adviser to be of comparable quality at the time of purchase; short-term bank obligations (certificates of deposit, time deposits and bankers' acceptances) of U.S. commercial banks with assets of at least $1 billion as of the end of their most recent fiscal year; and repurchase agreements involving such securities. Each of these money market securities are described herein. For a description of ratings, see Appendix A to this SAI. MORTGAGE-BACKED SECURITIES. 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 12 structure, payments of principal (including any principal prepayments) on the Underlying Assets are applied to the classes of a series of MBS in the order of their respective stated maturities so that no payment of principal will be made on any class of MBS until all other classes having an earlier stated maturity have been paid in full. An important feature of MBS is that the principal amount is generally subject to partial or total prepayment at any time because the Underlying Assets (i.e., loans) generally may be prepaid at any time. Private pass-through securities are mortgage-backed securities issued by a non-governmental agency, such as a trust. While they are generally structured with one or more types of credit enhancement, private pass-through securities generally lack a guarantee by an entity having the credit status of a governmental agency or instrumentality. The two principal types of private mortgage-backed securities are collateralized mortgage obligations ("CMOs") and real estate mortgage investment conduits ("REMICs"). CMOs are collateralized mortgage obligations, which are collateralized by mortgage pass-through securities. Cash flows from the mortgage pass-through securities are allocated to various tranches (a "tranche" is essentially a separate security) in a predetermined, specified order. Each tranche has a stated maturity - the latest date by which the tranche can be completely repaid, assuming no prepayments - and has an average life - the average of the time to receipt of a principal payment weighted by the size of the principal payment. The average life is typically used as a proxy for maturity because the debt is amortized (repaid a portion at a time), rather than being paid off entirely at maturity, as would be the case in a straight debt instrument. Although some of the mortgages underlying CMOs may be supported by various types of insurance, and some CMOs may be backed by GNMA certificates or other mortgage pass-throughs issued or guaranteed by U.S. government agencies or instrumentalities, the CMOs themselves are not generally guaranteed. 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. 13 MUNICIPAL LEASE OBLIGATIONS. Municipal lease obligations are securities issued by state and local governments and authorities to finance the acquisition of equipment and facilities. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a participation interest in any of the above. MUNICIPAL SECURITIES. Municipal bonds include general obligation bonds, revenue or special obligation bonds, private activity and industrial development bonds and participation interests in municipal bonds. General obligation bonds are backed by the taxing power of the issuing municipality. Revenue bonds are backed by the revenues of a project or facility (for example, tolls from a bridge). Certificates of participation represent an interest in an underlying obligation or commitment, such as an obligation issued in connection with a leasing arrangement. The payment of principal and interest on private activity and industrial development bonds generally is totally dependent on the ability of a facility's user to meet its financial obligations and the pledge, if any, of real and personal property as security for the payment. Municipal notes consist of general obligation notes, tax anticipation notes (notes sold to finance working capital needs of the issuer in anticipation of receiving taxes on a future date), revenue anticipation notes (notes sold to provide needed cash prior to receipt of expected non-tax revenues from a specific source), bond anticipation notes, certificates of indebtedness, demand notes and construction loan notes. A Fund's investments in any of the notes described above will be limited to those obligations (i) where both principal and interest are backed by the full faith and credit of the United States, (ii) which are rated MIG-2 or V-MIG-2 at the time of investment by Moody's, (iii) which are rated SP-2 at the time of investment by S&P, or (iv) which, if not rated by S&P or Moody's, are in the Adviser's judgment, of at least comparable quality to MIG-2, VMIG-2 or SP-2. 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 14 case may be, must, in the Adviser's opinion, be equivalent to the long-term bond or commercial paper ratings stated above. The Adviser will monitor the earning power, cash flow and liquidity ratios of the issuers of such instruments and the ability of an issuer of a demand instrument to pay principal and interest on demand. The Adviser may purchase other types of tax-exempt instruments as long as they are of a quality equivalent to the bond or commercial paper ratings stated above. The Adviser has the authority to purchase securities at a price which would result in a yield to maturity lower than that generally offered by the seller at the time of purchase when they can simultaneously acquire the right to sell the securities back to the seller, the issuer, or a third-party (the "writer") at an agreed-upon price at any time during a stated period or on a certain date. Such a right is generally denoted as a "standby commitment" or a "put." The purpose of engaging in transactions involving puts is to maintain flexibility and liquidity in order to meet redemptions and remain as fully invested as possible in municipal securities. The right to put the securities depends on the writer's ability to pay for the securities at the time the put is exercised. The Funds will limit their put transactions to those with institutions which the Adviser believes present minimum credit risks, and the Adviser will use its best efforts to initially determine and thereafter monitor the financial strength of the put providers by evaluating their financial statements and such other information as is available in the marketplace. It may, however, be difficult to monitor the financial strength of the writers where adequate current financial information is not available. In the event that any writer is unable to honor a put for financial reasons, the affected Fund would be a general creditor (i.e., on parity with all other unsecured creditors) of the writer. Furthermore, particular provisions of the contract between a Fund and the writer may excuse the writer from repurchasing the securities in certain circumstances (for example, a change in the published rating of the underlying municipal securities or any similar event that has an adverse effect on the issuer's credit); or a provision in the contract may provide that the put will not be exercised except in certain special cases, for example, to maintain portfolio liquidity. A Fund could, however, sell the underlying portfolio security in the open market or wait until the portfolio security matures, at which time it should realize the full par value of the security. Municipal securities purchased subject to a put may be sold to third persons at any time, even though the put is outstanding, but the put itself, unless it is an integral part of the security as originally issued, may not be marketable or otherwise assignable. Sale of the securities to third parties or lapse of time with the put unexercised may terminate the right to put the securities. Prior to the expiration of any put option, a Fund could seek to negotiate terms for the extension of such an option. If such a renewal cannot be negotiated on terms satisfactory to a Fund, the Fund could, of course, sell the portfolio security. The maturity of the underlying security will generally be different from that of the put. There will be no limit to the percentage of portfolio securities that the Funds may purchase subject to a put. For the purpose of determining the "maturity" of securities purchased subject to an option to put, and for the purpose of determining the dollar-weighted average maturity of the Funds including such securities, the Trust will consider "maturity" to be the first date on which it has the right to demand payment from the writer of the put although the final maturity of the security is later than such date. Other types of tax-exempt instruments, which are permissible investments include floating rate notes. Investments in such floating rate instruments will normally involve industrial development or revenue bonds which provide that the rate of interest is set as a specific percentage of a designated base rate (such as the prime rate) at a major commercial bank, and that the Fund can demand payment of the obligation at all times or at stipulated dates on short notice (not to exceed 30 days) at par plus accrued interest. Such obligations are frequently secured by letters of credit or other credit support arrangements provided by banks. The quality of the underlying credit or of the bank, as the case may be, must, in the Adviser's opinion, be equivalent to the long-term bond or commercial paper ratings stated above. The Adviser will monitor the earning power, cash flow and liquidity ratios of the issuers of 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 15 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. 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. A 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. A Fund may invest up to 10% of its total assets in "Participations." Participations by a Fund in a Loan Investor's portion of a Senior Loan typically will result in a Fund having a contractual relationship only with such Loan Investor, not with the borrower. As a result, a 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, a 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 a Fund may not directly benefit from the collateral supporting the Senior Loan in which it has purchased the Participation. As a result, a 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, a 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 a 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. A Fund will only acquire Participations if the Loan Investor selling the Participation, and any other persons interpositioned between a 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 16 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, a 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 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, a 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 a 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, a 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, a Fund may receive a prepayment penalty fee upon the prepayment of a Senior Loan by a borrower. Other fees received by a 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. A Fund will generally rely upon the Agent or an intermediate participant to receive and forward to a Fund its portion of the 17 principal and interest payments on the Senior Loan. Furthermore, unless under the terms of a Participation Agreement a Fund has direct recourse against the borrower, a 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, a Fund will perform such tasks on its own behalf, although a collateral bank will typically hold any collateral on behalf of a 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, 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 a Fund were determined to be subject to the claims of the Agent's general creditors, a 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 a Fund derives interest income will be reduced. However, a 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 a Fund's performance because a 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 a 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 a Fund or may be intermediate participants with respect to Senior Loans in which a Fund owns interests. Such banks may also act as Agents for Senior Loans held by a Fund. A 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, a 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, a 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 a Fund. As a matter of policy, a Fund will not consider equity securities to be eligible holdings. A 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 18 obligations. Bridge loans are often unrated. A 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. A 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, a 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. If a borrower becomes involved in bankruptcy proceedings, a court may invalidate a Fund's security interest in the loan collateral or subordinate a 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 a 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 a 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 a Fund's security interest in loan collateral. If a 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, a Fund would have substantially lower recovery, and perhaps no recovery on the full amount of the principal and interest due on the Loan, or a Fund could also have to refund interest (see the prospectus for additional information). A 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 a Fund's purchase of a Senior Loan. A 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 a 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 19 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 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 2007 with revenue collections for the fiscal year to date exceeding 2006 levels by 5.8%, led by the 7.4% advance in individual income tax receipts. On April 19, 2007, Governor Sonny Perdue vetoed the State's amended fiscal year 2007 budget, stating in a press release that it did not meet constitutional requirements or the needs of Georgia residents. Governor Perdue is yet to announce details of a special session of the legislature he planned to call in order to pass a balanced 2007 budget. In a March 2007 report, Moody's Investors Service praised the State of Georgia's conservative fiscal practices, replenishment of reserves from revenue growth, and well-funded pensions, while acknowledging the State's lack of some financial best practices, a large liability for state employees' other post employment benefits, and exposure to the housing market decline. 20 The State's unemployment rate for March, 2007 was 4%, 0.4% below the national average of 4.4%. 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 Georgia Tax-Exempt Bond 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 mild national recession earlier this decade. The Port of Baltimore's activity, the State's proximity to the vibrant Washington D C metropolitan area, and higher defense and homeland security spending all benefit the State's economy which remains as affected, proportionately, by Federal governmental spending as any state. Manufacturing continues to decline as a source of employment to area residents and in 2005 is estimated to have provided jobs for only 5.5% of the workforce, about one half of the national level. Military base realignment and closure is expected to have a positive impact by increasing military presence and related service industry employment. Maryland's annual average unemployment rate was estimated at 3.8% for 2006 compared to the national level of 4.6% and per capita income is nearly 122% of the national average, ranking the State as the fourth wealthiest. Strong state revenue growth resumed in 2005 after several years of weakness and increased 13% over the prior year. Fiscal 2006 growth was 7.3% and 5% growth was initially budgeted for 2007 and 2008. More recently these forecasts have been lowered based on weakening in construction and slower corporate income and sales tax collections. The State's Revenue Stabilization Accounts are projected to reach nearly 11% of revenues this year but are expected to be drawn down in the 2008 year. New spending in public education and rising Medicaid costs are issues to be dealt with as is the State's approach to funding future retiree health costs that have not been previously funded. The State's general obligation bonds are rated AAA by each of the major rating services and are amortized rapidly over just 15 years, allowing for a constant replenishment of borrowing capacity. According to Moody's Investors Service, net tax supported debt per capita at $1,171 appears high compared to the national average of $787 (18th ranked) but this ranking improves when debt is compared to income levels (22nd ranked.) Moody's also cites the State's strong financial management, reserves and economy as credit strengths. The AAA ratings apply to the State's direct debt and may not be indicative of the rating on other securities that the Maryland Municipal Bond Fund may invest in. It also cannot be assured that the State will maintain its current rating and debt profile. - - FACTORS PERTAINING TO NORTH CAROLINA The State of North Carolina ended February 2007 with revenue collections for the fiscal year to date exceeding 2006 levels by 8.9%, led by the 24.1% advance in corporate income tax receipts. The State's fiscal year ends on June 30, 2007. Total General Fund revenues currently exceed budget by over $520 million. In an April 30, 2007, memorandum to General Assembly Appropriation and Finance Committee chairs, the State's Fiscal Research Division increased its revenue surplus estimate for the current fiscal year to $1.1 billion and estimated 4.6% baseline General Fund revenue growth for fiscal 2007-2008. In a January, 2007 rating update, Moody's Investors Service upgraded the State of North Carolina's general obligation debt rating to "Aaa" from "Aa1," and changed the rating outlook to stable from positive. The report lauded the state's financial performance, increasing General Fund balances, and history of strong financial management, while acknowledging the challenges posed by education financing needs and a rising debt burden. 21 The State's unemployment rate for March, 2007 was 4.5%, 0.1% above the national average of 4.4%. North Carolina's general obligation debt also carries "AAA" ratings from 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 North Carolina Tax-Exempt Bond 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. Technology and telecom sector employment was affected by the slowdown early in the current decade but rebounded nicely in 2004 and 2005. Non farm payroll growth slowed in 2006 to 1.7% from the levels of 2.5% and 2.4% the prior two years but still exceeded the national growth rate of 1.4%. The State's unemployment rate was 3.1% in December 2006 compared to the national rate of 4.5%. Jobs continue to be lost in textiles and furniture, sectors hit hard by competition from imports, but growth in defense and homeland security spending in Northern Virginia and Hampton Roads has been an engine for growth in recent years. A booming construction sector has aided the economies of the metropolitan areas but housing sales were slowing in 2006, especially in Northern Virginia. Personal income remains the highest of the Southeastern states and in 2005 was $38,390 per capita, or 111% of the national average. General Fund Revenues increased 8.4% in fiscal 2006 compared to the prior year. Revenue for 2007 is expected to grow 6.5% based on a revised forecast made in December 2006, however, revenue was lagging that forecast at the time of the revision. The State's Revenue Stabilization Fund reached its cap of $1 billion after the strong fiscal 2006 performance. Virginia has historically maintained low debt levels, however, growth in outstanding tax supported debt by various state authorities has pushed the state higher in the rankings. Moody's Investors Service calculates Virginia's net tax supported debt per capita at $692 compared to the national average of $787, ranking the State 29th. Based on net debt to personal income, Virginia ranked much lower (36th) at 1.8% compared to the 2.4% national average. Each of the major rating agencies ranks Virginia's general obligation bonds AAA and Moody's cites its conservative fiscal management, diverse economy and low but growing debt burden, as strengths. These ratings apply to the State's direct debt and may not be indicative of the rating on other securities that the Virginia Intermediate Municipal Bond Fund may invest in. It also cannot be assured that the State will maintain its current rating and debt profile. 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 a Fund's limitation on the purchase of illiquid securities (usually 15% of a fund's net assets, 10% for the Money Market Funds), unless a 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 a 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 a 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 a 22 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 a 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. A Fund's investments in illiquid securities are subject to the risk that should a 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 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 23 on price movements in the particular market represented by the index generally, rather than the price movements in individual securities. The initial purchase (sale) of an option contract is an "opening transaction." In order to close out an option position, a Fund may enter into a "closing transaction," which is simply the sale (purchase) of an option contract on the same security with the same exercise price and expiration date as the option contract originally opened. If a Fund is unable to effect a closing purchase transaction with respect to an option it has written, it will not be able to sell the underlying security until the option expires or the Fund delivers the security upon exercise. A Fund may purchase and write options on an exchange or over-the-counter. Over-the-counter options ("OTC options") differ from exchange-traded options in several respects. They are transacted directly with dealers and not with a clearing corporation, and therefore entail the risk of non-performance by the dealer. OTC options are available for a greater variety of securities and for a wider range of expiration dates and exercise prices than are available for exchange-traded options. Because OTC options are not traded on an exchange, pricing is done normally by reference to information from a market maker. It is the SEC's position that OTC options are generally illiquid. The market value of an option generally reflects the market price of an underlying security. Other principal factors affecting market value include supply and demand, interest rates, the pricing volatility of the underlying security and the time remaining until the expiration date. A Fund must cover all options it writes. For example, when a Fund writes an option on a security, index or foreign currency, it will segregate or earmark liquid assets with the Fund's custodian in an amount at least equal to the market value of the option and will maintain such coverage while the option is open. A Fund may otherwise cover the transaction by means of an offsetting transaction or other means permitted by the 1940 Act or the rules and SEC interpretations thereunder. Each Fund may trade put and call options on securities, securities indices or currencies, as the investment adviser or sub-adviser determines is appropriate in seeking the Fund's investment objective. For example, 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. 24 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. 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 25 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 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. 26 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 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 27 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. 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) earmark or maintain in a segregated account cash or liquid securities at such a level that (i) the amount earmarked or 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 earmarked or 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 28 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, for Money Market Funds, STRIPS 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 29 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 swap agreements for purposes of attempting to gain exposure to the securities making up an index without actually purchasing those instruments, to hedge a position or to gain exposure to a particular instrument or currency.. 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 earmarking or 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 30 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 earmarked or maintained in a segregated account by the Fund's custodian. In as much as these transactions are entered into for hedging purposes or are offset by segregated cash of liquid assets, as permitted by applicable law, the 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"). 31 - RECEIPTS. Interests in separately traded interest and principal component parts of U.S. government obligations that are issued by banks or brokerage firms and are created by depositing U.S. government obligations into a special account at a custodian bank. The custodian holds the interest and principal payments for the benefit of the registered owners of the certificates or receipts. The custodian arranges for the issuance of the certificates or receipts evidencing ownership and maintains the register. TRs and STRIPS are interests in accounts sponsored by the U.S. Treasury. Receipts are sold as zero coupon securities. - TREASURY INFLATION PROTECTED NOTES ("TIPS"). TIPS are securities issued by the U.S. Treasury that are designed to provide inflation protection to investors. TIPS are income-generating instruments whose interest and principal payments are adjusted for inflation. The inflation adjustment, which is typically applied monthly to the principal of the bond, follows a designated inflation index, such as the consumer price index. A fixed coupon rate is applied to the inflation-adjusted principal so that as inflation rises, both the principal value and the interest payments increase. This can provide investors with a hedge against inflation, as it helps preserve the purchasing power of an investment. Because of this inflation adjustment feature, inflation-protected bonds typically have lower yields than conventional fixed-rate bonds. - ZERO COUPON OBLIGATIONS. Zero coupon obligations are debt obligations that do not bear any interest, but instead are issued at a deep discount from face value or par. The value of a zero coupon obligation increases over time to reflect the interest accumulated. These obligations will not result in the payment of interest until maturity, and will have greater price volatility than similar securities that are issued at face value or par and pay interest periodically. - U.S. GOVERNMENT ZERO COUPON SECURITIES. STRIPS and receipts are sold as zero coupon securities, that is, fixed income securities that have been stripped of their unmatured interest coupons. Zero coupon securities are sold at a (usually substantial) discount and redeemed at face value at their maturity date without interim cash payments of interest or principal. The amount of this discount is accreted over the life of the security, and the accretion constitutes the income earned on the security for both accounting and tax purposes. Because of these features, the market prices of zero coupon securities are generally more volatile than the market prices of securities that have similar maturity but that pay interest periodically. Zero coupon securities are likely to respond to a greater degree to interest rate changes than are non-zero coupon securities with similar maturity and credit qualities. See "Mortgage-Backed Securities." - 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 32 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. INVESTMENT LIMITATIONS FUNDAMENTAL POLICIES In addition to the 80% investment policy of the Classic Institutional Municipal Cash Reserve Money Market Fund, Georgia Tax-Exempt Bond Fund, High Grade Municipal 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 and 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. 33 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. 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 that is subject to Rule 35d-2 under the 1940 Act, except the Classic Institutional Municipal Cash Reserve Money Market Fund, Georgia Tax-Exempt Bond Fund, High Grade Municipal 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, Virginia Tax-Free Money Market Fund and Strategic Income Fund, any 34 change to a Fund's investment policy of investing at least 80% of such Fund's net assets in a particular type or category of securities is subject to 60 days prior notice to shareholders. 2. No Fund may purchase or hold illiquid securities (i.e., securities that cannot be disposed of for their approximate carrying value in seven days or less (which term includes repurchase agreements and time deposits maturing in more than seven days) if, in the aggregate, more than 15% of its net assets (10% for the Money Market Funds) would be invested in illiquid securities. 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 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, 2007, the Adviser had discretionary management authority with respect to approximately $[____] billion of assets under management. ADVISORY AGREEMENT WITH THE TRUST. Trusco serves as the investment adviser to each Fund pursuant to an investment advisory agreement (the "Advisory Agreement"). 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 Total Return Bond Fund, Intermediate Bond Fund, Seix High Yield Fund and Limited Duration Fund (the "Seix Funds"), respectively. Under the terms of the 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 the Advisory Agreement, after the first 2 years, must be specifically approved at least annually (i) by the vote of the 35 Board or by a vote of the shareholders of the Fund, and (ii) by the vote of a majority of the Trustees who are not parties to the Advisory Agreement or "interested persons" of any party thereto, as defined in the 1940 Act, cast in person at a meeting called for the purpose of voting on such approval. The Advisory Agreement will terminate automatically in the event of its assignment, and 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 Agreement provides that the Adviser shall not be protected against any liability to the Trust or its shareholders by reason of willful misfeasance, bad faith or gross negligence on its part in the performance of its duties or from reckless disregard of its obligations or duties thereunder. The Advisory Agreement provides that if, for any fiscal year, the ratio of expenses of 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 Agreement, 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 listed in the table that follows. Each Fund allocates and pays advisory fees among its constituent classes based on the aggregate daily net asset values of each such class.
FUND FEE - ---- ---- Aggressive Growth Stock 1.10% Classic Institutional Cash Management Money Market 0.12% Classic Institutional Municipal Cash Reserve Money Market 0.15% Classic Institutional U.S. Government Securities Money Market 0.15% Classic Institutional U.S. Treasury Securities Money Market 0.14% Emerging Growth Stock 1.10% Georgia Tax-Exempt Bond 0.55% High Grade Municipal Bond 0.55% High Income 0.60% 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 Core Equity 0.85% Large Cap Growth Stock 0.97% Large Cap Quantitative Equity 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% Maryland Municipal Bond 0.55% Mid-Cap Core Equity 1.00% Mid-Cap Value Equity 1.00% North Carolina Tax-Exempt Bond 0.55% Prime Quality Money Market 0.55%
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FUND FEE - ---- ---- Seix Floating Rate High Income 0.45% Seix High Yield 0.45% Select Large Cap Growth Stock 0.85% 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 Fund 0.25% 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 $5.0 billion = 20% discount from full fee As discussed in the prospectuses, the Adviser has contractually agreed to waive a portion of its fees or reimburse expenses, with respect to certain Funds, in order to limit Fund expenses. For the years ended March 31, 2007 and March 31, 2006, the fiscal period ended March 31, 2005, and the fiscal year ended May 31, 2004, the Funds, except the Seix Funds, paid the following advisory fees:
FEES PAID ($) FEES WAIVED ($) ------------------------------------------- --------------------------------------- FUND* 2007 2006 2005** 2004 2007 2006 2005** 2004 - ----- ------ ----------- ---------- ---------- ------ --------- --------- --------- Aggressive Growth Stock [____] 1,230,000 468,000 26,000 [____] 39,000 83,000 10,000 Classic Institutional Cash Management Money Market [____] 4,413,000 4,372,000 5,543,000 [____] 626,000 1,483,000 740,000 Classic Institutional Municipal Cash Reserve Money Market [____] 82,000 *** *** [____] 7,000 *** ***
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FEES PAID ($) FEES WAIVED ($) ------------------------------------------- --------------------------------------- FUND* 2007 2006 2005** 2004 2007 2006 2005** 2004 - ----- ------ ----------- ---------- ---------- ------ --------- --------- --------- Classic Institutional U.S. Government Securities Money Market [____] 1,520,000 1,492,000 1,967,000 [____] 3,000 73,000 84,000 Classic Institutional U.S. Treasury Securities Money Market [____] 4,426,000 3,487,000 3,982,000 [____] 8,000 185,000 274,000 Emerging Growth Stock [____] 342,000 173,000 19,000 [____] 24,000 62,000 90,000 Georgia Tax-Exempt Bond [____] 687,000 597,000 724,000 [____] 69,000 152,000 271,000 High Grade Municipal Bond [____] 1,076,000 988,000 1,219,000 [____] 18,000 38,000 54,000 High Income [____] 574,000 809,000 1,173,000 [____] 74,000 120,000 57,000 International Equity [____] 8,023,000 4,272,000 3,256,000 [____] 113,000 318,000 278,000 International Equity Index [____] 3,831,000 3,208,000 2,651,000 [____] 4,000 101,000 155,000 Investment Grade Bond [____] 3,394,000 3,714,000 5,400,000 [____] Investment Grade Tax-Exempt Bond [____] 1,855,000 1,640,000 1,740,000 [____] 3,000 67,000 79,000 Large Cap Core Equity [____] 11,260,000 7,265,000 7,647,000 [____] *** 0 0 Large Cap Growth Stock [____] 15,897,000 16,606,000 16,252,000 [____] 10,000 38,000 9,000 Large Cap Quantitative Equity [____] 1,505,000 782,000 355,000 [____] 51,000 101,000 77,000 Large Cap Value Equity [____] 7,082,000 5,943,000 6,572,000 [____] *** 0 0 Life Vision Aggressive Growth [____] 79,000 98,000 44,000 [____] 23,000 51,000 51,000 Life Vision Conservative [____] 13,000 12,000 4,000 [____] 21,000 22,000 6,000 Life Vision Growth and Income [____] 169,000 210,000 111,000 [____] 42,000 93,000 90,000 Life Vision Moderate Growth [____] 243,000 310,000 173,000 [____] 58,000 136,000 128,000 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 [____] 45,000 206,000 281,000 Maryland Municipal Bond [____] 250,000 250,000 312,000 [____] 9,000 41,000 44,000 Mid-Cap Core Equity [____] 3,242,000 2,064,000 2,153,000 [____] 2,000 37,000 48,000 Mid-Cap Value Equity [____] 2,338,000 1,948,000 1,556,000 [____] 51,000 156,000 135,000 North Carolina Tax-Exempt Bond [____] 236,000 138,000 *** [____] 6,000 21,000 ***
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FEES PAID ($) FEES WAIVED ($) ------------------------------------------- --------------------------------------- FUND* 2007 2006 2005** 2004 2007 2006 2005** 2004 - ----- ------ ----------- ---------- ---------- ------ --------- --------- --------- Prime Quality Money Market [____] 321,146,000 27,754,000 31,166,000 [____] 1,596,000 4,697,000 6,339,000 Seix-Floating Rate High Income [____] 38,000 *** *** [____] 18,000 *** *** Select Large Cap Growth Stock [____] 1,403,000 1,874,000 3,168,000 [____] *** 46,000 0 Short-Term Bond [____] 1,453,000 1,650,000 2,006,000 [____] 51,000 126,000 157,000 Short-Term U.S. Treasury Securities [____] 463,000 757,000 1,295,000 [____] 40,000 84,000 131,000 Small Cap Growth Stock [____] 14,692,000 8,788,000 9,361,000 [____] *** 0 0 Small Cap Quantitative Equity [____] *** *** *** [____] *** *** *** Small Cap Value Equity [____] 8,673,000 7,224,000 7,677,000 [____] *** 0 0 Strategic Income [____] 2,089,000 1,649,000 1,674,000 [____] 93,000 194,000 222,000 Tax-Exempt Money Market [____] 8,036,000 6,174,000 6,134,000 [____] 463,000 1,121,000 1,342,000 U.S. Government Securities [____] 2,072,000 2,005,000 2,221,000 [____] 5,000 83,000 101,000 U.S. Government Securities Money Market [____] 4,261,000 4,624,000 5,267,000 [____] 203,000 640,000 843,000 U.S. Government Securities Ultra-Short Bond [____] 150,000 321,000 537,000 [____] 63,000 225,000 375,000 U.S. Treasury Money Market [____] 8,471,000 7,200,000 6,340,000 [____] 338,000 997,000 1,016,000 Ultra-Short Bond [____] 703,000 969,000 1,355,000 [____] 206,000 581,000 812,000 Virginia Intermediate Municipal Bond [____] 1,053,000 1,027,000 1,316,000 [____] 11,000 0 0 Virginia Tax Free Money Market [____] 1,996,000 1,089,000 1,269,000 [____] 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 years ended March 31, 2007 and 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 OF REIMBURSED ($) ------------------------------------------ --------------------------------------- 11/1/04- 5/29/04- 11/1/04- 5/29/04- FUND 2007 2006 3/31/05** 10/31/04 2007 2006 3/31/05** 10/31/04 - ---- ------ --------- --------- --------- ------ ------ --------- --------- Intermediate Bond [____] 170,000 48,000 37,464 [____] *** 0 18,253 Limited Duration [____] 64,000 46,000 60,035 [____] *** 0 38,919 Seix High Yield [____] 5,825,000 3,210,000 3,322,887 [____] 69,000 409,000 631,229
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FEES PAID ($) FEES WAIVED OF REIMBURSED ($) ------------------------------------------ --------------------------------------- 11/1/04- 5/29/04- 11/1/04- 5/29/04- FUND 2007 2006 3/31/05** 10/31/04 2007 2006 3/31/05** 10/31/04 - ---- ------ --------- --------- --------- ------ ------ --------- --------- Total Return Bond [____] 969,000 176,000 61,335 [____] *** 0 26,902
* Prior to October 11, 2004, the Seix Funds were the Seix Core Bond Fund, the Seix Intermediate Bond Fund, the Seix High Yield Fund and the Seix Limited Duration Fund. ** Effective February 15, 2005, each Seix Fund changed its fiscal year end from October 31 to March 31. For the period November 1, 2003 through May 28, 2004, the Predecessor Funds paid the following advisory fees to Seix:
FEES WAIVED FEES PAID($) OR 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. The principal business address of the Subadviser is 601 Union Street, Suite 4600, Seattle, Washington 98101. As of June 30, 2007, the Subadviser had approximately $[____] 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 40 average daily net assets of the Aggressive Growth Stock Fund and the Emerging Growth Stock Fund. For the fiscal years ended March 31, 2007, March 31, 2006, the fiscal period ended March 31, 2005 and fiscal year ended May 31, 2004, the 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 $7,000, respectively. THE PORTFOLIO MANAGERS Set forth below is information regarding the individuals who are primarily responsible for the day-to-day management of the Funds ("portfolio managers"). All information is as of March 31, 2007, except as otherwise noted. MANAGEMENT OF OTHER ACCOUNTS. The table below shows the number of other accounts managed by each portfolio manager and the approximate total assets in the accounts in each of the following categories: registered investment companies, other pooled investment vehicles and other accounts. For each category, the table also shows the number of accounts and the approximate total assets in the accounts with respect to which the advisory fee is based on account performance.
NUMBER OF OTHER ACCOUNTS MANAGED/TOTAL ASSETS IN ACCOUNTS ($) OTHER ACCOUNTS WITH ------------------------------------------- PERFORMANCE-BASED FEES NAME OF REGISTERED OTHER POOLED ---------------------- PORTFOLIO MANAGER INVESTMENT INVESTMENT VEHICLES OTHER NUMBER TOTAL (NAME OF FUND(S)) COMPANIES ("PIV") ACCOUNTS & CATEGORY ASSETS($) ----------------- ---------- ------------------- -------- ---------- --------- ANDREW ATKINS (International Equity Index) BRETT BARNER (Small Cap Value Equity) BROOKE DE BOUTRAY (Aggressive Growth Stock, Emerging Growth Stock) ROBERT S. BOWMAN (Virginia Tax-Free Money Market, Tax-Exempt Money Market, U.S. Government Securities Money Market) JOSEPH CALABRESE (Limited Duration, Limited-Term Federal Mortgage Securities, U.S. Government Securities)
41
NUMBER OF OTHER ACCOUNTS MANAGED/TOTAL ASSETS IN ACCOUNTS ($) OTHER ACCOUNTS WITH ------------------------------------------- PERFORMANCE-BASED FEES NAME OF REGISTERED OTHER POOLED ---------------------- PORTFOLIO MANAGER INVESTMENT INVESTMENT VEHICLES OTHER NUMBER TOTAL (NAME OF FUND(S)) COMPANIES ("PIV") ACCOUNTS & CATEGORY ASSETS($) ----------------- ---------- ------------------- -------- ---------- --------- GEORGE E. CALVERT (Maryland Municipal Bond, Virginia Intermediate Municipal Bond) CHRIS CARTER (Georgia Tax-Exempt Bond, North Carolina Tax-Exempt Bond) ROBERT W. CORNER (Short-Term Bond, Ultra-Short Bond, U.S. Government Securities Ultra-Short Bond) CHAD DEAKINS (International Equity Index, International Equity, Mid-Cap Core Equity) JAMES P. FOSTER (Small Cap Growth Stock) Stephen Futch (Small Cap Quantitative Equity Fund, Large Cap Quantitative Equity) ALAN M. GAYLE (Life Vision Aggressive Growth, Life Vision Conservative, Life Vision Growth and Income, Life Vision Moderate Growth, Life Vision Target Date 2015, Life Vision Target Date 2025, Life Vision Target Date 2035)
42
NUMBER OF OTHER ACCOUNTS MANAGED/TOTAL ASSETS IN ACCOUNTS ($) OTHER ACCOUNTS WITH ---------------------------------------- PERFORMANCE-BASED FEES NAME OF REGISTERED OTHER POOLED ---------------------- PORTFOLIO MANAGER INVESTMENT INVESTMENT OTHER NUMBER & TOTAL (NAME OF FUND(S)) COMPANIES VEHICLES ("PIV") ACCOUNTS CATEGORY ASSETS($) ----------------- ---------- ---------------- -------- -------- --------- GEORGE GOUDELIAS (Seix Floating Rate High Income, Seix High Yield, High Income) GREG HALLMAN (Prime Quality Money Market, U.S. Treasury Securities Money Market, U.S. Government Securities Money Market) KIMBERLY A. MAICHLE (Prime Quality Money Market, U.S. Treasury Securities Money Market, U.S. Government Securities Money Market) JEFFREY E. MARKUNAS (Large Cap Core Equity) MICHAEL MCEACHERN (Seix Floating Rate High Income, Seix High Yield, High Income, Strategic Income) H. RICK NELSON (Classic Institutional Short -Term Bond, Short-Term U.S. Treasury Securities, Short-Term Bond, Ultra-Short Bond, U.S. Government Securities Ultra-Short Bond) BRIAN NOLD (High Income) MILLS RIDDICK (Large Cap Value Equity)
43
NUMBER OF OTHER ACCOUNTS MANAGED/TOTAL ASSETS IN ACCOUNTS ($) OTHER ACCOUNTS WITH ---------------------------------------- PERFORMANCE-BASED FEES NAME OF REGISTERED OTHER POOLED ---------------------- PORTFOLIO MANAGER INVESTMENT INVESTMENT OTHER NUMBER & TOTAL (NAME OF FUND(S)) COMPANIES VEHICLES ("PIV") ACCOUNTS CATEGORY ASSETS($) ----------------- ---------- ---------------- -------- -------- --------- E. DEAN SPEER (Prime Quality Money Market, U.S. Treasury Money Market, U.S. Government Securities Money Market) RONALD SCHWARTZ (High Grade Municipal Bond, Investment Grade Tax-Exempt Bond) CHAD STEPHENS (Short-Term U.S. Treasury Securities, Ultra-Short Bond Fund, U.S. Government Securities Ultra-Short Bond Fund) JOHN TALTY (Total Return Bond, Intermediate Bond, Investment Grade Bond, Limited Duration, Limited-Term Federal Mortgage Securities, U.S. Government Securities) PARKER W. THOMAS (Select Large Cap Growth Stock) PERRY TROISI (Total Return Bond, Bond, Intermediate Bond, Investment Grade Bond) LESLIE TUBBS (Aggressive Growth Stock, Emerging Growth Stock) STUART F. VAN ARSDALE (Small Cap Growth Stock)
44
NUMBER OF OTHER ACCOUNTS MANAGED/TOTAL ASSETS IN ACCOUNTS ($) OTHER ACCOUNTS WITH ---------------------------------------- PERFORMANCE-BASED FEES NAME OF REGISTERED OTHER POOLED ---------------------- PORTFOLIO MANAGER INVESTMENT INVESTMENT OTHER NUMBER & TOTAL (NAME OF FUND(S)) COMPANIES VEHICLES ("PIV") ACCOUNTS CATEGORY ASSETS($) ----------------- ---------- ---------------- -------- -------- --------- ADRIEN WEBB (Strategic Income) DON WORDELL (Mid-Cap Value Equity) SCOTT YUSCHAK (Mid-Cap Core Equity Fund) NANCY ZEVENBERGEN (Aggressive Growth Stock, Emerging Growth Stock)
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 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. 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: 45 - 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. 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 Brett Barner Small Cap Value Equity Brooke de Boutray Aggressive Growth Stock Emerging Growth Stock Robert S. Bowman Virginia Tax-Free Money Market Tax-Exempt Money Market U.S. Government Securities Money Market
46
RANGE OF SECURITIES NAME OF PORTFOLIO MANAGER NAME OF FUND(S) MANAGED OWNED - ------------------------- ------------------------------------------------ ------------------- Joseph Calabrese Limited Duration Limited-Term Federal Mortgage Securities U.S. Government Securities George E. Calvert Maryland Municipal Bond Virginia Intermediate Municipal Bond Chris Carter Georgia Tax-Exempt Bond North Carolina Tax-Exempt Bond Robert W. Corner Short-Term Bond Ultra-Short Bond U.S. Government Securities Ultra-Short Bond Chad Deakins International Equity Index International Equity Mid-Cap Core Equity James P. Foster Small Cap Growth Stock Stephen Futch Small Cap Quantitative Equity Large Cap Quantitative Equity 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 George Goudelias Seix Floating Rate High Income Seix High Yield High Income Greg Hallman Prime Quality Money Market U.S. Treasury Securities Money Market U.S. Government Securities Money Market Kimberly A. Maichle Prime Quality Money Market U.S. Treasury Securities Money Market U.S. Government Securities Money Market Jeffrey E. Markunas Large Cap Core Equity Michael McEachern Seix Floating Rate High Income Fund Seix High Yield High Income Strategic Income H. Rick Nelson Classic Institutional Short -Term Bond
47
RANGE OF SECURITIES NAME OF PORTFOLIO MANAGER NAME OF FUND(S) MANAGED OWNED - ------------------------- ------------------------------------------------ ------------------- Short-Term U.S. Treasury Securities Short-Term Bond Ultra-Short Bond U.S. Government Securities Ultra-Short Bond Brian Nold High Income Mills Riddick Large Cap Value Equity E. Dean Speer Prime Quality Money Market U.S. Treasury Money Market U.S. Government Securities Money Market Ronald Schwartz High Grade Municipal Bond Investment Grade Tax-Exempt Bond Chad Stephens Short-Term U.S. Treasury Securities Ultra-Short Bond Fund U.S. Government Securities Ultra-Short Bond Fund Total Return Bond Intermediate Bond Investment Grade Bond Limited Duration Limited-Term Federal Mortgage Securities U.S. Government Securities Parker W. Thomas Select Large Cap Growth Stock Total Return Bond Intermediate Bond Investment Grade Bond Leslie Tubbs Aggressive Growth Stock Emerging Growth Stock Stuart F. Van Arsdale* Small Cap Growth Stock Adrien Webb Strategic Income Don Wordell Mid-Cap Value Equity Scott Yuschak Mid-Cap Core Equity Fund Nancy Zevenbergen Aggressive Growth Stock Emerging Growth Stock
THE ADMINISTRATOR 48 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 $100,000 for the four Predecessor Funds together, and reimbursement of out-of-pocket expenses. For the fiscal years ended March 31, 2007, March 31, 2006 and the fiscal period from July 26, 2004 through March 31, 2005, the Funds, except the Seix Funds, paid the following administrative fees to the Administrator: 49
2007 2006 7/26/04-3/31/05 --------------------- ---------------------- ---------------------- FEES FEES FEES FEES FEES FEES FUND* PAID ($) WAIVED ($) PAID ($) WAIVED ($) PAID ($) WAIVED ($) - ----- -------- ---------- --------- ---------- -------- ---------- Aggressive Growth Stock [____] [____] 28,000 7,000 9,000 0 Classic Institutional Cash Management Money Market [____] [____] 786,000 15,000 487,000 0 Classic Institutional Municipal Cash Reserve Money Market [____] [____] 14,000 14,000 *** *** Classic Institutional U.S. Government Securities Money Market [____] [____] 241,000 3,000 166,000 0 Classic Institutional U.S. Treasury Securities Money Market [____] [____] 721,000 16,000 397,000 0 Georgia Tax-Exempt Bond [____] [____] 31,000 2,000 20,000 0 High Grade Municipal Bond [____] [____] 49,000 0 34,000 0 High Income [____] [____] 22,000 14,000 22,000 0 International Equity [____] [____] 181,000 68,000 78,000 0 International Equity Index [____] [____] 164,000 59,000 81,000 0 Investment Grade Bond [____] [____] 153,000 16,000 111,000 0 Investment Grade Tax-Exempt Bond [____] [____] 85,000 1,000 50,000 0 Large Cap Core Equity [____] [____] 353,000 23,000 181,000 0 Large Cap Growth Stock [____] [____] 419,000 16,000 322,000 0 Large Cap Quantitative Equity [____] [____] 43,000 0 15,000 0 Large Cap Value Equity [____] [____] 237,000 44,000 167,000 0 Life Vision Aggressive Growth [____] [____] 14,000 5,000 8,000 0 Life Vision Conservative [____] [____] 2,000 2,000 1,000 0 Life Vision Growth and Income [____] [____] 30,000 7,000 19,000 0 Life Vision Moderate Growth [____] [____] 43,000 8,000 28,000 0 Life Vision Target Date 2015 [____] [____] 0 0 *** *** Life Vision Target Date 2025 [____] [____] 0 0 *** ***
50
2007 2006 7/26/04-3/31/05 --------------------- ---------------------- ---------------------- FEES FEES FEES FEES FEES FEES FUND* PAID ($) WAIVED ($) PAID ($) WAIVED ($) PAID ($) WAIVED ($) - ----- -------- ---------- --------- ---------- -------- ---------- Life Vision Target Date 2035 [____] [____] 0 0 *** *** Limited-Term Federal Mortgage Securities [____] [____] 103,000 15,000 91,000 0 Maryland Municipal Bond [____] [____] 11,000 2,000 8,000 0 Mid-Cap Core Equity [____] [____] 82,000 32,000 40,000 0 Mid-Cap Value Equity [____] [____] 57,000 15,000 35,000 0 North Carolina Tax-Exempt Bond [____] [____] 11,000 0 43,000** 0 Prime Quality Money Market [____] [____] 1,545,000 175,000 944,000 0 Seix Floating Rate High Income [____] [____] 2,000 2,000 *** *** Select Large Cap Growth Stock [____] [____] 39,000 24,000 35,000 0 Short-Term Bond [____] [____] 79,000 11,000 56,000 0 Short-Term U.S. Treasury Securities [____] [____] 25,000 15,000 25,000 0 Small Cap Growth Stock [____] [____] 348,000 69,000 172,000 0 Small Cap Quantitative Equity [____] [____] *** *** *** *** Small Cap Value Equity [____] [____] 201,000 12,000 140,000 0 Strategic Income [____] [____] 80,000 7,000 44,000 0 Tax Exempt Money Market [____] [____] 446,000 *** 252,000 0 Total Return Bond [____] [____] 16,000 5,000 11,000 0 U.S. Government Securities [____] [____] 95,000 9,000 61,000 0 U.S. Government Securities Ultra-Short Bond [____] [____] 15,000 10,000 18,000 0 U.S. Treasury Money Market [____] [____] 387,000 6,000 251,000 0 Ultra-Short Bond [____] [____] 59,000 8,000 43,000 0 Virginia Intermediate Municipal Bond [____] [____] 47,000 3,000 35,000 0 Virginia Tax Free Money Market [____] [____] 131,000 0 62,000 0
* Effective February 15, 2005, each Fund changed its fiscal year end from May 31 to March 31. ** Represents fees paid during the period March 21, 2005 (the commencement of operations) through March 31, 2005. *** Not in operation during the period. 51 For the period June 1, 2004 through July 25, 2004, and for the fiscal year ended May 31, 2004, the Funds listed below paid the following administrative fees to SEI:
FEES PAID ($) ------------------- 6/1/04- FUND 7/25/04 2004 ---- ------- --------- Aggressive Growth Stock 3,000 2,000 Classic Institutional Cash Management Money Market 267,000 1,899,000 Classic Institutional Municipal Cash Reserve Money Market * * Classic Institutional U.S. Government Securities Money Market 92,000 674,000 Classic Institutional U.S. Treasury Securities Money Market 189,000 1,364,000 Emerging Growth Stock 1,000 2,000 Georgia Tax-Exempt Bond 12,000 82,000 High Grade Municipal Bond 19,000 138,000 High Income 14,000 124,000 International Equity 37,000 179,000 International Equity Index 39,000 223,000 Investment Grade Bond 64,000 514,000 Investment Grade Tax-Exempt Bond 26,000 168,000 Large Cap Core Equity 96,000 582,000 Large Cap Growth Stock 176,000 986,000 Large Cap Quantitative Equity 8,000 26,000 Large Cap Value Equity 88,000 563,000 Life Vision Aggressive Growth 5,000 26,000 Life Vision Conservative 1,000 3,000 Life Vision Growth and Income 10,000 55,000 Life Vision Moderate Growth 14,000 83,000 Limited-Term Federal Mortgage Securities 33,000 387,000 Maryland Municipal Bond 5,000 37,000 Mid-Cap Core Equity 21,000 131,000 Mid-Cap Value Equity 17,000 93,000 Select Large Cap Growth Stock 24,000 189,000 Small Cap Growth Stock 89,000 558,000 Small Cap Value Equity 76,000 458,000 Strategic Income 22,000 153,000 U.S. Government Securities Ultra-Short Bond 11,000 92,000 Ultra-Short Bond 25,000 186,000 Virginia Intermediate Municipal Bond 20,000 139,000
* Not in operation during the period. For the fiscal years ended March 31, 2007 and 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 ($) --------------------------------------- 11/1/04- 5/29/04- FUND 2007 2006 3/31/05* 10/31/04 - ---- ------- ------- -------- -------- Intermediate Bond 18,000 5,000 560 Limited Duration 24,000 12,000 2,044 Seix High Yield 327,000 173,000 25,879 Total Return Bond 102,000 19,000 890
* Effective February 15, 2005, each Fund changed its fiscal year end from October 31 to March 31. 52 For the period November 1, 2003 through October 10, 2004 and the fiscal years ended October 31, 2003 and 2002, the Predecessor Funds paid the following administration fees to IBT:
FEES PAID ($) 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 DISTRIBUTOR The Trust and BISYS Fund Services Limited Partnership (the "Distributor") are parties to a 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"). The Distributor also 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 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 years ended March 31, 2007 and March 31, 2006, the fiscal period ended March 31, 2005, and the fiscal year ended May 31, 2004, the Funds paid the following aggregate sales charge payable to the Distributor with respect to the A Shares:
AGGREGATE SALES CHARGES AMOUNT RETAINED PAYABLE TO DISTRIBUTOR ($)* BY DISTRIBUTOR ($) ------------------------------------- ------------------------------- FUND** 2007 2006 2005*** 2004 2007 2006 2005*** 2004* - ------ ------ ------ ------- --------- ------ ---- ------- ----- Aggressive Growth Stock [____] 1,000 0 0 [____] 0 0 0 Large Cap Growth Stock [____] 20,000 23,000 990,000 [____] 0 0 0 Total Return Bond [____] 0 0 1,000 [____] 0 0 0 Emerging Growth Stock [____] 0 1,000 0 [____] 0 0 0
53
AGGREGATE SALES CHARGES AMOUNT RETAINED PAYABLE TO DISTRIBUTOR ($)* BY DISTRIBUTOR ($) ------------------------------------- ------------------------------- FUND** 2007 2006 2005*** 2004 2007 2006 2005*** 2004* - ------ ------ ------ ------- --------- ------ ---- ------- ----- High Grade Municipal Bond [____] 2,000 3,000 12,000 [____] 0 0 0 Georgia Tax-Exempt Bond [____] 0 0 5,000 [____] 0 0 0 High Income [____] 3,000 1,000 2,000 [____] 0 0 0 Intermediate Bond [____] 0 0 0 [____] 0 0 0 International Equity [____] 5,000 2,000 24,000 [____] 0 0 0 International Equity Index [____] 5,000 4,000 56,000 [____] 0 0 0 Investment Grade Bond [____] 3,000 7,000 20,000 [____] 0 0 0 Investment Grade Tax-Exempt Bond [____] 8,000 10,000 7,000 [____] 0 0 0 Large Cap Quantitative Equity [____] 5,000 2,000 0 [____] 0 0 0 Large Cap Core Equity [____] 15,000 20,000 105,000 [____] 0 0 0 Large Cap Value Equity [____] 18,000 11,000 235,000 [____] 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 **** **** Life Vision Target Date 2025 [____] 0 **** **** [____] 0 **** **** Life Vision Target Date 2035 [____] 0 **** **** [____] 0 **** **** Limited Duration [____] 0 0 0 [____] 0 0 0 Limited-Term Federal Mortgage Securities [____] 2,000 15,000 15,000 [____] 0 0 0 Maryland Municipal Bond [____] 5,000 0 **** [____] 0 0 **** Mid-Cap Core Equity [____] 7,000 4,000 63,000 [____] 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 [____] 0 0 0 Select Large Cap 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 Short-Term Bond [____] 3,000 2,000 15,000 [____] 0 0 0 Short-Term U.S. Treasury Securities [____] 0 1,000 29,000 [____] 0 0 0 Small Cap Growth Stock [____] 37,000 16,000 157,000 [____] 0 0 0 Small Cap Quantitative Equity [____] **** **** **** [____] 0 **** ****
54
AGGREGATE SALES CHARGES AMOUNT RETAINED BY PAYABLE TO DISTRIBUTOR ($)* DISTRIBUTOR ($) ---------------------------------- ------------------------------- FUND** 2007 2006 2005*** 2004 2007 2006 2005*** 2004* - ------ ------ ----- ------- ------- ------ ---- ------- ----- 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 [____] 0 0 0 U.S. Government Securities [____] 0 3,000 32,000 [____] 0 0 0 U.S. Government Securities Money Market [____] 0 0 399,000 [____] 0 0 0 U.S. Treasury Money Market [____] 0 0 0 [____] 0 0 0 Virginia Intermediate Municipal Bond [____] 0 2,000 15,000 [____] 0 0 0 Virginia Tax Free Money Market [____] 0 0 439,000 [____] 0 0 0
* The information in the above chart reflects gross distribution fees for the fiscal year ended May 31, 2004 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. 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 BUT $100,000 BUT $250,000 BUT $250,000 BUT $1,000,000 LESS THAN LESS THAN LESS THAN LESS THAN LESS THAN AND FUNDS $50,000 $100,000 $250,000 $500,000 $500,000 OVER - ----- --------- ----------- ------------ ------------ ------------ ---------- Aggressive Growth Stock, Large Cap Growth Stock, Emerging Growth Stock, Large Cap Quantitative Equity, Large Cap Core Equity, 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 Core Equity, Mid-Cap Value Equity, Select Large Cap 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%
55
$50,000 BUT $100,000 BUT $250,000 BUT $250,000 BUT $1,000,000 LESS THAN LESS THAN LESS THAN LESS THAN LESS THAN AND FUNDS $50,000 $100,000 $250,000 $500,000 $500,000 OVER - ----- --------- ----------- ------------ ------------ ------------ ---------- Limited Duration Fund, Limited-Term Federal Mortgage Securities, Short-Term Bond, Short-Term U.S. Treasury Securities and U.S. 2.25% 2.00% 1.75% 1.50% 1.25% 0.00% Government Securities
For the fiscal years ended March 31, 2007 and March 31, 2006, the fiscal period ended March 31, 2005, and for the 2004 fiscal year, the Funds paid the following aggregate sales charge payable to the Distributor with respect to the B Shares:
AGGREGATE SALES CHARGE AMOUNT RETAINED PAYABLE TO DISTRIBUTOR ($)* BY DISTRIBUTOR ($)* ---------------------------------- ------------------------------ FUND** 2007 2006 2005*** 2004 2007 2006 2005*** 2004 - ------ ------ ------ ------- ------ ------ ---- ------- ---- Life Vision Aggressive Growth [____] 12,000 24,000 30,000 [____] 0 0 0 Life Vision Conservative [____] 5,000 14,000 37,000 [____] 0 0 0 Life Vision Growth and Income [____] 46,000 100,000 78,000 [____] 0 0 0 Life Vision Moderate Growth [____] 23,000 48,000 95,000 [____] 0 0 0
* The information in the above chart reflects gross distribution fees for the fiscal year ended May 31, 2004, which were payable by such Funds pursuant to a distribution agreement between the Trust and SEI Investments Distribution Co. The information in the above chart was calculated and provided by SEI Investments Distribution Co. ** Effective February 15, 2005, each Fund changed its fiscal year end from May 31 to March 31. *** Represents fees paid during the period from June 1, 2004 through March 31, 2005. **** Not in operation during the period. For the fiscal years ended March 31, 2007 and March 31, 2006, the fiscal period ended March 31, 2005, and for the 2004 fiscal year, the Funds paid the following aggregate sales charge payable to the Distributor with respect to the C Shares:
AGGREGATE SALES CHARGE AMOUNT RETAINED BY PAYABLE TO DISTRIBUTOR ($)* DISTRIBUTOR ($)* ------------------------------------- ------------------------------ FUND** 2007 2006 2005*** 2004 2007 2006 2005*** 2004 - ------ ------ ------ ------- --------- ------ ---- ------- ---- Aggressive Growth Stock [____] 1,000 0 0 [____] 0 0 0 Emerging Growth Stock [____] 0 0 0 [____] 0 0 0 Georgia Tax-Exempt Bond [____] 2,000 0 163,000 [____] 0 0 0 High Grade Municipal Bond [____] 0 0 310,000 [____] 0 0 0 High Income [____] 3,000 0 852,000 [____] 0 0 0 Intermediate Bond [____] 1,000 0 0 [____] 0 0 0 International Equity [____] 2,000 0 70,000 [____] 0 0 0 International Equity Index [____] 1,000 0 43,000 [____] 0 0 0 Investment Grade Bond [____] 3,000 0 319,000 [____] 0 0 0
56
AGGREGATE SALES CHARGE AMOUNT RETAINED BY PAYABLE TO DISTRIBUTOR ($)* DISTRIBUTOR ($)* ------------------------------------- ------------------------------ FUND** 2007 2006 2005*** 2004 2007 2006 2005*** 2004 - ------ ------ ------ ------- --------- ------ ---- ------- ---- Investment Grade Tax-Exempt Bond [____] 1,000 0 290,000 [____] 0 0 0 Large Cap Core Equity [____] 10,000 0 910,000 [____] 0 0 0 Large Cap Growth Stock [____] 5,000 0 1,030,000 [____] 0 0 0 Large Cap Quantitative Equity [____] 2,000 0 7,000 [____] 0 0 0 Large Cap Quantitative Equity [____] 1,000 **** **** [____] 0 **** **** Large Cap Value Equity [____] 3,000 0 561,000 [____] 0 0 0 Life Vision Aggressive Growth [____] 4,000 **** **** [____] 0 **** **** 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 Limited-Term Federal Mortgage Securities [____] 0 0 1,237,000 [____] 0 0 0 Maryland Municipal Bond [____] 0 0 253,000 [____] 0 0 0 Mid-Cap Core Equity [____] 4,000 0 153,000 [____] 0 0 0 Mid-Cap Value Equity [____] 1,000 0 73,000 [____] 0 0 0 North Carolina Tax-Exempt Bond [____] 0 0 **** [____] 0 0 **** Prime Quality Money Market [____] 0 184,000 120,000 [____] 0 0 0 Seix High Yield [____] 15,000 0 0 [____] 0 0 0 Select Large Cap Growth Stock [____] 3,000 0 1,054,000 [____] 0 0 0 Short-Term Bond [____] 0 0 299,000 [____] 0 0 0 Short-Term U.S. Treasury Securities [____] 1,000 0 975,000 [____] 0 0 0 Small Cap Growth Stock [____] 10,000 0 370,000 [____] 0 0 0 Small Cap Quantitative Equity [____] 0 **** **** [____] 0 **** **** Small Cap Value Equity [____] 4,000 0 434,000 [____] 0 0 0 Strategic Income [____] 2,000 0 1,520,000 [____] 0 0 0 Total Return Bond [____] 0 0 0 [____] 0 0 0 Virginia Intermediate Municipal Bond [____] 0 **** **** [____] 0 **** ****
* The information in the above chart reflects gross distribution fees for the fiscal year ended May 31, 2004, 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. 57 *** 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. 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 MAXIMUM DISTRIBUTION AND SERVICE A PLAN DISTRIBUTION AND FEE PAYABLE FOR SHAREHOLDER FUND SERVICE FEE SERVICES* - ---- ----------------------- --------------------------- Aggressive Growth Stock 0.35% 0.25% Emerging Growth Stock 0.35% 0.25% Georgia Tax-Exempt Bond 0.18% 0.15% High Grade Municipal 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 Core Equity 0.25% 0.25% Large Cap Growth Stock 0.35% 0.25% Large Cap Quantitative Equity 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 Core 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% Seix Floating Rate High Income 0.35% 0.25% Seix High Yield 0.25% 0.25% Select Large Cap Growth Stock 0.35% 0.25% Short-Term Bond 0.23% 0.15% Short-Term U.S. Treasury Securities 0.18% 0.15% 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%
58
MAXIMUM AMOUNT OF A PLAN MAXIMUM DISTRIBUTION AND SERVICE A PLAN DISTRIBUTION AND FEE PAYABLE FOR SHAREHOLDER FUND SERVICE FEE SERVICES* - ---- ----------------------- --------------------------- Tax-Exempt Money Market 0.15% 0.15% Total Return Bond 0.25% 0.25% 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 CURRENT A PLAN DISTRIBUTION FEE ALLOCATED FOR FUND AND SERVICE FEE SHAREHOLDER SERVICES - ---- --------------------------- ------------------------ Aggressive Growth Stock 0.30% 0.25% Emerging Growth Stock 0.30% 0.25% Georgia Tax-Exempt Bond 0.15% 0.15% High Grade Municipal 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 Core Equity 0.25% 0.25% Large Cap Growth Stock 0.30% 0.25% Large Cap Quantitative Equity 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% 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 Core 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% Seix Floating Rate High Income 0.30% 0.25% Seix High Yield 0.25% 0.25% Select Large Cap Growth Stock 0.30% 0.25% Short-Term Bond 0.20% 0.15%
59
MAXIMUM AMOUNT OF A PLAN DISTRIBUTION AND SERVICE CURRENT A PLAN DISTRIBUTION FEE ALLOCATED FOR FUND AND SERVICE FEE SHAREHOLDER SERVICES - ---- --------------------------- ------------------------ 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% Total Return Bond 0.25% 0.25% 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 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. 60 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, 2007, the Funds paid the following amounts as compensation to broker-dealers pursuant to the A Plan:
FUND AMOUNT PAID ($) - ---- --------------- Aggressive Growth Stock [____] Emerging Growth Stock [____] Georgia Tax-Exempt Bond [____] High Grade Municipal Bond [____] High Income [____] Intermediate Bond [____] International Equity [____] International Equity Index [____] Investment Grade Bond [____] Investment Grade Tax-Exempt Bond [____] Large Cap Core Equity [____] Large Cap Growth Stock [____] Large Cap Quantitative Equity [____] Large Cap Value Equity [____] 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 [____] Limited-Term Federal Mortgage Securities [____] Maryland Municipal Bond [____] Mid-Cap Core Equity [____] Mid-Cap Value Equity [____] North Carolina Tax-Exempt Bond [____] Prime Quality Money Market [____] Seix Floating Rate High Income [____] Seix High Yield [____] Select Large Cap Growth Stock [____] Short-Term Bond [____] Short-Term U.S. Treasury Securities [____] Small Cap Growth Stock [____] Small Cap Quantitative Equity [____] Small Cap Value Equity [____] Strategic Income [____] Tax-Exempt Money Market [____] Total Return Bond [____] U.S. Government Securities [____]
61
FUND AMOUNT PAID ($) - ---- --------------- U.S. Government Securities Money Market [____] U.S. Treasury Money Market [____] Virginia Intermediate Municipal Bond [____] Virginia Tax-Free Money Market [____]
For the fiscal year ended March 31, 2007, the Funds paid the following amounts as compensation to broker-dealers pursuant to the B Plan:
FUND AMOUNT PAID ($) - ---- --------------- Life Vision Aggressive Growth Life Vision Conservative Life Vision Growth and Income Life Vision Moderate Growth
For the fiscal year ended March 31, 2007, the Funds paid the following amounts as compensation to broker-dealers pursuant to the C Plan:
FUND* AMOUNT PAID ($) - ----- --------------- Aggressive Growth Stock Emerging Growth Stock Georgia Tax-Exempt Bond High Grade Municipal Bond High Income International Equity International Equity Index Investment Grade Bond Investment Grade Tax-Exempt Bond Large Cap Core Equity Large Cap Growth Stock Large Cap Quantitative Equity Large Cap Value Equity Life Vision Aggressive Growth Life Vision Conservative Life Vision Growth and Income Life Vision Moderate Growth Life Vision Target Date 2015 Life Vision Target Date 2025 Life Vision Target Date 2035 Limited-Term Federal Mortgage Securities Maryland Municipal Bond Mid-Cap Core Equity Mid-Cap Value Equity North Carolina Tax-Exempt Bond Prime Quality Money Market Select Large Cap Growth Stock Short-Term Bond Short-Term U.S. Treasury Securities Small Cap Growth Stock
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FUND* AMOUNT PAID ($) - ----- --------------- Small Cap Quantitative Equity Small Cap Value Equity Strategic Income U.S. Government Securities Virginia Intermediate Municipal Bond
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.
ANNUAL PAYOUT 12(B)-1 ANNUAL PAYOUT 12(B)-1 INITIAL PAYMENT - EFFECTIVE IN THE FUND EFFECTIVE IMMEDIATELY (A)* AT TIME OF SALE (C) 13TH MONTH (C) - ---- -------------------------- ------------------- --------------------- EQUITY FUNDS Aggressive Growth Stock 0.25% 1.00% 1.00% Emerging Growth Stock 0.25% 1.00% 1.00% Intermediate Bond 0.25% 1.00% 1.00% International Equity 0.25% 1.00% 1.00% International Equity Index 0.25% 1.00% 1.00% Large Cap Core Equity 0.25% 1.00% 1.00% Large Cap Growth Stock 0.25% 1.00% 1.00% Large Cap Quantitative Equity 0.25% 1.00% 1.00% Large Cap Value Equity 0.25% 1.00% 1.00% Life Vision Aggressive Growth 0.25% 1.00% 1.00% Life Vision Conservative 0.25% 1.00% 1.00% Life Vision Growth and Income 0.25% 1.00% 1.00% Life Vision Moderate Growth 0.25% 1.00% 1.00% Life Vision Target Date 2015 0.25% n/a n/a Life Vision Target Date 2025 0.25% n/a n/a Life Vision Target Date 2035 0.25% n/a n/a Limited Duration 0.25% 1.00% 1.00% Mid-Cap Core Equity 0.25% 1.00% 1.00% Mid-Cap Value Equity 0.25% 1.00% 1.00% North Carolina Tax-Exempt Bond 0.25% 1.00% 1.00% Seix Floating Rate High Income 0.25% 1.00% 1.00% Seix High Yield 0.25% 1.00% 1.00% Select Large Cap Growth Stock 0.25% 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 0.25% 1.00% 1.00% Total Return Bond 0.25% 1.00% 1.00% FIXED INCOME FUNDS Georgia Tax-Exempt Bond 0.15% 1.00% 1.00% High Grade Municipal Bond 0.15% 1.00% 1.00% High Income 0.25% 1.00% 1.00% Investment Grade Bond 0.25% 1.00% 1.00% Investment Grade Tax-Exempt Bond 0.25% 1.00% 1.00% Limited Term Federal Mortgage Securities 0.15% 1.00% 1.00% Maryland Municipal Bond 0.15% 1.00% 1.00%
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ANNUAL PAYOUT 12(B)-1 ANNUAL PAYOUT 12(B)-1 INITIAL PAYMENT - EFFECTIVE IN THE 13TH FUND EFFECTIVE IMMEDIATELY (A)* AT TIME OF SALE (C) MONTH (C) - ---- -------------------------- ------------------- --------------------- Short Term Bond 0.15% 1.00% 1.00% Short-Term U.S. Treasury Securities 0.15% 1.00% 1.00% Strategic Income 0.25% 1.00% 1.00% U.S. Government Securities 0.25% 1.00% 1.00% U.S. Government Securities Ultra-Short Bond n/a 1.00% 1.00% Virginia Intermediate Municipal Bond 0.15% 1.00% 1.00% MONEY MARKET FUND Prime Quality Money Market n/a 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%. 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 years ended March 31, 2006 and 2007, the fiscal period from June 1, 2004 through March 31, 2005, and the fiscal year ended May 31, 2004, the Classic Institutional U.S. Treasury Securities Money Market Fund paid the following amount pursuant to the Service Plan:
FEES - AMOUNT PAID ($) FEES - AMOUNT WAIVED ($) ----------------------------------------------- ------------------------------------- FUND* 2007 2006 6/1/04-3/31/05 2004 2007 2006 6/1/04-3/31/05 2004 - ----- ------ --------- -------------- --------- ------ ---- -------------- ---- Classic Institutional U.S. Treasury Securities Money Market Fund [____] 4,603,000 2,577,000 2,947,000 [____] 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. 64 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 [__________] LLP, located at [____], 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. Each Trustee is also a Trustee of the STI Classic Variable Trust which is comprised of five series.
NUMBER OF PORTFOLIOS IN THE STI NAME, BUSINESS ADDRESS, POSITION TERM OF OFFICE FUND COMPLEX STATE OF RESIDENCE, HELD WITH AND LENGTH PRINCIPAL OCCUPATION(S) DURING OVERSEEN BY OTHER DIRECTORSHIPS DATE OF BIRTH THE GROUP OF TIME SERVED THE PAST 5 YEARS TRUSTEES HELD BY TRUSTEE - ----------------------- --------- ----------------- ---------------------------------- ------------ ---------------------- INTERESTED TRUSTEE*: Clarence H. Ridley Trustee Indefinite; since Chairman, Haverty Furniture 55 Crawford & Co. 3435 Stelzer Road November 2001 Companites; Partner, King and Columbus, OH 43219 Spaulding LLP (law firm) (Georgia) (1977 to 2000) DOB 06/42 INDEPENDENT TRUSTEES**: Jeffrey M. Biggar Trustee Indefinite; since Retired. Chief Executive Officer 55 None 3435 Stelzer Road January 2007 and Senior Managing Director, Columbus, OH 43219 Sterling (National City Corp.) (Ohio) (2002-2006) DOB 02/50 F. Wendell Gooch Trustee Indefinite; since Retired 55 SEI Family of Funds 3435 Stelzer Road May 1992 Columbus, OH 43219 (Indiana) DOB 12/32
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NUMBER OF PORTFOLIOS IN THE STI NAME, BUSINESS ADDRESS, POSITION TERM OF OFFICE FUND COMPLEX STATE OF RESIDENCE, HELD WITH AND LENGTH PRINCIPAL OCCUPATION(S) DURING OVERSEEN BY OTHER DIRECTORSHIPS DATE OF BIRTH THE GROUP OF TIME SERVED THE PAST 5 YEARS TRUSTEES HELD BY TRUSTEE - ----------------------- --------- ----------------- ---------------------------------- ------------ ---------------------- Sidney E. Harris Trustee Indefinite; since Professor (since 1997), Dean 55 ServiceMaster Company; 3435 Stelzer Road November 2004 (1997-2004), J. Mack Robinson Total System Services, Columbus, OH 43219 College of Business, Georgia Inc. (Georgia) State University DOB 07/49 Warren Y. Jobe Trustee Indefinite; since Retired. Executive Vice 55 WellPoint, Inc; 3435 Stelzer Road November 2004 President, Georgia Power Company UniSource Energy Columbus, OH 43219 and Senior Vice President, Corp.; HomeBanc Corp. (Georgia) Southern Company (1998-2001) DOB 11/40 Connie D. McDaniel Trustee Indefinite; since Vice President Global Finance 55 None 3435 Stelzer Road May 2005 Transformation (since 2007), Vice Columbus, OH 43219 President and Controller (1999 - (Georgia) 2007), The Coca-Cola Company DOB 04/42 James O. Robbins Trustee Indefinite; since Retired. President and Chief 55 Bessemer Securities, 3435 Stelzer Road May 2000 Executive Officer, Cox Inc.; Humana, Inc. Columbus, OH 43219 Communications, Inc. (1985 - 2005) (Florida) DOB 07/42 Charles D. Winslow Trustee Indefinite; since Retired. Formerly Partner, 55 None 3435 Stelzer Road November 2004 Accenture (consulting) Columbus, OH 43219 (Florida) DOB 07/35
* Mr. Ridley may be deemed an "interested person" of the Trust as that term is defined in the 1940 Act because of a material business relationship with the parent of the Adviser. ** Trustees who are not "interested persons" of the Trust as defined in the 1940 Act. BOARD COMMITTEES. The Board has established the following committees: - - AUDIT COMMITTEE. The Board's Audit Committee is composed exclusively of independent Trustees of the Trust. The Audit Committee operates under a written charter approved by the Board. The principal responsibilities of the Audit Committee include: recommending which firm to engage as the Trust's independent registered public accounting firm and whether to terminate this relationship; reviewing the independent registered public accounting firm's compensation, the proposed scope and terms of its engagement, and the firm's independence; pre-approving audit and non-audit services 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, 66 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. Biggar, Gooch, Harris and Winslow and Ms. McDaniel currently serve as members of the Audit Committee. The Audit Committee meets periodically, as necessary, and met [______] 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. 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 [_____] times during the most recently completed fiscal year. - - VALUATION COMMITTEE. The Board has established the Trust's Valuation Committee, which is composed of two Trustees, as non-voting members, 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 [_____] times during the most recently completed 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. 67
AGGREGATE DOLLAR RANGE OF SHARES IN ALL INVESTMENT COMPANIES OVERSEEN DOLLAR RANGE OF BY TRUSTEE IN FAMILY TRUSTEE FUND SHARES OF INVESTMENT COMPANIES - ------- --------------- ----------------------- INTERESTED TRUSTEE Clarence H. Ridley [____] [____] INDEPENDENT TRUSTEES Jeffrey M. Biggar [____] [____] F. Wendell Gooch [____] [____] James O. Robbins [____] [____] Sidney E. Harris [____] [____] Warren Jobe [____] [____] Charles D. Winslow [____] [____] Connie D. McDaniel [____] [____]
As of [____], 2007, 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 as follows: [____] BOARD COMPENSATION. The table below shows the compensation paid to the Trustees during the fiscal year ended March 31, 2007. The "Fund Complex" referenced in the table consists of the Trust and the STI Classic Variable Trust.
AGGREGATE PENSION OR COMPENSATION RETIREMENT BENEFITS ESTIMATED TOTAL COMPENSATION FROM THE ACCRUED AS PART ANNUAL BENEFITS FROM THE TRUST NAME OF TRUSTEE TRUST ($)(1) OF FUND EXPENSES UPON RETIREMENT AND FUND COMPLEX ($) - --------------- ------------ ------------------- --------------- -------------------- INTERESTED TRUSTEES Richard W. Courts, II(2) [____] N/A N/A [____] Clarence H. Ridley [____] N/A N/A [____] INDEPENDENT TRUSTEES Jeffrey M. Biggar(2) [____] [____] Thomas Gallagher(2) [____] N/A N/A [____] F. Wendell Gooch [____] N/A N/A [____] Connie McDaniel [____] N/A N/A [____] James O. Robbins [____] N/A N/A [____] Sidney E. Harris [____] N/A N/A [____] Warren Y. Jobe [____] N/A N/A [____] Charles D. Winslow [____] N/A N/A [____]
(1) Amounts include payments deferred by Trustess for the fiscal year ended March 31, 2007. The total amount of deferred compensation (including interest) accrued for the Trustees is as follows: Biggar ($____), Gooch ($____), Harris ($____) and Robbins ($____). (2) Mr. Biggar became a Trustee of the Trust effective January 1, 2007. Messrs. Courts and Gallagher resigned as Trustees of the Trust effective December 31, 2006. DEFERRED COMPENSATION PLAN. Effective January 1, 2007, the Trustees adopted a Deferred Compensation Plan designed to comply with section 409A of the Internal Revenue Code. Pursuant to the Deferred Compensation Plan, each Trustee may elect to defer receipt of between 30% to 100% of his or her aggregate annual compensation from the Trust and the STI Classic Variable Trust, and such amount is placed into a deferral account. Deferred amounts accumulate at an earnings rate determined by the return of one or more Funds as designated by the Trustees. Amounts deferred and accumulated earning on such amounts are unfunded and are general unsecured liabilities of the 68 Trust and the STI Classic Variable Trust until paid to the Trustees. Messrs. Biggar, Gooch, Harris and Robbins are the only Trustees who currently are deferring compensation under the Deferred Compensation Plan. 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 POSITION(S) HELD AND LENGTH BIRTH WITH TRUST OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING THE PAST 5 YEARS - ------------- ------------------------- --------------- ----------------------------------------------- OFFICERS: R. Jeffrey Young President and Chief One year; since Senior Vice President, Relationship Management, 3435 Stelzer Road Executive Officer July 2004 BISYS Fund Services (since 2002); Vice Columbus, OH 43219 President, Client Services, BISYS Fund Services DOB 08/64 (1997-2002) Deborah A. Lamb Executive Vice President; One year; since Chief Compliance Officer, Managing Director, 50 Hurt Plaza Assistant Secretary; September 2004; Trusco Capital Management, Inc. (since 2003); Suite 1400 Chief Compliance Officer since November President, Investment Industry Consultants, LLC Atlanta, GA 30303 2003; since (2000 - 2003); Director of Compliance, DOB 10/52 August 2004 INVESCO, Inc. (1995-2000) (respectively) Martin R. Dean Treasurer and Chief One year; since Vice President, Fund Administration, 3435 Stelzer Road Financial Officer March 2007 BISYS Fund Services Columbus, OH 43219 DOB 10/65 Cynthia J. Surprise Secretary and Chief Legal One year; since Senior Counsel, Legal Services, BISYS Fund 3435 Stelzer Road Officer February 2005 Services (since 2004); Director and Counsel, Columbus, OH 43219 Investors Bank & Trust Company (1999-2004) DOB 07/46 Jennifer A. English Assistant Secretary One year; since Assistant Counsel, Legal Services, BISYS Fund 3435 Stelzer Road November 2005 Services (since 2005); Assistant Counsel, Columbus, OH 43219 PFPC Inc. (2002-2005) DOB 03/72
PURCHASING AND REDEEMING SHARES Purchases and redemptions of shares of the Equity Funds and Bond Funds may be made on any day the New York Stock Exchange ("NYSE") is open for business. The Trust reserves the right to open the Bond Funds when the Federal Reserve Bank of New York (the "Fed") and/or the principal bond markets are open for business even if the NYSE is closed. Purchases and redemptions of shares of the Money Market Funds may be made on any day the NYSE and the Fed are open for settlement. The Trust reserves the right to open the Money Mrket Funds when the Fed is open for settlement and/or the principal bond markets are open for business even if the NYSE is closed.Shares of each Fund are offered and redeemed on a continuous basis. Currently, the NYSE is closed on the days the 69 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. Currently, the Fed and the principal bond markets are closed on the same days that the NYSE is closed except for Good Friday. In addition, the Fed and the principal bond markets are closed on the days that Columbus Day and Veterans Day are observed. 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. 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. 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. 70 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 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 Emerging Growth Stock Fund Large Cap Core Equity Fund Large Cap Growth Stock Fund Large Cap Quantitative Equity Fund Large Cap Value Equity Fund Mid-Cap Core Equity Fund Mid-Cap Value Equity Fund Select Large Cap Growth Stock Fund 71 Small Cap Growth Stock Fund Small Cap Quantitative Equity Fund Small Cap Value Equity Fund and 4.75% for the following Funds: Georgia Tax-Exempt Bond Fund High Grade Municipal 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 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 72 values generally reflect the last reported sales price if the security is actively traded. The third-party pricing agents may also value debt securities by employing methodologies that utilize actual market transactions, broker-supplied valuations, or other methodologies designed to identify the market value for such securities. Such methodologies generally consider such factors as security prices, yields, maturities, call features, ratings and developments relating to specific securities in arriving at valuations. Money Market Securities and other debt securities with remaining maturities of sixty days or less may be valued at their amortized cost, which approximates market value. If such prices are not available, the security will be valued at fair value as determined in good faith by the Trust's Board of Trustees. USE OF THIRD-PARTY INDEPENDENT PRICING AGENTS. Pursuant to contracts with the Trust's Administrator, prices for most securities held by the Funds are provided daily by third-party independent pricing agents that are approved by the Board of Trustees of the Trust. The valuations provided by third-party independent pricing agents are reviewed daily by the Administrator. AMORTIZED COST METHOD OF VALUATION. The amortized cost method involves valuing a security at its cost on the date of purchase and thereafter (absent unusual circumstances) assuming a constant amortization to maturity of any discount or premium, regardless of the impact of fluctuations in general market rates of interest on the value of the instrument. While this method provides certainty in valuation, it may result in periods during which a security's value, as determined by this method, is higher or lower than the price a Fund would receive if it sold the instrument. During periods of declining interest rates, the daily yield of a Fund may tend to be higher than a like computation made by a company with identical investments utilizing a method of valuation based upon market prices and estimates of market prices for all of its portfolio securities. Thus, if the use of amortized cost by a Fund resulted in a lower aggregate portfolio value on a particular day, a prospective investor in a Fund would be able to obtain a somewhat higher yield than would result from investment in a company utilizing solely market values, and existing investors in a Fund would experience a lower yield. The converse would apply in a period of rising interest rates. A Fund's use of amortized cost and the maintenance of a Fund's net asset value at $1.00 are permitted by regulations promulgated by Rule 2a-7 under the 1940 Act, provided that certain conditions are met. The regulations also require the Trustees to establish procedures which are reasonably designed to stabilize the net asset value per share at $1.00 for the Funds. Such procedures include the determination of the extent of deviation, if any, of the Funds current net asset value per share calculated using available market quotations from the Funds amortized cost price per share at such intervals as the Trustees deem appropriate and reasonable in light of market conditions and periodic reviews of the amount of the deviation and the methods used to calculate such deviation. In the event that such deviation exceeds one half of 1%, the Trustees are required to consider promptly what action, if any, should be initiated, and, if the Trustees believe that the extent of any deviation may result in material dilution or other unfair results to shareholders, the Trustees are required to take such corrective action as they deem appropriate to eliminate or reduce such dilution or unfair results to the extent reasonably practicable. Such actions may 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 73 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 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. 74 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 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%. A Fund's participation in loans of securities may affect the amount, timing and character of distributions to shareholders. If a Fund participates in a securities lending transaction, to the extent that a Fund makes a distribution of income received by the Fund in lieu of dividends (a "substitute payment") with respect to securities on loan pursuant to such a securities lending transaction, such income will not constitute qualified dividend income and thus will not be eligible for taxation at the rates applicable to long-term capital gain. Such income will also not be qualifying dividends eligible for the dividends received deduction for corporate investors. The Funds expect to use such substitute payments, if any, to satisfy a Fund's expenses, and therefore expect that their receipt of substitute payments, if any, will not adversely affect the percentage of distributions qualifying as qualified dividend income. Withholding taxes accrued on dividends during the period that any security was not directly held by a Fund will not qualify as a foreign tax paid by a Fund and therefore cannot be passed through to shareholders. 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. 75 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 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 76 received by corporate shareholders, all exempt-interest dividends, regardless of when the bonds from which they are derived were issued or whether they are derived from private activity bonds, will be included in the corporation's "adjusted current earnings," as defined in Section 56(g) of the Code, in calculating the corporation's alternative minimum taxable income for purposes of determining the Alternative Minimum Tax. Distributions of exempt-interest dividends may result in additional federal income tax consequences to shareholders in tax-exempt funds. For example, interest on indebtedness incurred by shareholders to purchase or carry shares of a tax-exempt fund will not be deductible for federal income tax purposes to the extent that the Fund distributes exempt interest dividends during the taxable year. The deduction otherwise allowable to property and casualty insurance companies for "losses incurred" will be reduced by an amount equal to a portion of exempt-interest dividends received or accrued during any taxable year. Certain foreign corporations engaged in a trade or business in the U. S. will be subject to a "branch profits tax" on their "dividend equivalent amount" for the taxable year, which will include exempt-interest dividends. Certain Subchapter S corporations may also be subject to taxes on their "passive investment income," which could include exempt-interest dividends. Up to 85% of the Social Security benefits or railroad retirement benefits received by an individual during any taxable year will be included in the gross income of such individual if the individual's "modified adjusted gross income" (which includes exempt-interest dividends) plus one-half of the Social Security benefits or railroad retirement benefits received by such individual during that taxable year exceeds the base amount described in Section 86 of the Code. A tax-exempt fund may not be an appropriate investment for persons (including corporations and other business entities) who are "substantial users" (or persons related to such users) of facilities financed by industrial development or private activity bonds. A "substantial user" is defined generally to include certain persons who regularly use in a trade or business a facility financed from the proceeds of industrial development bonds or private activity bonds. Such entities or persons should consult their tax advisor before purchasing shares of a tax-exempt fund. Issuers of bonds purchased by a tax-exempt fund (or the beneficiary of such bonds) may have made certain representations or covenants in connection with the issuance of such bonds to satisfy certain requirements of the Code that must be satisfied subsequent to the issuance of such bonds. Investors should be aware that exempt-interest dividends derived from such bonds may become subject to federal income taxation retroactively to the date of issuance of the bonds to which such dividends are attributable thereof if such representations are determined to have been inaccurate or if the issuer of such bonds (or the beneficiary of such bonds) fails to comply with such covenants. The Funds will make annual reports to shareholders of the federal income tax status of all distributions. In certain cases, a Fund will be required to withhold, at the applicable 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 77 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 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. 78 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 years ended March 31, 2007 and March 31, 2006, the fiscal period ended March 31, 2005, and the 2004 fiscal year, the Funds paid the following aggregate brokerage commissions on portfolio transactions:
AGGREGATE DOLLAR AMOUNT OF BROKERAGE COMMISSIONS PAID ($) --------------------------------------- FUND* 2007 2006 2005** 2004 - ----- ------ --------- --------- --------- Aggressive Growth Stock [____] 262,663 224,478 26,801 Classic Institutional Cash Management Money Market Fund [____] 0 94,000 201,722 Classic Institutional Municipal Cash Reserve Money Market Fund [____] 0 ** ** Classic Institutional U.S. Government Securities Money Market Fund [____] 0 67,000 133,911 Classic Institutional U.S. Treasury Securities Money Market Fund [____] 0 633,000 751,820 Emerging Growth Stock [____] 138,359 53,450 28,256 Georgia Tax-Exempt Bond [____] 0 0 0 High Grade Municipal Bond [____] 0 0 994 High Income [____] 0 1,186 0 Intermediate Bond [____] 0 0 0 International Equity [____] 1,922,438 388,837 1,189,052 International Equity Index [____] 411,897 236,456 94,924 Investment Grade Bond [____] 0 0 4,979 Investment Grade Tax-Exempt Bond [____] 0 0 888 Large Cap Core Equity [____] 1,955,667 1,120,131 1,534,256 Large Cap Growth Stock [____] 3,547,454 3,276,204 4,637,119 Large Cap Quantitative Equity [____] 938,790 365,960 303,252 Large Cap Value Equity [____] 2,208,629 1,901,299 1,852,549 Life Vision Aggressive Growth [____] 0 0 0 Life Vision Conservative [____] 0 0 0 Life Vision Growth and Income [____] 0 0 0 Life Vision Moderate Growth [____] 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 Limited-Term Federal Mortgage Securities [____] 0 0 23,608 Maryland Municipal Bond [____] 0 0 0 Mid-Cap Core Equity [____] 1,005,580 325,661 719,857 Mid-Cap Value Equity [____] 955,369 686,166 535,146 North Carolina Tax-Exempt Bond [____] 0 0 *** Prime Quality Money Market [____] 0 0 46,404 Seix Floating Rate High Income [____] 0 *** *** Seix High Yield Fund [____] 0 0 0 Select Large Cap Growth Stock [____] 273,108 287,028 585,220
79
AGGREGATE DOLLAR AMOUNT OF BROKERAGE COMMISSIONS PAID ($) --------------------------------------- FUND* 2007 2006 2005** 2004 - ----- ------ --------- --------- --------- Short-Term Bond [____] 0 0 0 Short-Term U.S. Treasury Securities [____] 0 0 0 Small Cap Growth Stock [____] 4,949,471 2,735,162 4,425,364 Small Cap Quantitative Equity [____] *** *** *** Small Cap Value Equity [____] 1,280,455 506,958 1,256,292 Strategic Income [____] 0 215 0 Tax-Exempt Money Market [____] 0 0 0 Total Return Bond [____] 0 0 0 U.S. Government Securities [____] 0 0 7,952 U.S. Government Securities Money Market [____] 0 0 127,807 U.S. Government Securities Ultra-Short Bond [____] 0 0 6,955 U.S. Treasury Money Market [____] 0 0 423,336 Ultra-Short Bond [____] 0 0 10,693 Virginia Intermediate Municipal Bond [____] 0 0 0 Virginia Tax-Free Money Market [____] 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 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 80 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 years ended March 31, 2006 and 2007, the fiscal period ended March 31, 2005 and for the 2004 fiscal year, the Funds paid the following commissions on brokerage transactions directed to brokers pursuant to an agreement or understanding whereby the broker provides research or other brokerage services to the Adviser:
TOTAL DOLLAR AMOUNT OF TOTAL DOLLAR AMOUNT OF TRANSACTIONS BROKERAGE COMMISSIONS FOR INVOLVING BROKERAGE COMMISSIONS RESEARCH SERVICES ($) FOR RESEARCH SERVICES ($) ------------------------------------- ------------------------------------------------- FUND 2007 2006 2005* 2004 2007 2006 2005* 2004 - ---- ---- --------- --------- --------- ---- ------------- ------------- ------------- Aggressive Growth Stock [__] 262,663 102,337 26,801 [__] 236,630,476 224,478 26,801 Emerging Growth Stock [__] 138,359 53,450 28,256 [__] 82,586,277 28,179,719 28,256 Large Cap Core Equity [__] 1,288,719 907,375 1,442,170 [__] 993,286,576 705,995,383 880,875,152 Large Cap Growth Stock [__] 2,215,647 2,765,108 3,902,770 [__] 1,611,418,182 2,187,420,050 2,483,046,397 Large Cap Quantitative Equity [__] 123,161 0 2,570 [__] 227,557,353 0 3,686,574 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 Mid-Cap Core 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 Select Large Cap 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. 81 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 years ended March 31, 2006 and 2007, the fiscal period ended March 31, 2005, and for the 2004 fiscal year, 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 COMMISSIONS BROKERAGE TRANSACTIONS BROKERAGE COMMISSIONS PAID TO PAID TO AFFILIATED BROKERS EFFECTED THROUGH AFFILIATED AFFILIATED BROKERS ($)* (%)** BROKERS (%) --------------------------------- ------------------------------ ------------------------------ FUND*** 2007 2006 2005+ 2004 2007 2006 2005 2004 2007 2006 2005+ 2004 - ------- ------ ------- ------- ------- ------ ------ ------ ------ ------ ------ ------ ------ Aggressive Growth Stock [____] 2,158 696 176 [____] 0.81 0.68 0.66 [____] 25.60 25.58 9.64 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 [____] [____] [____] [____] [____] [____] [____] [____] [____] [____] [____] [____] Emerging Growth Stock 103 [____] 0.26 0.40 0.36 [____] 19.02 23.58 11.15 Florida-Tax Exempt Bond 994 [____] 100 100 100 [____] 100 100 100 Georgia Tax-Exempt Bond 0 [____] 0 0 100 [____] 0 0 0
82
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 (%) --------------------------------- ------------------------------ ------------------------------ FUND*** 2007 2006 2005+ 2004 2007 2006 2005 2004 2007 2006 2005+ 2004 - ------- ------ ------- ------- ------- ------ ------ ------ ------ ------ ------ ------ ------ High Income [____] 3,013 1,650 3 [____] 100 58.18 100 [____] 100 15.81 100 Intermediate Bond [____] 905 4,633 0 [____] 100 100 0 [____] 100 100 0 International Equity [____] 0 0 0 [____] 0 0 0 [____] 0 0 0 International Equity Index [____] 0 0 0 [____] 0 0 0 [____] 0 0 0 Investment Grade Bond [____] 6,548 5,125 4,979 [____] 100 100 100 [____] 100 100 100 Investment Grade Tax-Exempt Bond [____] 2,875 2,932 888 [____] 100 100 100 [____] 100 100 100 Large Cap Core Equity [____] 0 0 0 [____] 0 0 0 [____] 0 0 0 Large Cap Growth Stock [____] 8,341 21,004 17,138 [____] 0.23 0.64 0.37 [____] 16.54 21.68 25.14 Large Cap Value Equity [____] 11,062 12,740 18,467 [____] 0.50 0.67 1.00 [____] 15.59 16.90 37.56 Life Vision Aggressive Growth [____] 0 0 0 [____] 0 0 0 [____] 0 0 0 Life Vision Conservative [____] 0 0 0 [____] 0 0 0 [____] 0 0 0 Life Vision Growth and Income [____] 0 0 0 [____] 0 0 0 [____] 0 0 0 Life Vision Moderate Growth [____] 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 [____] 100 100 0 [____] 100 100 0 Limited-Term Federal Mortgage Securities [____] 7,500 6,781 23,608 [____] 100 100 100 [____] 100 100 100 Maryland Municipal Bond [____] 0 0 0 [____] 0 0 0 [____] 0 0 0 Mid-Cap Core Equity [____] 6,163 2,113 2,726 [____] 0.61 0.64 0.38 [____] 17.76 17.17 20.39 Mid-Cap Value Equity [____] 0 0 2,114 [____] 0 0 0.40 [____] 0 0 12.35
83
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 (%) --------------------------------- ------------------------------ ------------------------------ FUND*** 2007 2006 2005+ 2004 2007 2006 2005 2004 2007 2006 2005+ 2004 - ------- ------ ------- ------- ------- ------ ------ ------ ------ ------ ------ ------ ------ North Carolina Tax- Exempt Bond [____] 0 0 ++ [____] 0 0 ++ [____] 0 0 ++ Prime Quality Money Market [____] 62,086 51,580 46,404 [____] 100 100 100 [____] 100 100 100 Seix Floating Rate High Income [____] 0 ++ ++ [____] 0 ++ ++ [____] 0 ++ ++ Seix High Yield [____] 21,140 7,941 0 [____] 100 100 0 [____] 100 100 0 Select Large Cap Growth Stock [____] 1,251 1,033 1,712 [____] 0.46 0.36 0.29 [____] 8.70 10.08 40.98 Short-Term Bond [____] 0 0 0 [____] 0 0 0 [____] 0 0 0 Short-Term U.S. Treasury Securities [____] 0 0 0 [____] 0 0 0 [____] 0 0 0 Small Cap Growth Stock [____] 20,875 8,682 10,384 [____] 0.42 0.32 0.37 [____] 17.62 16.63 4.50 Small Cap Quantitative Equity [____] ++ ++ ++ [____] ++ ++ ++ [____] ++ ++ ++ Small Cap Value Equity [____] 5,502 3,362 4,608 [____] 0.43 0.66 0.23 [____] 16.50 27.09 28.21 Strategic Income [____] 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 Total Return Bond [____] 12,291 402 0 [____] 100 100 0 [____] 100 100 0 U.S. Government Securities [____] 9,787 6,057 7,952 [____] 100 100 100 [____] 100 100 100 U.S. Government Securities Money Market [____] 114,370 67,874 127,807 [____] 100 100 100 [____] 100 100 100 U.S. Government Securities Ultra-Short Bond [____] 3,240 3,676 6,955 [____] 100 100 100 [____] 100 100 100 U.S. Treasury Money Market [____] 597,657 409,250 423,336 [____] 100 100 100 [____] 100 100 100 Ultra-Short Bond [____] 3,971 4,532 10,693 [____] 100 100 100 [____] 100 100 100 Virginia [____] 0 0 0 [____] 0 0 0 [____] 0 0 0
84
PERCENTAGE OF TOTAL PERCENTAGE OF TOTAL AGGREGATE DOLLAR AMOUNT OF BROKERAGE COMMISSIONS BROKERAGE TRANSACTIONS BROKERAGE COMMISSIONS PAID PAID TO AFFILIATED EFFECTED THROUGH AFFILIATED TO AFFILIATED BROKERS ($)* BROKERS (%)** BROKERS (%) -------------------------- ------------------------- --------------------------- FUND*** 2007 2006 2005+ 2004 2007 2006 2005 2004 2007 2006 2005+ 2004 - ------- ---- ---- ----- ---- ---- ---- ---- ---- ---- ---- ----- ----- Intermediate Municipal Bond Virginia Tax-Free Money Market [__] 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. ** 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. SECURITIES OF "REGULAR BROKER-DEALERS." As of March 31, 2007, the Funds held securities of their "regular broker-dealers" (as such term is defined in the 1940 Act) as follows: [TO BE UPDATED BY AMENDMENT] 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 years ended March 31, 2006 and 2007 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 2007 2006 - ---- ------ ------ Aggressive Growth Stock [____] 30 Classic Institutional Cash Management Money Market Fund [____] [____] Classic Institutional Municipal Cash Reserve Money Market Fund [____] [____] Classic Institutional U.S. Government Securities Money Market Fund [____] [____]
85
TURNOVER RATE (%) ----------------- FUND 2007 2006 - ---- ------ ------ Classic Institutional U.S. Treasury Securities Money Market Fund [____] [____] Emerging Growth Stock [____] 107 Georgia Tax-Exempt Bond [____] 43 High Grade Municipal Bond [____] 90 High Income [____] 208 Intermediate Bond [____] 154 International Equity [____] 59 International Equity Index [____] 7 Investment Grade Bond [____] 171 Investment Grade Tax-Exempt Bond [____] 237 Large Cap Core Equity [____] 55 Large Cap Growth Stock [____] 74 Large Cap Quantitative Equity [____] 432 Large Cap Value Equity [____] 104 Life Vision Aggressive Growth [____] 31 Life Vision Conservative [____] 29 Life Vision Growth and Income [____] 34 Life Vision Moderate Growth [____] 34 Life Vision Target Date 2015 [____] 25 Life Vision Target Date 2025 [____] 17 Life Vision Target Date 2035 [____] 40 Limited Duration [____] 94 Limited-Term Federal Mortgage Securities [____] 81 Maryland Municipal Bond [____] 55 Mid-Cap Core Equity [____] 138 Mid-Cap Value Equity [____] 169 North Carolina Tax-Exempt Bond [____] 85 Seix Floating Rate High Income [____] 9 Seix High Yield [____] 95 Select Large Cap Growth Stock [____] 82 Short-Term Bond [____] 94 Short-Term U.S. Treasury Securities [____] 151 Small Cap Growth Stock [____] 98 Small Cap Quantitative Equity [____] *** Small Cap Value Equity [____] 58 Strategic Income [____] 317 Total Return Bond [____] 236 U.S. Government Securities [____] 118
86
TURNOVER RATE (%) ----------------- FUND 2007 2006 - ---- ------ ------ U.S. Government Securities Ultra-Short Bond [____] 126 Ultra-Short Bond [____] 114 Virginia Intermediate Municipal Bond [____] 54
* 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. 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 month except for the Aggressive Growth Stock Fund and the Emerging Growth Stock Fund, which are disclosed as of the end of each 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 month, or in the case of the Aggressive Growth Stock Fund, or the Emerging Growth Stock Fund, 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 87 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. 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 88 Each share held entitles the shareholder of record to one vote for each dollar invested. In other words, each shareholder of record is entitled to one vote for each full share held on the record date for any shareholder meeting. Each Fund will vote separately on matters relating solely to it. As a Massachusetts business trust, the Trust is not required, and does not intend, to hold annual meetings of shareholders. Shareholders approval will be sought, however, for certain changes in the operation of the Trust and for the election of Trustees under certain circumstances. Under the Declaration of Trust, the Trustees have the power to liquidate one or more Funds without shareholder approval. While the Trustees have no present intention of exercising this power, they may do so if a Fund fails to reach or maintain a viable size or for some other extraordinary reason. In addition, a Trustee may be removed by the remaining Trustees or by shareholders at a special meeting called upon written request of shareholders owning at least 10% of the outstanding shares of the Trust. In the event that such a meeting is requested, the Trust will provide appropriate assistance and information to the shareholders requesting the meeting. SHAREHOLDER LIABILITY The Trust is an entity of the type commonly known as a "Massachusetts business trust." Under Massachusetts law, shareholders of such a trust could, under certain circumstances, be held personally liable as partners for the obligations of the trust. Even if, however, the Trust were held to be a partnership, the possibility of the shareholders' incurring financial loss for that reason appears remote because the Trust's Declaration of Trust contains an express disclaimer of shareholder liability for obligations of the Trust and requires that notice of such disclaimer be given in each agreement, obligation or instrument entered into or executed by or on behalf of the Trust or the Trustees, and because the Declaration of Trust provides for indemnification out of the Trust property for any investor held personally liable for the obligations of the Trust. LIMITATION OF TRUSTEES' LIABILITY The Declaration of Trust provides that a Trustee shall be liable only for his own willful defaults and, if reasonable care has been exercised in the selection of officers, agents, employees or investment advisers, shall not be liable for any neglect or wrongdoing of any such person. The Declaration of Trust also provides that the Trust will indemnify its Trustees and officers against liabilities and expenses incurred in connection with actual or threatened litigation in which they may be involved because of their offices with the Trust unless it is determined in the manner provided in the Declaration of Trust that they have not acted in good faith in the reasonable belief that their actions were in the best interests of the Trust. However, nothing in the Declaration of Trust shall protect or indemnify a Trustee against any liability for his willful misfeasance, bad faith, gross negligence or reckless disregard of his duties. 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 89 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 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 [____], 2007, 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. [TO BE UPDATED BY AMENDMENT] FINANCIAL STATEMENTS The financial statements for the Trust's fiscal year ended March 31, 2007, including notes thereto and the reports of [____]. thereon, are incorporated into this Statement of Additional Information by reference from the 2007 Annual Report to Shareholders. Copies of the 2007 Annual Report will be provided without charge to each person receiving this Statement of Additional Information. 90 APPENDIX A DESCRIPTION OF RATINGS The following descriptions are summaries of published ratings. DESCRIPTION OF COMMERCIAL PAPER RATINGS A-1 This is the highest category by Standard & Poor's Ratings Group (S&P) and indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation. A-2 Capacity for timely payment on issues with this designation is satisfactory and the obligation is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rating categories. PRIME-1 Issues rated Prime-1 (or supporting institutions) by Moody's Investor Services, Inc. ("Moody's") have a superior ability for repayment of senior short-term debt obligations. Prime-1 repayment ability will often be evidenced by many of the following characteristics: - Leading market positions in well-established industries. - High rates of return on funds employed. - Conservative capitalization structure with moderate reliance on debt and ample asset protection. - Broad margins in earnings coverage of fixed financial charges and high internal cash generation. - Well-established access to a range of financial markets and assured sources of alternate liquidity. The rating F1 (Highest Credit Quality) is the highest commercial rating assigned by Fitch, Inc. ("Fitch"). Paper rated F1 is regarded as having the strongest capacity for timely payment of financial commitments. The rating F2 (Good Credit Quality) is the second highest commercial paper rating assigned by Fitch which reflects a satisfactory capacity for timely payment of financial commitments, but the margin of safety is not as great as in the case of the higher ratings. The rating TBW-1 by Thomson BankWatch ("Thomson") indicates a very high likelihood that principal and interest will be paid on a timely basis. DESCRIPTION OF MUNICIPAL NOTE RATINGS Moody's highest rating for state and municipal and other short-term notes is MIG-1 and VMIG-l. Short-term municipal securities rated MIG-1 or VMIG-1 are of the best quality. They have strong protection from established cash flows, superior liquidity support, or demonstrated broad-based access to the market for refinancing or both. Short-term municipal securities rated MIG-2 or VMIG-2 are of high quality. Margins of protection are ample although not so large as in the MIG-I/VMIG-2 group. An S&P note rating reflects the liquidity concerns and market access risks unique to notes. Notes due in three years or less will likely receive a note rating. Notes maturing beyond three years will most likely receive a long-term debt rating. The following criteria will be used in making that assessment: A-1 - Amortization Schedule - the larger the final maturity relative to other maturities, the more likely it will be treated as a note, and - Source of Payment - the more dependent the issue is on the market for its refinancing, the more likely it will be treated as a note. S&P note rating symbols are as follows: SP-1 Strong capacity to pay principal and interest. Those issues determined to possess a very strong capacity to pay a debt service is given a plus (+) designation. SP-2 Satisfactory capacity to pay principal and interest with some vulnerability to adverse financial and economic changes over the term of the votes. DESCRIPTION OF CORPORATE BOND RATINGS S&P Bonds rated AAA have the highest rating S&P assigns to a debt obligation. Such a rating indicates an extremely strong capacity to pay principal and interest. Bonds rated AA also qualify as high-quality debt obligations. Capacity to pay principal and interest is very strong, and in the majority of instances they differ from AAA issues only in small degree. Debt rated A has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories. Debt rated BB and B is regarded as having predominantly speculative characteristics with respect to capacity to pay interest and repay principal. BB indicates the least degree of speculation and C the highest degree of speculation. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. Debt rated BB has less near-term vulnerability to default than other speculative grade debt. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions that could lead to inadequate capacity to meet timely interest and principal payments. The BB rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BBB- rating. Debt rate B has greater vulnerability to default but presently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions would likely impair capacity or willingness to pay interest and repay principal. The B rating category also is used for debt subordinated to senior debt that is assigned an actual or implied BB or BB- rating. 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. Moody's ratings are opinions, not recommendations to buy or sell, and their accuracy is not guaranteed. A rating should be weighed solely as one factor in an investment decision and you should make your own study and evaluation of any issuer whose securities or debt obligations you consider buying or selling. A-3 Fitch Bonds rated AAA by Fitch are judged by Fitch to be strictly high grade, broadly marketable, suitable for investment by trustees and fiduciary institutions liable to but slight market fluctuation other than through changes in the money rate. The prime feature of an AAA bond is a showing of earnings several times or many times interest requirements, with such stability of applicable earnings that safety is beyond reasonable question whatever changes occur in conditions. Bonds rated AA by Fitch are judged by Fitch to be of safety virtually beyond question and are readily salable, whose merits are not unlike those of the AAA class, but whose margin of safety is less strikingly broad. The issue may be the obligation of a small company, strongly secured but influenced as to rating by the lesser financial power of the enterprise and more local type market. Bonds rated A are considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings. Bonds rated BBB are considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds, and therefore impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings. Bonds rated BB are considered speculative. The obligor's ability to pay interest and repay principal may be affected over time by adverse economic changes. However, business and financial alternatives can be identified which could assist the obligor in satisfying its debt service requirements. Bonds rated B are considered highly speculative. While bonds in this class are currently meeting debt service requirements, the probability of continued timely payment of principal and interest reflects the obligor's limited margin of safety and the need for reasonable business and economic activity throughout the life of the issue. Thomson Bonds rated AAA by Thomson BankWatch indicate that the ability to repay principal and interest on a timely basis is extremely high. Bonds rated AA indicate a very strong ability to repay principal and interest on a timely basis, with limited incremental risk compared to issues rated in the highest category. Bonds rated A indicate the ability to repay principal and interest is strong. Issues rated A could be more vulnerable to adverse developments (both internal and external) than obligations with higher ratings. Bonds rated BBB (the lowest investment-grade category) indicate an acceptable capacity to repay principal and interest. Issues rated "BBB" are, however, more vulnerable to adverse developments (both internal and external) than obligations with higher ratings. While not investment grade, the BB rating suggests that the likelihood of default is considerably less than for lower-rated issues. However, there are significant uncertainties that could affect the ability to adequately service debt obligations. Issues rated B show a higher degree of uncertainty and therefore greater likelihood of default than higher-rated issues. Adverse developments could negatively affect the payment of interest and principal on a timely basis. A-4 APPENDIX B B-1 (TRUSCO CAPITAL MANAGEMENT LOGO) TRUSCO CAPITAL MANAGEMENT PROXY DISCLOSURE TO THE STI CLASSIC FUNDS SHAREHOLDERS Dear Shareholders: Securities and Exchange Commission rules under the Investment Advisers Act of 1940 and the Investment Company Act of 1940 address an investment adviser's fiduciary obligation to its clients when the adviser has authority to vote their proxies. Under our current contractual agreement, Trusco Capital Management, Inc. ("Trusco") is authorized to vote proxies on behalf of the STI Classic Funds. The rules require an investment company to adopt policies and procedures reasonably designed to ensure that the fund: 1) votes proxies in the best interests of clients; 2) discloses information about those policies and procedures and how to obtain copies; 3) discloses how clients may obtain information about proxy votes cast; and 4) maintains appropriate records relating to actual proxy voting. The STI Classic Funds' board has delegated voting authority to Trusco and accordingly has adopted Trusco's proxy voting policies. Trusco's existing Proxy Voting Committee ("Committee") is structured to seek to ensure compliance with all of the requirements. After an extensive review, the Committee determined that the use of a professional proxy voting agency would be the most efficient and effective course of action to accommodate certain portions of the regulations. The Committee conducted comprehensive due diligence of the most established proxy voting agencies in the industry and chose to hire Institutional Shareholder Services ("ISS") as Trusco's agent to assist us with meeting the administrative, clerical and recordkeeping aspects of our fiduciary obligations. Several of the determining factors in choosing ISS as an agent to provide such services included its comprehensive research tools and advanced, state of the art technical and system support. The Committee recognizes that each proxy vote must be evaluated on its own merits. Factors such as a company's organizational structure, executive and operational management, structure of the board of directors, corporate culture and governance process, and the impact of economic, environmental and social implications remain key elements in all voting decisions. To address material conflicts of interest, as defined by SEC regulations, involving Trusco relationships, the Committee will engage the services of an independent fiduciary voting service to vote on any proxies for securities for which the Committee determines a material conflict of interest exists so as to provide shareholders with the most beneficial and objective proxy voting possible. Material conflicts might occur, for example, (1) in the case of securities of a company where a director or officer may serve as an independent director on Trusco's, SunTrust Banks, Inc. ("SunTrust") or a related 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. B-1 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 a procedure 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: - Trusco U.S. Domestic Proxy Policy (applied to both ERISA and Non-ERISA related accounts) B-3 - Trusco Taft Hartley Proxy Policy - Trusco Global/International Proxy Policy These policies are available as described below. Both brief and extended summaries are available for the Trusco Taft Hartley Proxy Policy and the Trusco Global/International Proxy Policy. The Committee's process includes a review and evaluation of relevant, information related to the issuer's proxy, applying the firm's proxy voting policy in a prudent and appropriate manner ensuring votes are cast in the best interest of our clients. Under the Trusco Global/International Proxy Policy the Committee generally votes in a manner similar to that recommended by ISS for an account's international holdings including, to the extent permitted by law, ERISA accounts international holdings. In this regard the Committee has reviewed and will monitor ISS' capabilities and conflict policies with respect to international securities proxy vote recommendations. Exceptions to Policy The Trusco Proxy Policies and guidelines as outlined herein generally will not be applied where Trusco has further delegated discretionary investment management and the authority to vote shares to a properly appointed subadvisor, such as may be the case in some managed separate accounts, wrap programs, and funds. In those situations proxy votes cast by the subadvisor will be governed by the subadvisor's proxy voting policies and procedures. Conflicts of Interest Due to its diversified client base, numerous product lines, independent board of directors, and affiliation with SunTrust Banks, Inc., and its subsidiaries, the Committee may determine a potential conflict exists in connection with a proxy vote based on the SEC guidelines. In such instances, the Committee will review the potential conflict to determine if it is material. Examples of material conflicts of interest which may arise could include those where the shares to be voted involve: 1. Common stock of SunTrust Banks, Inc., The Coca-Cola Company, Inc., and/or other public corporate issuers with which either Trusco or SunTrust Banks, Inc. or its affiliates, may have a similar on-going non-investment management associated relationship. 2. An issuer with a director, officer or employee who presently serves as an independent director on the board of Trusco or SunTrust Banks, Inc. or any of its affiliates. 3. An issuer having substantial and numerous banking, investment or other financial relationships with Trusco, SunTrust Banks, Inc. or its affiliates. 4. A director or senior officer of Trusco or SunTrust Banks, Inc. serving on the board of a publicly held company. 5. A direct common stock ownership position of five percent (5%) or greater held individually by Trusco or in conjunction with SunTrust Banks, Inc. and/or its affiliates B-4 Although Trusco utilizes a pre-determined proxy voting policy, occasions may arise in which a conflict of interest could be deemed to be material. In this case, the Committee will determine the most fair and reasonable procedure to be followed in order to properly address all conflict concerns. The Committee may employ one or more of the options listed below: 1. Retain an independent fiduciary to vote the shares. 2. Send the proxy material to the client (in the case of mutual funds, the funds' shareholders) so he or she may vote the proxies. Although Trusco does its best to alleviate or diffuse known conflicts, there is no guarantee that all situations have been or will be mitigated through proxy policy incorporation. SECURITIES LENDING PROGRAM Trusco also manages assets for several clients (including mutual funds, such as the STI Classic Funds) who engage in "security lending" programs. A typical security lending program such as the "STI Classic Securities Lending Program" is where the clients or funds lend equities and/or fixed-income assets from their accounts or portfolio to various approved-broker-dealers against cash collateral (102% of loan value) and earn incremental income by: 1.) extracting intrinsic value from each loan; and, 2.) generating investment income through reinvestment activities involving cash collateral. Consistent with SEC guidelines, the Committee will generally refrain from voting securities loaned out under this type of lending arrangement when the costs and lost revenue to the client or fund combined with the administrative effects of recalling the securities outweigh the benefit of voting the proxy. In addition, the Committee must make a good-faith determination that the individual proxy ballot decisions would not materially impact the portfolio manager's desire to retain the position in the portfolio, and that the entire position of loaned shares' votes would not significantly affect the overall voting outcome. If any factor is determined to be material by the Committee, Trusco will initiate a total recall of the shares on loan to vote accordingly. Under the current STI Classic Securities Lending Program, Trusco is required to notify the Custodian to recall securities on loan 10 business days prior to the record date if Trusco wishes to vote proxy on the securities so as to ensure that they are in Custodian's possession by the voting deadline. ADDITIONAL INFORMATION Trusco clients: Extended summaries of Trusco Capital Management, Inc.'s U.S. Domestic Proxy Policy (includes ERISA related accounts,) Taft Hartley Proxy Policy, and Global/International Proxy Policy and voting records are available to clients upon request. (Complete copies are quite voluminous but are also available.) For this information, or to obtain information about specific voting issues, please contact Trusco Capital Management, Inc, Attn: Proxy Voting Committee Administrator, 50 Hurt Plaza, 14th Floor, Atlanta, Georgia, 30303, by telephone at 404.827.6177, or via e-mail at: PMP.operations@truscocapital.com. STI Classic Funds and STI Classic Variable Trust shareholders: Shareholders of the STI Classic Funds or the STI Classic Variable Trust may access this information by contacting the STI Classic Funds by telephone at 1-888-STI-FUND (784-3863) or by visiting www.sticlassicfunds.com. B-5 PROXY VOTING POLICIES UPDATED 02/1/2007 TRUSCO CAPITAL MANAGEMENT, INC.
BALLOT ITEM / PROPOSAL [F=FOR, A=AGAINST, W=WITHHOLD, C=CASE BY NUMBER CHAPTER SECTION CASE, ABS=ABSTAIN] VOTE - ------ ------------------ ------------------------ ---------------------------------------------- ---- 1.0. OPERATIONAL ITEMS ADJOURN MEETING TO PROVIDE MANAGEMENT WITH THE AUTHORITY TO F ADJOURN AN ANNUAL OR SPECIAL MEETING. 1.1. OPERATIONAL ITEMS AMEND QUORUM TO REDUCE QUORUM REQUIREMENTS FOR SHAREHOLDER A REQUIREMENTS MEETINGS BELOW A MAJORITY OF THE SHARES OUTSTANDING 1.2. OPERATIONAL ITEMS AMEND MINOR BYLAWS TO MAKE HOUSEKEEPING CHANGES (UPDATES OR F CORRECTIONS) TO BYLAW OR CHARTER 1.3. OPERATIONAL ITEMS CHANGE COMPANY NAME TO CHANGE THE CORPORATE NAME F 1.4. OPERATIONAL ITEMS DATE, TIME, OR LOCATION MANAGEMENT PROPOSALS TO CHANGE THE F OF ANNUAL MEETING DATE/TIME/LOCATION OF THE ANNUAL MEETING 1.5. OPERATIONAL ITEMS DATE, TIME, OR LOCATION SHAREHOLDER PROPOSALS TO CHANGE THE A OF ANNUAL MEETING DATE/TIME/LOCATION OF THE ANNUAL MEETING 1.6. OPERATIONAL ITEMS AUDITORS TO RATIFY AUDITORS (EXCEPT AS DESCRIBED BELOW) F 1.6.A OPERATIONAL ITEMS AUDITORS TO RATIFY AUDITORS IF NON-AUDIT FEES (TAX AND A OTHER) EXCEED AUDIT AND AUDIT RELATED FEES COMBINED 1.7. OPERATIONAL ITEMS AUDITORS SHAREHOLDER PROPOSALS ASKING COMPANIES TO A PROHIBIT THEIR AUDITORS FROM ENGAGING IN NON-AUDIT SERVICES 1.8. OPERATIONAL ITEMS AUDITORS SHAREHOLDER PROPOSALS TO REQUIRE AUDIT FIRM A ROTATION 1.9. OPERATIONAL ITEMS TRANSACT OTHER BUSINESS TO APPROVE OTHER BUSINESS WHEN IT APPEARS AS A VOTING ITEM 2.0. BOARD OF DIRECTORS VOTING ON DIRECTOR DIRECTOR NOMINEES WHO ARE NOT DESCRIBED BELOW F NOMINEES IN UNCONTESTED ELECTIONS 2.1. BOARD OF DIRECTORS VOTING ON DIRECTOR DIRECTOR NOMINEES WHO HAVE IMPLEMENTED OR W NOMINEES IN UNCONTESTED RENEWED A DEAD-HAND OR MODIFIED DEAD-HAND ELECTIONS POISON PILL UNLESS A SHAREHOLDER VOTE WILL OCCUR WITHIN TWELVE MONTHS OF ITS ADOPTION. 2.2. BOARD OF DIRECTORS VOTING ON DIRECTOR DIRECTOR NOMINEES WHO HAVE IGNORED A W NOMINEES IN UNCONTESTED SHAREHOLDER PROPOSAL THAT IS APPROVED BY A ELECTIONS MAJORITY OF THE VOTES CAST FOR TWO CONSECUTIVE YEARS 2.3. BOARD OF DIRECTORS VOTING ON DIRECTOR DIRECTOR NOMINEES WHO HAVE FAILED TO ACT ON NOMINEES IN UNCONTESTED TAKEOVER OFFERS WHERE THE MAJORITY OF THE W ELECTIONS SHAREHOLDERS TENDERED THEIR SHARES
B-6
BALLOT ITEM / PROPOSAL [F=FOR, A=AGAINST, W=WITHHOLD, C=CASE BY NUMBER CHAPTER SECTION CASE, ABS=ABSTAIN] VOTE - ------ ------------------ ------------------------ ---------------------------------------------- ---- 2.4. BOARD OF DIRECTORS VOTING ON DIRECTOR DIRECTOR NOMINEES WHO ENACTED EGREGIOUS NOMINEES IN UNCONTESTED CORPORATE GOVERNANCE POLICIES OR FAILED TO W ELECTIONS REPLACE MANAGEMENT AS APPROPRIATE 2.5. BOARD OF DIRECTORS AGE LIMITS TO LIMIT THE TENURE OF OUTSIDE DIRECTORS A EITHER THROUGH TERM LIMITS OR MANDATORY RETIREMENT AGES. 2.6. BOARD OF DIRECTORS BOARD SIZE TO FIX THE BOARD SIZE OR DESIGNATE A RANGE F FOR THE BOARD SIZE 2.7. BOARD OF DIRECTORS BOARD SIZE TO GIVE MANAGEMENT THE ABILITY TO ALTER THE A SIZE OF THE BOARD OUTSIDE OF A SPECIFIED RANGE WITHOUT SHAREHOLDER APPROVAL 2.8. BOARD OF DIRECTORS CLASSIFICATION/ MANAGEMENT AND SHAREHOLDER PROPOSALS TO C DECLASSIFICATION OF THE CLASSIFY THE BOARD BOARD 2.9. BOARD OF DIRECTORS CLASSIFICATION/ MANAGEMENT AND SHAREHOLDER PROPOSALS TO A DECLASSIFICATION OF THE REPEAL CLASSIFIED BOARDS AND TO ELECT ALL BOARD DIRECTORS ANNUALLY 2.10. BOARD OF DIRECTORS CUMULATIVE VOTING TO ELIMINATE CUMULATIVE VOTING. F 2.11. BOARD OF DIRECTORS CUMULATIVE VOTING TO RESTORE OR PERMIT CUMULATIVE VOTING. A 2.12. BOARD OF DIRECTORS DIRECTOR AND OFFICER PROPOSALS ON DIRECTOR AND OFFICER C INDEMNIFICATION AND INDEMNIFICATION AND LIABILITY PROTECTION NOT LIABILITY PROTECTION PARTICULARLY DESCRIBED BELOW. 2.13. BOARD OF DIRECTORS DIRECTOR AND OFFICER TO ELIMINATE ENTIRELY DIRECTORS' AND A INDEMNIFICATION AND OFFICERS' LIABILITY FOR MONETARY DAMAGES FOR LIABILITY PROTECTION VIOLATING THE DUTY OF CARE. 2.14. BOARD OF DIRECTORS DIRECTOR AND OFFICER TO EXPAND COVERAGE BEYOND JUST LEGAL EXPENSES A INDEMNIFICATION AND TO ACTS, SUCH AS NEGLIGENCE, THAT ARE MORE LIABILITY PROTECTION SERIOUS VIOLATIONS OF FIDUCIARY OBLIGATION THAN MERE CARELESSNESS 2.15. BOARD OF DIRECTORS DIRECTOR AND OFFICER TO EXPAND COVERAGE IN CASES WHEN A DIRECTOR'S F INDEMNIFICATION AND OR OFFICER'S LEGAL DEFENSE WAS UNSUCCESSFUL LIABILITY PROTECTION IF: (1) THE DIRECTOR WAS FOUND TO HAVE ACTED IN GOOD FAITH AND IN A MANNER THAT HE REASONABLY BELIEVED WAS IN THE BEST INTERESTS OF THE COMPANY, AND (2) ONLY IF THE DIRECTOR'S LEGAL EXPENSES WOULD BE COVERED. 2.16. BOARD OF DIRECTORS ESTABLISH/ AMEND TO ESTABLISH OR AMEND DIRECTOR QUALIFICATIONS A NOMINEE QUALIFICATIONS 2.17. BOARD OF DIRECTORS ESTABLISH/ AMEND SHAREHOLDER PROPOSALS REQUIRING TWO A NOMINEE QUALIFICATIONS CANDIDATES PER BOARD SEAT 2.18. BOARD OF DIRECTORS FILLING VACANCIES/ TO PROVIDE THAT DIRECTORS MAY BE REMOVED ONLY A REMOVAL OF DIRECTORS FOR CAUSE.
B-7
BALLOT ITEM / PROPOSAL [F=FOR, A=AGAINST, W=WITHHOLD, C=CASE BY NUMBER CHAPTER SECTION CASE, ABS=ABSTAIN] VOTE - ------ ------------------ ------------------------ ---------------------------------------------- ---- 2.19. BOARD OF DIRECTORS FILLING VACANCIES/ TO RESTORE SHAREHOLDER ABILITY TO REMOVE F REMOVAL OF DIRECTORS DIRECTORS WITH OR WITHOUT CAUSE. 2.20. BOARD OF DIRECTORS FILLING VACANCIES/ TO PROVIDE THAT ONLY CONTINUING DIRECTORS MAY A REMOVAL OF DIRECTORS ELECT REPLACEMENTS TO FILL BOARD VACANCIES. 2.21. BOARD OF DIRECTORS FILLING VACANCIES/ TO PERMIT SHAREHOLDERS TO ELECT DIRECTORS TO F REMOVAL OF DIRECTORS FILL BOARD VACANCIES. 2.22. BOARD OF DIRECTORS INDEPENDENT CHAIRMAN TO RECOMMEND THAT THE POSITIONS OF CHAIRMAN C (SEPARATE CHAIRMAN/CEO) AND CEO BE COMBINED. 2.23. BOARD OF DIRECTORS INDEPENDENT CHAIRMAN TO RECOMMEND THAT THE POSITIONS OF CHAIRMAN A (SEPARATE CHAIRMAN/CEO AND CEO BE SEPARATE AND DISTINCT POSITIONS HELD BY 2 DIFFERENT INDIVIDUALS. 2.24. BOARD OF DIRECTORS MAJORITY OF INDEPENDENT SHAREHOLDER PROPOSALS TO REQUIRE THAT A F DIRECTORS/ MAJORITY OR MORE OF DIRECTORS BE INDEPENDENT ESTABLISHMENT OF COMMITTEES 2.25. BOARD OF DIRECTORS MAJORITY OF INDEPENDENT SHAREHOLDER PROPOSALS ASKING THAT BOARD F DIRECTORS/ AUDIT, COMPENSATION, AND/OR NOMINATING ESTABLISHMENT OF COMMITTEES BE COMPOSED EXCLUSIVELY OF COMMITTEES INDEPENDENT DIRECTORS 2.26. BOARD OF DIRECTORS OPEN ACCESS SHAREHOLDER PROPOSALS ASKING FOR OPEN ACCESS A 2.27. BOARD OF DIRECTORS STOCK OWNERSHIP SHAREHOLDER PROPOSALS THAT MANDATE A MINIMUM A REQUIREMENTS AMOUNT OF STOCK THAT DIRECTORS MUST OWN IN ORDER TO QUALIFY AS A DIRECTOR OR TO REMAIN ON THE BOARD 2.28. BOARD OF DIRECTORS STOCK OWNERSHIP SHAREHOLDER PROPOSALS ASKING THAT THE COMPANY A REQUIREMENTS ADOPT A HOLDING OR RETENTION PERIOD FOR ITS EXECUTIVES (FOR HOLDING STOCK AFTER THE VESTING OR EXERCISE OF EQUITY AWARDS) 2.29. BOARD OF DIRECTORS TERM LIMITS SHAREHOLDER OR MANAGEMENT PROPOSALS TO LIMIT A THE TENURE OF OUTSIDE DIRECTORS 2.30. BOARD OF DIRECTORS MAJORITY VOTING STANDARD SHAREHOLDER PROPOSALS REQUESTING A MAJORITY F VOTING STANDARD ON ELECTION OF DIRECTORS 3.0. PROXY CONTESTS VOTING FOR DIRECTOR VOTES IN A CONTESTED ELECTION OF DIRECTORS C NOMINEES IN CONTESTED ELECTIONS 3.1.A PROXY CONTESTS REIMBURSING PROXY TO REIMBURSE PROXY SOLICITATION EXPENSES IF F SOLICITATION EXPENSES DISSIDENT WINS
B-8
BALLOT ITEM / PROPOSAL [F=FOR, A=AGAINST, W=WITHHOLD, C=CASE BY NUMBER CHAPTER SECTION CASE, ABS=ABSTAIN] VOTE - ------ ------------------ ------------------------ ---------------------------------------------- ---- 3.1.B PROXY CONTESTS REIMBURSING PROXY TO REIMBURSE PROXY SOLICITATION EXPENSES A SOLICITATION EXPENSES (UNLESS DESCRIBED ABOVE) 3.2. PROXY CONTESTS CONFIDENTIAL VOTING SHAREHOLDER PROPOSALS REQUESTING THAT A CORPORATIONS ADOPT CONFIDENTIAL VOTING, USE INDEPENDENT VOTE TABULATORS AND USE INDEPENDENT INSPECTORS OF ELECTION 3.3. PROXY CONTESTS CONFIDENTIAL VOTING MANAGEMENT PROPOSALS TO ADOPT CONFIDENTIAL A VOTING. 4.0. ANTITAKEOVER ADVANCE NOTICE ADVANCE NOTICE PROPOSALS F DEFENSES AND REQUIREMENTS FOR VOTING RELATED SHAREHOLDER ISSUES PROPOSALS/NOMINATIONS 4.1. ANTITAKEOVER AMEND BYLAWS WITHOUT PROPOSALS GIVING THE BOARD EXCLUSIVE F DEFENSES AND SHAREHOLDER CONSENT AUTHORITY TO AMEND THE BYLAWS VOTING RELATED ISSUES 4.2. ANTITAKEOVER AMEND BYLAWS WITHOUT PROPOSALS GIVING THE BOARD THE ABILITY TO F DEFENSES AND SHAREHOLDER CONSENT AMEND THE BYLAWS IN ADDITION TO SHAREHOLDERS VOTING RELATED ISSUES 4.3. ANTITAKEOVER POISON PILLS SHAREHOLDER PROPOSALS THAT ASK A COMPANY TO F DEFENSES AND SUBMIT ITS POISON PILL FOR SHAREHOLDER VOTING RELATED RATIFICATION ISSUES 4.4. ANTITAKEOVER POISON PILLS SHAREHOLDER PROPOSALS ASKING THAT ANY FUTURE F DEFENSES AND PILL BE PUT TO A SHAREHOLDER VOTE VOTING RELATED ISSUES 4.5.A ANTITAKEOVER POISON PILLS MANAGEMENT PROPOSALS TO RATIFY A POISON PILL F DEFENSES AND IF A COMPANY IS TRADING BELOW BOOK VALUE AND VOTING RELATED PLAN CONTAINS A REASONABLE "QUALIFYING OFF" ISSUES CLAUSE (I.E. IS CHEWABLE) 4.5.B ANTITAKEOVER POISON PILLS MANAGEMENT PROPOSALS TO RATIFY A POISON PILL A DEFENSES AND (EXCEPT AS DESCRIBED ABOVE) VOTING RELATED ISSUES 4.6. ANTITAKEOVER SHAREHOLDER ABILITY TO TO RESTRICT OR PROHIBIT SHAREHOLDER ABILITY A DEFENSES AND ACT BY WRITTEN CONSENT TO TAKE ACTION BY WRITTEN CONSENT VOTING RELATED ISSUES 4.7. ANTITAKEOVER SHAREHOLDER ABILITY TO TO ALLOW OR MAKE EASIER SHAREHOLDER ACTION BY F DEFENSES AND ACT BY WRITTEN CONSENT WRITTEN CONSENT VOTING RELATED ISSUES 4.8. ANTITAKEOVER SHAREHOLDER ABILITY TO TO RESTRICT OR PROHIBIT SHAREHOLDER ABILITY A DEFENSES AND CALL SPECIAL MEETINGS TO CALL SPECIAL MEETINGS. VOTING RELATED ISSUES
B-9
BALLOT ITEM / PROPOSAL [F=FOR, A=AGAINST, W=WITHHOLD, C=CASE BY NUMBER CHAPTER SECTION CASE, ABS=ABSTAIN] VOTE - ------ ------------------ ------------------------ ---------------------------------------------- ---- 4.9. ANTITAKEOVER SHAREHOLDER ABILITY TO TO REMOVE RESTRICTIONS ON THE RIGHT OF F DEFENSES AND CALL SPECIAL MEETINGS SHAREHOLDERS TO ACT INDEPENDENTLY OF VOTING RELATED MANAGEMENT. ISSUES 4.10. ANTITAKEOVER SUPERMAJORITY VOTE TO REQUIRE A SUPERMAJORITY SHAREHOLDER VOTE A DEFENSES AND REQUIREMENTS PERTAINING TO ISSUES OTHER THAN ELECTION OF VOTING RELATED DIRECTORS. ISSUES 4.11. ANTITAKEOVER SUPERMAJORITY VOTE TO LOWER SUPERMAJORITY VOTE REQUIREMENTS F DEFENSES AND REQUIREMENTS PERTAINING TO ISSUES OTHER THAN ELECTION OF VOTING RELATED DIRECTORS. ISSUES 5.0. MERGERS AND APPRAISAL RIGHTS TO RESTORE, OR PROVIDE SHAREHOLDERS WITH, A CORPORATE RIGHTS OF APPRAISAL. RESTRUCTURINGS
B-10
BALLOT ITEM / PROPOSAL [F=FOR, A=AGAINST, W=WITHHOLD, C=CASE BY NUMBER CHAPTER SECTION CASE, ABS=ABSTAIN] VOTE - ------ ------------------ ------------------------ ---------------------------------------------- ---- 5.1. MERGERS AND ASSET PURCHASES ON ASSET PURCHASE PROPOSALS C CORPORATE RESTRUCTURINGS 5.2. MERGERS AND ASSET SALES ASSET SALES C CORPORATE RESTRUCTURINGS 5.3. MERGERS AND BUNDLED PROPOSALS BUNDLED OR "CONDITIONED" PROXY PROPOSALS C CORPORATE RESTRUCTURINGS 5.4. MERGERS AND CONVERSION OF SECURITIES PROPOSALS REGARDING CONVERSION OF SECURITIES, C CORPORATE ABSENT PENALTIES OR LIKELY BANKRUPTCY. RESTRUCTURINGS 5.5. MERGERS AND CONVERSION OF SECURITIES PROPOSALS REGARDING CONVERSION OF SECURITIES, F CORPORATE IF IT IS EXPECTED THAT THE COMPANY WILL BE RESTRUCTURINGS SUBJECT TO ONEROUS PENALTIES OR WILL BE FORCED TO FILE FOR BANKRUPTCY IF THE TRANSACTION IS NOT APPROVED. 5.6. MERGERS AND CORPORATE REORGANIZATION PROPOSALS TO INCREASE COMMON AND/OR PREFERRED C CORPORATE SHARES AND TO ISSUE SHARES AS PART OF A DEBT RESTRUCTURINGS RESTRUCTURING PLAN, ABSENT LIKELY BANKRUPTCY. 5.7. MERGERS AND CORPORATE REORGANIZATION PROPOSALS TO INCREASE COMMON AND/OR PREFERRED F CORPORATE SHARES AND TO ISSUE SHARES AS PART OF A DEBT RESTRUCTURINGS RESTRUCTURING PLAN WHERE BANKRUPTCY IS LIKELY IF THE TRANSACTION IS NOT APPROVED 5.8. MERGERS AND FORMATION OF HOLDING TO FORM A HOLDING COMPANY C CORPORATE COMPANY RESTRUCTURINGS 5.9. MERGERS AND GOING PRIVATE TO MAKE THE COMPANY PRIVATE RATHER THAN PUBLIC C CORPORATE TRANSACTIONS (LBOS AND RESTRUCTURINGS MINORITY SQUEEZE OUTS) 5.10. MERGERS AND JOINT VENTURES TO FORM JOINT VENTURES C CORPORATE RESTRUCTURINGS 5.11. MERGERS AND LIQUIDATIONS TO LIQUIDATE WHEN BANKRUPTCY IS NOT LIKELY C CORPORATE RESTRUCTURINGS 5.12. MERGERS AND LIQUIDATIONS TO LIQUIDATE WHEN BANKRUPTCY IS LIKELY F CORPORATE RESTRUCTURINGS 5.13. MERGERS AND MERGERS AND TO MERGE WITH OR ACQUIRE ANOTHER COMPANY C CORPORATE ACQUISITIONS/ ISSUANCE RESTRUCTURINGS OF SHARES TO FACILITATE MERGER OR ACQUISITION 5.14. MERGERS AND PRIVATE PLACEMENTS/ TO ISSUE A PRIVATE PLACEMENT SECURITY WHEN C CORPORATE WARRANTS/ CONVERTIBLE BANKRUPTCY IS NOT LIKELY RESTRUCTURINGS DEBENTURES
B-11
BALLOT ITEM / PROPOSAL [F=FOR, A=AGAINST, W=WITHHOLD, C=CASE BY NUMBER CHAPTER SECTION CASE, ABS=ABSTAIN] VOTE - ------ ------------------ ------------------------ ---------------------------------------------- ---- 5.15. MERGERS AND PRIVATE PLACEMENTS/ TO ISSUE A PRIVATE PLACEMENT SECURITY WHEN F CORPORATE WARRANTS/ CONVERTIBLE BANKRUPTCY IS LIKELY RESTRUCTURINGS DEBENTURES 5.16. MERGERS AND SPIN-OFFS TO SPIN OFF A UNIT OR LINE OF BUSINESS C CORPORATE RESTRUCTURINGS 5.17. MERGERS AND VALUE MAXIMIZATION TO MAXIMIZE SHAREHOLDER VALUE BY HIRING A C CORPORATE PROPOSALS FINANCIAL ADVISOR TO EXPLORE STRATEGIC RESTRUCTURINGS ALTERNATIVES, SELLING THE COMPANY OR LIQUIDATING THE COMPANY AND DISTRIBUTING THE PROCEEDS TO SHAREHOLDERS. 6.0. STATE OF CONTROL SHARE TO OPT OUT OF CONTROL SHARE ACQUISITION F INCORPORATION ACQUISITION PROVISIONS STATUTES 6.1. STATE OF CONTROL SHARE TO AMEND THE CHARTER TO INCLUDE CONTROL SHARE A INCORPORATION ACQUISITION PROVISIONS ACQUISITION PROVISIONS. 6.2. STATE OF CONTROL SHARE TO RESTORE VOTING RIGHTS TO THE CONTROL F INCORPORATION ACQUISITION PROVISIONS SHARES. 6.3. STATE OF CONTROL SHARE CASH OUT TO OPT OUT OF CONTROL SHARE CASH OUT STATUTES. F INCORPORATION PROVISIONS 6.4. STATE OF DISGORGEMENT PROVISIONS TO OPT OUT OF STATE DISGORGEMENT PROVISIONS. F INCORPORATION 6.5. STATE OF FAIR PRICE PROVISIONS TO ADOPT FAIR PRICE PROVISIONS C INCORPORATION 6.6. STATE OF FAIR PRICE PROVISIONS TO ADOPT FAIR PRICE PROVISIONS WITH A INCORPORATION SHAREHOLDER VOTE REQUIREMENTS GREATER THAN A MAJORITY OF DISINTERESTED SHARES. 6.7. STATE OF FREEZE OUT PROPOSALS TO OPT OUT OF STATE FREEZE OUT F INCORPORATION PROVISIONS 6.8. STATE OF GREENMAIL TO ADOPT ANTI GREENMAIL CHARTER OF BYLAW F INCORPORATION AMENDMENTS OR OTHERWISE RESTRICT A COMPANY'S ABILITY TO MAKE GREENMAIL PAYMENTS. 6.9. STATE OF GREENMAIL TO ADOPT ANTI GREENMAIL PROPOSALS WHEN THEY F INCORPORATION ARE BUNDLED WITH OTHER CHARTER OR BYLAW AMENDMENTS. 6.10. STATE OF REINCORPORATION TO CHANGE A COMPANY'S STATE OF INCORPORATION C INCORPORATION PROPOSALS 6.11. STATE OF STAKEHOLDER PROVISIONS TO CONSIDER NON-SHAREHOLDER CONSTITUENCIES OR A INCORPORATION OTHER NON-FINANCIAL EFFECTS WHEN EVALUATING A MERGER OR BUSINESS COMBINATION. 6.12. STATE OF STATE ANTI TAKEOVER TO OPT IN OR OUT OF STATE TAKEOVER STATUTES C INCORPORATION STATUTES (INCLUDING CONTROL SHARE ACQUISITION STATUTES, CONTROL SHARE CASH-OUT STATUTES, FREEZE OUT PROVISIONS, FAIR PRICE PROVISIONS, STAKEHOLDER LAWS, POISON PILL ENDORSEMENTS, SEVERANCE PAY AND LABOR CONTRACT PROVISIONS, ANTI GREENMAIL PROVISIONS, AND DISGORGEMENT PROVISIONS). 7.0. CAPITAL STRUCTURE ADJUSTMENTS TO PAR MANAGEMENT PROPOSALS TO REDUCE OR ELIMINATE F VALUE OF COMMON STOCK THE PAR VALUE OF COMMON STOCK. 7.1. CAPITAL STRUCTURE COMMON STOCK TO INCREASE THE NUMBER OF SHARES OF COMMON C AUTHORIZATION STOCK AUTHORIZED FOR ISSUANCE
B-12
BALLOT ITEM / PROPOSAL [F=FOR, A=AGAINST, W=WITHHOLD, C=CASE BY NUMBER CHAPTER SECTION CASE, ABS=ABSTAIN] VOTE - ------ ------------------ ------------------------ ---------------------------------------------- ---- 7.2. CAPITAL STRUCTURE COMMON STOCK TO INCREASE THE NUMBER OF AUTHORIZED SHARES C AUTHORIZATION OF THE CLASS OF STOCK THAT HAS SUPERIOR VOTING RIGHTS. 7.3. CAPITAL STRUCTURE COMMON STOCK TO APPROVE INCREASES BEYOND THE ALLOWABLE F AUTHORIZATION INCREASE WHEN A COMPANY'S SHARES ARE IN DANGER OF BEING DE-LISTED OR IF A COMPANY'S ABILITY TO CONTINUE TO OPERATE AS A GOING CONCERN IS UNCERTAIN 7.4. CAPITAL STRUCTURE DUAL-CLASS STOCK PROPOSALS TO CREATE A NEW CLASS OF COMMON A STOCK WITH SUPERIOR VOTING RIGHTS 7.5. CAPITAL STRUCTURE DUAL-CLASS STOCK TO CREATE A NEW CLASS OF NONVOTING OR F SUB-VOTING COMMON STOCK IF: - IT IS INTENDED FOR FINANCING PURPOSES WITH MINIMAL OR NO DILUTION TO CURRENT SHAREHOLDERS - IT IS NOT DESIGNED TO PRESERVE THE VOTING POWER OF AN INSIDER OR SIGNIFICANT SHAREHOLDER 7.6. CAPITAL STRUCTURE ISSUE STOCK FOR USE TO INCREASE AUTHORIZED COMMON STOCK FOR THE A WITH RIGHTS PLAN EXPLICIT PURPOSE OF IMPLEMENTING A SHAREHOLDER RIGHTS PLAN (POISON PILL). 7.7. CAPITAL STRUCTURE PREEMPTIVE RIGHTS SHAREHOLDER PROPOSALS THAT SEEK PREEMPTIVE C RIGHTS 7.8. CAPITAL STRUCTURE PREFERRED STOCK TO AUTHORIZING THE CREATION OF NEW CLASSES OF A PREFERRED STOCK WITH UNSPECIFIED VOTING, CONVERSION, DIVIDEND DISTRIBUTION, AND OTHER RIGHTS ("BLANK CHECK" PREFERRED STOCK). 7.9. CAPITAL STRUCTURE PREFERRED STOCK TO CREATE "DECLAWED" BLANK CHECK PREFERRED F STOCK (STOCK THAT CANNOT BE USED AS A TAKEOVER DEFENSE). 7.10. CAPITAL STRUCTURE PREFERRED STOCK TO AUTHORIZE PREFERRED STOCK IN CASES WHERE F THE COMPANY SPECIFIES THE VOTING, DIVIDEND, CONVERSION, AND OTHER RIGHTS OF SUCH STOCK AND THE TERMS OF THE PREFERRED STOCK APPEAR REASONABLE 7.11. CAPITAL STRUCTURE PREFERRED STOCK TO INCREASE THE NUMBER OF BLANK CHECK A PREFERRED STOCK AUTHORIZED FOR ISSUANCE WHEN NO SHARES HAVE BEEN ISSUED OR RESERVED FOR A SPECIFIC PURPOSE. 7.12. CAPITAL STRUCTURE PREFERRED STOCK TO INCREASE THE NUMBER OF BLANK CHECK A PREFERRED SHARES 7.13. CAPITAL STRUCTURE RECAPITALIZATION RECAPITALIZATIONS (RECLASSIFICATIONS OF C SECURITIES) 7.14. CAPITAL STRUCTURE REVERSE STOCK SPLITS MANAGEMENT PROPOSALS TO IMPLEMENT A REVERSE F STOCK SPLIT WHEN THE NUMBER OF AUTHORIZED SHARES WILL BE PROPORTIONATELY REDUCED 7.15. CAPITAL STRUCTURE REVERSE STOCK SPLITS MANAGEMENT PROPOSALS TO IMPLEMENT A REVERSE F STOCK SPLIT TO AVOID DELISTING. 7.16. CAPITAL STRUCTURE REVERSE STOCK SPLITS TO IMPLEMENT A REVERSE STOCK SPLITS THAT DO C NOT PROPORTIONATELY REDUCE THE NUMBER OF SHARES AUTHORIZED OR CONSIDERED "GOING DARK" TRANSACTIONS. 7.17. CAPITAL STRUCTURE SHARE REPURCHASE MANAGEMENT PROPOSALS TO INSTITUTE OPEN-MARKET F PROGRAMS SHARE REPURCHASE PLANS IN WHICH ALL SHAREHOLDERS MAY PARTICIPATE ON EQUAL TERMS 7.17.A CAPITAL STRUCTURE SHARE REPURCHASE MANAGEMENT PROPOSALS TO INSTITUTE OPEN-MARKET C PROGRAMS SHARE REPURCHASE PLANS IN WHICH DERIVATIVES MAY BE UTILIZED 7.18. CAPITAL STRUCTURE STOCK DISTRIBUTIONS: MANAGEMENT PROPOSALS TO INCREASE THE COMMON F SPLITS AND DIVIDENDS SHARE AUTHORIZATION FOR A STOCK SPLIT OR SHARE DIVIDEND, PROVIDED THAT THE INCREASE IN AUTHORIZED SHARES WOULD NOT RESULT IN AN EXCESSIVE NUMBER OF SHARES AVAILABLE FOR ISSUANCE 7.19. CAPITAL STRUCTURE TRACKING STOCK TO AUTHORIZE THE CREATION OF TRACKING STOCK C
B-13
BALLOT ITEM / PROPOSAL [F=FOR, A=AGAINST, W=WITHHOLD, C=CASE BY NUMBER CHAPTER SECTION CASE, ABS=ABSTAIN] VOTE - ------ ------------------ ------------------------ ---------------------------------------------- ---- 8.0. EXECUTIVE AND EXECUTIVE COMPENSATION TO APPROVE EXECUTIVE COMPENSATION PLANS OR C DIRECTOR PLAN AMENDMENTS. COMPENSATION 8.1. EXECUTIVE AND EXECUTIVE COMPENSATION TO APPROVE COMPENSATION PLANS THAT EXPRESSLY A DIRECTOR PERMIT THE RE-PRICING OF UNDERWATER STOCK COMPENSATION OPTIONS WITHOUT SHAREHOLDER APPROVAL. 8.2. EXECUTIVE AND EXECUTIVE COMPENSATION PLANS IN WHICH THE CEO PARTICIPATES IF THERE A DIRECTOR IS A DISCONNECT BETWEEN THE CEO'S PAY AND COMPENSATION COMPANY PERFORMANCE 8.3. EXECUTIVE AND DIRECTOR COMPENSATION PLANS FOR DIRECTORS C DIRECTOR COMPENSATION 8.4.A EXECUTIVE AND STOCK PLANS IN LIEU OF PLANS WHICH PROVIDE PARTICIPANTS WITH THE F DIRECTOR CASH OPTION OF TAKING ALL OR A PORTION OF THEIR COMPENSATION CASH COMPENSATION IN THE FORM OF STOCK IF CONVERSION PRICE IS GREATER THAN 90% OF FAIR MARKET VALUE. 8.4.B EXECUTIVE AND STOCK PLANS IN LIEU OF PLANS WHICH PROVIDE PARTICIPANTS WITH THE A DIRECTOR CASH OPTION OF TAKING ALL OR A PORTION OF THEIR COMPENSATION CASH COMPENSATION IN THE FORM OF STOCK (UNLESS AS DESCRIBED ABOVE) 8.5. EXECUTIVE AND STOCK PLANS IN LIEU OF PLANS WHICH PROVIDE A DOLLAR-FOR-DOLLAR CASH F DIRECTOR CASH FOR STOCK EXCHANGE COMPENSATION 8.6. EXECUTIVE AND STOCK PLANS IN LIEU OF PLANS WHICH DO NOT PROVIDE A A DIRECTOR CASH DOLLAR-FOR-DOLLAR CASH FOR STOCK EXCHANGE COMPENSATION 8.7. EXECUTIVE AND DIRECTOR RETIREMENT RETIREMENT PLANS FOR NON-EMPLOYEE DIRECTORS. A DIRECTOR PLANS COMPENSATION 8.8. EXECUTIVE AND DIRECTOR RETIREMENT SHAREHOLDER PROPOSALS TO ELIMINATE RETIREMENT F DIRECTOR PLANS PLANS FOR NON-EMPLOYEE DIRECTORS COMPENSATION 8.9. EXECUTIVE AND MANAGEMENT PROPOSALS ON MANAGEMENT PROPOSALS SEEKING APPROVAL TO A DIRECTOR SEEKING APPROVAL TO RE-PRICE OPTIONS COMPENSATION RE-PRICE OPTIONS 8.10. EXECUTIVE AND VOTING ON COMPENSATION SHAREHOLDER PROPOSALS TO SUBMIT EXECUTIVE A DIRECTOR COMPENSATION TO A VOTE. COMPENSATION 8.11. EXECUTIVE AND EMPLOYEE STOCK PURCHASE EMPLOYEE STOCK PURCHASE PLANS NOT DESCRIBED C DIRECTOR PLANS BELOW COMPENSATION 8.12. EXECUTIVE AND EMPLOYEE STOCK PURCHASE EMPLOYEE STOCK PURCHASE PLANS WHERE ALL OF F DIRECTOR PLANS THE FOLLOWING APPLY COMPENSATION - PURCHASE PRICE IS AT LEAST 85 PERCENT OF FAIR MARKET VALUE - OFFERING PERIOD IS 27 MONTHS OR LESS 8.13. EXECUTIVE AND EMPLOYEE STOCK PURCHASE EMPLOYEE STOCK PURCHASE PLANS WHERE ANY OF A DIRECTOR PLANS THE FOLLOWING APPLY COMPENSATION - PURCHASE PRICE IS LESS THAN 85 PERCENT OF FAIR MARKET VALUE, OR - OFFERING PERIOD IS GREATER THAN 27 MONTHS
B-14
BALLOT ITEM / PROPOSAL [F=FOR, A=AGAINST, W=WITHHOLD, C=CASE BY NUMBER CHAPTER SECTION CASE, ABS=ABSTAIN] VOTE - ------ ------------------ ------------------------ ---------------------------------------------- ---- 8.14. EXECUTIVE AND INCENTIVE BONUS PLANS SIMPLY AMEND SHAREHOLDER-APPROVED F DIRECTOR AND TAX DEDUCTIBILITY COMPENSATION PLANS TO INCLUDE ADMINISTRATIVE COMPENSATION PROPOSALS FEATURES OR PLACE A CAP ON THE ANNUAL GRANTS ANY ONE PARTICIPANT MAY RECEIVE TO COMPLY WITH THE PROVISIONS OF SECTION 162(M). 8.15. EXECUTIVE AND INCENTIVE BONUS PLANS TO ADD PERFORMANCE GOALS TO EXISTING F DIRECTOR AND TAX DEDUCTIBILITY COMPENSATION PLANS TO COMPLY WITH THE COMPENSATION PROPOSALS PROVISIONS OF SECTION 162(M) 8.16. EXECUTIVE AND INCENTIVE BONUS PLANS PLANS TO INCREASE SHARES RESERVED AND TO F DIRECTOR AND TAX DEDUCTIBILITY QUALIFY FOR FAVORABLE TAX TREATMENT UNDER THE COMPENSATION PROPOSALS PROVISIONS OF SECTION 162(M) 8.17. EXECUTIVE AND INCENTIVE BONUS PLANS CASH OR CASH AND STOCK BONUS PLANS THAT ARE F DIRECTOR AND TAX DEDUCTIBILITY SUBMITTED TO SHAREHOLDERS FOR THE PURPOSE OF COMPENSATION PROPOSALS EXEMPTING COMPENSATION FROM TAXES UNDER THE PROVISIONS OF SECTION 162(M) IF NO INCREASE IN SHARES IS REQUESTED. 8.18. EXECUTIVE AND EMPLOYEE STOCK TO IMPLEMENT AN ESOP OR INCREASE AUTHORIZED F DIRECTOR OWNERSHIP PLANS (ESOPS) SHARES FOR EXISTING ESOPS, UNLESS THE NUMBER COMPENSATION OF SHARES ALLOCATED TO THE ESOP IS EXCESSIVE (MORE THAN FIVE PERCENT OF OUTSTANDING SHARES.) 8.19. EXECUTIVE AND 401(K) EMPLOYEE BENEFIT TO IMPLEMENT A 401(K) SAVINGS PLAN FOR F DIRECTOR PLANS EMPLOYEES. COMPENSATION 8.20. EXECUTIVE AND SHAREHOLDER PROPOSALS SHAREHOLDER PROPOSALS SEEKING ADDITIONAL A DIRECTOR REGARDING EXECUTIVE AND DISCLOSURE OF EXECUTIVE AND DIRECTOR PAY COMPENSATION DIRECTOR PAY INFORMATION, 8.21. EXECUTIVE AND SHAREHOLDER PROPOSALS SHAREHOLDER PROPOSALS SEEKING TO SET ABSOLUTE A DIRECTOR REGARDING EXECUTIVE AND LEVELS ON COMPENSATION OR OTHERWISE DICTATE COMPENSATION DIRECTOR PAY THE AMOUNT OR FORM OF COMPENSATION. 8.22. EXECUTIVE AND SHAREHOLDER PROPOSALS SHAREHOLDER PROPOSALS REQUIRING DIRECTOR FEES A DIRECTOR REGARDING EXECUTIVE AND BE PAID IN STOCK ONLY COMPENSATION DIRECTOR PAY 8.23. EXECUTIVE AND SHAREHOLDER PROPOSALS SHAREHOLDER PROPOSALS TO PUT OPTION F DIRECTOR REGARDING EXECUTIVE AND RE-PRICINGS TO A SHAREHOLDER VOTE COMPENSATION DIRECTOR PAY 8.24. EXECUTIVE AND SHAREHOLDER PROPOSALS FOR ALL OTHER SHAREHOLDER PROPOSALS REGARDING C DIRECTOR REGARDING EXECUTIVE AND EXECUTIVE AND DIRECTOR PAY COMPENSATION DIRECTOR PAY
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BALLOT ITEM / PROPOSAL [F=FOR, A=AGAINST, W=WITHHOLD, C=CASE BY NUMBER CHAPTER SECTION CASE, ABS=ABSTAIN] VOTE - ------ ------------------ ------------------------ ---------------------------------------------- ---- 8.25 EXECUTIVE AND PERFORMANCE-BASED STOCK SHAREHOLDER PROPOSALS ADVOCATING THE USE OF C DIRECTOR OPTIONS PERFORMANCE-BASED STOCK OPTIONS (INDEXED, COMPENSATION PREMIUM-PRICED, AND PERFORMANCE-VESTED OPTIONS). 8.26. EXECUTIVE AND GOLDEN PARACHUTES AND SHAREHOLDER PROPOSALS TO REQUIRE GOLDEN A DIRECTOR EXECUTIVE SEVERANCE PARACHUTES OR EXECUTIVE SEVERANCE AGREEMENTS COMPENSATION AGREEMENTS TO BE SUBMITTED FOR SHAREHOLDER RATIFICATION 8.27. EXECUTIVE AND GOLDEN PARACHUTES AND PROPOSALS TO RATIFY OR CANCEL GOLDEN C DIRECTOR EXECUTIVE SEVERANCE PARACHUTES. COMPENSATION AGREEMENTS 8.28. EXECUTIVE AND PENSION PLAN INCOME SHAREHOLDER PROPOSALS TO EXCLUDE PENSION PLAN F DIRECTOR ACCOUNTING INCOME IN THE CALCULATION OF EARNINGS USED IN COMPENSATION DETERMINING EXECUTIVE BONUSES/COMPENSATION 8.29. EXECUTIVE AND SUPPLEMENTAL EXECUTIVE SHAREHOLDER PROPOSALS REQUESTING TO PUT A DIRECTOR RETIREMENT PLANS (SERPS) EXTRAORDINARY BENEFITS CONTAINED IN SERP COMPENSATION AGREEMENTS TO A SHAREHOLDER VOTE 8.31. EXECUTIVE AND EQUITY BASED MANAGEMENT PROPOSALS FOR EQUITY PLANS C DIRECTOR COMPENSATION PLANS COMPENSATION 8.32 EXECUTIVE AND TRANSFERABLE STOCK MANAGEMENT AND SHAREHOLDER PROPOSALS FOR NEW F DIRECTOR OPTIONS ON-GOING TRANSFERABLE STOCK OPTION PLANS IF COMPENSATION THE TOTAL COST OF THE COMPANY'S EQUITY PLANS IS LESS THAN THE COMPANY'S ALLOWABLE CAP. 9.0. SOCIAL AND CONSUMER ISSUES AND TO PHASE OUT THE USE OF ANIMALS IN PRODUCT A ENVIRONMENTAL PUBLIC SAFETY: ANIMAL TESTING ISSUES RIGHTS 9.1. SOCIAL AND CONSUMER ISSUES AND REPORT ON ANIMAL WELFARE A ENVIRONMENTAL PUBLIC SAFETY: ANIMAL ISSUES RIGHTS 9.2. SOCIAL AND CONSUMER ISSUES AND ADOPT ANIMAL WELFARE POLICY A ENVIRONMENTAL PUBLIC SAFETY: ANIMAL ISSUES RIGHTS 9.3. SOCIAL AND CONSUMER ISSUES AND TO IMPLEMENT PRICE RESTRAINTS ON A ENVIRONMENTAL PUBLIC SAFETY: PHARMACEUTICAL PRODUCTS ISSUES DRUG PRICING 9.4. SOCIAL AND CONSUMER ISSUES AND PROPOSALS REQUESTING THAT COMPANIES REPORT ON A ENVIRONMENTAL PUBLIC SAFETY: THE FINANCIAL AND LEGAL IMPACT OF THEIR ISSUES DRUG REIMPORTATION POLICIES REGARDING PRESCRIPTION DRUG REIMPORTATION OR PROPOSALS REQUESTING THAT COMPANIES ADOPT SPECIFIC POLICIES TO ENCOURAGE OR CONSTRAIN PRESCRIPTION DRUG REIMPORTATION
B-16
BALLOT ITEM / PROPOSAL [F=FOR, A=AGAINST, W=WITHHOLD, C=CASE BY NUMBER CHAPTER SECTION CASE, ABS=ABSTAIN] VOTE - ------ ------------------ ------------------------ ---------------------------------------------- ---- 9.5. SOCIAL AND CONSUMER ISSUES AND TO VOLUNTARILY LABEL GENETICALLY ENGINEERED A ENVIRONMENTAL PUBLIC SAFETY: (GE) INGREDIENTS IN THEIR PRODUCTS OR ISSUES GENETICALLY MODIFIED ALTERNATIVELY TO PROVIDE INTERIM LABELING AND FOODS EVENTUALLY ELIMINATE GE INGREDIENTS DUE TO THE COSTS AND FEASIBILITY OF LABELING AND/OR PHASING OUT THE USE OF GE INGREDIENTS. 9.6. SOCIAL AND GENETICALLY MODIFIED A REPORT ON THE FEASIBILITY OF LABELING A ENVIRONMENTAL FOODS PRODUCTS CONTAINING GE INGREDIENTS ISSUES 9.7. SOCIAL AND GENETICALLY MODIFIED A REPORT ON THE FINANCIAL, LEGAL, AND A ENVIRONMENTAL FOODS ENVIRONMENTAL IMPACT OF CONTINUED USE OF GE ISSUES INGREDIENTS/SEEDS 9.8. SOCIAL AND GENETICALLY MODIFIED REPORT ON THE HEALTH AND ENVIRONMENTAL A ENVIRONMENTAL FOODS EFFECTS OF GENETICALLY MODIFIED ORGANISMS ISSUES (GMOS) 9.9. SOCIAL AND GENETICALLY MODIFIED TO COMPLETELY PHASE OUT GE INGREDIENTS FROM A ENVIRONMENTAL FOODS THE COMPANY'S PRODUCTS OR PROPOSALS ASKING ISSUES FOR REPORTS OUTLINING THE STEPS NECESSARY TO ELIMINATE GE INGREDIENTS FROM THE COMPANY'S PRODUCTS. SUCH RESOLUTIONS PRESUPPOSE THAT THERE ARE PROVEN HEALTH RISKS TO GE INGREDIENTS 9.10. SOCIAL AND CONSUMER ISSUES AND REPORTS ON A COMPANY'S POLICIES AIMED AT A ENVIRONMENTAL PUBLIC SAFETY: CURTAILING GUN VIOLENCE IN THE UNITED STATES ISSUES HANDGUNS 9.11. SOCIAL AND CONSUMER ISSUES AND REPORTS OUTLINING THE IMPACT OF THE HEALTH A ENVIRONMENTAL PUBLIC SAFETY: PANDEMIC (HIV/AIDS, MALARIA AND TUBERCULOSIS) ISSUES HIV/AIDS ON THE COMPANY'S SUB-SAHARAN OPERATIONS 9.12. SOCIAL AND HIV/AIDS TO ESTABLISH, IMPLEMENT, AND REPORT ON A A ENVIRONMENTAL STANDARD OF RESPONSE TO THE HIV/AIDS, ISSUES TUBERCULOSIS AND MALARIA HEALTH PANDEMIC IN AFRICA AND OTHER DEVELOPING COUNTRIES 9.13. SOCIAL AND CONSUMER ISSUES AND REPORTS ON THE COMPANY'S PROCEDURES FOR A ENVIRONMENTAL PUBLIC SAFETY: PREVENTING PREDATORY LENDING, INCLUDING THE ISSUES PREDATORY LENDING ESTABLISHMENT OF A BOARD COMMITTEE FOR OVERSIGHT, 9.14. SOCIAL AND CONSUMER ISSUES AND PROPOSALS SEEKING STRONGER PRODUCT WARNINGS A ENVIRONMENTAL PUBLIC SAFETY: TOBACCO ISSUES 9.15. SOCIAL AND TOBACCO PROPOSALS ASKING THAT THE COMPANY'S OPERATING A ENVIRONMENTAL FACILITIES BE SMOKE-FREE ISSUES 9.16. SOCIAL AND TOBACCO PROPOSALS DEALING WITH PRODUCT PLACEMENT IN A ENVIRONMENTAL STORES OR ADVERTISING TO YOUTH. ISSUES 9.17. SOCIAL AND TOBACCO PROPOSALS ASKING THE COMPANY TO CEASE A ENVIRONMENTAL PRODUCTION OF TOBACCO-RELATED PRODUCTS OR ISSUES CEASE SELLING PRODUCTS TO TOBACCO COMPANIES.
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BALLOT ITEM / PROPOSAL [F=FOR, A=AGAINST, W=WITHHOLD, C=CASE BY NUMBER CHAPTER SECTION CASE, ABS=ABSTAIN] VOTE - ------ ------------------ ------------------------ ---------------------------------------------- ---- 9.18. SOCIAL AND TOBACCO PROPOSALS TO SPIN-OFF TOBACCO-RELATED A ENVIRONMENTAL BUSINESSES: ISSUES 9.19. SOCIAL AND TOBACCO PROPOSALS PROHIBITING INVESTMENT IN TOBACCO A ENVIRONMENTAL EQUITIES. ISSUES 9.20. SOCIAL AND CONSUMER ISSUES AND PROPOSALS REQUESTING THAT A COMPANY DISCLOSES A ENVIRONMENTAL PUBLIC SAFETY: ITS POLICIES RELATED TO TOXIC CHEMICALS, ISSUES TOXIC CHEMICALS PROPOSALS REQUESTING THAT COMPANIES EVALUATE AND DISCLOSE THE POTENTIAL FINANCIAL AND LEGAL RISKS ASSOCIATED WITH UTILIZING CERTAIN CHEMICALS, OR PROPOSALS REQUIRING THAT A COMPANY REFORMULATE ITS PRODUCTS WITHIN A CERTAIN TIMEFRAME 9.21. SOCIAL AND ENVIRONMENT AND ENERGY: REQUESTS FOR REPORTS OUTLINING POTENTIAL A ENVIRONMENTAL ARCTIC NATIONAL ENVIRONMENTAL DAMAGE FROM DRILLING IN THE ISSUES WILDLIFE REFUGE ARCTIC NATIONAL WILDLIFE REFUGE (ANWR) 9.22. SOCIAL AND ENVIRONMENT AND ENERGY: PROPOSALS TO ADOPT THE CERES PRINCIPLES A ENVIRONMENTAL CERES PRINCIPLES ISSUES 9.23. SOCIAL AND ENVIRONMENT AND ENERGY: PROPOSALS REQUESTS REPORTS ASSESSING ECONOMIC A ENVIRONMENTAL ENVIRONMENTAL-ECONOMIC RISKS OF ENVIRONMENTAL POLLUTION OR CLIMATE ISSUES RISK REPORT CHANGE OR REPORTS OUTLINING POTENTIAL ENVIRONMENTAL DAMAGE FROM OPERATIONS IN PROTECTED REGIONS, INCLUDING WILDLIFE REFUGES. 9.24. SOCIAL AND ENVIRONMENTAL REPORTS PROPOSALS FOR REPORTS DISCLOSING THE A ENVIRONMENTAL COMPANY'S ENVIRONMENTAL POLICIES. ISSUES 9.25. SOCIAL AND NUCLEAR SAFETY PROPOSALS REQUESTING THAT COMPANIES REPORT ON A ENVIRONMENTAL RISKS ASSOCIATED WITH THEIR NUCLEAR REACTOR ISSUES DESIGNS AND/OR THE PRODUCTION AND INTERIM STORAGE OF IRRADIATED FUEL RODS 9.26. SOCIAL AND ENVIRONMENT AND ENERGY: PROPOSALS TO MAKE REPORTS ON THE LEVEL OF A ENVIRONMENTAL GLOBAL WARMING GREENHOUSE GAS EMISSIONS FROM THE COMPANY'S ISSUES OPERATIONS AND PRODUCTS. 9.27. SOCIAL AND ENVIRONMENT AND ENERGY: PROPOSALS TO ADOPT A COMPREHENSIVE RECYCLING A ENVIRONMENTAL RECYCLING STRATEGY ISSUES 9.28. SOCIAL AND ENVIRONMENT AND ENERGY: PROPOSALS TO INVEST IN RENEWABLE ENERGY A ENVIRONMENTAL RENEWABLE ENERGY SOURCES. ISSUES 9.29. SOCIAL AND RENEWABLE ENERGY REQUESTS FOR REPORTS ON THE FEASIBILITY OF A ENVIRONMENTAL DEVELOPING RENEWABLE ENERGY SOURCES ISSUES
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BALLOT ITEM / PROPOSAL [F=FOR, A=AGAINST, W=WITHHOLD, C=CASE BY NUMBER CHAPTER SECTION CASE, ABS=ABSTAIN] VOTE - ------ ------------------ ------------------------ ---------------------------------------------- ---- 9.30. SOCIAL AND ENVIRONMENT AND ENERGY: PROPOSALS TO MAKE REPORT ON ITS POLICIES AND A ENVIRONMENTAL SUSTAINABILITY REPORT PRACTICES RELATED TO SOCIAL, ENVIRONMENTAL, ISSUES AND ECONOMIC SUSTAINABILITY 9.31. SOCIAL AND ENVIRONMENT AND ENERGY: REPORT ON ENERGY EFFICIENCY A ENVIRONMENTAL EFFICIENCY REPORT ISSUES 9.32. SOCIAL AND ENVIRONMENT AND ENERGY: PROPOSALS REQUESTING THAT COMPANIES OUTLINE A ENVIRONMENTAL KYOTO PROTOCOL THEIR PREPARATIONS TO COMPLY WITH STANDARDS ISSUES ESTABLISHED BY KYOTO PROTOCOL SIGNATORY MARKETS 9.33. SOCIAL AND LAND USE PROPOSALS THAT REQUEST THE DISCLOSURE OF A ENVIRONMENTAL DETAILED INFORMATION ON A COMPANY'S POLICIES ISSUES RELATED TO LAND USE OR DEVELOPMENT 9.34. SOCIAL AND CAFOS PROPOSALS REQUESTING THAT COMPANIES REPORT TO A ENVIRONMENTAL SHAREHOLDERS ON THE RISKS AND LIABILITIES ISSUES ASSOCIATED WITH CONCENTRATED ANIMAL FEEDING OPERATIONS (CAFOS) 9.35. SOCIAL AND GENERAL CORPORATE PROPOSALS TO AFFIRM POLITICAL NONPARTISANSHIP A ENVIRONMENTAL ISSUES: IN THE WORKPLACE ISSUES CHARITABLE/ POLITICAL CONTRIBUTIONS 9.36. SOCIAL AND CHARITABLE/ POLITICAL PROPOSALS TO REPORT OR PUBLISH IN NEWSPAPERS A ENVIRONMENTAL CONTRIBUTIONS THE COMPANY'S POLITICAL AND/OR CHARITABLE ISSUES CONTRIBUTIONS 9.37. SOCIAL AND CHARITABLE/ POLITICAL PROPOSALS TO PROHIBIT THE COMPANY FROM MAKING A ENVIRONMENTAL CONTRIBUTIONS POLITICAL CONTRIBUTIONS ISSUES 9.38. SOCIAL AND CHARITABLE/ POLITICAL PROPOSALS TO RESTRICT THE COMPANY FROM MAKING A ENVIRONMENTAL CONTRIBUTIONS CHARITABLE CONTRIBUTIONS ISSUES 9.39. SOCIAL AND CHARITABLE/ POLITICAL PROPOSALS TO PUBLISH A LIST OF COMPANY A ENVIRONMENTAL CONTRIBUTIONS EXECUTIVES, DIRECTORS, CONSULTANTS, LEGAL ISSUES COUNSELS, LOBBYISTS, OR INVESTMENT BANKERS THAT HAVE PRIOR GOVERNMENT SERVICE AND WHETHER SUCH SERVICE HAD A BEARING ON THE BUSINESS OF THE COMPANY 9.40. SOCIAL AND GENERAL CORPORATE PROPOSALS TO REVIEW WAYS OF LINKING EXECUTIVE A ENVIRONMENTAL ISSUES: COMPENSATION TO SOCIAL FACTORS ISSUES LINK EXECUTIVE COMPENSATION TO SOCIAL PERFORMANCE 9.41. SOCIAL AND LABOR STANDARDS AND PROPOSALS TO IMPLEMENT THE CHINA PRINCIPLES. A ENVIRONMENTAL HUMAN RIGHTS: ISSUES CHINA PRINCIPLES
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BALLOT ITEM / PROPOSAL [F=FOR, A=AGAINST, W=WITHHOLD, C=CASE BY NUMBER CHAPTER SECTION CASE, ABS=ABSTAIN] VOTE - ------ ------------------ ------------------------ ---------------------------------------------- ---- 9.42. SOCIAL AND LABOR STANDARDS AND PROPOSALS TO MAKE REPORTS DETAILING THE A ENVIRONMENTAL HUMAN RIGHTS: COMPANY'S OPERATIONS IN A PARTICULAR COUNTRY ISSUES COUNTRY-SPECIFIC HUMAN AND STEPS TO PROTECT HUMAN RIGHTS RIGHTS REPORTS 9.43. SOCIAL AND LABOR STANDARDS AND PROPOSALS TO IMPLEMENT CERTAIN HUMAN RIGHTS A ENVIRONMENTAL HUMAN RIGHTS: STANDARDS AT COMPANY FACILITIES OR THOSE OF ISSUES INTERNATIONAL CODES OF ITS SUPPLIERS AND TO COMMIT TO OUTSIDE, CONDUCT/VENDOR STANDARDS INDEPENDENT MONITORING 9.44. SOCIAL AND LABOR STANDARDS AND PROPOSALS TO ENDORSE OR INCREASE ACTIVITY ON A ENVIRONMENTAL HUMAN RIGHTS: THE MACBRIDE PRINCIPLES. ISSUES MACBRIDE PRINCIPLES 9.45. SOCIAL AND MILITARY BUSINESS: PROPOSALS TO MAKE REPORTS ON FOREIGN MILITARY A ENVIRONMENTAL FOREIGN MILITARY SALES OR OFFSETS. ISSUES SALES/OFFSETS 9.46. SOCIAL AND MILITARY BUSINESS: PROPOSALS ASKING THE COMPANY TO RENOUNCE A ENVIRONMENTAL LANDMINES AND CLUSTER FUTURE INVOLVEMENT IN ANTIPERSONNEL LANDMINE ISSUES BOMBS PRODUCTION 9.47. SOCIAL AND MILITARY BUSINESS: PROPOSALS ASKING THE COMPANY TO CEASE A ENVIRONMENTAL NUCLEAR WEAPONS PRODUCTION OF NUCLEAR WEAPONS COMPONENTS AND ISSUES DELIVERY SYSTEMS, INCLUDING DISENGAGING FROM CURRENT AND PROPOSED CONTRACTS 9.48. SOCIAL AND MILITARY BUSINESS: PROPOSALS ASKING THE COMPANY TO APPOINT A A ENVIRONMENTAL OPERATIONS IN NATIONS BOARD COMMITTEE REVIEW AND REPORT OUTLINING ISSUES SPONSORING TERRORISM THE COMPANY'S FINANCIAL AND REPUTATIONAL (IRAN) RISKS FROM ITS OPERATIONS IN IRAN, 9.49. SOCIAL AND MILITARY BUSINESS: PROPOSALS ASKING THE COMPANY TO MAKE REPORTS A ENVIRONMENTAL SPACED-BASED ON A COMPANY'S INVOLVEMENT IN SPACED-BASED ISSUES WEAPONIZATION WEAPONIZATION 9.50. SOCIAL AND WORKPLACE DIVERSITY: REQUESTS FOR REPORTS ON THE COMPANY'S EFFORTS A ENVIRONMENTAL BOARD DIVERSITY TO DIVERSIFY THE BOARD ISSUES
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BALLOT ITEM / PROPOSAL [F=FOR, A=AGAINST, W=WITHHOLD, C=CASE BY NUMBER CHAPTER SECTION CASE, ABS=ABSTAIN] VOTE - ------ ------------------ ------------------------ ---------------------------------------------- ---- 9.51. SOCIAL AND WORKPLACE DIVERSITY: PROPOSALS ASKING THE COMPANY TO INCREASE THE C ENVIRONMENTAL BOARD DIVERSITY REPRESENTATION OF WOMEN AND MINORITIES ON THE ISSUES BOARD 9.52. SOCIAL AND WORKPLACE DIVERSITY: PROPOSALS TO INCREASE REGULATORY OVERSIGHT OF A ENVIRONMENTAL EQUAL EMPLOYMENT EEO PROGRAMS ISSUES OPPORTUNITY (EEO) 9.53. SOCIAL AND WORKPLACE DIVERSITY: TO INCREASE REGULATORY OVERSIGHT OF EEO A ENVIRONMENTAL GLASS CEILING PROGRAMS AND GLASS CEILING PROPOSALS ISSUES 9.54. SOCIAL AND WORKPLACE DIVERSITY: EXCLUDE REFERENCE TO SEXUAL ORIENTATION FROM A ENVIRONMENTAL SEXUAL ORIENTATION THE EEO STATEMENT ISSUES 9.55. SOCIAL AND WORKPLACE DIVERSITY: PROPOSALS TO AMEND A COMPANY'S EEO STATEMENT A ENVIRONMENTAL SEXUAL ORIENTATION IN ORDER TO PROHIBIT DISCRIMINATION BASED ON ISSUES SEXUAL ORIENTATION 9.56. SOCIAL AND SEXUAL ORIENTATION PROPOSALS TO EXTEND COMPANY BENEFITS TO OR A ENVIRONMENTAL ELIMINATE BENEFITS FROM DOMESTIC PARTNERS ISSUES 9.57 SOCIAL AND OUTSOURCING PROPOSALS ASKING FOR COMPANIES TO REPORT ON A ENVIRONMENTAL THE RISKS ASSOCIATED WITH OUTSOURCING OR ISSUES OFFSHORING. 10.0. MUTUAL FUND ELECTION OF DIRECTORS DIRECTOR NOMINEES WHO ARE NOT DESCRIBED BELOW F PROXIES 10.1. MUTUAL FUND ELECTION OF DIRECTORS IGNORE A SHAREHOLDER PROPOSAL THAT IS W PROXIES APPROVED BY A MAJORITY OF THE VOTES CAST FOR TWO CONSECUTIVE YEARS 10.2. MUTUAL FUND CONVERT CLOSED-END FUND CONVERSION PROPOSALS C PROXIES TO OPEN-END FUND 10.3. MUTUAL FUND PROXY CONTESTS PROXY CONTESTS C PROXIES 10.4. MUTUAL FUND INVESTMENT ADVISORY INVESTMENT ADVISORY AGREEMENTS F PROXIES AGREEMENTS 10.5. MUTUAL FUND APPROVE NEW CLASSES OR THE ESTABLISHMENT OF NEW CLASSES OR SERIES OF F PROXIES SERIES OF SHARES SHARES. 10.6. MUTUAL FUND CHANGE FUNDAMENTAL PROPOSALS TO CHANGE A FUND'S FUNDAMENTAL C PROXIES RESTRICTION TO RESTRICTION TO A NON FUNDAMENTAL RESTRICTION NONFUNDAMENTAL RESTRICTION
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BALLOT ITEM / PROPOSAL [F=FOR, A=AGAINST, W=WITHHOLD, C=CASE BY NUMBER CHAPTER SECTION CASE, ABS=ABSTAIN] VOTE - ------ ------------------ ------------------------ ---------------------------------------------- ---- 10.7. MUTUAL FUND CHANGE FUNDAMENTAL PROPOSALS TO CHANGE A FUND'S FUNDAMENTAL C PROXIES INVESTMENT OBJECTIVE TO INVESTMENT OBJECTIVE TO A NON FUNDAMENTAL NONFUNDAMENTAL INVESTMENT OBJECTIVE 10.8. MUTUAL FUND NAME CHANGE PROPOSALS NAME CHANGE PROPOSALS. F PROXIES 10.9. MUTUAL FUND CHANGE IN FUND'S SUB TO CHANGE A FUND'S SUB-CLASSIFICATION F PROXIES CLASSIFICATION 10.10. MUTUAL FUND DISPOSITION OF TO DISPOSE OF ASSETS, LIQUIDATE OR TERMINATE F PROXIES ASSETS/TERMINATION/ THE FUND LIQUIDATION 10.11. MUTUAL FUND CHANGES TO THE CHARTER TO MAKE CHANGES TO THE CHARTER DOCUMENT C PROXIES DOCUMENT 10.12. MUTUAL FUND CHANGES TO THE CHARTER REMOVAL SHAREHOLDER APPROVAL REQUIREMENT TO F PROXIES DOCUMENT REORGANIZE OR TERMINATE THE TRUST OR ANY OF ITS SERIES 10.13. MUTUAL FUND CHANGES TO THE CHARTER REMOVAL OF SHAREHOLDER APPROVAL REQUIREMENT F PROXIES DOCUMENT FOR AMENDMENTS TO THE NEW DECLARATION OF TRUST 10.14. MUTUAL FUND CHANGES TO THE CHARTER REMOVAL OF SHAREHOLDER APPROVAL REQUIREMENT F PROXIES DOCUMENT TO AMEND THE FUND'S MANAGEMENT CONTRACT, ALLOWING THE CONTRACT TO BE MODIFIED BY THE INVESTMENT MANAGER AND THE TRUST MANAGEMENT, AS PERMITTED BY THE 1940 ACT 10.15. MUTUAL FUND CHANGES TO THE CHARTER ALLOW THE TRUSTEES TO IMPOSE OTHER FEES IN F PROXIES DOCUMENT ADDITION TO SALES CHARGES ON INVESTMENT IN A FUND, SUCH AS DEFERRED SALES CHARGES AND REDEMPTION FEES THAT MAY BE IMPOSED UPON REDEMPTION OF A FUND'S SHARES 10.16. MUTUAL FUND CHANGES TO THE CHARTER REMOVAL OF SHAREHOLDER APPROVAL REQUIREMENT F PROXIES DOCUMENT TO ENGAGE IN AND TERMINATE SUB-ADVISORY ARRANGEMENTS 10.17. MUTUAL FUND CHANGES TO THE CHARTER REMOVAL OF SHAREHOLDER APPROVAL REQUIREMENT F PROXIES DOCUMENT TO CHANGE THE DOMICILE OF THE FUND 10.18. MUTUAL FUND CHANGE THE FUND'S FUND'S REINCORPORATION C PROXIES DOMICILE 10.19. MUTUAL FUND AUTHORIZE THE BOARD TO PROPOSALS AUTHORIZING THE BOARD TO F PROXIES HIRE AND TERMINATE HIRE/TERMINATE SUB-ADVISORS WITHOUT SUBADVISORS WITHOUT SHAREHOLDER APPROVAL. SHAREHOLDER APPROVAL 10.20. MUTUAL FUND DISTRIBUTION AGREEMENTS DISTRIBUTION AGREEMENTS F PROXIES 10.21. MUTUAL FUND MASTER-FEEDER STRUCTURE ESTABLISHMENT OF A MASTER-FEEDER STRUCTURE. F PROXIES
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BALLOT ITEM / PROPOSAL [F=FOR, A=AGAINST, W=WITHHOLD, C=CASE BY NUMBER CHAPTER SECTION CASE, ABS=ABSTAIN] VOTE - ------ ------------------ ------------------------ ---------------------------------------------- ---- 10.22. MUTUAL FUND MERGERS MERGERS AND ACQUISITIONS C PROXIES 10.23. MUTUAL FUND SHAREHOLDER PROPOSALS TO MANDATE A SPECIFIC MINIMUM AMOUNT OF STOCK A PROXIES TO ESTABLISH DIRECTOR THAT DIRECTORS MUST OWN IN ORDER TO QUALIFY OWNERSHIP REQUIREMENT AS A DIRECTOR OR TO REMAIN ON THE BOARD 10.24A MUTUAL FUND SHAREHOLDER PROPOSALS TO REIMBURSE PROXY SOLICITATION EXPENSES IF F PROXIES TO REIMBURSE PROXY DISSIDENT WINS SOLICITATION EXPENSES 10.24B MUTUAL FUND SHAREHOLDER PROPOSALS TO REIMBURSE PROXY SOLICITATION EXPENSES A PROXIES TO REIMBURSE PROXY (EXCEPT AS DESCRIBED ABOVE) SOLICITATION EXPENSES 10.25. MUTUAL FUND SHAREHOLDER PROPOSALS TO TERMINATE THE INVESTMENT ADVISOR C PROXIES TO TERMINATE INVESTMENT ADVISOR
B-23 2007 TRUSCO CAPITAL MANAGEMENT INTERNATIONAL PROXY VOTING GUIDELINES Following is a concise summary of general policies for voting global proxies. In addition, Trusco has country- and market-specific policies, which are not captured below. FINANCIAL RESULTS/DIRECTOR AND AUDITOR REPORTS Vote FOR approval of financial statements and director and auditor reports, unless: - there are concerns about the accounts presented or audit procedures used; or - the company is not responsive to shareholder questions about specific items that should be publicly disclosed. APPOINTMENT OF AUDITORS AND AUDITOR COMPENSATION Vote FOR the reelection of auditors and proposals authorizing the board to fix auditor fees, unless: - there are serious concerns about the accounts presented or the audit procedures used; - the auditors are being changed without explanation; or - non audit-related fees are substantial or are routinely in excess of standard annual audit fees. Vote AGAINST the appointment of external auditors if they have previously served the company in an executive capacity or can otherwise be considered affiliated with the company. APPOINTMENT OF INTERNAL STATUTORY AUDITORS Vote FOR the appointment or reelection of statutory auditors, unless: - there are serious concerns about the statutory reports presented or the audit procedures used; - questions exist concerning any of the statutory auditors being appointed; or - the auditors have previously served the company in an executive capacity or can otherwise be considered affiliated with the company. ALLOCATION OF INCOME Vote FOR approval of the allocation of income, unless: - the dividend payout ratio has been consistently below 30 percent without adequate explanation; or - the payout is excessive given the company's financial position. STOCK (SCRIP) DIVIDEND ALTERNATIVE Vote FOR most stock (scrip) dividend proposals. Vote AGAINST proposals that do not allow for a cash option unless management demonstrates that the cash option is harmful to shareholder value. AMENDMENTS TO ARTICLES OF ASSOCIATION Vote amendments to the articles of association on a CASE-BY-CASE basis. CHANGE IN COMPANY FISCAL TERM Vote FOR resolutions to change a company's fiscal term unless a company's motivation for the change is to postpone its AGM. LOWER DISCLOSURE THRESHOLD FOR STOCK OWNERSHIP Vote AGAINST resolutions to lower the stock ownership disclosure threshold below five percent unless specific reasons exist to implement a lower threshold. AMEND QUORUM REQUIREMENTS Vote proposals to amend quorum requirements for shareholder meetings on a CASE-BY-CASE basis. TRANSACT OTHER BUSINESS Vote AGAINST other business when it appears as a voting item. DIRECTOR ELECTIONS B-24 Vote FOR management nominees in the election of directors, unless: - Adequate disclosure has not been provided in a timely manner; - There are clear concerns over questionable finances or restatements; - There have been questionable transactions with conflicts of interest; - There are any records of abuses against minority shareholder interests; and - The board fails to meet minimum corporate governance standards. Vote FOR individual nominees unless there are specific concerns about the individual, such as criminal wrongdoing or breach of fiduciary responsibilities. Vote AGAINST shareholder nominees unless they demonstrate a clear ability to contribute positively to board deliberations. Vote AGAINST individual directors if they cannot provide an explanation for repeated absences at board meetings (in countries where this information is disclosed). 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: - there are serious questions about actions of the board or management for the year in question; or - legal action is being taken against the board by other shareholders. Vote AGAINST proposals to remove approval of discharge of board and management from the agenda. DIRECTOR, OFFICER, AND AUDITOR INDEMNIFICATION AND LIABILITY PROVISIONS Vote proposals seeking indemnification and liability protection for directors and officers on a CASE-BY-CASE basis. Vote AGAINST proposals to indemnify auditors. BOARD STRUCTURE Vote FOR proposals to fix board size. Vote AGAINST mandatory retirement ages for directors. Vote AGAINST proposals to alter board structure or size in the context of a fight for control of the company or the board. SHARE ISSUANCE REQUESTS GENERAL ISSUANCES: Vote FOR issuance requests with preemptive rights to a maximum of 100 percent over currently issued capital. B-25 Vote FOR issuance requests without preemptive rights to a maximum of 20 percent of currently issued capital. SPECIFIC ISSUANCES: Vote on a CASE-BY-CASE basis on all requests, with or without preemptive rights. INCREASES IN AUTHORIZED CAPITAL Vote FOR nonspecific proposals to increase authorized capital up to 100 percent over the current authorization unless the increase would leave the company with less than 30 percent of its new authorization outstanding. Vote FOR specific proposals to increase authorized capital to any amount, unless: - the specific purpose of the increase (such as a share-based acquisition or merger) does not meet Trusco's guidelines for the purpose being proposed; or - the increase would leave the company with less than 30 percent of its new authorization outstanding after adjusting for all proposed issuances. Vote AGAINST proposals to adopt unlimited capital authorizations. REDUCTION OF CAPITAL Vote FOR proposals to reduce capital for routine accounting purposes unless the terms are unfavorable to shareholders. Vote proposals to reduce capital in connection with corporate restructuring on a CASE-BYCASE basis. CAPITAL STRUCTURES Vote FOR resolutions that seek to maintain or convert to a one share, one vote capital structure. Vote AGAINST requests for the creation or continuation of dual class capital structures or the creation of new or additional supervoting shares. PREFERRED STOCK Vote FOR the creation of a new class of preferred stock or for issuances of preferred stock up to 50 percent of issued capital unless the terms of the preferred stock would adversely affect the rights of existing shareholders. Vote FOR the creation/issuance of convertible preferred stock as long as the maximum number of common shares that could be issued upon conversion meets Trusco's guidelines on equity issuance requests. Vote AGAINST the creation of a new class of preference shares that would carry superior voting rights to the common shares. Vote AGAINST the creation of blank check preferred stock unless the board clearly states that the authorization will not be used to thwart a takeover bid. Vote proposals to increase blank check preferred authorizations on a CASE-BY-CASE basis. DEBT ISSUANCE REQUESTS Vote nonconvertible debt issuance requests on a CASE-BY-CASE basis, with or without preemptive rights. Vote FOR the creation/issuance of convertible debt instruments as long as the maximum number of common shares that could be issued upon conversion meets Trusco's guidelines on equity issuance requests. B-26 Vote FOR proposals to restructure existing debt arrangements unless the terms of the restructuring would adversely affect the rights of shareholders. PLEDGING OF ASSETS FOR DEBT Vote proposals to approve the pledging of assets for debt on a CASE-BY-CASE basis. INCREASE IN BORROWING POWERS Vote proposals to approve increases in a company's borrowing powers on a CASE-BY-CASE basis. SHARE REPURCHASE PLANS Vote FOR share repurchase plans, unless: - clear evidence of past abuse of the authority is available; or - the plan contains no safeguards against selective buybacks. REISSUANCE OF SHARES REPURCHASED Vote FOR requests to reissue any repurchased shares unless there is clear evidence of abuse of this authority in the past. CAPITALIZATION OF RESERVES FOR BONUS ISSUES/INCREASE IN PAR VALUE Vote FOR requests to capitalize reserves for bonus issues of shares or to increase par value. 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. For every M&A analysis, ISS reviews publicly available information as of the date of the report and evaluates the merits and drawbacks of the proposed transaction, balancing various and sometimes countervailing factors including: - Valuation - Is the value to be received by the target shareholders (or paid by the acquirer) reasonable? While the fairness opinion may provide an initial starting point for assessing valuation reasonableness, ISS places emphasis on the offer premium, market reaction, and strategic rationale. - Market reaction - How has the market responded to the proposed deal? A negative market reaction will cause ISS to scrutinize a deal more closely. - Strategic rationale - Does the deal make sense strategically? From where is the value derived? Cost and revenue synergies should not be overly aggressive or optimistic, but reasonably achievable. Management should also have a favorable track record of successful integration of historical acquisitions. - Conflicts of interest - Are insiders benefiting from the transaction disproportionately and inappropriately as compared to non-insider shareholders? ISS will consider whether any special interests may have influenced these directors and officers to support or recommend the merger. - Governance - Will the combined company have a better or worse governance profile than the current governance profiles of the respective parties to the transaction? If the governance profile is to change for the worse, the burden is on the company to prove that other issues (such as valuation) outweigh any deterioration in governance. Vote AGAINST if the companies do not provide sufficient information upon request to make an informed voting decision. MANDATORY TAKEOVER BID WAIVERS Vote proposals to waive mandatory takeover bid requirements on a CASE-BY-CASE basis. REINCORPORATION PROPOSALS Vote reincorporation proposals on a CASE-BY-CASE basis. B-27 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-28 PART C: OTHER INFORMATION POST-EFFECTIVE AMENDMENT NO. 67 ITEM 23. EXHIBITS: (a) Agreement and 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) Amended and Restated Investment Advisory Agreement between the Registrant and Trusco Capital Management, Inc. dated November 14, 2006 is filed herewith. (d)(2) Expense Limitation Agreement dated August 1, 2006 between the Registrant and Trusco Capital Management, Inc. is filed herewith. (d)(3) 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 Agreement dated November 18, 2005 between the Registrant and BISYS Fund Services Limited Partnership is filed herewith. (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 to be filed by amendment. (j) Consent of independent registered public accounting firm to be filed by amendment. (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 is filed herewith. (p)(2) Code of Ethics for BISYS Fund Services Limited Partnership dated January 1, 2007 is filed herewith. (p)(3) Code of Ethics for Trusco Capital Management, Inc., is filed herewith. (p)(4) Code of Ethics for Zevenbergen Capital Investments LLC, is filed herewith. 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 Registrant. 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 President/Secretary/Treasurer SunTrust Bank Vice President Andrew J. Muldoon, III SunTrust Bank Executive Vice President Executive Vice President Christina Seix SunTrust Bank Vice President Executive Vice President John Talty SunTrust Bank Vice President Executive Vice President Brandi K. Allen -- -- Director David C. Anderson SunTrust Bank Vice President Director
NAME NAME OF OTHER COMPANY CONNECTION WITH OTHER COMPANY - ---- ----------------------------------- ----------------------------- Seth L. Antiles SunTrust Bank Officer Vice President Charles B. Arrington SunTrust Bank Officer Director Andrew S. Atkins -- -- Vice President Frances J. Aylor -- -- Director Sandeep Bahtia -- -- Director Brett L. Barner SunTrust Bank Officer Managing Director Richard M. Bemis SunTrust Bank Vice President Director Glen H. Blackston III -- -- Director Gordon R. Boardway -- -- Vice President Matthew R. Boden -- -- Vice President Noel Crissman Boggan SunTrust Bank Officer Vice President Sabrina Bowens -- -- Vice President Robert S. Bowman SunTrust Bank Officer Managing Director John C. Brennan -- -- Vice President Casey C. Brogdon SunTrust Bank Officer Managing Director George E. Calvert, Jr. SunTrust Bank Officer Director Matthew B. Carney -- -- Vice President Charles E. Carter -- -- 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 David M. Craig -- -- Vice President Scott E. Craig SunTrust Bank Officer Vice President Oliver Cross -- --
Vice President Stacy L. Culver -- -- Vice President William R. Davis -- -- Vice President J. Chadwick Deakins SunTrust Bank Officer Managing Director Dierdre Dillo -- -- Vice President Robin C. Divers -- -- Vice President Colleen H. Doremus SunTrust Bank Vice President Vice President Louis Joseph Douglass, IV -- --
NAME NAME OF OTHER COMPANY CONNECTION WITH OTHER COMPANY - ---- ----------------------------------- ----------------------------- Vice President Martin J. Duffy SunTrust Bank Officer Vice President Mary J. Durkin SunTrust Bank Officer Vice President Todd C. Early SunTrust Bank Officer Vice President Rebecca G. Ehrhart -- -- Vice President Brad Erwin -- -- Director Bob M. Farmer SunTrust Bank Vice President Managing Director Douglas J. Farmer -- -- Vice President Robert N. Felice -- -- 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 Director Stephen Futch -- -- Director Elena Fyodorova -- -- Vice President Michelle Gallo -- -- Vice President Alan M. Gayle -- -- Managing Director Allan J. George SunTrust Bank Officer Vice President Eunice Gillespie SunTrust Bank Vice President Director Risei Goto -- -- Vice President George Goudelias SunTrust Bank Officer Managing Director Christopher Guinther -- -- Managing Director Jennifer Waddell Graff -- -- Vice President Gregory E. Hallman SunTrust Bank Officer Vice President Jacob. T. Harper SunTrust Bank Officer Vice President
Molly Halcom -- -- Vice President Neil L. Halpert -- -- Vice President Melvin E. Hamilton SunTrust Bank Vice President Managing Director Michael Todd Hill SunTrust Bank Officer Managing Director Michael J. Honsharuk SunTrust Bank Officer Vice President Debra M. Hooper SunTrust Bank Vice President Vice President Deborah A. Hopkins -- -- Vice President
NAME NAME OF OTHER COMPANY CONNECTION WITH OTHER COMPANY - ---- ----------------------------------- ----------------------------- Christopher A. Jones SunTrust Bank Vice President Managing Director Christine Y. Keefe SunTrust Bank Vice President Director Nathaniel J. King -- -- Vice President Michael Kirkpatrick -- -- 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 Jonathan Larsen -- -- Vice President Gerard Leen -- -- Vice President Charles B. Leonard SunTrust Bank Officer Managing Director Carla Leslie -- -- Managing Director Biron O. Lim -- -- Vice President Steve Loncar -- -- Vice President Tina Y. Long -- -- Vice President William J. Longen SunTrust Bank Officer Director J. Randy Loving -- -- Director Bryan Luebbert -- -- Vice President Scott F. Luxton SunTrust Bank Officer Director 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 Thomas Mansley SunTrust Bank Vice President Managing Director Jeffrey E. Markunas -- -- Managing Director Patrick K. Mason SunTrust Bank Vice President
Director Michael L. McEachern -- -- Managing Director Andrew S. McGhee SunTrust Bank Vice President Managing Director Steven McGinty -- -- Vice President Samuel A. McKnight, Jr. SunTrust Bank Officer Director Alan McKnight -- -- Managing Director Evan B. Melcher SunTrust Bank Officer Director Thomas A. Meyers SunTrust Bank Officer Managing Director
NAME NAME OF OTHER COMPANY CONNECTION WITH OTHER COMPANY - ---- ----------------------------------- ----------------------------- R. Douglas Mitchell SunTrust Bank Officer Vice President Sharon E. Moran -- -- Vice President Blake E. Myton SunTrust Bank Officer Vice President Timothy James Nash SunTrust Bank Vice President Vice President Wesley Neal -- -- Vice President David W. Neely SunTrust Bank Officer Director 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 SunTrust Bank Officer 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 Ashi Parikh -- -- Executive Vice President Ronnie G. Pennell SunTrust Bank Officer Director Elliott A. Perny SunTrust Bank Officer Managing Director Gregory S. Peters -- -- Vice President James M. Phebus Jr. SunTrust Bank Officer Director Gregory L. Phillips -- -- Director Gary A. Plourde SunTrust Bank Vice President Managing Director Charles L. Poage SunTrust Bank Officer Vice President Sean D. Porrello -- -- Vice President Raymond A. Prophater SunTrust Bank Officer Vice President
Curtis A. Pryor SunTrust Bank Officer Vice President Joseph E. Ransom SunTrust Bank Officer Managing Director
NAME NAME OF OTHER COMPANY CONNECTION WITH OTHER COMPANY - ---- ----------------------------------- ----------------------------- Armond Reese -- -- Vice President David W. Reidy -- -- Vice President Kristin Hildebrand Ribic -- -- Director Michael Reiger -- -- Managing Director 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 Michael Sansoterra -- -- Director James L. Savage SunTrust Bank Officer Director Diane F. Schmidt -- -- Director 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 SunTrust Bank Officer Managing Director Atul Sibal -- -- Vice President Shelly R. Simpson -- -- Vice President Edward P. Smith SunTrust Bank Officer Vice President George D. Smith, Jr. SunTrust Bank Officer Managing Director Stephen Smith -- -- Vice President E. Dean Speer SunTrust Bank Officer Director Ellen E. Spong SunTrust Bank Vice President Managing Director
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 SunTrust Bank Officer Managing Director Kimberly Jean Strickland -- -- Vice President E. Sonny Surkin SunTrust Bank Officer Director William F. Tarry SunTrust Bank Officer
NAME NAME OF OTHER COMPANY CONNECTION WITH OTHER COMPANY - ---- ----------------------------------- ----------------------------- Director J. Maurice Thomas SunTrust Bank Vice President Vice President Matthew M. Tollison -- -- 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 Ania Wacht -- -- Vice President David Walley SunTrust Bank Officer Vice President Zach Walley -- -- Director David M. Walrod -- -- Vice President Francis P. Walsh -- -- Director Joseph P. Walsh SunTrust Bank Vice President Director Angela V. Watterson -- -- Vice President George M. Way SunTrust Bank Vice President Director Adrien D. Webb -- -- Managing Director Gregory W. Webster -- -- Vice President Peter William Weishaar -- -- Vice President Matthew H. Welden -- -- Vice President Ellen Welsh -- -- Managing Director Elizabeth Wilson SunTrust Bank Vice President Managing Director Leslie A. Wilson -- -- First Vice President 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 SunTrust Bank Officer Vice President Steven M. Yates SunTrust Bank Officer Managing Director Jay A. Young SunTrust Bank Officer Vice President
NAME NAME OF OTHER COMPANY CONNECTION WITH OTHER COMPANY - ---- ----------------------------------- ----------------------------- 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. Director and Officer Managing Director, Portfolio Manager Seattle University Member, Department of Finance and Advisory Board Lisa Foley Rivendell Capital Inc. Officer Managing Director, Investment Officer Leslie Tubbs Rivendell Capital Inc. Officer Managing Director, Portfolio Manager and Chief Compliance Officer Nancy A. Zevenbergen Rivendell Capital Inc. Director and Officer President and Chief Investment Officer Seattle Pacific University Foundation Director
ITEM 27. Principal Underwriters: (a) BISYS Fund Services Limited Partnership ("BISYS" or the "Distributor") acts as principal underwriter for the following investment companies (other than the Registrant): Allianz Variable Insurance Products Fund of Funds Trust Allianz Variable Insurance Products Trust American Independence Funds Trust American Performance Funds The Bjurman, Barry Funds Commonwealth International Series Trust The Coventry Group Coventry Funds Trust Excelsior Funds, Inc. Excelsior Funds Trust Excelsior Tax-Exempt Funds, Inc. First Focus Funds, Inc. Capital One Funds Giant 5 Funds Greenwich Advisors Trust The Hirtle Callaghan Trust HSBC Advisor Funds Trust HSBC Investor Funds Legacy Funds Group Pacific Capital Funds STI Classic Variable Trust The Blue Fund Group Vintage Mutual Funds, Inc. BISYS is registered with the 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 ST. 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) The Unless otherwise noted, the business address of each director or officer is 3435 Stelzer Road, Columbus, Ohio 43219. The business address of Messrs. Dobin and Rose is 100 Summer Street, Boston, Massachusetts 02110.
Name Position and Offices with Underwriter Position and Offices with Registrant - ---- ------------------------------------- ------------------------------------ Brian K. Bey President and Director None Elliott Dobin Secretary None Andrew H. Byer Chief Compliance Officer None Wayne A. Rose Assistant Chief Compliance Officer None James E. (Ed) Pike Financial and Operations Principal None
c) Not applicable. 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 Registrant 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 has duly caused this Post-Effective Amendment No. 67 to the Registrant's Registration Statement to be signed on its behalf by the undersigned, duly authorized, in the City of Columbus, State of Ohio on the 30th day of May, 2007. By: /s/ R. Jeffrey Young ------------------------------------ R. Jeffrey Young, President and Chief Executive Officer Pursuant to the requirements of the Securities Act, this Amendment has been signed below by the following persons in the capacity and as of the dates indicated. /s/ Jeffrey M. Biggar* Trustee May 30, 2007 - ------------------------------------- Jeffrey M. Biggar /s/ F. Wendell Gooch* Trustee May 30, 2007 - ------------------------------------- F. Wendell Gooch /s/ James O. Robbins* Trustee May 30, 2007 - ------------------------------------- James O. Robbins /s/ Clarence H. Ridley* Trustee May 30, 2007 - ------------------------------------- Clarence H. Ridley /s/ Warren Y. Jobe* Trustee May 30, 2007 - ------------------------------------- Warren Y. Jobe /s/ Charles D. Winslow* Trustee May 30, 2007 - ------------------------------------- Charles D. Winslow /s/ Sidney E. Harris* Trustee May 30, 2007 - ------------------------------------- Sidney E. Harris /s/ Connie D. McDaniel* Trustee May 30, 2007 - ------------------------------------- Connie D. McDaniel s/ R. Jeffrey Young President and May 30, 2007 - ------------------------------------- Chief Executive Officer R. Jeffrey Young s/ Martin R. Dean Treasurer and Chief May 30, 2007 - ------------------------------------- Financial Officer Martin R. Dean
* 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 21st day of February 2007. /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 /s/ Jeffrey M. Biggar - ------------------------------------- ---------------------------------------- Charles D. Winslow, Trustee Jeffrey M. Biggar EXHIBIT INDEX
EXHIBIT DOCUMENT - ------- -------- (d)(1) Amended and Restated Investment Advisory Agreement (d)(2) Expense Limitation Agreement (e)(1) Distribution Agreement (p)(1) Code of Ethics for Registrant (p)(2) Code of Ethics for BISYS Fund Services Limited Partnership (p)(3) Code of Ethics for Trusco Capital Management, Inc. (p)(4) Code of Ethics for Zevenbergen Capital Investments LLC
EX-99.D.1 2 l26347aexv99wdw1.txt EX-99(D)(1) EXHIBIT D(1) AMENDED AND RESTATED INVESTMENT ADVISORY AGREEMENT AGREEMENT made this 14th day of November, 2006, by and between STI Classic Funds, a Massachusetts business trust (the "Trust"), and Trusco Capital Management, Inc. (the "Adviser"). WHEREAS, the Trust is an open-end, diversified management investment company registered under the Investment Company Act of 1940, as amended, consisting of multiple series of shares, each having its own investment policies; WHEREAS, the Trust and the Adviser have previously entered into three separate investment advisory agreements dated May 29, 1992, June 15, 1993, and December 20, 1993, and intend to replace and consolidate those agreements with and into this amended and restated Agreement; WHEREAS, the Trust has retained an administrator to provide administration of the Trust's operations (the "Administrator"), subject to the control of the Board of Trustees (the "Board"); and WHEREAS, the Trust desires to continue to retain the Adviser to render investment management services with respect to each series of shares listed on Schedule A attached hereto, as may be amended from time to time (each a "Fund"), and the Adviser is willing to render such services; NOW, THEREFORE, in consideration of mutual covenants herein contained, the parties hereto agree as follows: 1. DUTIES OF ADVISER. The Trust employs the Adviser to manage the investment and reinvestment of the assets, and to continuously review, supervise, and administer the investment program of the Funds, to determine in its discretion the securities to be purchased or sold, to provide the Administrator and the Trust with records concerning the Adviser's activities which the Trust is required to maintain, and to render regular reports to the Administrator and to the Trust's officers and Board concerning the Adviser's discharge of the foregoing responsibilities. The Adviser shall discharge the foregoing responsibilities subject to the control of the Board and in compliance with such policies as the Board may from time to time establish, and in compliance with the objectives, policies, and limitations for each such Fund set forth in the Trust's prospectus and statement of additional information as amended from time to time, and applicable laws and regulations. The Adviser accepts such employment and agrees, at its own expense, to render the services and to provide the office space, furnishings and equipment and the personnel required by it to perform the services on the terms and for the compensation provided herein. 2. PORTFOLIO TRANSACTIONS. The Adviser is authorized to select the brokers or dealers that will execute the purchases and sales of portfolio securities for the Funds and is directed to use its best efforts to obtain the best net results as described in the Trust's prospectuses and statement of additional information from time to time. The Adviser will promptly communicate to the Administrator and to the officers and the Board such information relating to portfolio transactions as they may reasonably request. It is understood that the Adviser will not be deemed to have acted unlawfully, or to have breached a fiduciary duty to the Trust or be in breach of any obligation owing to the Trust under this Agreement, or otherwise, solely by reason of its having directed a securities transaction on behalf of the Trust to a broker-dealer in compliance with the provisions of Section 28(e) of the Securities Exchange Act of 1934. 3. COMPENSATION OF THE ADVISER. For the services to be rendered by the Adviser as provided in Sections 1 and 2 of this Agreement, the Trust shall pay to the Adviser compensation at the rate specified in the Schedule(s) which are attached hereto and made a part of this Agreement. Such compensation shall be paid to the Adviser at the end of each month, and calculated by applying a daily rate, based on the annual percentage rates as specified in the attached Schedule(s), to the assets. The fee shall be based on the daily net assets for the month involved. All rights of compensation under this Agreement for services performed as of the termination date shall survive the termination of this Agreement. 4. OTHER EXPENSES. The Adviser shall pay all expenses of preparing (including typesetting), printing and mailing reports, prospectuses, statements of additional information, and sales literature to prospective clients to the extent these expenses are not borne by the Trust under a distribution plan adopted pursuant to Rule 12b-1. 5. EXCESS EXPENSES. If the expenses for any Fund for any fiscal year (including fees and other amounts payable to the Adviser, but excluding interest, taxes, brokerage costs, litigation, and other extraordinary costs) as calculated every business day would exceed the expense limitations imposed on investment companies by any applicable statute or regulatory authority of any jurisdiction in which shares are qualified for offer and sale, the Adviser shall bear such excess cost. However, the Adviser will not bear expenses of the Trust or any Fund which would result in the Trust's inability to qualify as a regulated investment company under provisions of the Internal Revenue Code. Payment of expenses by the Adviser pursuant to this Section 5 shall be settled on a monthly basis (subject to fiscal year end reconciliation) by a reduction in the fee payable to the Adviser for such month pursuant to Section 3 and, if such reduction shall be insufficient to offset such expenses, by reimbursing the Trust. 6. REPORTS. The Trust and the Adviser agree to furnish to each other, if applicable, current prospectuses, proxy statements, reports to shareholders, certified copies of their financial statements, and such other information with regard to their affairs as each may reasonably request. 7. STATUS OF ADVISER. The services of the Adviser to the Trust are not to be deemed exclusive, and the Adviser shall be free to render similar services to others so long as its services to the Trust are not impaired thereby. The Adviser shall be deemed to be an independent contractor and shall, unless otherwise expressly provided or authorized, have no authority to act for or represent the Trust in any way or otherwise be deemed an agent of the Trust. 8. CERTAIN RECORDS. Any records required to be maintained and preserved pursuant to the provision of Rule 31a-1 and Rule 31a-2 promulgated under the Investment Company Act of 1940 which are prepared or maintained by the Adviser on behalf of the Trust are the property of the Trust and will be surrendered promptly to the Trust on request. 9. LIMITATION OF LIABILITY OF ADVISER. The duties of the Adviser shall be confined to those expressly set forth herein, and no implied duties are assumed by or may be asserted against the Adviser hereunder. The Adviser shall not be liable for any error of judgment or mistake of law or for any loss arising out of any investment or for any act or omission in carrying out its duties hereunder, except a loss resulting from willful misfeasance, bad faith or gross negligence in the performance of its duties, or by reason of reckless disregard of its obligations and duties hereunder, except as may otherwise be provided under provisions of applicable state law which cannot be waived or modified hereby. (As used in this Paragraph 9, the term "Adviser" shall include directors, officers, employees and other corporate agents of the Adviser as well as that corporation itself). 10. PERMISSIBLE INTERESTS. Trustees, agents, and shareholders of the Trust are or may be interested in the Adviser (or any successor thereof) as directors, partners, officers, or shareholders, or otherwise; directors, partners, officers, agents, and shareholders of the Adviser are or may be interested in the Trust as Trustees, shareholders or otherwise; and the Adviser (or any successor) is or may be interested in the Trust as a shareholder or otherwise. In addition, brokerage transactions for the Trust may be effected through affiliates of the Adviser if approved by the Board, subject to the rules and regulations of the Securities and Exchange Commission. 11. DURATION AND TERMINATION. This Agreement, unless sooner terminated as provided herein, shall remain in full force and effect for one year from the date hereof. This Agreement shall remain in full force and effect with respect to any Fund added subsequent to the date of execution for two years. Subsequent to such initial periods of effectiveness, this Agreement shall continue in full force and effect for periods of one year so long as such continuance thereafter is specifically approved at least annually (a) by the vote of a majority of those Trustees of the Trust who are not parties to this Agreement or interested persons of any such party, cast in person at a meeting called for the purpose of voting on such approval, and (b) by the Trustees of the Trust or by vote of a majority of the outstanding voting securities of each Fund; provided, however, that if the shareholders of any Fund fail to approve the Agreement as provided herein, the Adviser may continue to serve hereunder in the manner and to the extent permitted by the Investment Company Act of 1940 and rules and regulations thereunder. The foregoing requirement that continuance of this Agreement be "specifically approved at least annually" shall be construed in a manner consistent with the Investment Company Act of 1940 and the rules and regulations thereunder. This Agreement may be terminated as to any Fund at any time, without the payment of any penalty by vote of a majority of the Board or by vote of a majority of the outstanding voting securities of the Fund on not less than 30 days nor more than 60 days written notice to the Adviser, or by the Adviser at any time without the payment of any penalty, on 90 days written notice to the Trust. This Agreement will automatically and immediately terminate in the event of its assignment. Any notice under this Agreement shall be given in writing, addressed and delivered, or mailed postpaid, to the other party at any office of such party. As used in this Section 11, the terms "assignment", "interested persons", and a "vote of a majority of the outstanding voting securities" shall have the respective meanings set forth in the Investment Company Act of 1940 and the rules and regulations thereunder; subject to such exemptions as may be granted by the Securities and Exchange Commission under said Act. 12. NOTICE. Any notice required or permitted to be given by either party to the other shall be deemed sufficient if sent by registered or certified mail, postage prepaid, addressed by the party giving notice to the other party at the last address furnished by the other party to the party giving notice: if to the Trust at 3435 Stelzer Road, Columbus, Ohio 43219 and if to the Adviser at 50 Hurt Plaza, Suite 1400, Atlanta, Georgia 30303. 13. SEVERABILITY. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. 14. GOVERNING LAW. This Agreement shall be governed by the laws of the Commonwealth of Massachusetts. 15. REPRESENTATIONS BY ADVISER. By execution of this Agreement, the Adviser represents and confirms that it is registered as an investment adviser under the Investment Advisers Act of 1940. A copy of the Declaration of Trust of the Trust is on file with the Secretary of The Commonwealth of Massachusetts, and notice is hereby given that this instrument is executed on behalf of the Trustees of the Trust as Trustees, and is not binding upon any of the Trustees, officers, or shareholders of the Trust individually but binding only upon the assets and property of the Trust. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first written above. STI Classic Funds BY: /s/ Deborah Lamb --------------------------------- Trusco Capital Management, Inc. BY: /s/ John H. Stebbins --------------------------------- SCHEDULE A TO THE AMENDED AND RESTATED INVESTMENT ADVISORY AGREEMENT BETWEEN STI CLASSIC FUNDS AND TRUSCO CAPITAL MANAGEMENT, INC. Breakpoint Advisory Fee Schedules and Discounts: Equity and Fixed Income Funds: First $500 million = None (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 = None (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 EQUITY FUNDS
FUND FEE - ---- ---- Aggressive Growth Stock Fund 1.10% Balanced Fund 0.85% Capital Appreciation Fund 0.97% Emerging Growth Stock Fund 1.10% International Equity Fund 1.15% International Equity Index Fund 0.50% Large Cap Quantitative Equity Fund 0.85% Large Cap Relative Value Fund 0.85% Large Cap Value Equity Fund 0.80% Life Vision Aggressive Growth Fund 0.10% Life Vision Conservative Fund 0.10% Life Vision Growth and Income Fund 0.10% Life Vision Moderate Growth Fund 0.10% Life Vision Target Date 2015 Fund 0.10% Life Vision Target Date 2025 Fund 0.10% Life Vision Target Date 2035 Fund 0.10% Mid-Cap Equity Fund 1.00% Mid-Cap Value Equity Fund 1.00% Quality Growth Stock Fund 0.85% Small Cap Growth Stock Fund 1.15% Small Cap Quantitative Equity Fund 1.05% Small Cap Value Equity Fund 1.15%
FIXED INCOME FUNDS
FUND FEE - ---- ---- Georgia Tax-Exempt Bond Fund 0.55% High Grade Municipal Bond Fund (formerly, Florida Tax-Exempt Bond Fund) 0.55% High Income Fund 0.60% High Quality Bond Fund 0.40% Intermediate Bond Fund 0.25% Investment Grade Bond Fund 0.50% Investment Grade Tax-Exempt Bond Fund 0.50% Limited Duration Fund 0.10% Limited-Term Federal Mortgage Securities Fund 0.50% Maryland Municipal Bond Fund 0.55% North Carolina Tax-Exempt Bond Fund 0.55% Seix Floating Rate High Income Fund 0.45% Seix High Yield Fund 0.45% Short-Term Bond Fund 0.40% Short-Term U.S. Treasury Securities Fund 0.40% Strategic Income Fund 0.60% Total Return Bond Fund (formerly, Core Bond Fund) 0.25% U.S. Government Securities Fund 0.50% U.S. Government Securities Ultra-Short Bond Fund 0.20% Ultra-Short Bond Fund 0.22% Virginia Intermediate Municipal Bond Fund 0.55%
MONEY MARKET FUNDS
FUND FEE - ---- ---- Classic Institutional Cash Management Money Market Fund 0.13% 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 0.15% Prime Quality Money Market Fund 0.55% Tax-Exempt Money Market Fund 0.45% U.S. Government Securities Money Market Fund 0.55% U.S. Treasury Money Market Fund 0.55% Virginia Tax-Free Money Market Fund 0.40%
November 14, 2006 EX-99.D.2 3 l26347aexv99wdw2.txt EX-99(D)(2) EXHIBIT (D)(2) 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: /s/ R. Jeffrey Young By: Patrick A. Paparelli --------------------------------- ------------------------------------ Title: President Title: Chief Compliance Officer EXPENSE LIMITATION AGREEMENT SCHEDULE A
EXPENSE FUND SHARE CLASS 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%
EXPENSE LIMITATION AGREEMENT SCHEDULE A (CONTINUED)
EXPENSE FUND SHARE CLASS 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.E.1 4 l26347aexv99wew1.txt EX-99(E)1 EXHIBIT (E)(1) DISTRIBUTION AGREEMENT AGREEMENT made as of November 18, 2005 and effective as of August 19, 2005 between STI CLASSIC FUNDS (the "Trust"), a Massachusetts business trust having an office at 50 Hurt Plaza, Suite 1400, Atlanta, GA 30303, and BISYS FUND SERVICES LIMITED PARTNERSHIP ("Distributor"), having an office at 100 Summer Street, Boston, Massachusetts 02110. WHEREAS, the Trust is an open-end management investment company organized as a Massachusetts business trust and registered with the Securities and Exchange Commission (the "Commission") under the Investment Company Act of 1940, as amended (the "1940 Act"); WHEREAS, Distributor is registered with the Commission as a broker-dealer under the Securities Exchange Act of 1934, as amended (the "1934 Act"), and is a member of the National Association of Securities Dealers, Inc. ("NASD"); and WHEREAS, it is intended that Distributor act as the distributor of the units of beneficial interest ("Shares") of each series of the Trust, as listed on Schedule A, and such series as are hereafter created (all of the foregoing series individually referred to herein as a "Fund" and collectively as the "Funds"). NOW, THEREFORE, in consideration of the mutual promises and covenants herein set forth, the parties agree as follows: 1. Services as Distributor. 1.1 Distributor will act as agent of the Trust on behalf of each Fund for the distribution of the Shares covered by the registration statement of the Trust then in effect under the Securities Act of 1933, as amended (the "Securities Act") and the 1940 Act. As used in this Agreement, the term "registration statement" shall mean the registration statement of the Trust and any amendments thereto, then in effect, including Parts A (the Prospectus), B (the Statement of Additional Information) and C of the registration statement, as filed on Form N-1A, or any successor thereto, with the Commission, together with any amendments thereto. The term "Prospectus" shall mean the then-current forms of Prospectus and Statement of Additional Information used by the Funds, in accordance with the rules of the Commission, for delivery to shareholders and prospective shareholders after the effective dates of the above-referenced registration statement together with any amendments and supplements thereto. The Trust will notify Distributor in advance of any proposed changes to Schedule A to this Agreement. 1.2 Consistent with the understanding between the Funds, the Funds' investment adviser (the "Adviser") and the Distributor, the Distributor may solicit orders for the sale of the Shares and may undertake such advertising and promotion as it believes reasonable in connection with such solicitation. The Trust understands that Distributor is now and may in the future be the distributor of the shares of many other investment companies or series, including investment companies having investment objectives similar to those of the Trust. The Trust further understands that investors and potential investors in the Trust may invest in shares of such other investment companies. The Trust agrees that Distributor's duties to such other investment companies shall not be deemed in conflict with its duties to the Trust under this Section 1.2. 1.3 Consistent with the understanding between the Funds, the Adviser and the Distributor, and subject to the last sentence of this Section 1.3, Distributor will engage in such activities set forth on the schedules hereto or as otherwise agreed by the parties and may engage in such activities as it deems appropriate in connection with the promotion and sale of the Shares, which may include advertising, compensation of underwriters, dealers and sales personnel, the printing and mailing of Prospectuses to prospective investors other than current shareholders, and the printing and mailing of sales literature. Distributor may enter into dealer agreements and other selling agreements with broker-dealers and other intermediaries; provided, however, that Distributor shall have no obligation to make any payments to any third parties, whether as finder's fees, compensation or otherwise, unless (i) Distributor has received a corresponding payment from the applicable Fund's Distribution Plan (as defined in Section 2 of this Agreement), the Adviser or from another source as may be permitted by applicable law, and (ii) such corresponding payment has been approved by the Trust's Board of Trustees. 1.4 In its capacity as distributor of the Shares, all activities of the Distributor and its partners, agents, and employees shall comply with all applicable laws, rules and regulations, including, without limitation, the 1940 Act, the 1934 Act, all applicable rules and regulations promulgated by the Commission thereunder, all applicable rules and regulations adopted by any securities association registered under the 1934 Act, and the laws governing the sale of securities in the various states. 1.5 Distributor will transmit any orders received by it for purchase or redemption of the Shares to the transfer agent for the Funds, and may instruct dealers and other intermediaries to transmit orders directly to the transfer agent. 1.6 Whenever in their judgment such action is warranted by unusual market, economic or political conditions or by abnormal circumstance of any kind, the Trust's officers may upon reasonable notice instruct the Distributor to decline to accept any orders for or make any sales of the Shares until such time as those officers deem it advisable to accept such orders and to make such sales. 1.7 The Trust agrees to inform the Distributor from time to time of the states and other jurisdictions in which a Fund or its administrator has registered or otherwise qualified shares for sale, and the Trust agrees at its own expense to execute any and all documents and to furnish any and all information and otherwise to take all actions that may be reasonably necessary in connection with the qualification of the Shares for sale in such states as Distributor may designate. 1.8 The Trust shall furnish from time to time, for use in connection with the sale of the Shares, such supplemental information with respect to the Funds and the Shares as Distributor may reasonably request; and the Trust warrants that the statements contained in any such supplemental information fairly show or represent what they purport to show or represent. The Trust shall also furnish Distributor upon request with: (a) unaudited semi-annual statements of the Funds' books and accounts prepared by the Trust, (b) a monthly itemized list of the securities in the Funds, (c) monthly balance sheets as soon as practicable after the end of each month, and (d) from time to time such additional information regarding the financial condition of the Funds as Distributor may reasonably request. Distributor is not authorized by the Trust to give any information or to make any representations other than those contained in the Prospectus or in shareholder reports or other material that may be prepared by or on behalf of the Trust for the Distributor's use. 1.9 The Trust represents and warrants to Distributor that all registration statements, and each Prospectus, filed by the Trust with the Commission under the Securities Act and the 1940 Act shall be prepared in conformity with requirements of said Acts and rules and regulations of the Commission thereunder. The registration statement and Prospectus shall contain all statements required to be stated therein in conformity with said Acts and the rules and regulations of the Commission thereunder, and all statements of fact contained in any such registration statement and Prospectus are true and correct in all material respects. Furthermore, neither any registration statement nor any Prospectus includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading to a purchaser of the Shares. The foregoing representations and warranties shall continue throughout the term of this Agreement and be deemed to be of a continuing nature, applicable to all Shares distributed hereunder. The Trust may, but shall not be obligated to, propose from time to time such amendment or amendments to any registration statement and such supplement or supplements to any Prospectus as, in the light of future developments, the Trust may deem necessary or advisable. If the Trust shall not propose any amendment or amendments and/or supplement or supplements within fifteen days after receipt by the Trust of a written request from Distributor to do so, Distributor may, at its option, terminate this Agreement. In such case, the Distributor will be held harmless from, and indemnified by Trust for, any liability or loss resulting from the failure to implement such amendment. The Trust shall not file any amendment to any registration statement or supplement to any Prospectus without giving Distributor reasonable notice thereof in advance; provided, however, that nothing contained in this Agreement shall in any way limit the Trust's right to file at any time such amendments to any registration statement and/or supplements to any Prospectus, of whatever character, as the Trust may deem advisable, such right being in all respects absolute and unconditional. 1.10 The Trust may use, or may request Distributor to use, an electronic processing system over the internet in which electronically transmitted orders are forwarded electronically for processing under circumstances in which Distributor will not review the orders. Under such circumstances, the Trust acknowledges and agrees that it will independently determine that any third party used by the Trust to process orders is a satisfactory service provider and that the Distributor's review will not be necessary. 1.11 The Trust authorizes the Distributor and dealers to use any Prospectus in the form furnished by the Trust from time to time in connection with the sale of the Shares. 1.12 The Distributor shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Trust in connection with the matters to which this Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on the Distributor's part in the performance of its duties, from reckless disregard by the Distributor of its obligations and duties under this Agreement, or from the Distributor's failure to comply with laws, rules and regulations applicable to it in connection with its distribution of the Shares. The Trust agrees to indemnify, defend and hold harmless the Distributor, its several officers and employees, and any person who controls the Distributor within the meaning of Section 15 of the Securities Act, from and against any and all claims, demands, liabilities and expenses (including the reasonable cost of investigating or defending such claims, demands or liabilities and any reasonable counsel fees incurred in connection therewith) which the Distributor, its officers and employees, or any such controlling person, may incur (a) as the result of acting as distributor of the Funds and entering into selling agreements, shareholder servicing agreements or similar agreements with financial intermediaries on behalf of the Trust; (b) under the Securities Act or under common law or otherwise, arising out of or based upon (i) any untrue statement, or alleged untrue statement, of a material fact contained in any registration statement or any Prospectus, (ii) any omission, or alleged omission, to state a material fact required to be stated in any registration statement or any Prospectus or necessary to make the statements therein not misleading or (iii) any Trust-related advertisement or sales literature, or other materials distributed to the public that contains any untrue statement, or alleged untrue statement, of a material fact, or any omission, or alleged omission, to state a material fact required to be stated therein to make the statements therein not misleading, notwithstanding the exercise of reasonable care in the preparation or review thereof by the Distributor; or (c) arising out of or based upon the electronic processing of orders over the internet at the Trust's request; provided, however, that the Trust's agreement to indemnify the Distributor, its officers or employees, and any such controlling person shall not be construed to cover any claims, demands, liabilities or expenses arising out of or based upon (a) any untrue statements, or alleged untrue statement, as are contained in any registration statement, Prospectus, or Trust-related advertisement or sales literature, or other materials distributed to the public, or any omission to state a material fact required to be stated in such materials that would be necessary to make the information therein not misleading to the extent that such untrue statement, alleged untrue statement, or omission was made in reliance upon, and in conformity with, information furnished in writing to the Trust by or on behalf of the Distributor provided the Distributor has reviewed any such registration statement, Prospectus, advertisement or sales literature, or other material prior to its use, or (b) the willful misfeasance, bad faith or gross negligence of the Distributor in the performance of its duties or the Distributor's reckless disregard of its obligations and duties under this Agreement. In the event of a formal legal action against the Distributor, its officers or employees, or any such controlling person, the Distributor shall provide the Trust with written notice of the action, identifying the persons against whom such action is brought, promptly following receipt of service of the summons or other first legal process, and in any event within ten (10) days of such receipt. The Trust will be entitled to assume the defense of any suit brought to enforce any such claim, demand or liability if such defense shall be conducted by counsel of good standing chosen by the Trust and approved by the Distributor, which approval shall not be unreasonably withheld. In the event any such claim, demand or liability is not heard solely on an alleged misstatement, omission or wrongful act on the Trust's part, the Distributor shall have the right to participate in the defense. In the event the Trust elects to assume the defense of any such suit and retain counsel of good standing so approved by the Distributor, the Distributor and any other defendants in such suit shall bear the fees and expenses of any additional counsel retained by them; but in any case where the Trust does not elect to assume the defense of any such suit or in case the Distributor reasonably withholds approval of counsel chosen by the Trust, the Trust will reimburse the Distributor, its officers, employees, and controlling persons named as defendants in such suit, for the reasonable fees and expenses of any counsel retained by them to the extent related to a claim, demand, liability or expense covered under this Section 1.12. The Trust's indemnification agreement contained in this Section 1.12 shall remain operative and in full force and effect regardless of any investigation made by or on behalf of the Distributor, its officers and employees, or any controlling person, and shall survive the delivery of any Shares. 1.13 The Distributor agrees to indemnify, defend and hold harmless the Trust, its several officers and Trustees, and any person who controls the Trust within the meaning of Section 15 of the Securities Act, from and against any and all claims, demands, liabilities and expenses (including the reasonable costs of investigating or defending such claims, demands or liabilities and any reasonable counsel fees incurred in connection therewith) which the Trust, its officers or Trustees or any such controlling person may incur (a) under the Securities Act or under common law or otherwise, arising out of or based upon any untrue statement, or alleged untrue statement, of a material fact contained in any registration statement, Prospectus, or Trust-related advertisement or sales literature, or other materials distributed to the public, or any omission to state a material fact required to be stated in such materials that would be necessary to make the information therein not misleading to the extent that such untrue statement, alleged untrue statement, or omission was made in reliance upon, and in conformity with, information furnished in writing to the Trust by or on behalf of the Distributor provided the Distributor has reviewed any such registration statement, Prospectus, advertisement or sales literature, or other material prior to its use, (b) the willful misfeasance, bad faith or gross negligence of the Distributor in the performance of its duties, or the Distributor's reckless disregard of its obligations and duties under this Agreement, or (c) the Distributor's failure to comply with laws applicable to it in connection with its activities hereunder (other than in respect of Trust-related advertisements or sales literature that fails to comply with applicable laws notwithstanding the exercise of reasonable care in the preparation and review thereof by the Distributor). In the event of a formal legal action against the Trust, its officers or Trustees, or any such controlling person, the Trust shall provide the Distributor with written notice of the action, identifying the persons against whom such action is brought, promptly following the receipt of service of the summons or other first legal process, and in any event within ten (10) days of such receipt. The Distributor will be entitled to assume the defense of any suit brought to enforce any such claim, demand or liability if such defense shall be conducted by counsel of good standing chosen by the Distributor and approved by the Trust, which approval shall not be unreasonably withheld. In the event any such claim, demand or liability is not based solely on an alleged misstatement, omission or wrongful act on the Distributor's part, the Trust shall have the right to participate in the defense. In the event the Distributor elects to assume the defense of any such suit and retain counsel of good standing so approved by the Trust, the Trust and any other defendants in such suit shall bear the fees and expenses of any additional counsel retained by any of them; but in any case where the Distributor does not elect to assume the defense of any such suit or in case the Trust reasonably withholds approval of counsel chosen by the Distributor, the Distributor will reimburse the Trust, its officers, directors, employees and controlling persons named as defendants in such suit, for the reasonable fees and expenses of any counsel retained by the Trust or them to the extent related to a claim, demand, liability or expense covered under this Section 1.13. The Distributor's indemnification agreement contained in this Section 1.13 shall remain operative and in full force and effect regardless of any investigation made by or on behalf of the Trust, its officers and employees, or any controlling person, and shall survive the delivery of any Shares. 1.14 No Shares shall be offered by either the Distributor or the Trust under any of the provisions of this Agreement and no orders for the purchase or sale of Shares hereunder shall be accepted by the Trust if and so long as the effectiveness of the registration statement then in effect or any necessary amendments thereto shall be suspended under any of the provisions of the Securities Act or if and so long as a current Prospectus as required by Section 10(b)(2) of said Act is not on file with the Commission, provided, however, that nothing contained in this Section 1.14 shall in any way restrict or have an application to or bearing upon the Trust's obligation to repurchase Shares from a shareholder in accordance with the provisions of the Trust's Prospectus, Agreement and Declaration of Trust, or Bylaws. 1.15 The Trust agrees to advise the Distributor as soon as reasonably practical by a notice in writing delivered to the Distributor: (a) of any request by the Commission for amendments to the registration statement or Prospectus then in effect or for additional information; (b) in the event of the issuance by the Commission of any stop order suspending the effectiveness of the registration statement or Prospectus then in effect or the initiation by service of process on the Trust or any proceeding for that purpose; (c) of the happening of any event that makes untrue any statement of a material fact made in the registration statement or Prospectus then in effect or which requires the making of a change in such registration statement or Prospectus in order to make the statements therein not misleading; and (d) of any action of the Commission with respect to any amendment to any registration statement or Prospectus which may from time to time be filed with the Commission, which could reasonably be expected to have a material negative impact upon the offering of Shares. For purposes of this section, informal requests by or acts of the Staff of the Commission shall not be deemed actions of or requests by the Commission unless they would reasonably be expected to have a material negative impact upon the offering of Shares. 1.16 The Distributor agrees on behalf of itself and its officers and employees to treat confidentiality and as proprietary information of the Trust all records and other information relative to the Trust and its prior, present or potential shareholders, and not to use such records and information for any purpose other than performance of its responsibilities and duties hereunder except after prior notification to and approval in writing by the Trust, which approval shall not be unreasonably withheld, but such approval shall not be required where the Distributor may be exposed to civil or criminal liability for failure to disclose such information, when requested to divulge such information by duly constituted authorities, or when so requested by the Trust. 2. Fee. 2.1 Attached as Schedule B to this Agreement are all plans of distribution under Rule 12b-1 under the 1940 Act approved by the Funds and in effect (collectively, the "Distribution Plan"). The Funds will deliver to Distributor promptly after any changes thereto updated copies of the Distribution Plan. For its services under this Agreement, the Distributor shall be compensated and reimbursed for its expenses as set forth on Schedules C and D to this Agreement. If the Funds have a Distribution Plan that permits and authorizes them to compensate and reimburse the Distributor and required board approvals have been given, then the Funds shall be responsible for all such compensation and reimbursements or such portions of it as have been permitted and authorized under the Distribution Plan. If the Funds do not have a Distribution Plan that permits and authorizes them to compensate and reimburse the Distributor in full, then the Distributor shall receive from other sources consistent with applicable law and other written agreements any portions of owed compensation and reimbursement not paid under the Distribution Plan. Except as provided by Rule 12b-1 under the 1940 Act and the terms of the Distribution Plan, as concerns continuation of the Distribution Plan and termination of the Distribution Plan under certain circumstances, the relevant Fund's obligation to pay distribution fees to the Distributor, when applicable as provided in the foregoing provisions of this Section 2, shall be absolute and unconditional and shall not be subject to any dispute, offset, counterclaim or defense whatsoever. 2.2 If: (i) the Distributor properly receives fees from the Funds under the Distribution Plan, other than for services rendered or expenses incurred, that the Distributor is not obligated to pay to third party broker-dealers, plan administrators or others ("Retained Fees"), and (ii) the Funds have authority under the Distribution Plan to pay for some or all of the Distributor's services under this Agreement ("Permitted Services"), then all of the Retained Fees will either be (a) returned to the Funds and/or (b) credited against the compensation payable by the Funds to the Distributor for Permitted Services. 3. Sale and Payment. 3.1 Shares of a Fund may be subject to a sales load and may be subject to the imposition of a distribution fee pursuant to the Distribution Plans referred to above. To the extent that Shares of a Fund are sold at an offering price which includes a sales load or subject to a contingent deferred sales load with respect to certain redemptions (either within a single class of Shares or pursuant to two or more classes of Shares), such Shares shall hereinafter be referred to collectively as "Load Shares" (and in the case of Shares that are sold with a front-end sales load, "Front-End Load Shares", or Shares that are sold subject to a contingent deferred sales load, "CDSL Shares"). Funds that issue Front-End Load Shares shall hereinafter be referred to collectively as "Front-End Load Funds." Funds that issue CDSL Shares shall hereinafter be referred to collectively as "CDSL Funds." Front-End Load Funds and CDSL Funds may individually or collectively be referred as "Load Funds." Under this Agreement, the following provisions shall apply with respect to the sale of, and payment for, Load Shares. 3.2 The Distributor shall have the right to offer Load Shares at their net asset value and to sell such Load Shares to the public against orders therefore at the applicable public offering price, as defined in Section 4 hereof. The Distributor shall also have the right to sell Load Shares to dealers against orders therefore at the public offering price less a concession determined by the Distributor, which concession shall not exceed the amount of the sales charge or underwriting discount, if any, referred to in Section 4 below. 3.3 Prior to the time of delivery of any Load Shares by a Load Fund to, or on the order of, the Distributor, the Distributor shall pay or cause to be paid to the Load Fund or to its order an amount in New York cleared funds equal to the applicable net asset value of such Shares. The Distributor may retain so much of any sales charge or underwriting discount as is not allowed by the Distributor as a concession to dealers. 4. Public Offering Price. The public offering price of a Load Share shall be the net asset value of such Load Share next determined, plus any applicable sales charge, all as set forth in the current Prospectus of the Load Fund. The net asset value of Load Shares shall be determined in accordance with the Prospectus of the Load Fund. 5. Issuance of Shares. The Trust reserves the right to issue, transfer or sell Load Shares at net asset values (a) in connection with the merger or consolidation of the Trust or the Load Fund(s) with any other investment company or the acquisition by the Trust or the Load Fund(s) of all or substantially all of the assets or of the outstanding Shares of any other investment company; (b) in connection with a pro rata distribution directly to the holders of Shares in the nature of a stock dividend or split; (c) upon the exercise of subscription rights granted to the holders of Shares on a pro rata basis; (d) in connection with the issuance of Load Shares pursuant to any exchange and reinvestment privileges described in any then-current Prospectus of the Load Fund; and (e) otherwise in accordance with any then-current Prospectus of the Load Fund. 6. Term, Duration and Termination. This Agreement shall become effective with respect to each Fund as of the date first written above (the "Effective Date") (or, if a particular Fund is not in existence on such date, on the earlier of the date an amendment to Schedule A to this Agreement relating to that Fund is executed or the Distributor begins providing services under this Agreement with respect to such Fund) and, unless sooner terminated as provided herein, shall continue for a two year period following the Effective Date. Thereafter, if not terminated, this Agreement shall continue with respect to a particular Fund automatically for successive one-year terms, provided that such continuance is specifically approved at least annually (a) by the vote of a majority of those members of the Trust's Board of Trustees who are not parties to this Agreement or interested persons of any such party, cast in person at a meeting for the purpose of voting on such approval and (b) by the vote of the Trust's Board of Trustees or the vote of a majority of the outstanding voting securities of such Fund. This Agreement is terminable without penalty with sixty days' prior written notice, by the Trust's Board of Trustees, by vote of a majority of the outstanding voting securities of the Trust, or by the Distributor. This Agreement will also terminate automatically (a) in the event of its assignment or (b) if Distributor is no longer registered with the Commission under the 1934 Act and a member of the NASD. (As used in this Agreement, the terms "majority of the outstanding voting securities," "interested persons" and "assignment" shall have the same meaning as ascribed to such terms in the 1940 Act.) 7. Limitation of Liability of the Trustees and Shareholders. It is expressly agreed that the obligations of the Trust hereunder shall not be binding upon any of the Trustees, shareholders, nominees, officers, agents or employees of the Trust personally, but shall bind only the trust property of the Trust as provided in the Trust's Agreement and Declaration of Trust. The execution and delivery of this Agreement have been authorized by the Trustees, and this Agreement has been signed and delivered by an authorized officer of the Trust, acting as such, and neither such authorization by the Trustees nor such execution and delivery by such officer shall be deemed to have been made by any of them individually or to impose any liability on any of them personally, but shall bind only the trust property of the Trust as provided in the Trust's Agreement and Declaration of Trust. 8. Privacy. Nonpublic personal financial information relating to consumers or customers of the Funds provided by, or at the direction of, the Trust to the Distributor, or collected or retained by the Distributor to perform its duties as distributor, shall be considered confidential information. The Distributor shall not disclose or otherwise use any nonpublic personal financial information relating to present or former shareholders of the Funds other than for the purposes for which that information was disclosed to the Distributor, including use under an exception in Rules 14 or 15 of Securities and Exchange Commission Regulation S-P in the ordinary course of business to carry out those purposes. The Distributor shall have in place and maintain physical, electronic and procedural safeguards reasonably designed to protect the security, confidentiality and integrity of, and to prevent unauthorized access to or use of, records and information relating to consumers of the Funds. The Trust represents to the Distributor that it has adopted a Statement of its privacy policies and practices as required by Securities and Exchange Commission Regulation S-P and agrees to provide the Distributor with a copy of that statement annually. 9. Anti-Money Laundering Compliance. 9.1 Each of Distributor and the Trust acknowledges that it is a financial institution subject to the USA Patriot Act of 2001 and the Bank Secrecy Act (collectively, the "AML Acts"), which require, among other things, that financial institutions adopt compliance programs to guard against money laundering. Each represents and warrants to the other that it is in compliance with and will continue to comply with the AML Acts and applicable regulations in all relevant respects. The Distributor shall also provide written notice to each person or entity with which it entered an agreement prior to the date hereof with respect to sale of the Trust's Shares, such notice informing such person of anti-money laundering compliance obligations applicable to financial institutions under applicable laws and, consequently, under applicable contractual provisions requiring compliance with laws. 9.2 The Distributor shall include specific contractual provisions regarding anti-money laundering compliance obligations in agreements entered into by the Distributor with any dealer that is authorized to effect transactions in Shares of the Trust. 9.3 Each of Distributor and the Trust agrees that it will take such further steps, and cooperate with the other as may be reasonably necessary, to facilitate compliance with the AML Acts, including but not limited to the provision of copies of its written procedures, policies and controls related thereto ("AML Operations"). Distributor undertakes that it will grant to the Trust, the Trust's anti-money laundering compliance officer and regulatory agencies, reasonable access to copies of Distributor's AML Operations, books and records pertaining to the Trust only. It is expressly understood and agreed that the Trust and the Trust's compliance officer shall have no access to any of Distributor's AML Operations, books or records pertaining to other clients of Distributor. 10. Notices. Any notice provided hereunder shall be sufficiently given when sent by registered or certified mail to the party required to be served with such notice at the following address: if to the Trust, to it at 50 Hurt Plaza, Suite 1400, Atlanta, GA 30303 Attention: Debra Lamb, with copy to Jeff Young, 3435 Stelzer Road, Columbus, Ohio 43219; and if to BISYS, to it at 100 Summer Street, Boston, Massachusetts 02110, Attn: Broker-Dealer Compliance Department Manager, with a copy to BISYS at 3435 Stelzer Road, Columbus, OH 43219, Attn: President, or at such other address as such party may from time to time specify in writing to the other party pursuant to this Section. 11. Governing Law. This Agreement shall be construed in accordance with the laws of the Commonwealth of Massachusetts and the applicable provisions of the 1940 Act. To the extent that the applicable laws of the State of Ohio, or any of the provisions herein, conflict with the applicable provisions of the 1940 Act, the latter shall control. 11. Prior Agreements. This Agreement constitutes the complete agreement of the parties as to the subject matter covered by this Agreement, and supersedes all prior negotiations, understandings and agreements bearing upon the subject matter covered by this Agreement. 12. Amendments. No amendment to this Agreement shall be valid unless made in writing and executed by both parties hereto. 13. Effective Date. This Agreement is effective as of August 19, 2005. * * * * * * IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed by their officers designated below as of the day and year first written above. STI CLASSIC FUNDS By: /s/ Deborah Lamb ------------------------------------ Name: Deborah Lamb Title: Executive Vice President and CCO BISYS FUND SERVICES LIMITED PARTNERSHIP By: BISYS Fund Services, Inc., its General Partner By: /s/ Fred Naddaff ------------------------------------ Name: Fred Naddaff Title: President SCHEDULE A TO THE DISTRIBUTION AGREEMENT BETWEEN STI CLASSIC FUNDS AND BISYS FUND SERVICES LIMITED PARTNERSHIP FUNDS STI CLASSIC EQUITY FUNDS Aggressive Growth Stock Fund Capital Appreciation Fund Emerging Growth Stock 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 Select Large Cap Growth Stock (formerly Quality Growth Stock Fund) Small Cap Growth Stock Fund Small Cap Quantitative Equity Fund Small 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 Life Vision Target Date 2025 Life Vision Target Date 2035 STI CLASSIC FIXED INCOME FUNDS AND MONEY MARKETS Georgia Tax-Exempt Bond Fund High Grade Municipal Bond Fund (formerly Florida Tax-Exempt Bond) High Income 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 (formerly Core Bond Fund) U.S. Government Securities Fund U.S. Government Securities Ultra-Short Bond Fund Ultra-Short Bond Fund Virginia Intermediate Municipal Bond Fund 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 STI CLASSIC INSTITUTIONAL 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 SCHEDULE B TO THE DISTRIBUTION AGREEMENT BETWEEN STI CLASSIC FUNDS AND BISYS FUND SERVICES LIMITED PARTNERSHIP DISTRIBUTION AND SERVICE PLAN A SHARES (FORMERLY, INVESTOR SHARES) WHEREAS, STI Classic Funds (the "Trust") is engaged in business as an open-end investment company registered under the Investment Company Act of 1940, as amended ("1940 Act"); and WHEREAS, the Trustees of the Trust have determined that there is a reasonable likelihood that the following Distribution and Service Plan (the "Plan") will benefit the Trust and the owners of the A Shares of the portfolios ("Shareholders") of the Trust; NOW, THEREFORE, the Trustees of the Trust hereby adopt this Plan pursuant to Rule 12b-1 under the 1940 Act and in accordance with the Trust's Rule 18f-3 Multiple Class Plan: SECTION 1. The Trust has adopted this Plan to enable the Trust to directly or indirectly bear expenses related to (a) the distribution and sale of A Shares (collectively, the "Shares") of the portfolios of the Trust, as now in existence or hereinafter created from time to time, (each a "Portfolio"), and (b) the shareholder servicing of such Shares. SECTION 2. The Shares of each Portfolio are authorized to pay the principal underwriter of the Shares (the "Distributor") a total fee in connection with distribution-related services and shareholder servicing provided in respect of such class, calculated and payable monthly, at the annual rate set forth on Schedule A attached hereto. SECTION 3. Distribution Activities. (a) The fee paid pursuant to Section 2 may be used by the Distributor to provide initial and ongoing sales compensation to its investment executives and to other broker-dealers in respect of sales of Shares of the applicable Portfolios and to pay for other advertising and promotional expenses in connection with the distribution of the Shares. These advertising and promotional expenses include, by way of example but not way of limitation, costs of printing and mailing prospectuses, statements of additional information and shareholder reports to prospective investors; preparation and distribution of sales literature; advertising of any type; an allocation of overhead and other expenses of the Distributor related to the distribution of the Shares; and payments to, and expenses of, officers, employees or representatives of the Distributor, of other broker-dealers, banks or other financial institutions, and of any other persons who provide support services in connection with the distribution of the Shares, including travel, entertainment, and telephone expenses. (b) Payments under this Plan are not tied exclusively to the expenses for distribution-related activities actually incurred by the Distributor, so that such payments may exceed expenses actually incurred by the Distributor. The Trust's Board of Trustees will evaluate the appropriateness of the Plan and its payment terms on a continuing basis and in doing so will consider all relevant factors, including expenses borne by the Distributor and amounts it receives under the Plan. (c) The Trust's investment adviser and the Distributor may, at their option and in their sole discretion, make payments from their own resources to cover costs of additional distribution. SECTION 4. Shareholder Servicing Activities. (a) A portion of the fee payable to the Distributor pursuant to Section 2 may be used by the Distributor to provide compensation for personal, ongoing servicing and/or maintenance of shareholder accounts with respect to the Shares of the applicable Portfolios, provided that the amount paid for such shareholder servicing activities does not exceed the amount set forth on Schedule A. Compensation may be paid by the Distributor, or any portion of the fee may be reallowed, to persons, including employees of the Distributor, and institutions who respond to inquiries of holders of the Shares regarding their ownership of Shares or their accounts with the Trust or who provide other administrative or accounting services not otherwise required to be provided by the Trust's investment adviser, transfer agent, or other agent of the Trust. Notwithstanding the foregoing, if the National Association of Securities Dealers, Inc. (the "NASD") adopts a definition of "service fee" for purposes of Section 26(d) of the NASD Rules of Fair Practice that differs from the definition of shareholder servicing activities in this paragraph, or if the NASD adopts a related definition intended to define the same concept, the definition of shareholder servicing activities in this paragraph shall be automatically amended, without further action of the parties, to conform to such NASD definition. (b) Payments under this Plan are not tied exclusively to the expenses for shareholder servicing activities actually incurred by the Distributor, so that such payments may exceed expenses actually incurred by the Distributor. The Trust's Board of Trustees will evaluate the appropriateness of the Plan and its payment terms on a continuing basis and in doing so will consider all relevant factors, including expenses borne by the Distributor and amounts it receives under the Plan. (c) The Trust's investment adviser and the Distributor may, at their option and in their sole discretion, make payments from their own resources to cover costs of additional shareholder servicing activities. SECTION 5. This Plan shall not take effect with respect to a Portfolio until it has been approved together with any related agreements, by votes of the majority of both (i) the Trustees of the Trust and (ii) the Qualified Trustees, cast in person at a Board of Trustees meeting called for the purpose of voting on this Plan or such agreement. SECTION 6. This Plan shall continue in effect for a period of more than one year after it takes effect only for so long as such continuance is specifically approved at least annually in the manner provided in Section 5 herein for the approval of this Plan. SECTION 7. Any person authorized to direct the disposition of monies paid or payable by the Trust pursuant to this Plan or any related agreement shall provide to the Trustees of the Trust, at least quarterly, a written report of the amounts so expended and the purposes for which such expenditures were made. SECTION 8. This Plan may be terminated at any time with respect to a Portfolio by the vote of a majority of the Qualified Trustees or by vote of a majority of the Portfolio's outstanding Shares. SECTION 9. All agreements with any person relating to implementation of this Plan shall be in writing, and any agreement related to this Plan shall provide (a) that such agreement may be terminated at any time with respect to a Portfolio, without payment of any penalty, by the vote of a majority of the Qualified Trustees or by the vote of shareholders holding a majority of the Portfolio's outstanding Shares, on not more than 60 days written notice to any other party to the agreement; and (b) that such agreement shall terminate automatically in the event of its assignment. SECTION 10. This Plan may not be amended to increase materially the amount of expenses permitted pursuant to Section 2 hereof without the approval of shareholders holding a majority of the outstanding Shares of the applicable Portfolio, and all material amendments to this Plan shall be approved in the manner provided in Section 5 herein for the approval of this Plan. SECTION 11. As used in this Plan, (a) the term "Qualified Trustees" shall mean those Trustees of the Trust who are not interested persons of the Trust, and have no direct or indirect financial interest in the operation of this Plan or any agreements related to it, and (b) the terms "assignment" and "interested person" shall have the respective meanings specified in the 1940 Act and the rules and regulations thereunder, subject to such exemptions as may be granted by the Securities and Exchange Commission. SECTION 12. While this Plan is in effect, the selection and nomination of those Trustees who are not interested persons of the Trust within the meaning of Section 2(a) (19) of the 1940 Act shall be committed to the discretion of the Trustees then in office who are not interested persons of the Trust. SECTION 13 This Plan shall not obligate the Trust or any other party to enter into an agreement with any particular person. SCHEDULE A TO THE DISTRIBUTION AND SERVICE PLAN CLASS A SHARES Pursuant to Section 2, the Trust shall pay the Distributor compensation at which is calculated daily and paid monthly at an annual rate as set forth below.
MAXIMUM AMOUNT OF A MAXIMUM PLAN DISTRIBUTION AND A PLAN DISTRIBUTION SERVICE FEE PAYABLE FOR FUND AND SERVICE FEE SHAREHOLDER SERVICES* ---- ------------------- ----------------------- Aggressive Growth Stock 0.35% 0.25% Emerging Growth Stock 0.35% 0.25% Georgia Tax-Exempt Bond 0.18% 0.15% High Grade Municipal 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 Core Equity 0.25% 0.25% Large Cap Growth Stock 0.35% 0.25% Large Cap Quantitative Equity 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 Core 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% Seix Floating Rate High Income 0.35% 0.25% Seix High Yield 0.25% 0.25% Select Large Cap Growth Stock 0.35% 0.25% Short-Term Bond 0.23% 0.15% Short-Term U.S. Treasury Securities 0.18% 0.15% Small Cap Growth Stock 0.35% 0.25%
MAXIMUM AMOUNT OF A MAXIMUM PLAN DISTRIBUTION AND A PLAN DISTRIBUTION SERVICE FEE PAYABLE FOR FUND AND SERVICE FEE SHAREHOLDER SERVICES* ---- ------------------- ----------------------- 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% Total Return Bond 0.25% 0.25% 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. STI CLASSIC FUNDS DISTRIBUTION AND SERVICE PLAN CLASS B SHARES WHEREAS, STI Classic Funds (the "Trust") is engaged in business as an open-end management investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, the Trustees of the Trust have determined that there is a reasonable likelihood that this Distribution and Service Plan (the "Plan") will benefit the Trust and the owners of the B Shares of the portfolios of the Trust, as now in existence or hereinafter created from time to time (each a "Portfolio"). NOW THEREFORE, the Trustees of the Trust hereby adopt this Plan pursuant to Rule 12b-1 under the 1940 Act. SECTION 1. The Trust has adopted this Plan to enable the Trust to directly or indirectly bear expenses relating to (a) the distribution and sale of B Shares (the "Shares") of the Portfolios and (b) the shareholder servicing of such Shares. SECTION 2. Distribution Activities. (a) The Shares of each Portfolio are authorized to pay the principal underwriter of the Shares (the "Distributor") a total fee in connection with distribution-related services provided in respect of such class, calculated and payable monthly, at the annual rate of .75% of the value of the average daily net assets of such class. The services rendered by the Distributor for which the Distributor is entitled to receive this fee shall be deemed to have been completed at the time of the initial purchase of the Shares taken into account in computing the fee. (b) The fee paid pursuant to this Section 2 may be used by the Distributor to provide initial and ongoing sales compensation to its investment executives and to other broker-dealers in respect of sales of Shares of the applicable Portfolios and to pay for other advertising and promotional expenses in connection with the distribution of the Shares. These advertising and promotional expenses include, by way of example but not way of limitation, costs of printing and mailing prospectuses, statements of additional information and shareholder reports to prospective investors; preparation and distribution of sales literature; advertising of any type; an allocation of overhead and other expenses of the Distributor related to the distribution of the Shares; and payments to, and expenses of, officers, employees or representatives of the Distributor, of other broker-dealers, banks or other financial institutions, and of any other persons who provide support services in connection with the distribution of the Shares, including travel, entertainment, and telephone expenses. (c) Payments under this Section 2 of the Plan are not tied exclusively to the expenses for distribution-related activities actually incurred by the Distributor, so that such payments may exceed expenses actually incurred by the Distributor. The Trust's Board of Trustees will evaluate the appropriateness of the Plan and its payment terms on a continuing basis and in doing so will consider all relevant factors, including expenses borne by the Distributor and amounts it receives under the Plan. (d) The Trust's investment adviser and the Distributor may, at their option and in their sole discretion, make payments from their own resources to cover costs of additional distribution. (e) Notwithstanding anything to the contrary herein, the Distributor shall be paid the accrued fee pursuant to this Section 2 regardless of the Distributor's termination as principal underwriter of the Shares or any termination of the Plan other than a complete termination of the Plan. In addition, the Trust's obligation to pay the fee to the Distributor shall be absolute and unconditional and shall not be subject to any dispute, offset, counterclaim, or defense whatsoever. SECTION 3. Shareholder Servicing Activities. (a) In addition to the amounts set forth in Section 2 above, the Shares of each Portfolio are authorized to pay the Distributor a fee in connection with the personal, ongoing servicing of shareholder accounts of such Shares, calculated and payable monthly, at the annual rate of .25% of the value of the average daily net assets of such class. (b) The service fee payable to the Distributor pursuant to this Section 3 hereof may be used by the Distributor to provide compensation for personal, ongoing servicing and/or maintenance of shareholder accounts with respect to the Shares of the applicable Portfolios. Compensation may be paid by the Distributor, or any portion of the fee may be reallowed, to persons, including employees of the Distributor, and institutions who respond to inquiries of holders of the Shares regarding their ownership of Shares or their accounts with the Trust or who provide other administrative or accounting services not otherwise required to be provided by the Trust's investment adviser, transfer agent, or other agent of the Trust. Notwithstanding the foregoing, if the National Association of Securities Dealers, Inc. (the "NASD") adopts a definition of "service fee" for purposes of Section 26(d) of the NASD Rules of Fair Practice that differs from the definition of shareholder servicing activities in this paragraph, or if the NASD adopts a related definition intended to define the same concept, the definition of shareholder servicing activities in this paragraph shall be automatically amended, without further action of the parties, to conform to such NASD definition. (c) Payments under this Section of the Plan are not tied exclusively to the expenses for shareholder servicing activities actually incurred by the Distributor, so that such payments may exceed expenses actually incurred by the Distributor. The Trust's Board of Trustees will evaluate the appropriateness of the Plan and its payment terms on a continuing basis and in doing so will consider all relevant factors, including expenses borne by the Distributor and amounts it receives under the Plan. (d) The Trust's investment adviser and the Distributor may, at their option and in their sole discretion, make payments from their own resources to cover costs of additional shareholder servicing activities. SECTION 4. This Plan shall not take effect with respect to a Portfolio until it has been approved (a) by a vote of at least a majority of the outstanding voting securities of the Shares of such Portfolio, if adopted after any public offering of the Shares or the sale of such Shares to persons who are not affiliated with the Portfolio, affiliated persons of such persons, promoters of the Portfolio, or affiliated persons of such promoters; and (b) together with any related agreements, by votes of the majority of both (i) the Trustees of the Trust and (ii) the Qualified Trustees, cast in person at a Board of Trustees meeting called for the purpose of voting on this Plan or such agreement. SECTION 5. This Plan shall continue in effect for a period of more than one year after its adoption only so long as such continuance is specifically approved at least annually in the manner provided in Section 4(b) herein for the approval of this Plan. SECTION 6. Any person authorized to direct the disposition of monies paid or payable by the Trust pursuant to this Plan or any related agreement shall provide to the Trustees of the Trust, at last quarterly, a written report of the amounts so expended and the purposes for which such expenditures were made. SECTION 7. This Plan may be terminated at any time with respect to any Portfolio by the vote of a majority of the Qualified Trustees or by a vote of a majority of the Portfolio's outstanding Shares. SECTION 8. All agreements with any person relating to implementation of this Plan shall be in writing, and any agreement related to this Plan shall provide (a) that such agreement may be terminated at any time with respect to any Portfolio, without payment of any penalty, by the vote of a majority of the Qualified Trustees or by the vote of shareholders holding a majority of the Portfolio's outstanding Shares, on not more than 60 days written notice to any other party to the agreement; and (b) that such agreement shall terminate automatically in the event of its assignment. SECTION 9. This Plan may not be amended to increase materially the amount of distribution expenses permitted pursuant to Section 2 hereof without the approval of shareholders holding a majority of the outstanding Shares of the applicable Portfolio, and all material amendments to this Plan shall be approved in the manner provided in Section 4(b) herein for the approval of this Plan. SECTION 10. As used in this Plan, (a) the term "Qualified Trustees" shall mean those Trustees of the Trust who are not interested persons of the Trust, and have no direct or indirect financial interest in the operation of this Plan or any agreements related to it, and (b) the terms "assignment" and "interested person" shall have the respective meanings specified in the 1940 Act and the rules and regulations thereunder, subject to such exemptions as may be granted by the Securities and Exchange Commission. SECTION 11. While this Plan is in effect, the selection and nomination of those Trustees who are not interested persons of the Trust within the meaning of Section 2(a)(19) of the 1940 Act shall be committed to the discretion of the Trustees then in office who are not interested persons of the Trust. SECTION 12. This Plan shall not obligate the Trust or any other party to enter into an agreement with any particular person. STI CLASSIC FUNDS DISTRIBUTION AND SERVICE PLAN C SHARES (FORMERLY, L SHARES) WHEREAS, The STI Classic Funds (the "Trust") is engaged in business as an open-end investment company registered under the Investment Company Act of 1940, as amended ("1940 Act"); and WHEREAS, the Trustees of the Trust have determined that there is a reasonable likelihood that the following Distribution and Service Plan (the "Plan") will benefit the Trust and the owners of the C Shares of the portfolios (the "Shareholders") of the Trust. NOW THEREFORE, the Trustees of the Trust hereby adopt this Plan pursuant to Rule 12b-1 under the 1940 Act and in accordance with the Trust's Rule 18f-3 Multiple Class Plan: SECTION 1. The Trust has adopted this Plan to enable the Trust to directly or indirectly bear expenses related to (a) the distribution and sale of C Shares (collectively, the "Shares") of the portfolios of the Trust, as now in existence or hereinafter created from time to time, (each a "Portfolio"), and (b) the shareholder servicing of such Shares. SECTION 2. Distribution Activities. (a) The Shares of each Portfolio except the Classic Institutional Limited Duration Fund are authorized to pay the principal underwriter of the Shares (the "Distributor") a total fee in connection with distribution-related services provided in respect of such class, calculated and payable monthly, at the annual rate of .75% of the value of the average daily net assets of such class. The Shares of the Classic Institutional Limited Duration Fund are authorized to pay the Distributor a total fee in connection with distribution-related services provided in respect of such class, calculated and payable monthly, at the annual rate of .25% of the value of the average daily net assets of such class. (b) The fee paid pursuant to this Section 2 may be used by the Distributor to provide initial and ongoing sales compensation to its investment executives and to other broker-dealers in respect of sales of Shares of the applicable Portfolios and to pay for other advertising and promotional expenses in connection with the distribution of the Shares. These advertising and promotional expenses include, by way of example but not way of limitation, costs of printing and mailing prospectuses, statements of additional information and shareholder reports to prospective investors; preparation and distribution of sales literature; advertising of any type; an allocation of overhead and other expenses of the Distributor related to the distribution of the Shares; and payments to, and expenses of, officers, employees or representatives of the Distributor, of other broker-dealers, banks or other financial institutions, and of any other persons who provide support services in connection with the distribution of the Shares, including travel, entertainment, and telephone expenses. (c) Payments under this Section of the Plan are not tied exclusively to the expenses for distribution-related activities actually incurred by the Distributor, so that such payments may exceed expenses actually incurred by the Distributor. The Trust's Board of Trustees will evaluate the appropriateness of the Plan and its payment terms on a continuing basis and in doing so will consider all relevant factors, including expenses borne by the Distributor and amounts it receives under the Plan. (d) The Trust's investment adviser and the Distributor may, at their option and in their sole discretion, make payments from their own resources to cover costs of additional distribution. SECTION 3. Shareholder Servicing Activities. (a) In addition to the amounts set forth in Section 2 above, the Shares of each Portfolio are authorized to pay the Distributor a fee in connection with the personal, ongoing servicing of shareholder accounts of such Shares, calculated and payable monthly, at the annual rate of .25% of the value of the average daily net assets of such class. (b) The service fee payable to the Distributor pursuant to this Section 3 hereof may be used by the Distributor to provide compensation for personal, ongoing servicing and/or maintenance of shareholder accounts with respect to the Shares of the applicable Portfolios. Compensation may be paid by the Distributor, or any portion of the fee may be reallowed, to persons, including employees of the Distributor, and institutions who respond to inquiries of holders of the Shares regarding their ownership of Shares or their accounts with the Trust or who provide other administrative or accounting services not otherwise required to be provided by the Trust's investment adviser, transfer agent, or other agent of the Trust. Notwithstanding the foregoing, if the National Association of Securities Dealers, Inc. (the "NASD") adopts a definition of "service fee" for purposes of Section 26(d) of the NASD Rules of Fair Practice that differs from the definition of shareholder servicing activities in this paragraph, or if the NASD adopts a related definition intended to define the same concept, the definition of shareholder servicing activities in this paragraph shall be automatically amended, without further action of the parties, to conform to such NASD definition. (c) Payments under this Section of the Plan are not tied exclusively to the expenses for shareholder servicing activities actually incurred by the Distributor, so that such payments may exceed expenses actually incurred by the Distributor. The Trust's Board of Trustees will evaluate the appropriateness of the Plan and its payment terms on a continuing basis and in doing so will consider all relevant factors, including expenses borne by the Distributor and amounts it receives under the Plan. (d) The Trust's investment adviser and the Distributor may, at their option and in their sole discretion, make payments from their own resources to cover costs of additional shareholder servicing activities. SECTION 4. This Plan shall not take effect with respect to a Portfolio until it has been approved together with any related agreements, by votes of the majority of both (i) the Trustees of the Trust and (ii) the Qualified Trustees, cast in person at a Board of Trustees meeting called for the purpose of voting on this Plan or such agreement. SECTION 5. This Plan shall continue in effect for a period of more than one year after it takes effect only for so long as such continuance is specifically approved at least annually in the manner provided in Section 4 herein for the approval of this Plan. SECTION 6. Any person authorized to direct the disposition of monies paid or payable by the Trust pursuant to this Plan or any related agreement shall provide to the Trustees of the Trust, at last quarterly, a written report of the amounts so expended and the purposes for which such expenditures were made. SECTION 7. This Plan may be terminated at any time with respect to any Portfolio by the vote of a majority of the Qualified Trustees or by a vote of a majority of the Portfolio's outstanding Shares. SECTION 8. All agreements with any person relating to implementation of this Plan shall be in writing, and any agreement related to this Plan shall provide (a) that such agreement may be terminated at any time with respect to any Portfolio, without payment of any penalty, by the vote of a majority of the Qualified Trustees or by the vote of shareholders holding a majority of the Portfolio's outstanding Shares, on not more than 60 days written notice to any other party to the agreement; and (b) that such agreement shall terminate automatically in the event of its assignment. SECTION 9. This Plan may not be amended to increase materially the amount of distribution expenses permitted pursuant to Section 2 hereof without the approval of shareholders holding a majority of the outstanding Shares of the applicable Portfolio, and all material amendments to this Plan shall be approved in the manner provided in Section 4 herein for the approval of this Plan. SECTION 10. As used in this Plan, (a) the term "Qualified Trustees" shall mean those Trustees of the Trust who are not interested persons of the Trust, and have no direct or indirect financial interest in the operation of this Plan or any agreements related to it, and (b) the terms "assignment" and "interested person" shall have the respective meanings specified in the 1940 Act and the rules and regulations thereunder, subject to such exemptions as may be granted by the SEC. SECTION 11. While this Plan is in effect, the selection and nomination of those Trustees who are not interested persons of the Trust within the meaning of Section 2(a)(19) of the 1940 Act shall be committed to the discretion of the Trustees then in office who are not interested persons of the Trust. SECTION 12. This Plan shall not obligate the Trust or any other party to enter into an agreement with any particular person. SCHEDULE C TO THE DISTRIBUTION AGREEMENT BETWEEN STI CLASSIC FUNDS AND BISYS FUND SERVICES LIMITED PARTNERSHIP COMPENSATION OF THE DISTRIBUTOR 1. BASIC DISTRIBUTION SERVICES. For providing the distribution entity and related infrastructure and platform, including requisite registrations and qualifications, premises, personnel, compliance, ordinary fund board meeting preparation, maintenance of selling agreements, clearance of advertising and sales literature with regulators, filing appropriate documentation for advisory representatives to qualify as registered representatives of the Distributor (provided that the Adviser is solely responsible for its representatives' meeting examination requirements) and their related registrations and fees, ordinary supervisory services, overhead, Financial Research Corporation's Mutual Fund Views on the News and Monitor publications, and return on investment, the Distributor shall be entitled to receive an annual fee of $37,500 (the "Basic Services Fee"), billed monthly; provided, however, that as long as Distributor or an affiliate of Distributor continues to perform services under that certain Master Services Agreement dated July 1, 2004 between BISYS Fund Services Ohio, Inc. and the Trust, Distributor will waive the Basic Services Fee. 2. ADDITIONAL DISTRIBUTION SERVICES. The Distributor will provide the following additional distribution services: (i) marketing and distribution strategy and consulting services; (ii) resource management and consultation; and (iii) product analysis and product development assistance. For providing the additional services listed in this Section 2, the Distributor shall receive an annual retainer in an amount mutually agreed by the parties, which amount as of the date of this Agreement is expected to be approximately $75,000. Such agreed-upon amount will be billed monthly. 3. SPECIAL CONDUIT SITUATIONS. If the Distribution Plan, or any other Fund plans of distribution under Rule 12b-1 that contemplate up front and/or recurring commission and/or service payments to broker dealers, retirement plan administrators or others by the Distributor with respect to back-end loads, level loads, or otherwise, unless expressly agreed otherwise in writing between the parties, all such payments shall be made to the Distributor, which shall act as a conduit for making such payments to such broker-dealers, retirement plan administrators or others. 4. OTHER PAYMENTS BY THE DISTRIBUTOR. If the Distributor is required to make any payments to third parties in respect of distribution, which payments are contemplated by the parties to the distribution agreement or authorized under the Distribution Plan, the Distributor shall be promptly reimbursed for such payments upon invoicing them. SCHEDULE D TO THE DISTRIBUTION AGREEMENT BETWEEN STI CLASSIC FUNDS AND BISYS FUND SERVICES LIMITED PARTNERSHIP SPECIAL DISTRIBUTION SERVICES AND FEES
SERVICES FEES - -------- ---- 1. WHOLESALING PERSONNEL SERVICES WHOLESALING PERSONNEL SERVICES FEES Wholesaling Personnel may be external For each individual constituting the wholesalers and/or internal Wholesaling Personnel employed by the wholesalers. Distributor pursuant to this Agreement, the Distributor shall receive annually Services include soliciting support an amount equal to the sum of: of the Funds with selling broker dealers; participating in promotional (i) all compensation paid annually by meetings, presentations, the Distributor to the employee; plus conferences and other and forums; identifying high potential personnel (ii) a management oversight fee equal of the Adviser and selling broker to: dealers; and assisting with mail solicitations and literature (a) if one to four Wholesaling fulfillment. Personnel are employed, 30% of the salary compensation and 5% of the bonus or commission compensation, or The Wholesaling Personnel Services described on this Schedule D will be (b) if five or more Wholesaling provided only upon the written Personnel are employed, 25% of election of the Trust to receive such the salary compensation and 5% services. of the bonus or commission compensation; plus (iii) 18% of the total compensation (covering costs of the Distributor's employee benefits that are provided by the Distributor). In addition, the Distributor shall be reimbursed for all related costs to support, educate and train and maintain compliance oversight of Wholesaling Personnel and other personnel such as sales management, marketing and performance reporting personnel (including time and expenses, continuing education, seminars, rent, supplies, phone, computers, firm element, license, registration) Upon any termination of Wholesaling Personnel at the request of the Funds or upon termination of this Agreement by the Funds for any reason other than cause, the Distributor will be reimbursed its severance costs with respect to such terminated Wholesaling Personnel.
2. MARKETING AND RELATED SERVICES MARKETING AND RELATED SERVICES FEES Marketing Execution: services include Marketing Execution: identification and development of appropriate marketing and Quote available upon request. communications programs, projects and other initiatives; collaboration on initiating, researching, developing, and delivering appropriate sales and marketing materials; and management of marketing and advertising projects. Performance Reporting: services Performance Reporting: include creation of templates for monthly fact sheets and quarterly As mutually agreed. fact sheets; populating templates with performance data obtained from third parties; and coordinating steps needed for final printing and distribution. Creative Communication and Editorial Creative Communication and Editorial Services: services include preparing Services drafts of textual commentary and management discussion and analysis Quote available upon request. for annual; and semi-annual reports, including portfolio manager interviews; providing creative design and direction; and coordinating production, including typesetting (initial composition and changes to composition), charts and ancillary items. Production Timing: - - No timing guarantees can be made for completion of monthly and quarterly fact sheets where any of the information needed to produce the reports is generated by service providers other than the Distributor. However, a basic estimate of turnaround time may be given based upon when the unit receives all necessary data in good order. Under normal conditions, the Performance Reporting unit expects to make proofs ready for review (either printed or electronic PDF format) by the 4th business day after the final piece of data is received. If compliance review is necessary (e.g., when Morningstar ratings data is used) an additional 2 days may be required for review. - - Printing turnaround (once the factsheets are signed-off by the client) is usually approximately 4-5 calendar days with most jobs shipping by the 5th day. - - If requested, final electronic PDF files may be generated and e-mailed on the day the job is signed-off on by the client. These PDFs may be distributed and printed as necessary until the final printed pieces arrive.
3. FRC SERVICES FRC SERVICES FEES FRC's program components include: Market Analytics Publications: Quote available upon request. - - Market Analytics Publications Advanced Research Publications: - - Advanced Research Publications - Topic Briefs - - Analyst Support - FRC Focus (typical cost is - - SME Direct Access approximately $1,500) The Trust acknowledges that certain White Papers - FRC Vision (typical FRC publications may be provided only cost is approximately $2,500) to parties that have entered into a written agreement or addendum that - Research Studies (costs vary, sets forth the terms of use of such however typically range between publications and the associated fee. $3,500 and $12,500) The Trust will notify the Distributor whether the Trust or the Adviser or Analyst Support: Quote available upon both will enter into such an request agreement or addendum. The Trust acknowledges that if only one of the SME Direct Access: Quote available upon Trust or the Adviser enters into such request agreement or addendum, the other party will be prohibited from Other FRC Fees: receiving or using such publications. - Client participation in funding FRC Franchise Level program: $12,500 - All subsequent content and support hours may be purchased at a 20% discount from standard pricing.
Expenses Applicable to Special Distribution Services Except as expressly set forth above, out-of-pocket expenses incurred by Distributor in the performance of the special distribution services set forth on this Schedule D are not included in the above fees. Reimbursement of such out-of-pocket expenses will be mutually agreed upon by the parties. Out-of-pocket expenses may include, without limitation: - - reasonable travel and entertainment costs; - - expenses incurred by the Distributor in qualifying, registering and maintaining the registration of the Distributor and each individual comprising Wholesaling Personnel as a registered representative of the Distributor under applicable federal and state laws and rules of the NASD, e.g., CRD fees and state fees; - - Sponsorships, Promotions, Sales Incentives; - - any and all compensation to be paid to a third party as paying agent for distribution activities (platform fees, finders fees, sub-TA fees, 12b-1 pass thru, commissions, etc.); - - costs and expenses incurred for telephone service, photocopying and office supplies; - - advertising costs; - - costs for printing, paper stock and costs of other materials, electronic transmission, courier, talent utilized in sales materials (e.g. models), design output, photostats, photography, and illustrations; - - packaging, shipping, postage, and photocopies; and - - taxes that are paid or payable by the Distributor or its affiliates in connection with its services hereunder, other than taxes customarily and actually imposed upon the income that the Distributor receives hereunder. EX-99.P.1 5 l26347aexv99wpw1.txt EX-99(P)(1) EXHIBIT (P)(1) (TRUSCO CAPITAL MANAGEMENT LOGO) (STI CLASSIC FUNDS LOGO) INVESTMENT COMPANY ACT OF 1940 CODE OF ETHICS Investment Company Act of 1940 CODE OF ETHICS While affirming its confidence in the integrity and good faith of all of its officers and trustees, STI Classic Funds and STI Classic Variable Trusts (collectively the "Trusts"), recognize that the knowledge of present or future portfolio transactions and, in certain instances, the power to influence portfolio transactions which may be possessed by certain of their officers, employees and trustees could place such individuals, if they engage in personal transactions in securities which are eligible for investment by a Trust, in a position where their personal interest may conflict with that of the Trusts. In view of the foregoing and in compliance with the provisions of the Investment Company Act of 1940 (the "1940 Act") Rule 17j-1(b)(1) as amended, the Trusts hereby adopt this Code of Ethics to specify and prohibit certain types of transactions deemed to create conflicts of interest (or at least the potential for or the appearance of such a conflict), and to establish reporting requirements and enforcement procedures. PLEASE NOTE: SECTION II REFERENCES THE DEFINITIONS AS RELATED TO ACCESS PERSONS AND SECTION III REFERENCES THE DEFINITIONS AS RELATED TO INTERESTED PERSONS. I. STATEMENT OF PRINCIPLES The Trusts' primary responsibility has always been and will continue to be the protection of shareholder assets. The primary responsibility of each of the Trusts' trustees, officers, investment personnel, and designated "access persons" (as defined under Section II(a)(1)) is to carry out his or her duties in an ethical and diligent manner that is designed to comply with all regulations and protect and enhance shareholder assets and relationships. Furthermore, each individual is expected to apply the same principles and moral codes in all personal and social pursuits. Individuals are expected to uphold the highest standards of business and personal integrity at all times and without exception. Violations of any regulations, policies and procedures, will not be taken lightly and ignorance of the requirements or poor memory retention are insufficient excuses. All violations will be addressed and resolved by senior compliance and business management (as deemed appropriate) as quickly and effectively as possible. COE Revisions 1 010107 (TRUSCO CAPITAL MANAGEMENT LOGO) (STI CLASSIC FUNDS LOGO) The Chief Compliance Officer is now held responsible and liable for implementing and supervising policies and procedures. In addition, the SEC and other regulators require proof that any policy or procedure violations carry the appropriate penalty actions. Such actions may include but are not limited to: personal trading restrictions, loss of salary/bonus/general compensation, fines, suspension, termination, criminal and/or civil legal actions. In recognition of the trust and confidence placed in the Trusts by their shareholders, and to give effect to the Trusts' belief that its operations should be directed to the benefit of its shareholders, the Trusts hereby adopt the following general principles to guide the actions of their trustees, officers, investment personnel, employees and access persons. 1. The interests of the Trusts' shareholders are paramount, and all Trusts' trustees, officers, investment personnel, access persons and others who are in any way entrusted with the interests of shareholders must conduct themselves and their operations in such a manner that will give maximum effect to these principles by assiduously placing the interests of shareholders before their own. 2. All Trusts' trustees, officers, investment personnel, access persons and others who are in any way entrusted with the interests of shareholders are required to immediately report any violations of this code to the Chief Compliance Officer. 3. All Trusts' trustees, officers, investment personnel, access persons and others who are in any way entrusted with the interests of shareholders are required to comply with applicable Federal Securities Laws. 4. All personal transactions in securities by access persons (as defined under Section II (1)) must be accomplished so as to avoid even the appearance of a conflict of interest with the general interests of the Trusts and their shareholders. 5. All Trusts' access persons must avoid actions or activities that allow (or appear to allow) a person to profit or benefit from his or her position with respect to the Trusts, or that otherwise bring into question the person's independence or judgment. 6. Market timing abuse in any/all mutual funds regardless of whether the funds are managed by the Adviser, an Adviser affiliate, or a non-affiliated entity is strictly prohibited. II. PERSONAL TRADING RELATED DEFINITIONS FOR ACCESS PERSONS (a) DEFINITIONS. For purposes of this section: COE Revisions 2 010107 (TRUSCO CAPITAL MANAGEMENT LOGO) (STI CLASSIC FUNDS LOGO) (1) ACCESS PERSON means: (i) Any Advisory Person of a Fund or of a Fund's investment adviser. If an investment adviser's primary business is advising Funds or other advisory clients, all of the investment adviser's directors, officers, and general partners are presumed to be Access Persons of any Fund advised by the investment adviser. (ii) Any director, officer or general partner of a principal underwriter who, in the ordinary course of business, makes, participates in or obtains information regarding, the purchase or sale of Covered Securities by the Fund for which the principal underwriter acts, or whose functions or duties in the ordinary course of business relate to the making of any recommendation to the Fund regarding the purchase or sale of Covered Securities. (2) Beneficial Ownership of a security is generally determined in the same manner as it is for purposes of Section 16 of the Securities Exchange Act of 1934. Any director, officer, general partner or employee of the Fund is considered to have beneficial ownership of securities in which they have any direct or indirect pecuniary interest; which is the opportunity to profit directly or indirectly from a transaction in securities. Thus, you may be deemed to have Beneficial Ownership of securities held by members of your immediate household (i.e., spouse and children), or by certain partnerships, trusts or other arrangements. (3) Blackout Period is a period during which Access Persons may not execute personal transactions because Adviser is or may be trading in the same or similar securities. Adviser's Blackout Period is three (3) days and applies to Covered Security Transactions. This means no Access Person shall purchase or sell any Covered Security within at least three (3) business days before and after the same security is being purchased or sold on behalf of Clients. (4) Advisory Person of a Fund or of a Fund's investment adviser means: (i) Any director, officer, general partner or employee of the Fund or investment adviser (or of any company in a control relationship to the Fund or investment adviser) who, in connection with his or her regular functions or duties, makes, participates in, or obtains information regarding, the purchase or sale of Covered Securities by a Fund, or whose functions relate to the making of any recommendations with respect to such purchases or sales; and (ii) Any natural person in a control relationship to the Fund or investment adviser who obtains information concerning recommendations made to the Fund with regard to the purchase or sale of Covered Securities by the Fund. (5) Control has the same meaning as in section 2(a)(9) of the Act [15 U.S.C. 80a-2(a)(9)]. (6) Covered Security means a security as defined in section 2(a)(36) of the Act [15 U.S.C. 80a-2(a)(36)], The term "Covered Security" is very broad and includes instruments which you may not think of as "securities," such as: - Options on securities, indexes and currencies - Investments on limited partnerships COE Revisions 3 010107 (TRUSCO CAPITAL MANAGEMENT LOGO) (STI CLASSIC FUNDS LOGO) - Exchange Traded Funds (ETFs), closed end funds, foreign mutual funds and foreign unit trusts - Private investment funds, hedge funds, and investment clubs - Proprietary mutual funds which are funds managed by the Adviser or any other SunTrust Banks Inc. (STI) affiliates. The STI Classic Mutual Funds are an example of a proprietary fund. - Non-proprietary mutual funds that are advised or sub-advised by the Adviser The definition for Covered Security does not include: - Direct obligations of the U.S. government (e.g., treasury securities) - Bankers' acceptances, bank certificates of deposit, commercial paper, and high quality short-term debt obligations, including repurchase agreements - Money market funds - Shares of open-end mutual funds other than those that are advised or sub-advised by the Adviser NOTE: Investments not considered Covered Securities do not need to be reported to the Adviser. However, personal securities accounts which hold or could hold Covered Securities do need to be reported. (7) Holding Period means that short term trading in all Covered Securities is prohibited for Access Persons. In general, all transactions must be held for a period of sixty (60) days or more. This includes options and futures transactions. (8) Fund means an investment company registered under the Investment Company Act. (9) An Initial Public Offering means an offering of securities registered under the Securities Act of 1933 [15 U.S.C. 77a], the issuer of which, immediately before the registration, was not subject to the reporting requirements of sections 13 or 15(d) of the Securities Exchange Act of 1934 [15 U.S.C. 78m or 78o(d)]. (10) Market Timing is excessive short term trading in mutual funds. Such activities can be detrimental to long-term fund shareholders, and consequently, fund companies must maintain policies and procedures to detect and prevent market timing abuses and other short-term trading. (11) Private Placement is an offering of stock or bond that is exempt from registration under the Securities Act of 1933 pursuant to section 4(2) or Section 4(6) in the Securities Act of 1933. This definition relates to the purchase and/or sale of securities by an Access Person. (12) Review Officer is an individual selected by the Adviser to administer this code. COE Revisions 4 010107 (TRUSCO CAPITAL MANAGEMENT LOGO) (STI CLASSIC FUNDS LOGO) (13) Investment Personnel of a Fund or of a Fund's investment adviser means: (i) Any employee of the Fund or investment adviser (or of any company in a control relationship to the Fund or investment adviser) who, in connection with his or her regular functions or duties, makes or participates in making recommendations regarding the purchase or sale of securities by the Fund. (ii) Any natural person who controls the Fund or investment adviser and who obtains information concerning recommendations made to the Fund regarding the purchase or sale of securities by the Fund. (14) A Limited Offering means an offering that is exempt from registration under the Securities Act of 1933 pursuant to section 4(2) or section 4(6) [15 U.S.C. 77d(2) or 77d(6)] or pursuant to rule 504, rule 505, or rule 506 [17 CFR 230.504, 230.505, or 230.506] under the Securities Act of 1933. (15) Purchase or sale of a Covered Security includes, among other things, the writing of an option to purchase or sell a Covered Security. (16) Security Held or to be Acquired by a Fund means: (i) Any Covered Security which, within the most recent 15 days: (A) Is or has been held by the Fund; or (B) Is being or has been considered by the Fund or its investment adviser for purchase by the Fund; and (ii) Any option to purchase or sell, and any security convertible into or exchangeable for, a Covered Security described in paragraph (a)(10)(i) of this section. (17) Automatic Investment Plan means a program in which regular periodic purchases (or withdrawals) are made automatically in (or from) investment accounts in accordance with a predetermined schedule and allocation. An Automatic Investment Plan includes a dividend reinvestment plan. (b) Unlawful Actions. It is unlawful for any affiliated person of or principal underwriter for a Fund, or any affiliated person of an investment adviser of or principal underwriter for a Fund, in connection with the purchase or sale, directly or indirectly, by the person of a Security Held or to be Acquired by the Fund: (1) To employ any device, scheme or artifice to defraud the Fund; (2) To make any untrue statement of a material fact to the Fund or omit to state a material fact necessary in order to make the statements made to the Fund, in light of the circumstances under which they are made, not misleading; (3) To engage in any act, practice or course of business that operates or would operate as a fraud or deceit on the Fund; or (4) To engage in any manipulative practice with respect to the Fund. COE Revisions 5 010107 (TRUSCO CAPITAL MANAGEMENT LOGO) (STI CLASSIC FUNDS LOGO) (c) Code of Ethics--(1) Adoption and Approval of Code of Ethics. (i) Every Fund (other than a money market fund or a Fund that does not invest in Covered Securities) and each investment adviser of and principal underwriter for the Fund, must adopt a written code of ethics containing provisions reasonably necessary to prevent its Access Persons from engaging in any conduct prohibited by paragraph (b) of this section. (ii) The board of directors of a Fund, including a majority of directors who are not interested persons, must approve the code of ethics of the Fund, the code of ethics of each investment adviser and principal underwriter of the Fund, and any material changes to these codes. The board must base its approval of a code and any material changes to the code on a determination that the code contains provisions reasonably necessary to prevent Access Persons from engaging in any conduct prohibited by paragraph (b) of this section. Before approving a code of a Fund, investment adviser or principal underwriter or any amendment to the code, the board of directors must receive a certification from the Fund, investment adviser or principal underwriter that it has adopted procedures reasonably necessary to prevent Access Persons from violating the Fund's, investment adviser's, or principal underwriter's code of ethics. The Fund's board must approve the code of an investment adviser or principal underwriter before initially retaining the services of the investment adviser or principal underwriter. The Fund's board must approve a material change to a code no later than six months after adoption of the material change. (iii) If a Fund is a unit investment trust, the Fund's principal underwriter or depositor must approve the Fund's code of ethics, as required by paragraph (c)(1)(ii) of this section. If the Fund has more than one principal underwriter or depositor, the principal underwriters and depositors may designate, in writing, which principal underwriter or depositor must conduct the approval required by paragraph (c)(1)(ii) of this section, if they obtain written consent from the designated principal underwriter or depositor. (2) Administration of Code of Ethics. (i) The Fund, investment adviser and principal underwriter must use reasonable diligence and institute procedures reasonably necessary to prevent violations of its code of ethics. (ii) No less frequently than annually, every Fund (other than a unit investment trust) and its investment advisers and principal underwriters must furnish to the Fund's board of directors, and the board of directors must consider, a written report that: (A) Describes any issues arising under the code of ethics or procedures since the last report to the board of directors, including, but not limited to, information about material violations of the code or procedures and sanctions imposed in response to the material violations; and (B) Certifies that the Fund, investment adviser or principal underwriter, as applicable, has adopted procedures reasonably necessary to prevent Access Persons from violating the code. (3) Exception for Principal Underwriters. The requirements of paragraphs (c)(1) and (c)(2) of this section do not apply to any principal underwriter unless: (i) The principal underwriter is an affiliated person of the Fund or of the Fund's investment adviser; or COE Revisions 6 010107 (TRUSCO CAPITAL MANAGEMENT LOGO) (STI CLASSIC FUNDS LOGO) (ii) An officer, director or general partner of the principal underwriter serves as an officer, director or general partner of the Fund or of the Fund's investment adviser. (d) Reporting Requirements of Access Persons--1) Reports Required. Unless excepted by paragraph (d)(2) of this section, every Access Person of a Fund (other than a money market fund or a Fund that does not invest in Covered Securities) and every Access Person of an investment adviser of or principal underwriter for the Fund, must report to that Fund, investment adviser or principal underwriter: (i) Initial Holdings Reports. No later than 10 days after the person becomes an Access Person (which information must be current as of a date no more than 45 days prior to the date the person becomes an Access Person): (A) The title, number of shares and principal amount of each Covered Security in which the Access Person had any direct or indirect beneficial ownership when the person became an Access Person; (B) The name of any broker, dealer or bank with whom the Access Person maintained an account in which any securities were held for the direct or indirect benefit of the Access Person as of the date the person became an Access Person; and (C) The date that the report is submitted by the Access Person. (ii) Quarterly Transaction Reports. No later than 20 days after the end of a calendar quarter, the following information: (A) With respect to any transaction during the quarter in a Covered Security in which the Access Person had any direct or indirect beneficial ownership: (1) The date of the transaction, the title, the interest rate and maturity date (if applicable), the number of shares or the principal amount of each Covered Security involved; (2) The nature of the transaction (i.e., purchase, sale or any other type of acquisition or disposition); (3) The price of the Covered Security at which the transaction was effected; (4) The name of the broker, dealer or bank with or through which the transaction was effected; and (5) The date that the report is submitted by the Access Person. (B) With respect to any account established by the Access Person in which any securities were held during the quarter for the direct or indirect benefit of the Access Person: (1) The name of the broker, dealer or bank with which the Access Person established the account; (2) The date the account was established; and (3) The date that the report is submitted by the Access Person. COE Revisions 7 010107 (TRUSCO CAPITAL MANAGEMENT LOGO) (STI CLASSIC FUNDS LOGO) (iii) Annual Holdings Reports. Annually, the following information (which information must be current as of a date no more than 45 days before the report is submitted): (A) The title, number of shares or principal amount of each Covered Security in which the Access Person had any direct or indirect beneficial ownership; (B) The name of any broker, dealer or bank with whom the Access Person maintains an account in which any securities are held for the direct or indirect benefit of the Access Person; and (C) The date that the report is submitted by the Access Person. (2) Exceptions from Reporting Requirements. (i) A person need not make a report under paragraph (d)(1) of this section with respect to transactions effected for, and Covered Securities held in, any account over which the person has no direct or indirect influence or control. (ii) A director of a Fund who is not an "interested person" of the Fund within the meaning of section 2(a)(19) of the Act [15 U.S.C. 80a-2(a)(19)], and who would be required to make a report solely by reason of being a Fund director, need not make: (A) An initial holdings report under paragraph (d)(1)(i) of this section and an annual holdings report under paragraph (d)(1)(iii) of this section; and (B) A quarterly transaction report under paragraph (d)(1)(ii) of this section, unless the director knew or, in the ordinary course of fulfilling his or her official duties as a Fund director, should have known that during the 15-day period immediately before or after the director's transaction in a Covered Security, the Fund purchased or sold the Covered Security, or the Fund or its investment adviser considered purchasing or selling the Covered Security. (iii) An Access Person to a Fund's principal underwriter need not make a report to the principal underwriter under paragraph (d)(1) of this section if: (A) The principal underwriter is not an affiliated person of the Fund (unless the Fund is a unit investment trust) or any investment adviser of the Fund; and (B) The principal underwriter has no officer, director or general partner who serves as an officer, director or general partner of the Fund or of any investment adviser of the Fund. (iv) An Access Person to an investment adviser need not make a separate report to the investment adviser under paragraph (d)(1) of this section to the extent the information in the report would duplicate information required to be recorded under Section 275.204-2(a)(13) of this chapter. (v) An Access Person need not make a quarterly transaction report under paragraph (d)(1)(ii) of this section if the report would duplicate information contained in broker trade confirmations or account statements received by the Fund, investment adviser or principal underwriter with respect to the Access Person in the time period required by paragraph (d)(1)(ii), if all of the information required by that paragraph is contained in the broker trade confirmations or account statements, or in the records of the Fund, investment adviser or principal underwriter. COE Revisions 8 010107 (TRUSCO CAPITAL MANAGEMENT LOGO) (STI CLASSIC FUNDS LOGO) (vi) An Access Person need not make a quarterly transaction report under paragraph (d)(1)(ii) of this section with respect to transactions effected pursuant to an Automatic Investment Plan. (3) Review of Reports. Each Fund, investment adviser and principal underwriter to which reports are required to be made by paragraph (d)(1) of this section must institute procedures by which appropriate management or compliance personnel review these reports. (4) Notification of Reporting Obligation. Each Fund, investment adviser and principal underwriter to which reports are required to be made by paragraph (d)(1) of this section must identify all Access Persons who are required to make these reports and must inform those Access Persons of their reporting obligation. (5) Beneficial Ownership. For purposes of this section, beneficial ownership is interpreted in the same manner as it would be under Section 240.16a-1(a)(2) of this chapter in determining whether a person is the beneficial owner of a security for purposes of section 16 of the Securities Exchange Act of 1934 [15 U.S.C. 78p] and the rules and regulations thereunder. Any report required by paragraph (d) of this section may contain a statement that the report will not be construed as an admission that the person making the report has any direct or indirect beneficial ownership in the Covered Security to which the report relates. (e) Pre-approval of Investments in IPOs and Limited Offerings. Investment Personnel of a Fund or its investment adviser must obtain approval from the Fund or the Fund's investment adviser before directly or indirectly acquiring beneficial ownership in any securities in an Initial Public Offering or in a Limited Offering. (f) Recordkeeping Requirements. (1) Each Fund, investment adviser and principal underwriter that is required to adopt a code of ethics or to which reports are required to be made by Access Persons must, at its principal place of business, maintain records in the manner and to the extent set out in this paragraph (f), and must make these records available to the Commission or any representative of the Commission at any time and from time to time for reasonable periodic, special or other examination: (A) A copy of each code of ethics for the organization that is in effect, or at any time within the past five years was in effect, must be maintained in an easily accessible place; (B) A record of any violation of the code of ethics, and of any action taken as a result of the violation, must be maintained in an easily accessible place for at least five years after the end of the fiscal year in which the violation occurs; (C) A copy of each report made by an Access Person as required by this section, including any information provided in lieu of the reports under paragraph (d)(2)(v) of this section, must be maintained for at least five years after the end of the fiscal year in which the report is made or the information is provided, the first two years in an easily accessible place; (D) A record of all persons, currently or within the past five years, who are or were required to make reports under paragraph (d) of this section, or who are or were responsible for reviewing these reports, must be maintained in an easily accessible place; and COE Revisions 9 010107 (TRUSCO CAPITAL MANAGEMENT LOGO) (STI CLASSIC FUNDS LOGO) (E) A copy of each report required by paragraph (c)(2)(ii) of this section must be maintained for at least five years after the end of the fiscal year in which it is made, the first two years in an easily accessible place. (2) A Fund or investment adviser must maintain a record of any decision, and the reasons supporting the decision, to approve the acquisition by investment personnel of securities under paragraph (e), for at least five years after the end of the fiscal year in which the approval is granted. III. PERSONAL TRADING DEFINITIONS FOR INTERESTED PARTIES AND TRUSTEES (1) DIRECTOR means any director of a corporation or any person forming similar functions with respect to any organization, whether incorporated or unincorporated, including any natural person who is a member of a board of trustees of a management company created as a common law trust. (2) INTERESTED PERSON of another person means-- (A) when used with respect to an investment company -- (i) any affiliated person of such company, (ii) any member of the immediate family of any natural person who is an affiliated person of such company, (iii) any person or partner or employee of a person (other than a registered investment company) that, at the any time during the 6-month period preceding the date of the determination of whether that person or affiliated person is an interested person, has executed any portfolio transactions with, or distributed shares for - (a) the investment company; (b) any other investment company having the same adviser as such investment company or holding itself out to investors as a related company for purposes of investment or investment services; or (c) any account which the investment company's investment adviser has brokerage placement discretion, (vi) any person or any affiliated person of a person (other than a registered investment company) that, at any time during the 6-month period preceding the date of the determination of whether that person or affiliated person is an interested person, has loaned money or other property to; COE Revisions 10 010107 (TRUSCO CAPITAL MANAGEMENT LOGO) (STI CLASSIC FUNDS LOGO) (a) the investment company; (b) any other investment company having the same investment adviser as such investment company or holding itself out to investors as a related company for purposes of investment or investor services; or (c) any account for which the investment company's investment adviser has borrowing authority, (vii) any natural person whom the Commission by order shall have determined to be an interested person by reason of having had, at any time since the beginning of the last two years completed fiscal years of such company, a material business or professional relationship with such company or with any other investment company having the same investment adviser or principal underwriter or with the principal executive officer of such investment company: Provided, that no person shall be deemed to be an interested person of an investment company solely by reason of (aa) their being a member of its board of directors or advisory board or an owner of its securities, or (bb) their membership in the immediate family of any person specified in clause (aa) of this proviso. (3) ACCESS PERSON means: (i) Any Advisory Person of a Fund or of a Fund's investment adviser. If an investment adviser's primary business is advising Funds or other advisory clients, all of the investment adviser's directors, officers, and general partners are presumed to be Access Persons of any Fund advised by the investment adviser. All of a Fund's directors, officers, and general partners are presumed to be Access Persons of the Fund. a. If an investment adviser is primarily engaged in a business or businesses other than advising Funds or other advisory clients, the term Access Persons means any director, officer, general partner or Advisory Person of the investment adviser who, with respect to any Fund, makes any recommendation, participates in the determination of which recommendation will be made, or whose principal function or duties relate to the determination of which recommendation will be made, or who, in connection with his or her duties, obtains any information concerning recommendations on Covered Securities being made by the investment adviser to any Fund. b. An investment adviser is "primarily engaged in a business or businesses other than advising Funds or other advisory clients" if, for each of its most recent three fiscal years or for the period of time since its organization, whichever is less, the investment adviser derived, on an unconsolidated basis, more than 50 percent of its total sales and revenues and more than 50 percent of its income (or loss), before income taxes and extraordinary items, from other business or businesses. (ii) Any director, officer or general partner of a principal underwriter who, in the ordinary course of business, makes, participates in or obtains information regarding, the purchase or sale of Covered Securities by the Fund for which the principal underwriter acts, or whose functions or duties in the ordinary course of business relate to the making of any recommendation to the Fund regarding the purchase or sale of Covered Securities. COE Revisions 11 010107 (TRUSCO CAPITAL MANAGEMENT LOGO) (STI CLASSIC FUNDS LOGO) (4) ADVISORY PERSON of a Fund or of a Fund's investment adviser means: (i) Any director, officer, general partner or employee of the Fund or investment adviser (or of any company in a control relationship to the Fund or investment adviser) who, in connection with his or her regular functions or duties, makes, participates in, or obtains information regarding, the purchase or sale of Covered Securities by a Fund, or whose functions relate to the making of any recommendations with respect to such purchases or sales; and (ii) Any natural person in a control relationship to the Fund or investment adviser who obtains information concerning recommendations made to the Fund with regard to the purchase or sale of Covered Securities by the Fund. (5) Control has the same meaning as in section 2(a)(9) of the Act [15 U.S.C. 80a-2(a)(9)]. (6) Covered Security means a security as defined in section 2(a)(36) of the Act [15 U.S.C. 80a-2(a)(36)], The term covered security is very broad and includes instruments which you may not think of as "securities," such as: - Options on securities indexes and currencies - Investments on limited partnerships - Exchange Traded Funds (ETFs), closed end funds, foreign mutual funds and foreign unit trusts - Private investment funds, hedge funds, and investment clubs - Proprietary mutual funds which are funds managed by the Adviser or any other Sun Trust Banks Inc. (STI) affiliate. The STI Classic Mutual Funds are an example of a proprietary fund. The definition for Covered Security does not include: - Direct obligations of the U.S. government (e.g., treasury securities) - Bankers' acceptances, bank certificates of deposit, commercial paper, and high quality short-term debt obligations, including repurchase agreements - Money market funds - Shares of open-end mutual funds other than those that are advised or sub-advised by the Adviser NOTE: Investments not considered Covered Securities do not need to be reported to the Adviser. However, personal securities accounts which hold or could hold Covered Securities do need to be reported. (7) Fund means an investment company registered under the Investment Company Act. COE Revisions 12 010107 (TRUSCO CAPITAL MANAGEMENT LOGO) (STI CLASSIC FUNDS LOGO) (8) An Initial Public Offering means an offering of securities registered under the Securities Act of 1933 [15 U.S.C. 77a], the issuer of which, immediately before the registration, was not subject to the reporting requirements of sections 13 or 15(d) of the Securities Exchange Act of 1934 [15 U.S.C. 78m or 78o(d)]. (9) Investment Personnel of a Fund or of a Fund's investment adviser means: (i) Any employee of the Fund or investment adviser (or of any company in a control relationship to the Fund or investment adviser) who, in connection with his or her regular functions or duties, makes or participates in making recommendations regarding the purchase or sale of securities by the Fund. (ii) Any natural person who controls the Fund or investment adviser and who obtains information concerning recommendations made to the Fund regarding the purchase or sale of securities by the Fund. (10) A Limited Offering means an offering that is exempt from registration under the Securities Act of 1933 pursuant to section 4(2) or section 4(6) [15 U.S.C. 77d(2) or 77d(6)] or pursuant to rule 504, rule 505, or rule 506 [17 CFR 230.504, 230.505, or 230.506] under the Securities Act of 1933. (11) Purchase or sale of a Covered Security includes, among other things, the writing of an option to purchase or sell a Covered Security. (10) Security Held or to be Acquired by a Fund means: (i) Any Covered Security which, within the most recent 15 days: (A) Is or has been held by the Fund; or (B) Is being or has been considered by the Fund or its investment adviser for purchase by the Fund; and (ii) Any option to purchase or sell, and any security convertible into or exchangeable for, a Covered Security described in paragraph (a)(10)(i) of this section. (12) Automatic Investment Plan means a program in which regular periodic purchases (or withdrawals) are made automatically in (or from) investment accounts in accordance with a predetermined schedule and allocation. An Automatic Investment Plan includes a dividend reinvestment plan. (b) Unlawful Actions. It is unlawful for any affiliated person of or principal underwriter for a Fund, or any affiliated person of an investment adviser of or principal underwriter for a Fund, in connection with the purchase or sale, directly or indirectly, by the person of a Security Held or to be Acquired by the Fund: (1) To employ any device, scheme or artifice to defraud the Fund; (2) To make any untrue statement of a material fact to the Fund or omit to state a material fact necessary in order to make the statements made to the Fund, in light of the circumstances under which they are made, not misleading; COE Revisions 13 010107 (TRUSCO CAPITAL MANAGEMENT LOGO) (STI CLASSIC FUNDS LOGO) (3) To engage in any act, practice or course of business that operates or would operate as a fraud or deceit on the Fund; or (4) To engage in any manipulative practice with respect to the Fund. (c) Code of Ethics--(1) Adoption and Approval of Code of Ethics. (i) Every Fund (other than a money market fund or a Fund that does not invest in Covered Securities) and each investment adviser of and principal underwriter for the Fund, must adopt a written code of ethics containing provisions reasonably necessary to prevent its Access Persons from engaging in any conduct prohibited by paragraph (b) of this section. (ii) The board of directors of a Fund, including a majority of directors who are not interested persons, must approve the code of ethics of the Fund, the code of ethics of each investment adviser and principal underwriter of the Fund, and any material changes to these codes. The board must base its approval of a code and any material changes to the code on a determination that the code contains provisions reasonably necessary to prevent Access Persons from engaging in any conduct prohibited by paragraph (b) of this section. Before approving a code of a Fund, investment adviser or principal underwriter or any amendment to the code, the board of directors must receive a certification from the Fund, investment adviser or principal underwriter that it has adopted procedures reasonably necessary to prevent Access Persons from violating the Fund's, investment adviser's, or principal underwriter's code of ethics. The Fund's board must approve the code of an investment adviser or principal underwriter before initially retaining the services of the investment adviser or principal underwriter. The Fund's board must approve a material change to a code no later than six months after adoption of the material change. (iii) If a Fund is a unit investment trust, the Fund's principal underwriter or depositor must approve the Fund's code of ethics, as required by paragraph (c)(1)(ii) of this section. If the Fund has more than one principal underwriter or depositor, the principal underwriters and depositors may designate, in writing, which principal underwriter or depositor must conduct the approval required by paragraph (c)(1)(ii) of this section, if they obtain written consent from the designated principal underwriter or depositor. (2) Administration of Code of Ethics. (i) The Fund, investment adviser and principal underwriter must use reasonable diligence and institute procedures reasonably necessary to prevent violations of its code of ethics. (ii) No less frequently than annually, every Fund (other than a unit investment trust) and its investment advisers and principal underwriters must furnish to the Fund's board of directors, and the board of directors must consider, a written report that: (A) Describes any issues arising under the code of ethics or procedures since the last report to the board of directors, including, but not limited to, information about material violations of the code or procedures and sanctions imposed in response to the material violations; and (B) Certifies that the Fund, investment adviser or principal underwriter, as applicable, has adopted procedures reasonably necessary to prevent Access Persons from violating the code. COE Revisions 14 010107 (TRUSCO CAPITAL MANAGEMENT LOGO) (STI CLASSIC FUNDS LOGO) (3) Exception for Principal Underwriters. The requirements of paragraphs (c)(1) and (c)(2) of this section do not apply to any principal underwriter unless: (i) The principal underwriter is an affiliated person of the Fund or of the Fund's investment adviser; or (ii) An officer, director or general partner of the principal underwriter serves as an officer, director or general partner of the Fund or of the Fund's investment adviser. (d) Reporting Requirements of Access Persons--1) Reports Required. Unless excepted by paragraph (d)(2) of this section, every Access Person of a Fund (other than a money market fund or a Fund that does not invest in Covered Securities) and every Access Person of an investment adviser of or principal underwriter for the Fund, must report to that Fund, investment adviser or principal underwriter: (i) Initial Holdings Reports. No later than 10 days after the person becomes an Access Person (which information must be current as of a date no more than 45 days prior to the date the person becomes an Access Person): (A) The title, number of shares and principal amount of each Covered Security in which the Access Person had any direct or indirect beneficial ownership when the person became an Access Person; (B) The name of any broker, dealer or bank with whom the Access Person maintained an account in which any securities were held for the direct or indirect benefit of the Access Person as of the date the person became an Access Person; and (C) The date that the report is submitted by the Access Person. (ii) Quarterly Transaction Reports. No later than 30 days after the end of a calendar quarter, the following information: (A) With respect to any transaction during the quarter in a Covered Security in which the Access Person had any direct or indirect beneficial ownership: (1) The date of the transaction, the title, the interest rate and maturity date (if applicable), the number of shares and the principal amount of each Covered Security involved; (2) The nature of the transaction (i.e., purchase, sale or any other type of acquisition or disposition); (3) The price of the Covered Security at which the transaction was effected; (4) The name of the broker, dealer or bank with or through which the transaction was effected; and (5) The date that the report is submitted by the Access Person. (B) With respect to any account established by the Access Person in which any securities were held during the quarter for the direct or indirect benefit of the Access Person: (1) The name of the broker, dealer or bank with which the Access Person established the account; COE Revisions 15 010107 (TRUSCO CAPITAL MANAGEMENT LOGO) (STI CLASSIC FUNDS LOGO) (2) The date the account was established; and (3) The date that the report is submitted by the Access Person. (iii) Annual Holdings Reports. Annually, the following information (which information must be current as of a date no more than 45 days before the report is submitted): (A) The title, number of shares and principal amount of each Covered Security in which the Access Person had any direct or indirect beneficial ownership; (B) The name of any broker, dealer or bank with whom the Access Person maintains an account in which any securities are held for the direct or indirect benefit of the Access Person; and (C) The date that the report is submitted by the Access Person. (2) Exceptions from Reporting Requirements. (i) A person need not make a report under paragraph (d)(1) of this section with respect to transactions effected for, and Covered Securities held in, any account over which the person has no direct or indirect influence or control. (ii) A director of a Fund who is not an "interested person" of the Fund within the meaning of section 2(a)(19) of the Act [15 U.S.C. 80a-2(a)(19)], and who would be required to make a report solely by reason of being a Fund director, need not make: (A) An initial holdings report under paragraph (d)(1)(i) of this section and an annual holdings report under paragraph (d)(1)(iii) of this section; and (B) A quarterly transaction report under paragraph (d)(1)(ii) of this section, unless the director knew or, in the ordinary course of fulfilling his or her official duties as a Fund director, should have known that during the 15-day period immediately before or after the director's transaction in a Covered Security, the Fund purchased or sold the Covered Security, or the Fund or its investment adviser considered purchasing or selling the Covered Security. (iii) An Access Person to a Fund's principal underwriter need not make a report to the principal underwriter under paragraph (d)(1) of this section if: (A) The principal underwriter is not an affiliated person of the Fund (unless the Fund is a unit investment trust) or any investment adviser of the Fund; and (B) The principal underwriter has no officer, director or general partner who serves as an officer, director or general partner of the Fund or of any investment adviser of the Fund. (iv) An Access Person to an investment adviser need not make a separate report to the investment adviser under paragraph (d)(1) of this section to the extent the information in the report would duplicate information required to be recorded under Section 275.204-2(a)(13) of this chapter. (v) An Access Person need not make a quarterly transaction report under paragraph (d)(1)(ii) of this section if the report would duplicate information contained in broker trade confirmations or account statements received by the Fund, investment adviser or principal underwriter with respect to the Access COE Revisions 16 010107 (TRUSCO CAPITAL MANAGEMENT LOGO) (STI CLASSIC FUNDS LOGO) Person in the time period required by paragraph (d)(1)(ii), if all of the information required by that paragraph is contained in the broker trade confirmations or account statements, or in the records of the Fund, investment adviser or principal underwriter. (vi) An Access Person need not make a quarterly transaction report under paragraph (d)(1)(ii) of this section with respect to transactions effected pursuant to an Automatic Investment Plan. (3) Review of Reports. Each Fund, investment adviser and principal underwriter to which reports are required to be made by paragraph (d)(1) of this section must institute procedures by which appropriate management or compliance personnel review these reports. (4) Notification of Reporting Obligation. Each Fund, investment adviser and principal underwriter to which reports are required to be made by paragraph (d)(1) of this section must identify all Access Persons who are required to make these reports and must inform those Access Persons of their reporting obligation. (5) Beneficial Ownership. For purposes of this section, beneficial ownership is interpreted in the same manner as it would be under Section 240.16a-1(a)(2) of this chapter in determining whether a person is the beneficial owner of a security for purposes of section 16 of the Securities Exchange Act of 1934 [15 U.S.C. 78p] and the rules and regulations thereunder. Any report required by paragraph (d) of this section may contain a statement that the report will not be construed as an admission that the person making the report has any direct or indirect beneficial ownership in the Covered Security to which the report relates. (e) Pre-approval of Investments in IPOs and Limited Offerings. Investment Personnel of a Fund or its investment adviser must obtain approval from the Fund or the Fund's investment adviser before directly or indirectly acquiring beneficial ownership in any securities in an Initial Public Offering or in a Limited Offering. (f) Recordkeeping Requirements. (1) Each Fund, investment adviser and principal underwriter that is required to adopt a code of ethics or to which reports are required to be made by Access Persons must, at its principal place of business, maintain records in the manner and to the extent set out in this paragraph (f), and must make these records available to the Commission or any representative of the Commission at any time and from time to time for reasonable periodic, special or other examination: (A) A copy of each code of ethics for the organization that is in effect, or at any time within the past five years was in effect, must be maintained in an easily accessible place; (B) A record of any violation of the code of ethics, and of any action taken as a result of the violation, must be maintained in an easily accessible place for at least five years after the end of the fiscal year in which the violation occurs; (C) A copy of each report made by an Access Person as required by this section, including any information provided in lieu of the reports under paragraph (d)(2)(v) of this section, must be maintained for at least five years after the end of the fiscal year in which the report is made or the information is provided, the first two years in an easily accessible place; COE Revisions 17 010107 (TRUSCO CAPITAL MANAGEMENT LOGO) (STI CLASSIC FUNDS LOGO) (D) A record of all persons, currently or within the past five years, who are or were required to make reports under paragraph (d) of this section, or who are or were responsible for reviewing these reports, must be maintained in an easily accessible place; and (E) A copy of each report required by paragraph (c)(2)(ii) of this section must be maintained for at least five years after the end of the fiscal year in which it is made, the first two years in an easily accessible place. (2) A Fund or investment adviser must maintain a record of any decision, and the reasons supporting the decision, to approve the acquisition by investment personnel of securities under paragraph (e), for at least five years after the end of the fiscal year in which the approval is granted. IV. APPLICATION OF RULE 17J-1(B)(1) REQUIREMENTS It is understood by the Trusts that shareholder assets many be managed and/or serviced by a number of service providers and more than one investment adviser, all of whom may implement different Code of Ethics Standards, Policies and Procedures. Therefore, the Trusts hereby appoint each service provider including all investment advisers and subadvisers with the responsibility of ensuring adequate compliance with the Trusts' Code of Ethics and Rule 17j-1(b)(1), as amended. Wherever the investment adviser's, (and subadviser's or designated service provider's if/as requested) ethical codes and personal trading policies and procedures exceed the standards required under this Code of Ethics and/or Rule 17j-1(b)(1), applicable individuals will be expected to at all times adhere to the higher standards. The Trusts require that each investment adviser (and subadviser or designated service provider if/as requested) provide the Trusts' Chief Compliance Officer with Code of Ethics reports no less than quarterly. All code violations along with violation action assessments and any code or procedure change initiated to deter such activities in the future must be included. The investment adviser (and subadviser or designated service provider if/as requested) must, as soon as reasonably possible, submit to the Trusts a copy of the entity's Code of Ethics and all material changes as applicable. No less than annually, the investment adviser (and subadviser or designated service provider if/as requested) must provide a complete current copy of the entity's Code of Ethics. Revised 01.28.06 COE Revisions 18 010107 EX-99.P.2 6 l26347aexv99wpw2.txt EX-99(P)2 EXHIBIT (P)(2) BISYS FUND SERVICES CODE OF ETHICS JANUARY 1, 2007 I. INTRODUCTION This Code of Ethics (the "Code") sets forth the basic policies of ethical conduct for all COVERED PERSONS, as hereinafter defined. Rule 17j-1(b) under the Investment Company Act of 1940, as amended, (the "1940 Act") makes it unlawful for an affiliated person of any BISYS company that is appointed to serve as principal underwriter of a registered investment company, in connection with the purchase or sale by such person of a security HELD OR TO BE ACQUIRED (AS HEREINAFTER DEFINED) by any such registered investment company, to: (1) employ any device, scheme or artifice to defraud the Fund; (2) make to the Fund any untrue statement of a material fact or omit to state to the Fund a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading; (3) engage in any act, practice or course of business that operates or would operate as a fraud or deceit upon the Fund; or (4) engage in any manipulative practice with respect to the Fund. II. DEFINITIONS The following definitions are used for purposes of the Code. "ACCESS PERSON" is defined for purposes of this Code as all COVERED PERSONS identified in EXHIBIT C. This Code covers certain BISYS associates that are not otherwise deemed ACCESS PERSONS by law. "AUTOMATIC INVESTMENT PLAN" means a program in which regular periodic purchases (or withdrawals) are made automatically in (or from) investment accounts in accordance with a predetermined schedule and allocation. An automatic investment plan includes a dividend reinvestment plan. "BENEFICIAL OWNERSHIP" of a security is defined under Rule 16a-1(a)(2) of the Securities Exchange Act of 1934, which provides that a COVERED PERSON should consider himself/herself the beneficial owner of securities held by his/her spouse, his/her minor children, a relative who shares his/her home, or other persons, directly or indirectly, if by reason of any contract, understanding, relationship, agreement or other arrangement, he/she obtains from such securities benefits substantially equivalent to those of ownership. He/she should also consider himself/herself the beneficial owner of securities if he/she can vest or revest title in himself/herself now or in the future. "BISYS CCO" is the Chief Compliance Officer for the Fund Services Division of BISYS. 2007 BISYS Fund Services Code of Ethics Final for Disstribution to all Fund Services Associates 2.9.2007 "CODE COMPLIANCE OFFICER" is the person designated by BISYS to oversee enforcement and ensure compliance with this Code pursuant to procedures established for such purpose. "COVERED PERSONS" are all directors, officers and associates of the BISYS entities listed on Exhibit B hereto (collectively referred to as "BISYS", excluding NON-BISYS EMPLOYEE REGISTERED REPRESENTATIVES identified in Exhibit H). Individuals registered with an entity identified in Exhibit B but not employed by BISYS and not reporting under an RIA's code of ethics are considered COVERED PERSONS for purposes of this Code. "COVERED SECURITIES" include all securities subject to transaction reporting under this Code. Covered Securities do not include: (i) securities issued by the United States Government; (ii) bankers' acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements; (iii) shares of open-end investment companies OTHER THAN SHARES OF REPORTABLE FUNDS AND EXCHANGE TRADED FUNDS ("ETFS"); (iv) transactions which you had no direct or indirect influence or control; (v) transactions that are not initiated, or directed, by you; and (vi) securities acquired upon the exercise of rights issued by the issuer to all shareholders pro rata. A security "HELD OR TO BE ACQUIRED" is defined under Rule 17j-l (a)(10) as any COVERED SECURITY which, within the most recent fifteen (15) days: (A) is or has been held by a Fund, or (B) is being or has been considered by a Fund or the investment adviser for a Fund for purchase by the Fund. A purchase or sale includes the writing of an option to purchase or sell and any security that is convertible into or exchangeable for, any security that is held or to be acquired by a Fund. "ENTERTAINMENT" is a business-related activity or event involving an OUTSIDE PARTY attending with a COVERED PERSON, such as theater or sporting tickets, working meals, and other social events. "GIFT" is an item given or received as a result of an existing or prospective business relationship. GIFTS are not the same as ENTERTAINMENT (e.g., giving tickets to a sports or theater event where a BISYS COVERED PERSON is not present is a GIFT). "MATERIAL INSIDE INFORMATION" is defined as any information about a company which has not been disclosed to the general public and which either a reasonable person would deem to be important in making an investment decision or the dissemination of which is likely to impact the market price of the company's securities. "NON-BISYS EMPLOYEE REGISTERED REPRESENTATIVE" is defined as any Registered Representative licensed with an entity identified in EXHIBIT B; but employed by a Registered Investment Advisor ("RIA") and reporting under the RIA's code of ethics. "OUTSIDE PARTY" is any existing or prospective "business source," such as an employee of a mutual fund's investment adviser, a Director/Trustee or Officer of a mutual fund client or prospective client, vendor, consulting firm, etc. Associates of BISYS and/or its affiliates are not considered "OUTSIDE PARTIES." A "PERSONAL SECURITIES TRANSACTION" is considered to be a transaction in a COVERED SECURITY of which the COVERED PERSON is deemed to have BENEFICIAL OWNERSHIP. This includes, but is not limited to, transactions in accounts of the COVERED PERSON's spouse, minor children, or 2007 BISYS Fund Services Code of Ethics Final for Disstribution to all Fund Services Associates 2.9.2007 other relations residing in the COVERED PERSON'S household, or accounts in which the COVERED PERSON has discretionary investment control. COVERED PERSONS engaged in PERSONAL SECURITIES TRANSACTIONS should not take inappropriate advantage of their position or of information obtained during the course of their association with BISYS. For example, Transfer Agent employees may not process transactions for their own account or influence others to effect improper transactions on their account or for the accounts of any direct family member. Additionally, COVERED PERSONS should avoid situations that might compromise their judgment (e.g. the receipt of perquisites, gifts of more than de minimis value or unusual investment opportunities from persons doing or seeking to do business with BISYS or the Funds). "REPORTABLE FUNDS" are non-money market portfolios of investment companies (identified in Exhibit A), for which BISYS serves as principle underwriter or as a service or sub-service agent (e.g. Transfer Agent, Fund Administrator, etc...). BISYS reserves the right to monitor accounts, including retirement plan accounts, of COVERED PERSONS and their direct family members for compliance with these requirements where BISYS is the recordkeeper of the account. "RIA CODE COMPLIANCE OFFICER" is defined as the person designated by an RIA to oversee enforcement and ensure compliance with the RIA's code of ethics by all persons subject thereto, including, in particular, NON-BISYS EMPLOYEE REGISTERED REPRESENTATIVES. III. RISKS OF NON-COMPLIANCE This Code extends the provisions of Rule 17j-1(b) to all COVERED PERSONS. Any violation of this Code may result in the imposition by BISYS of sanctions against the COVERED PERSON, or may be grounds for the immediate termination of the COVERED PERSON'S position with BISYS. Failure to comply with the RIA code of ethics by a NON-BISYS EMPLOYEE REGISTERED REPRESENTATIVE may represent grounds for immediate deregistration. In addition, in some cases (e.g. the misuse of inside information), a violation of federal and state civil and criminal statutes may subject the COVERED PERSON or NON-BISYS EMPLOYEE REGISTERED REPRESENTATIVE to fines, imprisonment and/or monetary damages. IV. ETHICAL STANDARDS The foundation of this Code consists of basic standards of conduct including, but not limited to, the avoidance of conflicts between personal interests and interests of BISYS or its REPORTABLE FUNDS. To this end, COVERED PERSONS should understand and adhere to the following ethical standards: (a) The duty at all times to place the interests of REPORTABLE FUND shareholders first; (b) The duty to ensure that all PERSONAL SECURITIES TRANSACTIONS be conducted in a manner that is consistent with this Code to avoid any actual or potential conflict of interest or any abuse of such COVERED PERSON'S position of trust and responsibility; and (c) The duty to ensure that COVERED PERSONS do not take inappropriate advantage of their position with BISYS. 2007 BISYS Fund Services Code of Ethics Final for Disstribution to all Fund Services Associates 2.9.2007 V. GIFTS AND ENTERTAINMENT A. GENERAL POLICY This policy applies to a GIFT or ENTERTAINMENT given (whether as a BISYS expense or a COVERED PERSON'S personal expense) or received by a COVERED PERSON. GIFTS must be reasonable in value and frequency and should be related to business relationships with OUTSIDE PARTIES. Unsolicited promotional material, general in nature and nominal in value (e.g., pens, t-shirts, etc.), are permitted if occasional and do not involve the expectation of a future business transaction involving BISYS or the COVERED PERSON. No policy is able to address every scenario. This is a principle-based policy. When deciding to give or accept GIFTS or ENTERTAINMENT, COVERED PERSONS must conduct themselves as professionals and exercise sound business judgment by weighing the business interest involved against possible public perception, including potential conflicts of interest. COVERED PERSONS should use discretion and consult with the BISYS CCO, as appropriate. COVERED PERSONS who violate this policy will be subject to reprimand and possible disciplinary action. B. REPORTING OF GIFTS AND ENTERTAINMENT AND VALUATION 1. REPORTING OF GIFTS BY COVERED PERSONS A. NASD LICENSED PERSONNEL COVERED PERSONS that are NASD licensed with an entity identified on EXHIBIT B ("NASD Licensed") must report all GIFTS, given or received, on the form attached as Exhibit [ I ] to the BISYS CCO. The report must be made within ten business days after the GIFT is given or received. COVERED PERSONS that are NASD Licensed MUST NEVER give anything of value in excess of $100 per year, per OUTSIDE PARTY, where the GIFT is in relation to the recipient's employment. COVERED PERSONS that are NASD licensed, excluding wholesaling personnel, are subject to a $300 aggregate annual limit on GIFT giving to all OUTSIDE PARTIES. The annual period will be measured on a calendar year basis by the BISYS CCO. A COVERED PERSON must make a good faith estimate when determining the value of GIFTS received. B. NON-NASD LICENSED PERSONNEL COVERED PERSONS that are Non-NASD Licensed, excluding the EVP of Business Development for BISYS and associates reporting to such individual (each, a "Business Development Associate"), must report all GIFTS, given or received, involving an OUTSIDE PARTY, on the form attached as Exhibit [ I ], that exceed $100 in value to the BISYS CCO within ten business days. A $300 aggregate 2007 BISYS Fund Services Code of Ethics Final for Disstribution to all Fund Services Associates 2.9.2007 annual limit on all GIFT giving to OUTSIDE PARTIES applies to such COVERED PERSONS. The annual period will be measured on a calendar year basis by the BISYS CCO. COVERED PERSONS that receive GIFTS in a calendar year, that have not otherwise been reported, that exceed $1,000 in aggregate value, must report each individual GIFT to the BISYS CCO, on the form attached as Exhibit [ I ], within ten business days after the $1,000 threshold has been exceeded. The BISYS CCO may put future conditions and/or limitations on receipt of GIFTS by such COVERED PERSONS. Non-NASD Licensed COVERED PERSONS that are Business Development Associates must report all GIFTS, given or received, involving an OUTSIDE PARTY, on the form attached as Exhibit [ I ], that exceed $250 in value to the BISYS CCO within ten business days. A $1,500 aggregate annual limit on all GIFT giving to OUTSIDE PARTIES applies to such COVERED PERSONS. The annual period will be measured on a calendar year basis by the BISYS CCO. COVERED PERSONS that receive GIFTS in a calendar year, that have not otherwise been reported, that exceed $1,000 in aggregate value, must report each individual GIFT to the BISYS CCO, on the form attached as Exhibit [ I ], within ten business days after the $1,000 threshold has been exceeded. The BISYS CCO may put future conditions and/or limitations on receipt of GIFTS by such COVERED PERSONS. A COVERED PERSON must make a good faith estimate when determining the value of GIFTS received. 2. REPORTING OF ENTERTAINMENT BY COVERED PERSONS ENTERTAINMENT involving an OUTSIDE PARTY must be reported, on the form attached as Exhibit I], by the COVERED PERSON to the BISYS CCO if the COVERED PERSON'S pro-rata share amount is greater than $250 (e.g., proportionally determined based upon the number of attendees), including any portion paid by a third-party. The report must indicate the nature of the entertainment and the attendee names, including the name of each attendee's employer and be made within ten business days after the ENTERTAINMENT has occurred. A COVERED PERSON must make a good faith estimate when determining their pro-rata share amount. 3. VALUATION OF GIFTS AND ENTERTAINMENT GIFTS and ENTERTAINMENT should be valued at the higher of cost or market value, exclusive of tax and delivery charges, provided that tickets should be valued at the higher of cost or face value. As indicated within this policy, good faith estimates may be used, as appropriate. 4. EXCEPTIONS Exceptions to this GIFT and ENTERTAINMENT policy may be permitted from time to time only if (a) pre-approved by the BISYS CCO, and (b) appropriately documented by email or other written record from the BISYS CCO. C. GENERAL GUIDELINES FOR GIFTS AND ENTERTAINMENT 1. GENERAL GUIDELINES APPLICABLE TO GIFTS Business GIFTS are designed to foster and promote relationships and goodwill. Conflicts arise when GIFTS compromise objective and independent business decisions. A donation to a charitable cause may be considered a GIFT. Even the perception of compromise is damaging to BISYS' image and integrity. A. GIVING GIFTS COVERED PERSONS must not offer or give GIFTS which may be viewed as: - overly generous/excessive; or - aimed at influencing a decision-making company, individual, board, or process; or - Intended to have the effect of a recipient feeling obligated to provide business or other forms of compensation in return. B. ACCEPTING GIFTS COVERED PERSONS shall not accept GIFTS, favors, or any items of value which influence their decision-making or obligate them, or BISYS, in any fashion. To avoid the appearance of impropriety, COVERED PERSONS shall observe the following guidelines, in addition to the monetary guidelines set forth above. I. USUALLY PERMISSIBLE - Promotional items of nominal value (e.g., pens, mugs, golf balls, etc). - Nominal prizes won from games of chance (raffles or lottery-style games). - Flowers, gift/fruit baskets, etc., for reasonable and infrequent occasions such as holidays, birthdays, promotions, etc. - GIFTS such as merchandise or products valued at $100 or less. II. REQUIRES PRE-APPROVAL OF BISYS CCO - An offer of paid transportation, hotel, lodging, etc., excluding investment management trade organization sponsored conferences when the COVERED PERSON is presenting. - Annual GIFT amounts in excess of those stated above. - Discretionary use of personal property (e.g., provided for use, as needed or desired, by the recipient). III. NEVER PERMISSIBLE - Cash, cash equivalents or securities. - GIFTS of significant value (e.g., exceeding $500 in value). - Any item as part of a "quid pro quo" arrangement (e.g., "something for something"). - GIFTS which violate law, including applicable regulations. 2007 BISYS Fund Services Code of Ethics Final for Disstribution to all Fund Services Associates 2.9.2007 - GIFTS to anyone who threatens to or has submitted a complaint about a COVERED PERSON or BISYS. - GIFTS which violate, to the COVERED PERSON'S reasonable knowledge, a client's policies (e.g., mutual fund) or industry standards. 2. GENERAL GUIDELINES APPLICABLE TO ENTERTAINMENT COVERED PERSONS are generally permitted to entertain and to be entertained. ENTERTAINMENT must be reasonable in value and frequency and should be related to business relationships with OUTSIDE PARTIES. A donation to a charitable cause may be considered ENTERTAINMENT. BISYS prohibits COVERED PERSONS from entertaining as a means of personal gain. A. USUALLY PERMISSIBLE - Occasional and reasonable business ENTERTAINMENT, such as a breakfast, lunch or dinner. - Theater or regular season sporting event tickets, if the cost is reasonable. - Golf (greens fees and cart fees). - Invitation to cocktail parties. B. REQUIRES PRE-APPROVAL OF BISYS CCO - Sponsorship and/or event participation requests. - Tickets to special events, such as the Super Bowl, World Series or a Stanley Cup game. - ENTERTAINMENT beyond one (1) day. - Single day attendance or participation in a seminar or conference. - Discretionary use of personal property (e.g., provided for use, as needed or desired, by the recipient). C. NEVER PERMISSIBLE - Unethical or illegal activity. - Season tickets to athletic events. - Vacations or lavish trips. VI. RESTRICTIONS AND PROCEDURES This section is divided into two (2) parts. Part A relates to restrictions and procedures applicable to all COVERED PERSONS in addition to the aforementioned Rule 17j-1(b) provisions. Part B imposes additional restrictions and reporting requirements for those COVERED PERSONS deemed to be ACCESS PERSONS. A. RESTRICTIONS AND PROCEDURES FOR ALL COVERED PERSONS: 1. Prohibition Against Use of MATERIAL INSIDE INFORMATION COVERED PERSONS may have access to information including, but not limited to, MATERIAL INSIDE INFORMATION about REPORTABLE FUNDS that is confidential and not available to the general public, such as (but not limited to) information concerning securities held in, or traded by, investment company portfolios, information concerning certain underwritings of broker/dealers affiliated with an 2007 BISYS Fund Services Code of Ethics Final for Disstribution to all Fund Services Associates 2.9.2007 investment company that may be deemed to be MATERIAL INSIDE INFORMATION, and information which involves a merger, liquidation or acquisition that has not been disclosed to the public. COVERED PERSONS in possession of material inside information must not trade in or recommend the purchase or sale of the securities concerned until the information has been properly disclosed and disseminated to the public. 2. Prohibition Against Abusive Trading Practices in Shares of REPORTABLE FUNDS Engaging in short-term trading practices or other potentially abusive trading in shares of REPORTABLE FUNDS may constitute violations of Rule 17j-1(b) and/or the stated policies of REPORTABLE FUNDS. Accordingly, unless sanctioned by a particular REPORTABLE FUND, COVERED PERSONS are prohibited from engaging or attempting to engage in excessive trading and exchange activity or other potentially abusive trading in contravention of any stated policy of a REPORTABLE FUND. 3. Initial and Annual Certifications Within ten (10) days following the commencement of their employment or otherwise becoming subject to this Code and at least annually within forty-five (45) days following the end of each calendar year, all COVERED PERSONS shall be required to sign and submit to the CODE COMPLIANCE OFFICER a written certification, in the form of Exhibit D hereto, affirming that he/she has read and understands this Code to which he/she is subject. In addition, the COVERED PERSON must certify annually that he/she has complied with the requirements of this Code and has disclosed and reported all PERSONAL SECURITIES TRANSACTIONS that are required to be disclosed and reported by this Code. The CODE COMPLIANCE OFFICER will distribute to all COVERED PERSONS the Annual Certification and Holdings Report for completion following the end of each calendar year. B. PROCEDURES FOR ALL NON-BISYS EMPLOYEE REGISTERED REPRESENTATIVES: 1. Quarterly RIA CODE COMPLIANCE OFFICER Certification Within thirty (30) days after each calendar quarter-end, except the calendar year-end, the CODE COMPLIANCE OFFICER will require the RIA CODE COMPLIANCE OFFICER to provide a written certification, in the form of Exhibit J hereto, with regard to adherence by each NON-BISYS EMPLOYEE REGISTERED REPRESENTATIVE subject to the RIA code of ethics and a listing of all Non-BISYS Employee Registered Representatives subject to the RIA Code of Ethics. THE CODE COMPLIANCE OFFICER requires immediate notification from the RIA CODE COMPLIANCE OFFICER of any material violation by a NON-BISYS EMPLOYEE REGISTERED REPRESENTATIVE of the RIA code of ethics. C. RESTRICTIONS AND REPORTING REQUIREMENTS FOR ALL ACCESS PERSONS: Each ACCESS PERSON must refrain from engaging in a PERSONAL SECURITIES TRANSACTION when the ACCESS PERSON knows, or in the ordinary course of 2007 BISYS Fund Services Code of Ethics Final for Disstribution to all Fund Services Associates 2.9.2007 fulfilling his/her duties would have reason to know, that at the time of the PERSONAL SECURITIES TRANSACTION a REPORTABLE FUND has a pending buy or sell order in the same COVERED SECURITY. 1. Duplicate Brokerage confirmations and statements All ACCESS PERSONS are required to instruct their broker/dealer to file duplicate trade confirmations and account statements with the CODE COMPLIANCE OFFICER at BISYS. Statements must be filed for all accounts containing COVERED SECURITIES (including accounts of other persons holding COVERED SECURITIES in which the ACCESS PERSON has a BENEFICIAL OWNERSHIP interest). Failure of a broker/dealer to send duplicate trade confirmations or account statements will not excuse a violation of this Section by an ACCESS PERSON. A sample letter instructing a broker/dealer firm to send duplicate trade confirmations and account statements to BISYS is attached as EXHIBIT K of this Code. A copy of the letter instructing the broker/dealer to provide duplicate trade confirmations and account statements to BISYS must be sent to the CODE COMPLIANCE OFFICER at the time of mailing. If a broker/dealer is unable or refuses to provide duplicate statements, the ACCESS PERSON should contact the Code COMPLIANCE OFFICER for further assistance. If the broker/dealer requires a letter authorizing a BISYS associate to open an account, a sample permission letter is attached as EXHIBIT L. Please complete the necessary brokerage information and forward a signature ready copy to the CODE COMPLIANCE OFFICER for signature and submission to the requesting broker/dealer. 2 Initial and Annual Holdings Reports All ACCESS PERSONS must file a completed Initial and Annual Holdings Report, in the form of EXHIBIT E attached hereto, with the CODE COMPLIANCE OFFICER within ten (10) days of commencement of their employment or otherwise becoming subject to this Code and thereafter on an annual basis within forty-five (45) days after the end of each calendar year in accordance with Procedures established by the CODE COMPLIANCE OFFICER. Such report must be current as of a date not more than 45 days before the report is submitted. This requirement includes any retirement plan accounts that contain REPORTABLE FUNDS. 3 Transaction/New Account Reports All ACCESS PERSONS must file a completed Transaction/New Account Report, in the form of EXHIBIT F hereto, with the CODE COMPLIANCE OFFICER within thirty (30) days after (i) opening an account with a broker, dealer, bank or transfer agent in which COVERED SECURITIES are recorded; or (ii) entering into any PERSONAL SECURITIES TRANSACTION. This requirement includes any retirement plan accounts that contain REPORTABLE FUNDS. A transaction report need not be submitted for transactions effected pursuant to an AUTOMATIC INVESTMENT PLAN or where such information would duplicate information contained in broker trade confirmations or account statements received by BISYS with respect to the ACCESS PERSON 2007 BISYS Fund Services Code of Ethics Final for Disstribution to all Fund Services Associates 2.9.2007 within 30 days of the transaction if all of the information required by rule 17j-1(d)(1)(ii) is contained in the confirmation or account statement. D. REVIEW OF REPORTS AND ASSESSMENT OF CODE ADEQUACY: The CODE COMPLIANCE OFFICER shall review and maintain the Initial and Annual Certifications, Initial and Annual Holdings Reports and Transaction/New Account Reports (the "Reports") with the records of BISYS. Following receipt of the Reports, the CODE COMPLIANCE OFFICER shall consider in accordance with Procedures designed to prevent ACCESS PERSONS from violating this Code: (a) whether any PERSONAL SECURITIES TRANSACTION evidences an apparent violation of this Code; and (b) whether any apparent violation has occurred of the reporting requirement set forth in Section C above. Upon making a determination that a violation of this Code, including its reporting requirements, has occurred, the CODE COMPLIANCE OFFICER shall report such violations to the General Counsel of BISYS Fund Services who shall determine what sanctions, if any, should be recommended to be taken by BISYS. The CODE COMPLIANCE OFFICER shall prepare quarterly reports to be presented to the Fund Boards of Directors/Trustees of each REPORTABLE FUND for which it serves as principal underwriter WITH respect to any material trading violations under this Code. This Code, a copy of all Reports referenced herein, any reports of violations, and lists of all COVERED and ACCESS PERSONS required to make Reports, shall be preserved for the period(s) required by Rule 17j-1. BISYS shall review the adequacy of the Code and the operation of its related Procedures at least once a year. VII. REPORTS TO FUND BOARDS OF DIRECTORS/TRUSTEES BISYS shall submit the following reports to the Board of Directors/Trustees for each REPORTABLE FUND for which it serves as principal underwriter: A. BISYS Fund Services Code of Ethics A copy of this Code shall be submitted to the Board of a REPORTABLE FUND prior to BISYS commencing operations as principal underwriter, for review and approval. All material changes to this Code shall be submitted to the Board of each REPORTABLE FUND for which BISYS serves as principal underwriter for review and approval not later than six (6) months following the date of implementation of such material changes. B. Annual Certification of Adequacy 2007 BISYS Fund Services Code of Ethics Final for Disstribution to all Fund Services Associates 2.9.2007 The CODE COMPLIANCE OFFICER shall annually prepare a written report to be presented to the Board of each REPORTABLE FUND for which BISYS serves as principal underwriter detailing the following: 1. Any issues arising under this Code or its related Procedures since the preceding report, including information about material violations of this Code or its related Procedures and sanctions imposed in response to such material violations; and 2. A Certification in the form of EXHIBIT G hereto, that BISYS has adopted Procedures designed to be reasonably necessary to prevent ACCESS PERSONS from violating this Code. 2007 BISYS Fund Services Code of Ethics Final for Disstribution to all Fund Services Associates 2.9.2007 BISYS FUND SERVICES CODE OF ETHICS EXHIBIT A The following investment companies are REPORTABLE FUNDS(1): Access One Trust Activa Actinver Funds Agilex AIG Allianz Variable Insurance Products Trust Allianz Variable Insurance Products Fund of Funds Trust American Family Funds American Independence American Performance AXA Roman BB&T Funds BB &T Variable Insurance Funds Bjurman, Barry Funds BNY Hamilton Funds BNY/Ivy Multi-Strategy Hedge Fund LLC Capital One Funds Capstone Funds CIBC Trust Citizens Funds Comerica Commonwealth International Series Trust Commonwealth of Virginia Coventry Group (consisting of the First Source Monogram, Pathmaster, UST Boston, and Signal) Coventry Funds Trust (formerly Variable Insurance Funds) Empire Builder Endowment Fund Excelsior Funds Exeter Funds Federated International Funds PLC First Focus Funds FirstHand Funds Fifth Third Funds Gartmore Funds/Fund Select Gartmore Variable Insurance Trust Giant 5 Funds GMO Trust Hansberger Institutional Series Hartford Heartland Group A-1 Hirtle Callaghan Trust HSBC Canada HSBC Investor HSBC Insight Huntington Funds /Huntington Variable Insurance Funds ICON Funds Merrimac Series INVESCO Funds Ivy Long/Short Hedge Fund LLC Legacy Funds Mercantile Funds, Inc. Monogram Common Trust Funds MONY Separate Accounts Morgan Stanley SICAV Morgan Stanley Cayman Funds Morgan Stanley Global Franchise Fund LP Morgan Stanley Investment Management Munder Series Trust Munder Series Trust II Needham Funds New Covenant Funds Pacific Capital (including CATS and Hawaiian Trust) Paypal (x.com) Paradigm Performance Funds Permal Asset Management ProFunds RSI Retirement Trust RMK Select Funds Schroder Funds Scudder Funds Asset Management Funds STI Classic Funds STI Classic Variable Insurance Funds Tamarack Funds TD Asset Management USA Funds Inc. The Blue Fund Group Texstar UBOC Common Trust Funds UBOC Copper Mountain UBS Alternative Investment Group Funds UBS Global Asset Management Trust Co. UBS Relationship Funds UBS Supplementary Trust Universal Institutional Funds, Inc. Victory Funds A-2 Victory Variable Insurance Funds Victory Institutional Funds Vintage Mutual Funds Voyageur Funds Washington Mutual Williams Capital Management Trust AS OF JANUARY 1, 2007 (1) The companies listed on this Exhibit A may be amended from time to time, as necessary. A-3 BISYS FUND SERVICES CODE OF ETHICS EXHIBIT B The following Broker/Dealers are subject to the BISYS Fund Services Code of Ethics(2): BB&T FUNDS DISTRIBUTORS, INC. BISYS FUND SERVICES, LIMITED PARTNERSHIP BISYS DISTRIBUTION SERVICES, INC. BNY HAMILTON DISTRIBUTOR, INC. FIFTH THIRD FUNDS DISTRIBUTOR, INC. FUNDS DISTRIBUTORS, INC. HEARTLAND INVESTOR SERVICES, LLC MERCANTILE INVESTMENT SERVICES, INC. PERFORMANCE FUNDS DISTRIBUTOR, INC. PROFUNDS DISTRIBUTORS, INC. VICTORY CAPITAL ADVISERS, INC. The following affiliated service entities are subject to the BISYS Fund Services Code of Ethics(2): BISYS FUND SERVICES OHIO, INC. BISYS FUND SERVICES, INC. (2) The companies listed on this Exhibit B may be amended from time to time, as required. B-1 BISYS FUND SERVICES CODE OF ETHICS EXHIBIT C (2007) The following COVERED PERSONS are considered ACCESS PERSONS under the BISYS Fund Services Code of Ethics(3) The following employees of BISYS: BISYS Compliance - all associates Business Systems - Fund Accounting associates CCO Services - all associates Client Services - all associates Distribution Solutions - all associates, including individuals registered with an entity identified in Exhibit B but not employed by BISYS Directors/Officers of each BISYS entity listed on EXHIBIT A that meet the statutory definition of ACCESS PERSON under Rule17j-1 Financial Services - Fund Accounting, Tax, Financial Administration, Fund Compliance and Quality Assurance associates Shared Infrastructure Services - all associates Legal Services - all associates * PLEASE NOTE, ALL ACCESS POSITIONS COVERED IN EXHIBIT C ARE SUBJECT TO THE 2007 BISYS FUND SERVICES CODE OF ETHICS REPORTING REQUIREMENTS COVERED IN EXHIBIT E REGARDLESS OF WEATHER OR NOT THE ACCESS PERSONS HAVE THE ABILITY TO OBTAIN PORTFOLIO HOLDINGS INFORMATION OF REPORTABLE FUNDS LISTED IN EXHIBIT A. AS OF JANUARY 1, 2007 - ---------- (3) The positions listed on this Exhibit C maybe amended from time to time as required. C-1 BISYS FUND SERVICES CODE OF ETHICS EXHIBIT D (2007) INITIAL AND ANNUAL CERTIFICATIONS I hereby certify that I have read and thoroughly understand and agree to abide by the conditions set forth in the BISYS Fund Services CODE OF ETHICS (the "Code"). I further certify that, during the time of my affiliation with BISYS, I will comply or have complied with the requirements of this Code and will disclose/report or have disclosed/reported all PERSONAL SECURITIES TRANSACTIONS required to be disclosed/reported by the Code. If I am deemed to be an ACCESS PERSON under this Code, I certify that I will comply or have complied with the TRANSACTION/NEW ACCOUNT REPORT requirements as detailed in the Code and submit herewith my INITIAL AND/OR ANNUAL HOLDINGS REPORT. I further certify that I have disclosed all accounts held by me and will direct or have directed each broker, dealer, bank or transfer agent with whom I have an account or accounts to send to the BISYS CODE COMPLIANCE OFFICER duplicate copies of all confirmations and/or account statements relating to my account(s). I further certify that the CODE COMPLIANCE OFFICER has been supplied with copies of all such letters of instruction. - ------------------------------------- Print or Type Name - ------------------------------------- Signature - ------------------------------------- Date D-1 BISYS FUND SERVICES CODE OF ETHICS EXHIBIT E (2007) INITIAL AND ANNUAL HOLDINGS REPORT
NAME AND ADDRESS OF DISCRETIONARY BROKER, DEALER, BANK, ACCOUNT(4) IF NEW ACCOUNT, OR ADVISER(S) (YES OR NO) ACCOUNT NUMBER(S) DATE ESTABLISHED - --------------------- ------------- ----------------- ---------------- _____________________ __ Yes __ No _________________ ________________ _____________________ __ Yes __ No _________________ ________________ _____________________ __ Yes __ No _________________ ________________ _____________________ __ Yes __ No _________________ ________________
[ ] ATTACHED ARE THE COVERED SECURITIES BENEFICIALLY OWNED BY ME AS OF THE DATE OF THIS INITIAL AND ANNUAL HOLDINGS REPORT. [ ] I DO NOT HAVE ANY COVERED SECURITIES BENEFICIALLY OWNED BY ME AS OF THE DATE OF THIS INITIAL AND ANNUAL HOLDINGS REPORT. FOR PURPOSES OF THIS REPRESENTATION, TRANSACTIONS IN WHICH I HAD NO DIRECT OR INDIRECT INFLUENCE OR CONTROL OR TRANSACTIONS THAT WERE NOT INITIATED, OR DIRECTED, BY ME DO NOT RESULT IN REPORTABLE TRANSACTIONS OR HOLDINGS IN COVERED SECURITIES. [ ] I CERTIFY THAT I HAVE DIRECTED EACH BROKER, DEALER, BANK OR TRANSFER AGENT WITH WHOM I HAVE AN ACCOUNT OR ACCOUNTS TO SEND TO BISYS DUPLICATE COPIES OF ALL CONFIRMATIONS AND/OR STATEMENTS RELATING TO MY ACCOUNT(S) AND HAVE PROVIDED COPIES OF SUCH LETTERS OF INSTRUCTIONS TO THE BISYS CODE COMPLIANCE OFFICER. I FURTHER CERTIFY THAT THE INFORMATION ON THE STATEMENTS ATTACHED HERETO (IF APPLICABLE) IS ACCURATE AND COMPLETE FOR PURPOSES OF THIS INITIAL AND ANNUAL HOLDINGS REPORT. - ---------- (4) Discretionary Account is an account empowering a broker, dealer, bank or adviser to buy and sell securities without the client's prior knowledge or consent. F-1
NUMBER OF COVERED SECURITIES/ PRINCIPAL AMOUNT SECURITY DESCRIPTION MUTUAL FUND (FOR DEBT (SYMBOL/CUSIP) SHARES HELD SECURITIES ONLY) - --------------------- ------------- ----------------- _____________________ _____________ _________________ _____________________ _____________ _________________ _____________________ _____________ _________________ _____________________ _____________ _________________ _____________________ _____________ _________________ _____________________ _____________ _________________ _____________________ _____________ _________________ _____________________ _____________ _________________ _____________________ _____________ _________________ _____________________ _____________ _________________
- ------------------------------------- Print or Type Name - ------------------------------------- Signature - ------------------------------------- Date F-2 BISYS FUND SERVICES CODE OF ETHICS -TRANSACTION/NEW ACCOUNT REPORT EXHIBIT F (2007) I hereby certify that, (1) the Covered Securities described below were purchased or sold on the date(s) indicated in reliance upon public information; or (2) I have listed below the account number(s) for any new account(s) opened in which Covered Securities are or will be held, and I have attached a copy of my letter of instruction to the institution maintaining such account to provide the Code Compliance Officer with duplicate trade confirmations and account statements. COVERED SECURITIES AND/OR MUTUAL FUND PORTFOLIOS PURCHASED/ACQUIRED OR SOLD/DISPOSED
Name of Broker, Security Trade Number of Per Share Dealer, Transfer Bought (B) or Description Date Shares Price Principal Amount Interest Rate Maturity Rate Agent or Bank Sold (S) - ----------- ----- --------- --------- ------------------- --------------- --------------- ---------------- ------------- (and Account Number and Date Established, (Symbol/CUSIP) (for debt security) (If Applicable) (If Applicable) If New) ______________ _____ _________ _________ _________ ________ _______________ _______________ ________________ _____________ ______________ _____ _________ _________ _________ ________ _______________ _______________ ________________ _____________ ______________ _____ _________ _________ _________ ________ _______________ _______________ ________________ _____________ ______________ _____ _________ _________ _________ ________ _______________ _______________ ________________ _____________ ______________ _____ _________ _________ _________ ________ _______________ _______________ ________________ _____________ ______________ _____ _________ _________ _________ ________ _______________ _______________ ________________ _____________ ______________ _____ _________ _________ _________ ________ _______________ _______________ ________________ _____________ ______________ _____ _________ _________ _________ ________ _______________ _______________ ________________ _____________
This Transaction/New Account Report is not an admission that you have or had any direct or indirect beneficial ownership in the Covered Securities listed above. - ------------------------------------- Print or Type Name - ------------------------------------- ---------------------------------------- Signature Date F-3 BISYS FUND SERVICES CODE OF ETHICS EXHIBIT G (2007) ANNUAL CERTIFICATION OF ADEQUACY CERTIFICATION TO THE FUNDS BOARDS OF DIRECTORS/TRUSTEES BISYS Fund Services ("BISYS") requires that all directors, officers and associates of BISYS ("COVERED PERSONS") certify, upon becoming subject to the BISYS Code of Ethics (the "Code") and annually thereafter, that they have read and thoroughly understand and agree to abide by the conditions set forth in the Code. If such COVERED PERSONS are deemed to be ACCESS PERSONS under the Code, they are required to submit Initial and Annual Holdings Reports. ACCESS PERSONS must also submit Transaction Reports to the CODE COMPLIANCE OFFICER, reporting all PERSONAL SECURITIES TRANSACTIONS in COVERED SECURITIES for all accounts in which the ACCESS PERSON has any direct or indirect beneficial interest within thirty (30) days of entering into any such transactions. ACCESS PERSONS must disclose all accounts and direct each of their brokers, dealers, banks or transfer agents to send duplicate trade confirmations and statements of all such PERSONAL SECURITIES TRANSACTIONS directly to the CODE COMPLIANCE OFFICER. For Funds where BISYS serves as Distributor and Fund Accountant, the CODE COMPLIANCE OFFICER undertakes a quarterly review of each ACCESS PERSON'S PERSONAL SECURITIES TRANSACTIONS against the investment portfolio of each fund of which they are deemed an ACCESS PERSON. For Funds where BISYS serves as Distributor but not the Fund Accountant, upon request the CODE COMPLIANCE OFFICER will make information available to the Fund's Chief Compliance Officer regarding all PERSONAL SECURITIES TRANSACTIONS of ACCESS PERSONS to the Fund. The undersigned hereby certifies that BISYS has adopted Procedures reasonably designed to prevent ACCESS PERSONS from violating BISYS' Code and the provisions of Rule 17j-1 under the Investment Company Act of 1940, as amended. - ------------------------------------- ---------------------------------------- Wayne Rose Date CODE COMPLIANCE OFFICER BISYS Fund Services G-1 BISYS FUND SERVICES CODE OF ETHICS NON-BISYS EMPLOYEE REGISTERED REPRESENTATIVE EXHIBIT H (2007) ADAMS, STEPHENIE ALWINE, PAUL D ANDERSON, CHARLES ASWAD, ELYSA AYCOCK, ELIZABETH H AZZARA, LINDA BADING, HANS BACON, MICHAEL T BALUCK, NEIL J BARBER, CHARLES BARNES, SHANNON BARSOUM, CAROLINE BASHANT, JENNIFER BASZLER, THEODORE D BAUER, JEFFREY F BELKEN, KELLY BEST, NICOLE BESTE, PAUL T BOCHOW, GERHARD O BOCKOFF, JULIE BOLANOWSKI, CASIMIR BONYAK, JILL BORELLI, THOMAS J BOTTI, KEITH C BOWEN, LINDSAY BRESNAHAN, TIMOTHY BRESWITZ, CARRIE R BRITTON, LON BROMWELL, MAUREEN BROWN, PETER BRYON, PATRICE A BURGESS, CHRISTINE BURNS, CAROLE CALCAGNO, JACK CARSON, HOLLY CHEN, CHRISTOPHER CHOI, WING CLARK, KEVIN D COHEN, GLEN D COHEN, STEVEN B CONNERS, GREG CONNORS, MATTHEW F COOLEY, DONALD CONTIS, DIMITRIOS A CORRIVEAU, CYNTHIA COURTNEY, KENDALL COTTRELL, LYDIA CROWELL, CHAD CUMMINGS, KELLY CUOZZI, JOSEPH A DAHL, JASON DELUCIA, ANTHONY G DENISON, HUGH F DESAI, USHA DESEGLISE, CHRISTIAN DICKER, ADAM DICKSON, MARYBETH DIETRICH, ANDREA M DIRIENZO, MICHAEL DISTEFANO, MICHAEL H DOLAN, EMILY A DONOVAN, JOSEPH DY, DAN DYER, CHRISTOPHER EBERSBACH, MATTHEW A EISENSCHER, DORON ELIAS, PHILIP ENGELHARDT, ALLISON ERSBO, CHRISTOPHER P EVANS, BRAD FABIETTI, RICHARD A FARMER, MARILYN FARRELL, THOMAS FAYOLLE, SHARON FELDHAUS, MICHAEL FELICE. FRANK FERGUSON, SAVONNE L FERRARA, LISA FITZGERALD, JAMES FLETCHER, KEITH A FLUET, ANDREW W FONDRIE, DAVID C FONG, EDWARD FORD, TIMOTHY P FOX, KENNETH FRAGOMENI, BERNARD FRASER, BRUCE P FRIEDMAN, DAVID FRYE, VICTOR M FUSH, STEPHEN GALLAGHER, LOIS GARDNER, RICHARD N GILLESPIE, JAMES T GIOLEKAS, GEORGE GLATKOWSKI, MICHAEL R GLOSMAN, SUZANNE T GODFREY, JENNIFER L GOFF, MAUREEN E GOLDSTROM, JARED B GORDON, GARY N GORDON, JENNIFER GRAFF, JEFFREY GRESNICK, MARK GRIMM, MARYANN GUREWITZ, PAUL HACKETT, MICHAEL HAMMOND, ROBERT L HANNA, LOUIS J H-1 HART, THOMAS E HATHAWAY, DUC (RODNEY) R HAYMAN, AMY HENDRY, IAN HILSABECK, BRADLEY HOLDERITH, ROBERT C HOLMES, PATRICIA A HOLTHAUS, DOUGLAS M HOPKINS, PAMELA HORENSTEIN, JEAN HOWARD, JENNIFER HUDNALL, JUSTIN L HUTKA, KATHLEEN ILLE, RICHARD B INGRAM, MATTHEW INSLEY, ALEX W IWASKO, PAMELA JAWORSKI, KATHERINE M JUREC, MIACHAEL KAMYSZEK, KAREN KARPOWICZ, EDWARD J KAUL, DAVID KENASTON, PAM KELLER, RICHARD KENNEDY, ANNE KENNY, THOMAS KERN, JEFFREY KRUSHENA, MICHAEL JORDAN, BETH JUDGE, ERIC KEITH, SEAN KENNEDY, K. EVAN KOHL, JEFFREY J KADNAR, MATTHEW KEITH, DOUGLAS KENLY, FRANKLIN KING, CHERYL KLOSEK, JUSTIN KNAPP, JASON KOSKUBA, MIACHAEL KRASE, SCOTT KRUPYSHEVA, STEPHANIE KUTZ, JOHN LANE, BRETT A LEAVITT, MARC LEBLANC, LISA LEICH, DEBORAH LEISTRA, ANDREA LEVY, KIM LEVY, STEPHANE LOGAN, DONALD B LYNN, WILLIAM MAJERUS-LAMBERT, MARY A MALASPINA, WENDY MARTIN, BRIAN P MAYBERG, LOUIS MAZZOLA, JULIE MCAVOY, JOHN MCCABE, BRIAN MCCABE, JOHN H MCCAULEY, JOHN MCDONOUGH, MATTHEW MCLAY, JAMI MCINTIRE, GAVIN J MILLER, MILLNER, STEVEN C MILLOY, STEVEN J MINER, MATTHEW J MOODY, THOMAS MOORADIAN, SUSAN MOORE, THOMAS W MOREY, JOHN MUDIE, THOMAS MUILENBURG, ROBERT MURPHY, DONNA MURPHY, KATE MUSZALL, HOLLY MUMBY, ROBERT MYERS, JOHN O NAJARIAN, HRATCH NASGOVITZ, WILLIAM J NASGOVITZ, WILLIAM R NIEMI, ALAN V O'CONNOR, KIMBERLY R O'CONNOR, MARK OHMACHT, CHRISTOPHER OLBERDING, KENNETH R OLSON, HILARY OMDAHL, JEFFREY M O'NEILL, DANIEL M OVIATT, GREGORY PASICZNYK, PAUL PATEL, REBECCA PATTON, PATRICE PAYNE, ROBERT PEDERSON, NEIL PEREZ-JACKSON, AMY C PETROFF, MICHAEL D PFLUG, BRUCE P PICARD, AARON A PILEGGI, JOHN J PITIGOIARON, COSMIN PLOSHNICK, JEFFREY A PONSETTO, PAULA PRASEUTSACK, AMPHAY PULAKHANDAM, TANUJA PYNE, JOHN QUIRK, SARAH M RAINS, CAROLYN REIDY, BERNARD RICCI, DAVID M RICHTER, MICHAEL RITTER, LEONARD J ROACH, STACY L ROBERTS, CHRISTINE A ROBERTSON, PAUL ROBICHAUD, LUKE ROCHE, SEAN ROOT, PETER ROTTINGER, JASON RUBIN, ERIC M RUBINO, MARIA GRACIA T RUST, ANDREW RYAN, ERIN SARAFA, KENNETH H-2 SARGENT, TIMOTHY A SAVU, NICU SCHACHT, JASON F SCHENKER, AARON D SCHMEITS, KEVIN SCHMIDT, JAMES G SEAY, THOMAS SELBY, MICHELLE T SELF, PAUL S SEYMOUR, JONATHAN SHEMO, RUSSELL SHPIZ, DIANE M. SMITH, BRADFORD SMITH, TERRI B SMITH, THOMAS SNOW, CHRISTOPHER SODERSTROM, ROGER SOKOLOW, MARY E SPEARS, CURTIS L SPETRINO, WILLIAM A STAHORSKY, SCOTT STEIN, BONNIE B SUMMERS, MARK SVIHL, CAROL A TAMONEY, ANDREW TANTSIOS, EKATERINI TAYLOR, JESSE C TAYLOR, TERRY THAYER, ADAM THISTLETON, MICHAEL TOFT, PAUL TORTI, GREGG M UPWARD, BENJAMIN URBANEK, JERRY VAN DREEL, JOSHUA J VAN HOOF, WILLIAM J VASQUEZ, ELBA WAGNER, ROBERT WAKEHAM, CHERYL WALKER, BRYON WARREN, MICHAEL P WEATHERHEAD, JEFFREY G WEBBER, PAUL R WEINBERG, PAUL WELKER, CHRISTOPHER WESSELKAMPER, C WHITMORE, GAVIN WILCOX, JON WILEY, STEPHEN N WOOD, ROBERT ZHAN, JENNY ZIEGLER, JEFFREY H-3 BISYS FUND SERVICES CODE OF ETHICS EXHIBIT I GIFT & ENTERTAINMENT REPORTING FORM Please submit one report per gift or entertainment event. Name: __________________________________________________________________________ Extension: _____________________________________________________________________ Date: __________________________________________________________________________ NASD Licensed: Yes [ ] No [ ] The following gift or entertainment was: [ ] Given [ ] Received Name of Outside Party: _________________________________________________________ Date Gift/Entertainment was given/received: ____________________________________ Location (if applicable): ______________________________________________________ Description of Gift/Entertainment: _____________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ Purpose: _______________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ Estimated/Actual Value: $________ (circle whether value was estimated or actual) Preapproved? Yes [ ] No [ ] I certify that the above information is true and accurate to the best of my knowledge. - ------------------------------------- Name I-1 BISYS FUND SERVICES CODE OF ETHICS NON-BISYS EMPLOYEE REGISTERED REPRESENTATIVE INVESTMENT ADVISER CODE COMPLIANCE OFFICER EXHIBIT J (2007) QUARTERLY CODE OF ETHICS CERTIFICATION (XX/XX/XXXX) Pursuant to the BISYS Fund Services Code of Ethics covering each of the [ INSERT BROKER DEALER] affiliated Registered Representatives employed by [INSERT INVESTMENT ADVISOR], "Non-BISYS Employee Registered Representatives", please certify the following for the quarter ended [Insert Date] (the "Period"): 1. Each of the NON-BISYS EMPLOYEE REGISTERED REPRESENTATIVES identified in the attached report have received and are subject to the [INSERT INVESTMENT ADVISER] Code of Ethics. ("Code"). 2. All required documentation and holdings reports (if necessary) have been filed with the undersigned by each NON-BISYS EMPLOYEE REGISTERED REPRESENTATIVE during the Period 3. [ ] (check if applicable) There have not been any material violations of the Code by any NON-BISYS EMPLOYEE REGISTERED REPRESENTATIVES identified in the attach report for the Period. 4. [ ] (check if applicable and attach documentation) Violation(s) of the Code by one or more NON-BISYS EMPLOYEE REGISTERED REPRESENTATIVE(S) during the Period were detected or reported. A report detailing each violation and the resolution/remedial action taken is attached. (Please attach details and resolution for each item). [INSERT INVESTMENT ADVISER] CODE COMPLIANCE OFFICER Name: ------------------------------- Title: ------------------------------ Date: ------------------------------- J-1 BISYS FUND SERVICES CODE OF ETHICS DUPLICATE CONFIRMATION STATEMENT REQUEST FORM EXHIBIT K Date: ____________________ Your Broker street address city, state zip code Re: Your Name your S.S. number or account number Dear Sir or Madam: Please be advised that I am an associated person of BISYS Fund Services, LP, or one of its affiliated broker-dealers ("BISYS"), each an NASD Member Firm. Please send DUPLICATE STATEMENTS AND TRADE CONFIRMATIONS of this brokerage account to the attention of: BISYS Fund Services Attn: Code Compliance Officer 100 Summer Street, Suite 1500 Boston, MA 02110 This request is made pursuant to the BISYS Code of Ethics and compliance therewith by the associated person is subject to receipt of such trade confirmations and account statements by BISYS. Thank you for your cooperation. Sincerely, - ------------------------------------ Your name K-1 BISYS FUND SERVICES CODE OF ETHICS DUPLICATE CONFIRMATION STATEMENT REQUEST FORM EXHIBIT L Date: ____________________ _____________________________________ _____________________________________ _____________________________________ [Address] Re: Employee Name ______________ Account # __________________ SS# ________________________ Dear Sir or Madam: Please be advised that the above referenced person is an associated person of BISYS Fund Services, LP or one of its affiliated broker-dealers ("BISYS"), each an NASD member firm. We grant permission for him/her to open a brokerage account with your firm, provided that you agree to send DUPLICATE STATEMENTS AND TRADE CONFIRMATIONS of this employee's brokerage account to: BISYS Fund Services Attn: Code Compliance Officer 100 Summer Street, Suite 1500 Boston, MA 02110 This request is made pursuant to the BISYS Code of Ethics and compliance therewith by the associated person is subject to receipt of such trade confirmations and account statements by BISYS. Thank you for your cooperation. Sincerely, - ------------------------------------ BISYS Fund Services Code Compliance Officer L-1 EX-99.P.3 7 l26347aexv99wpw3.txt EX-99(P)(3) Exhibit (p)(3) TRUSCO CAPITAL MANAGEMENT, INC. CODE OF ETHICS AND PERSONAL TRADING POLICY Trusco's primary responsibility has always been and will continue to be the protection of client assets. The primary responsibility of each Trusco officer, employee, and designated "associated" individual, is to carry out his or her duties in an ethical and diligent manner that is designed to obey all regulations and protect and enhance client relationships. Furthermore, each individual is expected to apply the same principles and moral codes in all personal and social pursuits. The Trusco Code of Ethics and Personal Trading Policy and Procedures (the "Code") has been in place for many years, and is continually re-evaluated for its effectiveness and efficiency as our business lines, client bases, the financial industry and regulatory mandates all become more complex. The Code is not simply a regulatory compliance statement that applies certain explicit business standards. The Code addresses the entire Trusco Compliance Program and underscores the general guidelines, principles and standards that have been designed to further assist individuals with implicit regulatory, corporate, and personal directives. All officers, employees and designated personnel are subject to the Code rules and regulations regardless of position, length of employment, area or expertise, etc. The Code is also reflective of SunTrust Banks, Inc. corporate codes and business values, and thus all applicable personnel are held to the highest standards of business and personal integrity at all times and without exception. Trusco takes great pride in its reputation and we are confident that applicable personnel will comply with all regulatory and firm specific rules and procedures. The Code is fully supported by senior management and is constantly reinforced through active business and compliance communications and periodic education and training. Violations of any regulations, policies and procedures, will not be taken lightly and ignorance of the requirements or poor memory retention are insufficient excuses. All violations will be addressed and resolved by senior compliance and business management (as deemed appropriate) as quickly as possible. The Chief Compliance Officer is now held responsible and liable for implementing and supervising policies and procedures. In addition, the SEC and other regulators require proof that any policy or procedure violations carry the appropriate penalty actions. Such actions may include but are not limited to: personal trading restrictions, loss of salary/bonus/general compensation, fines, suspension, termination, criminal and/or civil legal actions. Trusco places its trust and future in our hands. We must at all times conduct ourselves in a manner that will ensure regulatory adherence, promote client confidence, and support firm and personal high ethical standards. 1 TRUSCO CAPITAL MANAGEMENT, INC. CODE OF ETHICS AND PERSONAL TRADING POLICY INTRODUCTION As Trusco employees, we frequently encounter a variety of ethical and legal questions. There are no shortcut formulas or automatic answers to the choices we have to make in business today, however, we should decide the answer to these questions in ways that are consistent with Trusco's values. In some instances, the Code of Ethics and Personal Trading Policy will only be able to provide a baseline standard for our actions, but underpinning these guidelines are the values we share as Trusco employees: - Dedication to every client's success - Trust and personal responsibility in all relationships As simple statements, our values may not provide obvious answers in all situations, but they provide, or should provide, clear reasons why we make the choices we do. You will have many opportunities to make such choices in situations that are not covered by these guidelines. You will not, however, come across a major decision at Trusco where our values would not be applicable. Because of the values we share, you will never encounter a situation where actions contrary to our guidelines are acceptable. At Trusco, the Chief Executive Officer and senior executives are responsible for setting standards of business ethics and overseeing compliance with these standards. It is every individual's responsibility to comply with these standards. In all instances, every employee must obey the law and act ethically. Our industry continues to undergo significant changes. As a whole, these changes make the ways in which we do business more complex. Because of the continuing need to reassess and clarify practices, the contents of these guidelines will be updated as needed. Because rapid changes in our industry constantly present new ethical and legal issues, no set of guidelines should be considered the absolute last word under all circumstances. If you have any questions about interpreting or applying the standards set forth in the Code of Ethics and Personal Trading Policy it is your responsibility to consult your supervisor or Trusco Compliance. 2 TRUSCO CAPITAL MANAGEMENT, INC. CODE OF ETHICS AND PERSONAL TRADING POLICY Trusco Capital Management, Inc. (the "Adviser") has confidence in the integrity and good faith of its directors, officers and employees. However, the Adviser recognizes those individuals may have knowledge of present or future portfolio transactions and, in certain instances, the power to influence portfolio transactions made on behalf of one or more of the STI Classic Funds and the STI Classic Variable Trust, (the "STI Classic Funds"); other mutual funds sub-advised by the Adviser; common/collective funds; and individually managed accounts, all collectively referred to as ("Clients"). Such knowledge could place those individuals, (if they engage in personal transactions in securities that are eligible for investment by Clients), in a position where their personal interests may conflict with those of the Adviser's Clients. In view of the foregoing, and in accordance with Rule 204A-1 of the Investment Advisers Act of 1940, and the provisions of rule 17j-1(b)(1) of the Investment Company Act of 1940 (collectively defined as the "1940 Acts"), the Adviser has adopted this Code of Ethics and Personal Trading Policy ("Code"). This Code prohibits certain types of personal transactions deemed to create conflicts of interest, or at least the potential for, or the appearance of, such a conflict and establishes reporting requirements and enforcement procedures. I. DEFINITIONS. (1) ACCESS PERSON- each full/part-time employee, director, officer, certain contractors of the Adviser, and employees of affiliates who are located at Adviser's offices and/or perform most of their job functions on behalf of Adviser. (2) BENEFICIAL OWNERSHIP- of a security is generally determined in the same manner as it is for purposes of Section 16 of the Securities Exchange Act of 1934. You should consider yourself the BENEFICIAL OWNER of any securities in which you have a direct or indirect pecuniary interest; which is the opportunity to profit directly or indirectly from a transaction in securities. Thus, you may be deemed to have Beneficial Ownership of securities held by members of your immediate family sharing the same household (i.e., a spouse and children), or by certain partnerships, trusts, or other arrangements. (3) BLACKOUT PERIOD- a period during which Access Persons may not execute personal transactions because Adviser is or may be trading in the same or similar securities. Adviser's Blackout Period is three (3) days and applies to Covered Security transactions. This means no Access Person shall purchase or sell any Covered Security within at least three (3) business days before and after the same security is being purchased or sold by/on behalf of Clients. (4) COVERED SECURITY- any stock, bond, future, investment contract or any other instrument that is considered a "security" under the 1940 Acts. The term "Covered Security" is very broad and includes instruments you might not ordinarily think of as "securities," such as: - Options on securities, indexes and currencies 3 TRUSCO CAPITAL MANAGEMENT, INC. CODE OF ETHICS AND PERSONAL TRADING POLICY - Investments in limited partnerships - Exchange Traded Funds (ETFs), closed end funds, foreign mutual funds and foreign unit trusts - Private investment funds, hedge funds, and investment clubs - Proprietary mutual funds which are funds managed by the Adviser or any other SunTrust Banks Inc. (STI) affiliate. The STI Classic Mutual Funds are an example of a proprietary fund. - Non-proprietary mutual funds that are advised or sub-advised by the Adviser Covered Security DOES NOT include: - Direct obligations of the U.S. government (e.g., treasury securities) - Bankers' acceptances, bank certificates of deposit, commercial paper, and high quality short-term debt obligations, including repurchase agreements - Money market funds - Shares of open-end mutual funds other than those that are advised or sub-advised by the Adviser NOTE: Investments not considered Covered Securities do not need to be reported to Adviser. However, personal securities accounts which hold or could hold Covered Securities do need to be reported. (5) HOLDING PERIOD- short term trading in all Covered Securities is prohibited. In general, all transactions must be held for a period of sixty (60) days or more. This includes options and futures transactions. (6) INITIAL PUBLIC OFFERING (IPO) - is an offering of securities registered under the Securities Act of 1933, the issuer of which, immediately before the registration, was not subject to the reporting requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934. 4 TRUSCO CAPITAL MANAGEMENT, INC. CODE OF ETHICS AND PERSONAL TRADING POLICY (7) MARKET TIMING- is excessive short-term trading in mutual funds. Such activities can be detrimental to long-term fund shareholders, and consequently, fund companies must maintain policies and procedures to detect and prevent market timing abuses and other short-term trading. (8) PRIVATE PLACEMENT- an offering of a stock or bond that is exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) or Section 4(6) in the Securities Act of 1933. (9) REVIEW OFFICER- The individual selected by the Adviser to administer this Code. II. STATEMENT OF GENERAL FIDUCIARY PRINCIPLES. In recognition of the trust and confidence placed in the Adviser by its Clients and to give effect to the Adviser's belief that its operations should be directed for the benefit of its Clients, the Adviser hereby adopts the following general principles to guide the actions of its directors, officers, employees and other Access Persons. (1) The interests of Clients must be placed first at all times. (2) This Code serves as the Adviser's standards of business conduct and fiduciary obligations of its Access Persons. (3) Access Persons are required to immediately report any violations of this Code to the Adviser's Chief Compliance Officer or his/her designee. Any retaliation for the reporting of violations under this Code will constitute a violation of the Code. (4) Access Persons are required to comply with applicable Federal Securities Laws. (5) All personal securities transactions must be conducted consistent with this Code and in such a manner as to avoid any actual or potential conflict of interest or any abuse of an individual's position of trust and responsibility. (6) All the Adviser's Access Persons must avoid actions or activities that allow, or appear to allow, any such person to profit or benefit from his or her position with respect to Clients, or that otherwise bring into question the person's independence or judgment. (7) Access Persons are prohibited from trading, either personally or on behalf of others, while in possession of material nonpublic information. See Insider Information Policy Section 5.4. (8) Market Timing abuse in mutual funds is strictly prohibited. Access Persons should be aware of and are required to comply with the Market Timing policies for all mutual funds they invest in. 5 TRUSCO CAPITAL MANAGEMENT, INC. CODE OF ETHICS AND PERSONAL TRADING POLICY (9) This Code does not attempt to identify all possible conflicts of interest. Literal compliance with each of its specific provisions will not shield Access Persons from liability for personal trading or other conduct which violates a fiduciary duty to Clients. III. PROHIBITED PURCHASES AND SALES OF SECURITIES. (1) Access Persons are generally prohibited from purchasing and/or acquiring Beneficial Ownership of equity or fixed income securities as part of any Initial Public Offering (IPO). (2) No Access Person may participate in a block trade with any Client transaction. (3) Access Persons are prohibited from short term trading that violates the Holding Period. IV. PRECLEARANCE OF PERSONAL TRANSACTIONS. Access Persons are required to preclear personal transactions in all Private Placements and in Covered Securities except those as noted below. Preclearance requests must be submitted to the Adviser's designated Review Officer prior to proceeding with the transaction. Access Persons are required to preclear investments in Private Placements by submitting the Private Placement request form and a copy of the Offering Memorandum associated with the investment to the designated Review Officer. Preclearance approvals are valid only for the date preclearance is granted. "Good till Cancel" (orders that could remain active beyond a day) are prohibited. In determining whether to grant approval, the Review Officer shall refer to all relevant sections of this Code. The following personal transactions in Covered Securities are EXEMPT from preclearance procedures. THIS EXEMPTION FROM PRECLEARANCE DOES NOT RELEASE EMPLOYEES FROM REPORTING OBLIGATIONS, HOLDING PERIOD RESTRICTIONS OR APPLICABLE SECURITIES LAWS: (1) De Minimis purchases or sales of 100 shares or fewer of an equity security or $5000 or less of a fixed income security. NOTE: THIS EXEMPTION DOES NOT APPLY IF YOUR OWNERSHIP EXCEEDS 500 SHARES OR MORE OF THE EQUITY POSITION OR $25,000 OR MORE OF THE FIXED INCOME POSITION AND SHOULD NOT BE USED AS A MEANS TO AVOID PRECLEARANCE; (2) Purchases or sales of exchange traded funds [(ETFs) including but not limited to SPDRS, QQQQ, Diamonds, WEBS, XAX,] closed end funds, foreign mutual funds, foreign unit trusts, proprietary mutual funds, or non-proprietary mutual funds advised or sub-advised by the Adviser; (3) Purchases or sales of SunTrust Banks, Inc. (STI) Stock including the exercise of STI employee granted stock options; 6 TRUSCO CAPITAL MANAGEMENT, INC. CODE OF ETHICS AND PERSONAL TRADING POLICY (4) Purchases or sales which are non-volitional on the part of the Access Person, including purchases or sales upon receipt of an exercise notice of puts or calls written by the Access Person and sales from a margin account pursuant to a bona fide margin call; (notification and reporting are required.) NOTE: ANY OPTIONS EXERCISED AT YOUR DISCRETION MUST FOLLOW STANDARD PRE-CLEARANCE REQUIREMENTS. (5) Purchases effected upon the exercise of rights issued by a security issuer pro rata to all holders of a class of its securities, to the extent such rights were acquired from such issuer V. REPORTING OBLIGATIONS. (1) Initial and Annual Holdings Reports-Each Access Person shall complete an Initial Holdings Report within 10 days of his or her start date. Thereafter, each Access Person shall complete an Annual Holdings Report due January 31st for all Covered Securities as well as all securities accounts which hold or could hold Covered Securities in which the Access Person has any direct or indirect Beneficial Ownership. This includes the disclosure of accounts held by members of your immediate family sharing the same household (i.e., a spouse and children) etc. Information must be current within 45 days prior to the day the report is submitted. 7 TRUSCO CAPITAL MANAGEMENT, INC. CODE OF ETHICS AND PERSONAL TRADING POLICY Reports to include: - The title and type of security, and as applicable the exchange ticker symbol or CUSIP number, number of shares, and principal amount of each Covered Security in which the Access Person has any direct or indirect Beneficial Ownership; - The name of any broker, dealer or bank with which the Access Person maintains an account in which any securities are held for the direct or indirect benefit of the Access Person; and - The date the Access Person submits the report (2) Quarterly Transaction Report-Each Access Person shall report transactions in Covered Securities where beneficial ownership exists within 20 days of each calendar quarter end. Reports to include: - For each Covered Security the date of the transaction, the title, and as applicable its exchange ticker symbol or CUSIP number, interest rate and maturity date, number of shares and principal amount; - The nature of the transaction (i.e., purchase, sale or any other type of acquisition or disposition); - The transaction price; - The name of the broker, dealer or bank where the transaction was effected; - The date the Access Person submits the report; and - A disclosure of any new account(s) in which the Access Person has Beneficial Ownership (3) Initial and Annual Certifications- Each Access Person must certify initially within 10 days of his or her start date (and annually thereafter) that he or she has read, understands and recognizes that he or she is subject to the Code. (4) Outside Business Activities Certification- Each Access Person must disclose initially within 10 days of his or her start date (and annually thereafter) any outside business activity whether compensation is received or not. 8 TRUSCO CAPITAL MANAGEMENT, INC. CODE OF ETHICS AND PERSONAL TRADING POLICY (5) Duplicate Statements and Confirmations- Each Access Person must direct their securities firms to supply Adviser with copies of account statements and trade confirmations directly to: Trusco Capital Management Chief Compliance Officer P.O. Box 2137 Atlanta, GA 30301 Personal and Confidential NOTE: In instances where securities firms are unable to provide duplicate statements (examples may include 401k and stock plan accounts held outside SunTrust and investment club accounts) employees must furnish copies with their Quarterly and Annual reports. Additionally, whenever possible, Adviser will establish electronic feeds with securities firms to satisfy the duplicate statements and confirmations requirement. VI. EXCEPTION TO REPORTING OBLIGATIONS. Fully Discretionary or Managed Accounts- Access Persons may have discretionary accounts managed by an external party in which full discretionary authority has been given via a signed legal contract. For this type of account, no communication between the external investment manager and the employee with regard to investment decisions is permitted to occur prior to the investment manager's execution. Transactions and holdings in these accounts do not need to be reported to Adviser. Employees must provide the Review Officer or Chief Compliance Officer designee with a letter signed by the investment manager or other external party confirming that the account is, or will be, fully discretionary, and that the employee has no power to affect or influence investment decisions. In lieu of providing a letter, a signed copy of an Investment Advisory agreement or other legal document will suffice if all applicable points above are covered. VII. ADDITIONAL RESTRICTIONS AND REQUIREMENTS. (1) No Access Person shall give or receive any gift or other item except in accordance with the Trusco Gifts and Entertainment Policy. See Section 5.7. 9 TRUSCO CAPITAL MANAGEMENT, INC. CODE OF ETHICS AND PERSONAL TRADING POLICY (2) Generally, no Access Person may accept a position as a director or trustee of a publicly-traded company whether or not the position provides compensation in any form. Exceptions to this policy may be available with prior written approval by the Adviser (and, if applicable, by the Board of Trustees of the STI Classic Funds). (3) In the event of extended Medical or Military Leave, Access Persons should notify the Review Officer as reporting deadlines, in many cases, will continue to apply. VIII. REVIEW AND ENFORCEMENT. (1) The Review Officer shall conduct periodic spot checks to ensure that Access Persons are not attempting to knowingly front run Client trading activity by placing personal trades within 3 business days before or after Client trading, also referred to as the Blackout Period. (2) The Review Officer shall compare personal securities transactions reported pursuant to all sections of this Code with completed portfolio transactions of Clients for the relevant time period to determine whether a violation of this Code may have occurred. Before determining that a violation has been committed by any person, the Review Officer shall give such person the opportunity to supply additional explanatory material. Preclearance approval does not necessarily mean a trade is not in violation of the Code as the Review Officer does not have prior knowledge of Client trading activity occurring after preapproval is granted. Conversely, a trade that occurs during the 3 day Blackout Period is not automatically considered a violation. The Review Officer will apply subjective analysis to each transaction to determine whether a trade within the 3 day Blackout Period presents a conflict or the appearance of a conflict with trading on behalf of Clients. (3) If the Review Officer determines that a material violation of this Code may have occurred, the Review Officer shall submit such written determination, together with the information upon which the Review Officer made the determination and any additional explanatory material provided by the person, to the Adviser's Chief Compliance Officer or his/her designee. (4) If the Adviser's Chief Compliance Officer or his/her designee finds that a violation has occurred, he or she may, after determining the seriousness of the infraction, impose one or all of the following: 10 TRUSCO CAPITAL MANAGEMENT, INC. CODE OF ETHICS AND PERSONAL TRADING POLICY - Verbal Admonishment; - Written acknowledgement from the Access Person that he or she has again reviewed, fully understands and agrees to abide by the Code; - Written notice to the Access Person's Personnel and Compliance files including steps taken to ensure full compliance in the future; - Fines and/or reversals of trades, requiring fines or profits be donated to a charity and losses be the responsibility of the employee; - Partial or full restriction on all personal trading. A partial restriction is usually 6 months or more, a full restriction usually results in disallowing the employee from conducting ANY personal trading for the remainder of his or her association with the Adviser; - Suspension or termination of employment Severity of the violation and any history of non-adherence to the Code will be the basis for a determination of appropriate disciplinary action. IX. RECORDS. The Adviser shall maintain records in the manner and extent below under the conditions described in Rule 31a-2 under the Investment Company Act and Rule 204-2 of the Investment Advisers Act. As noted below, records shall be maintained in a readily accessible place for at least five years, with the first two years in an office of the Adviser: (1) A copy of each Code that has been in effect at any time during the past five years; (2) A record of any violation of the Code and of any action taken as a result of such violation for five years from the end of the fiscal year in which the violation occurred; (3) A record of all written acknowledgments (as required by Rule 204A-1) for each person who is currently, or within the past five years was an Access Person of the Adviser, shall be retained for five years after the individual ceases to be an Access Person. (4) A record of each report made by an Access Person pursuant to this Code shall be preserved for a period of not less than five years from the end of the last fiscal year in which it was made. (5) A record of all persons who have been required to make reports pursuant to this Code shall be preserved for a period of not less than five years from the end of the fiscal year in which it was made. 11 TRUSCO CAPITAL MANAGEMENT, INC. CODE OF ETHICS AND PERSONAL TRADING POLICY (6) A record of any decision, and reasons supporting the decision, to approve the acquisition of securities by Access Persons for at least five years after the end of the fiscal year in which the approval is granted. (7) A copy of each annual report to the Board of Trustees of the STI Classic Funds will be maintained for at least five years from the end of the fiscal year in which it was made. 12 EX-99.P.4 8 l26347aexv99wpw4.txt EX-99(P)(4) EXHIBIT P(4) ZEVENBERGEN CAPITAL INVESTMENTS LLC CODE OF ETHICS AND PERSONAL TRADING POLICY (EFFECTIVE OCTOBER 23, 2006) Zevenbergen Capital (ZCI) has established a Code of Ethics and Personal Trading Policy (Policy) to ensure that the fiduciary responsibility we have to our clients serves as the guiding principle in all our activities. Our policy has been developed to comply with the Investment Adviser's Act of 1940 (Rule 204A-1), the Investment Company Act of 1940 (Rule 17j-1), the Insider Trading and Securities Fraud Enforcement Act of 1988 and with consideration of guidelines established by the Investment Company Institute's 1994 Report on Personal Investing as well as the unique aspects of ZCI's business, clients and investments. This Policy helps to clearly set out: 1) that we will at all times place the interest of our clients first, 2) to provide procedures for personal securities transactions, 3) to deter the misuse of material, nonpublic information in securities transactions and 4) to establish a commitment by our entire team to comply with all securities laws and our overarching fiduciary responsibility to our clients. Every Employee must read and follow this Policy or risk serious sanctions, including dismissal, substantial personal liability and criminal penalties. If you have any questions, please contact ZCI's Chief Compliance Officer (CCO). DEFINITIONS Access Person (also, "you" or "your") - any employee of Zevenbergen Capital (except those working on a part-time, temporary or independent contractor basis, unless the positions held are responsible for portfolio management, research or trading) or non-employee director of ZCI's Board. (As ZCI's non-employee directors work for another SEC-registered investment adviser, this policy may at times distinguish application of specific policy items for employee Access Persons vs. non-employee Access Persons so as not to conflict with requirements set out for the non-employee Access Persons by their employer's own Code of Ethics and Personal Trading Policy.) Associated Person - an Access Person's spouse, household member(s), minor child(ren), domestic partner or other individuals where the employee manages the account or has beneficial interest in the account. Beneficial Interest - the opportunity, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, to profit, or share in any profit derived from, a transaction in a security and/or account. 1 STATEMENT OF PRINCIPLES Under no circumstance shall an Access Person take advantage of their position of trust and responsibility. At all times the following principles shall govern an Access Person's investments. Every ZCI Access Person shall: 1) adhere to the highest ethical standards 2) place client interests above personal interests 3) ensure that all personal securities transactions will be conducted consistent with this Policy and in such a manner as to avoid any actual or potential conflict of interest or any abuse of an individual's position of trust and responsibility 4) avoid certain types of personal securities transactions deemed to create a conflict of interest 5) not use knowledge of open, executed or pending client portfolio transactions to profit by the market effect of such transactions 6) not take advantage of any investment opportunity belonging to clients 7) conduct all personal securities transactions in a manner consistent with this Policy and with the CFA Institute's Code of Ethics and Standards of Professional Conduct 8) embrace our fiduciary responsibility to clients by holding information regarding clients' security holdings and financial circumstances as confidential 9) comply with all Federal securities laws and any laws governing our actions on behalf of clients. Technical compliance with this Policy will not automatically insulate Access Persons from scrutiny should any security transaction indicate an abuse of fiduciary duties. CFA INSTITUTE (FORMERLY KNOWN AS THE ASSOCIATION OF INVESTMENT MANAGEMENT AND RESEARCH) CODE OF ETHICS AND STANDARDS OF PROFESSIONAL CONDUCT ZCI has adopted the CFA Institute's Code of Ethics and Standards of Professional Conduct as a further commitment to the fiduciary responsibility we have to our clients and the ethical approach we will bring to our business, our industry and our profession. 2 (CFA INSTITUTE LOGO) CODE OF ETHICS AND STANDARDS OF PROFESSIONAL CONDUCT PREAMBLE This CFA institute Code of Ethics and Standards of Professional Conduct (Code and standards) are fundamental to the values of CFA Institute and essential to achieving its mission to lead the investment profession globally by setting high standards of education integrity, and professional excellence. High ethical standards are critical to maintaining the public's trust in financial markets and in the investment profession. Since their creation in the 1960s, the Code and Standards have promoted the integrity of CFA institute members and served as a model for measuring the ethics of investment professionals globally, regardless of job function, cultural differences, or local laws and regulations. All CFA institute members (including holders of the Chartered Financial Analyst(R) (CFA(R)) designation) and CFA candidates must abide by the Code and Standards and are encouraged to notify their employer of this responsibility. Violations may result in disciplinary sanctions by CFA Institute. Sanctions can include revocation of membership, candidacy in the CFA Program, and the right to use the CFA designation. THE CODE OF ETHICS Members of CFA Institute (including Chartered Financial Analyst(R) [CFA(R)] charterholders) and candidates for the CFA designation ("Members and Candidates") must: - Act with integrity, competence, diligence, respect, and in an ethical manner with the public, clients, prospective clients, employers, employees, colleagues in the investment profession, and other participants in the global capital markets. - Place the integrity of the investment profession and the interests of clients above their own personal interest. - Use reasonable care and exercise independent professional judgment when conducting investment analysis, making investment recommendations, taking investment actions, and engaging in other professional activities. - Practice and encourage others to practice in a professional and ethical manner that will reflect credit on themselves and the profession. - Promote the integrity of, and uphold the rules governing, capital markets. - Maintain and improve their professional competence and strive to maintain and improve the competence of other investment professionals. STANDARDS OF PROFESSIONAL CONDUCT I. PROFESSIONALISM A. KNOWLEDGE OF THE LAW. Members and Candidates must understand and comply with all applicable laws, rules, and regulations (including the CFA Institute Code of Ethics and Standards of Professional Conduct) of any government, regulatory organization, licensing agency, or professional association governing their professional activities. In the event of conflict, Members and Candidates must comply with the more strict law, rule, or regulation. Members and Candidates must not knowingly participate or assist in and must dissociate from any violation of such laws, rules, or regulations. B. INDEPENDENCE AND OBJECTIVITY. Members and Candidates must use reasonable care and judgment to achieve and maintain independence and objectivity in their professional activities. Members and Candidates must not offer, solicit, or accept any gift, benefit, compensation, or consideration that reasonably could be expected to compromise their own or another's independence and objectivity. C. MISREPRESENTATION. Members and Candidates must not knowingly make any misrepresentations relating to investment analysis, recommendations, actions, or other professional activities. D. MISCONDUCT. Members and Candidates must not engage in any professional conduct involving dishonesty, fraud, or deceit or commit any act that reflects adversely on their professional reputation, integrity, or competence. II. INTEGRITY OF CAPITAL MARKETS A. MATERIAL NONPUBLIC INFORMATION. Members and Candidates who possess material nonpublic information that could affect the value of an investment must not act or cause others to act on the information. B. MARKET MANIPULATION. Members and Candidates must not engage in practices that distort prices or artificially inflate trading volume with the intent to mislead market participants. III. DUTIES OF CLIENTS A. LOYALTY, PRUDENCE, AND CARE. Members and Candidates have a duty of loyalty to their clients and must act with reasonable care and exercise prudent judgment. Members and Candidates must act for the benefit of their clients and place their clients' interests before their employer's or their own interests. In relationships with clients, Members and Candidates must determine applicable fiduciary duty and must comply with such duty to persons an interests to whom it is owed. (C) 2005 CFA Institute 3 STANDARDS OF PROFESSIONAL CONDUCT CONTINUED B. FAIR DEALING. Members and Candidates must deal fairly and objectively with all clients when providing investment analysis, making investment recommendations, taking investment action, or engaging in other professional activities. C. SUITABILITY. 1. When Members and Candidates are in an advisory relationship with a client, they must: A. Make a reasonable inquiry into a client's or prospective clients' investment experience, risk and return objectives, and financial constraints prior to making any investment recommendation or taking investment action and must reassess and update this information regularly. B. Determine that an investment is suitable to the client's financial situation and consistent with the client's written objectives, mandates, and constraints before making an investment recommendation or taking investment action. C. Judge the suitability of Investments in the context of the client's total portfolio. 2. When Members and Candidates are responsible for managing a portfolio to a specific mandate, strategy, or style, they must only make investment recommendations or take investment actions that are consistent with the stated objectives and constraints of the portfolio. D. PERFORMANCE PRESENTATION. When communicating investment performance information. Members or Candidates must make reasonable efforts to ensure that it is fair, accurate, and complete. E. PRESERVATION OF CONFIDENTIALITY. Members and Candidates must keep information about current, former, and prospective clients confidential unless: 1. The information concerns illegal activities on the part of the client or prospective client. 2. Disclosure is required by law. 3. The client or prospective client permits disclosure of the information. IV. DUTIES TO EMPLOYERS A. LOYALTY. In matters related to their employment, Members and Candidates must act for the benefit of their employer and not deprive their employer of the advantage of their skills and abilities, divulge confidential information, or otherwise cause harm to their employer. B. ADDITIONAL COMPENSATION ARRANGEMENTS. Members and Candidates must not accept gifts, benefits, compensation, or consideration that competes with, or might reasonably be expected to create a conflict of interest with, their employer's interest unless they obtain written consent from all parties involved. C. RESPONSIBILITIES OF SUPERVISORS. Members and Candidates must make reasonable efforts to detect and prevent violations of applicable laws, rules regulations, and the Code and Standards by anyone subject to their supervision or authority. V. INVESTMENT ANALYSIS, RECOMMENDATIONS, AND ACTION A. DILIGENCE AND REASONABLE BASIS. Members and Candidates must: 1. Exercise diligence, independence, and thoroughness in analyzing investments, making investment recommendations, and taking investment actions. 2. Have a reasonable and adequate basis, supported by appropriate research and investigation, for any investment analysis, recommendation, or action. B. COMMUNICATION WITH CLIENTS AND PROSPECTIVE CLIENTS. Members and Candidates must. 1. Disclose to clients and prospective clients the basic format and general principles of the investment processes used to analyze investments, select securities, and construct portfolios and must promptly disclose any changes that might materially affect those processes. 2. Use reasonable judgment in identifying which factors are important to their investment analyses, recommendations, or actions and include those factors in communications with clients and prospective clients. 3. Distinguish between fact and opinion in the presentation of investment analysis and recommendations. C. RECORD RETENTION. Members and Candidates must develop and maintain appropriate records to support their investment analysis, recommendations, actions, and other investment-related communications with clients and prospective clients. VI. CONFLICTS OF INTEREST A. DISCLOSURE OF CONFLICTS. Members and Candidates must make full and fair disclosure of all matters that could reasonably be expected to impair their independence and objectivity or interfere with respective duties to their clients, prospective clients, and employer. Members and Candidates must ensure that such disclosures are prominent, are delivered in plain language, and communicate the relevant information effectively. B. PRIORITY OF TRANSACTIONS. Investment transactions for clients and employers must have priority over investment transactions in which a Member or Candidate is the beneficial owner. C. REFERRAL FEES. Members and Candidates must disclose to their employer, clients, and prospective clients, as appropriate, any compensation, consideration, or benefit received from, or paid to, others for the recommendation of products or services. VII. RESPONSIBILITIES AS A CFA INSTITUTE MEMBER OR CFA CANDIDATE A. CONDUCT AS MEMBERS AND CANDIDATES IN THE CFA PROGRAM. Members and Candidates must not engage in any conduct that compromises the reputation or integrity of CFA Institute or the CFA designation or the integrity, validity, or security of the CFA examinations. B. REFERENCE TO CFA INSTITUTE, THE CFA DESIGNATION, AND THE CFA PROGRAM. When referring to CFA Institute, CFA Institute membership, the CFA designation, or candidacy in the CFA Program, Members and Candidates must not misrepresent or exaggerate the meaning or implications of membership in CFA Institute, holding the CFA designation, or candidacy in the CFA Program. 4 CONFLICTS OF INTEREST Associations with Other Companies Access Persons shall disclose any potential conflicts of interest, including the existence of any substantial economic relationship (to include beneficial interest) with any other company, public or private. No one shall serve as a director or officer of another company without prior, written authorization from the Board of Directors of ZCI based upon a determination that such officer or board service would be consistent with the interests of ZCI and its clients. If officer or board service is authorized, you shall be isolated from investment making decisions of ZCI with respect to the company for which you are serving as an officer or director. You will also be restricted from sharing any material, nonpublic information relating to the company. Political and Charitable Contributions ZCI and its Access Persons shall not make charitable or political contributions for the express purpose of obtaining or retaining advisory contracts with philanthropic or governmental entities ("pay to play"). This does not limit ZCI or an Access Person from making a charitable or political contribution based on personal philanthropic or political reasons. However, all political contributions to be made by ZCI or its Employee Access Persons must first be cleared by the CCO to ensure compliance with all applicable laws. Gifts and Entertainment ZCI and its Employee Access Persons should not accept inappropriate gifts, favors, entertainment, special accommodations, or other things of material value that could influence their decisions-making or make them feel beholden to a person or firm. Similarly, ZCI and its Employee Access Persons should not offer gifts, favors, entertainment or other things of value that could be viewed as overly generous or aimed at influencing decision-making or making a client feel beholden to ZCI or to you. Gifts (defined as items given/received where the recipient does not pay fair market value) of nominal value (i.e. whose reasonable value is no more than $100 a year), may be accepted. In conjunction with their responsibilities at ZCI, on occasion, ZCI Access Persons may be offered, or may receive without notice, gifts from clients, brokers, vendors, or other individuals or entities that are valued in excess of $100. In order to maintain impartial relationships, acceptance of such gifts is not permitted. If you receive any gift that might be prohibited under this Policy, immediately inform the CCO. Generally, ZCI and its Employee Access Persons may not give gifts (as defined above) with an aggregate value in excess of $250 per year to persons associated with securities or financial organizations, including exchanges, other investment advisers, news media, clients, or other individuals/entities with which ZCI does business (calculation of this amount excludes the cost of Seattle Mariners tickets that are shared with clients, prospective clients, vendors, etc. by ZCI). Sometimes circumstances may exist where a gift or entertainment request falls outside of these guidelines and additional review or consideration is warranted. These circumstances must be submitted to the CCO for review and approval. Calculation of gift amounts under this policy shall begin with the 2006 calendar year. Unsolicited promotional material (such as cards, pens, t-shirts, hats, etc.) that is general in nature and incidental in value is not considered a gift under this policy. In addition to the gift guidelines provided above, the following gifts are never permissible to give or accept: - Cash, items redeemable for cash, cash equivalents or securities - An arrangement of "quid pro quo," (i.e., "something for something") - Any gift which is illegal or results in any violation of law such as ERISA, Taft Hartley, State Statutes, etc. - Gifts to anyone who threatens or has submitted a complaint about an employee or ZCI 5 With regard to entertainment (defined as an activity with a ZCI Employee Access Person present), ZCI and its Employee Access Persons are permitted to both entertain and be entertained provided the entertainment is not excessive in value or frequency, and only to foster and promote business relationships. Should a client's or prospective client's policies, investment guidelines or governing regulations (i.e. ERISA, Taft Hartley, etc.) specifically address the giving or accepting of gifts and/or entertainment, then ZCI shall follow whichever standard is more conservative. To ensure ZCI's compliance with this gift and entertainment policy, ZCI Employee Access Persons will be responsible for providing as part of their quarterly compliance certification, a list of each gift and or/entertainment given or received during the quarter (the Employee Access Person responsible for such reporting will be the one initiating/receiving the gift, or entertaining/being entertained, not the Employee Access Person who may have responsibility for paying for such gifts or entertainment). If such entertainment is shared, then an estimate of the Employee Access Person's pro-rated share of the entertainment should be noted. A designated ZCI Employee Access Person will be responsible for recording gifts given to the firm (as opposed to an Employee Access Person, individually) and estimating the per person value of the gift and reporting such to the CCO separately each quarter. These guidelines are not intended to govern entertainment provided, or gifts given to its Employee Access Persons (or their immediate family members) by ZCI. Special attention should also be given to gifts or entertainment shared with any union officials. Zevenbergen Capital is responsible for additional reporting to the Department of Labor of such items. The above mentioned quarterly compliance certification will provide for separate delineation of any such gifts or entertainment to facilitate the firm's required annual reporting (LM-10). PERSONAL SECURITIES TRADING Zevenbergen Capital encourages Access Persons to invest their retirement and/or other accounts as appropriate for their individual circumstances and within the standards set forth in this Policy. Disclosure of Securities Holdings and Brokerage Accounts Access Persons shall disclose all reportable investments in which they or an Associated Person has a beneficial interest (including, but not limited to, private placements, non-public securities, warrants, venture capital, derivatives, paper stock and bonds) upon employment with ZCI or designation as an Access person under this policy and within 30 days of each calendar year-end. Such disclosure shall include information on reportable investments that is not more than 45 days old at the time of employment or becoming an Access Person under this Policy and upon submission of annual reporting. Additionally, all Access Persons must notify the CCO in writing at the end of each quarter when providing your quarterly Report of Personal Investment Transactions if you or an Associated Person open a brokerage account or receive securities (through gifting or other means) during the quarter for which you are reporting. Losses ZCI will not bear any responsibility for losses resulting from personal investments or disciplinary actions as a result of this Policy. 6 High-Risk Trading Activities Certain trading activities conducted by an Access Person may be high-risk, not only because of the nature of the securities transactions themselves, but also because of the potential that the action necessary to close out the transaction(s) may become prohibited by specific requirements of this Policy. You should understand that sales and trading in derivative instruments involve special risks (ex. greater price volatility than the underlying security). Commissions Employee Access Persons' commissions on security transactions shall be no lower than the highest commission structure negotiated by ZCI on behalf of clients with the same broker. The CCO must approve any exceptions. Prohibited Transactions Access and Associated Persons are prohibited from the following transactions (please note exception for Non-Employee Access Persons with regard to mutual funds below): - - Acquiring any equity or equity-related securities in an Initial Public Offering (IPO). This represents a clear potential for conflict between the interests of Access Persons and clients. Opportunities to invest in IPOs should be reserved solely for clients. IPO shares may be purchased once they are available on the open market (usually the next business day), assuming all other employee-trading guidelines have been met. - - Profiting in the purchase and sale, or sale and purchase of securities, including mutual funds managed by ZCI or an affiliate of ZCI, within (60) sixty calendar days of the original transaction (except for "No Knowledge" Accounts as more fully described under the "Exemptions from Pre-Clearance Requirements" section of this Policy). With regard to mutual funds held within an Employee Access Person's 401k, this limitation restricts re-allocation of already invested monies among funds within the 401k to once every 60 days (this does not however, restrict re-allocation among funds for future contributions within your 401k). Should an extenuating circumstance require that an employee Access Person re-allocate already invested monies among funds in their 40lk more than once in a 60 day period, an exception may be granted by either ZCI's CCO or the President. Any profits realized on short-term trades are required to be disgorged. Non-Employee Access Persons shall be subject to trading restrictions imposed by their employer with regard to mutual funds managed by ZCI and its affiliates. - - Buying or selling securities for an Access or Associated Person's account ahead of client trades in order to receive a better price (front-running); - - Purchasing securities already held by an Access or Associated Person, for a client to protect or improve the securities value in an Access or Associated Person's account (could be used to avoid a personal margin call); - - Taking an investment opportunity from a client for the Access or Associated Person's own account; - - Transactions designed to profit by market effect of the firm's advice to its clients; - - Transactions intended to impact the price of any security; - - Transactions intended to create a false appearance of trading; and - - Using advance knowledge of securities being considered for client accounts for personal benefit. 7 Private Placements (to include venture capital) ZCI currently invests solely in securities of public companies for clients. However, ZCI and its Access or Associated Persons may invest in private placement securities (i.e. securities that are not registered under the Securities Act of 1933 and are issued by a private company), including venture capital, subject to prior written approval. For Access or Associated Persons wishing to acquire securities in a private placement, a copy of the proposed investment's private placement memorandum or other investment description must be provided along with a private placement and private offering approval form, to the CCO. Taking into account potential conflicts of interest, the CCO and a Portfolio Manager will review the private placement, considering, among other factors, whether the opportunity being offered is a reward for past business, offered to influence future business, or otherwise related to the Access Person's position with ZCI. The issue will also be reviewed to determine if any of ZCI's clients currently own the security. If a client currently owns a private placement security that ZCI or an Access or Associated Person is reviewing for purchase, ZCI or the Access or Associated Person may not purchase the security unless; 1) it is determined that the opportunity to invest in the private placement is not being offered because of a client's ownership of securities of the same issuer, or 2) ZCI discloses to the client(s) that ZCI or an Access or Associated Person has the opportunity to invest in private placement securities of the same issuer and the client(s) provide their written consent prior to any transaction. ZCI or its Access or Associated Persons shall not purchase any private placement securities of an issuer if the investment opportunity is conditioned upon, or related to; 1) ZCI directing brokerage business from clients to the private placement agent or an affiliate or, 2) ZCI making investments in, or recommending, any securities of the issuer. Records will be maintained of each review and the rationale supporting the decision made. Access and Associated Persons who have received written authorization to acquire a private placement, shall be responsible for informing the CCO immediately regarding any change in the status of the private placement, including but not limited to any liquidity event, merger or acquisition, foreclosure or the company's decision to proceed with an IPO. Private placement securities may not be purchased or otherwise acquired once an issuer initiates the registration of its IPO. If you already hold shares in a private company that initiates the registration process for an IPO, you must notify the CCO that the registration process has begun. In such circumstances, the decision to purchase securities of the issuer for clients will be subject to an independent review by a Portfolio Manager with no personal interest in the security or issuer. Consideration will also be made as to the timing of any liquidation of the securities held by ZCI or an Access or Associated Person. If a private placement security is liquidated prior to an IPO, ZCI (but not Access or Associated Persons) may purchase securities in the IPO for clients, provided the opportunity to invest in the private placement was not connected to the IPO purchase. If the private placement security is liquidated in the issuer's IPO pursuant to registration rights or otherwise, no IPO shares shall be purchased for clients, unless ZCI receives prior written consent from all participating clients, to sell its private placement securities in the IPO. ZCI will not sell any private placement securities to a client. ZCI may purchase and sell, on behalf of clients, publicly-offered securities of companies that also issued private placement securities currently held by ZCI or an Access or Associated Person, provided that; 1) ZCI determines that the investment is consistent with the client's investment objective, policies and restrictions, 2) no private placement securities are sold for 60 days before or after any purchases of publicly-offered securities of the same issuer for ZCI clients, and 3) ZCI discloses in its Form ADV that it may purchase, on behalf of clients, publicly offered securities of an issuer that also issued private placement securities currently held by ZCI or an Access or Associated Person. 8 ZCI will annually review any investments in private placement securities and any decisions to purchase securities of the same issuer for clients. In analyzing these transactions, ZCI shall review the facts and circumstances of the investments, including the investments in private placement securities that were made, the percentage of issuers of private placement securities held by ZCI and/or Access or Associated Persons that are also purchased for clients and the timing of ZCI's purchases and sales of private placement securities and the purchases and sales of other securities of the issuer for clients. Trades in Securities Not Held By Clients Access and Associated Persons may hold equity, or equity related securities that are not held by clients. However, by virtue of their job responsibilities (including making purchase and sale decisions and/or recommendations for clients) Portfolio Managers, Research Analysts and their Associated Persons will be held to a higher standard regarding trades in securities not held by clients. In addition to submitting a Compliance Trade Ticket, Portfolio Managers and Research Analysts must include a brief statement, provided by the Research Analyst responsible for the sector in which the security falls, stating why ZCI is not purchasing that particular security for client accounts (one copy of the statement will be kept with the trade ticket, another copy will be held in a separate file). If a decision is made to purchase that security on behalf of clients in the future, the Portfolio Manager or Research Analyst making the decision and/or recommendation will provide an email to the CCO explaining why that security is now appropriate for clients (a Trading Associate will restrict the security in MOXY to serve as a reminder). Pre-Clearance Procedures for Personal Securities Transactions The following procedures shall govern personal securities transactions of all Employee Access Persons and their Associated Persons. Non-Employee Access Persons and their Associated Persons are exempt from these outlined pre-clearance procedures for personal securities transactions in so much as they have no day-to-day access to ZCI client securities holdings or ZCI's security trading activity in client accounts. Should the CCO determine that at any time in the future, Non-Employee Access Persons are given access or gain knowledge of ZCI's day-to-day investment activities on behalf of clients, then the CCO can require full compliance with these personal securities transaction procedures by Non-Employee Access Persons and their Associated Persons. 1. No Employee Access Persons trades, or those of their Associated Persons, will be executed for securities that have been traded for clients on that day (regardless of whether or not the Access Person or their Associated Person is trying to buy and ZCI is selling for clients or vice versa). 2. Employee Access Persons or their Associated Persons shall complete a Compliance Trade Ticket ("Trade Ticket") for every security transaction in which they wish to execute a trade. Trade Tickets must be filled out with all relevant information prior to being given to the CCO. 3. The Trade Ticket will include the following information: the name of the security, the number of shares, and the nature of the transaction (buy or sell), the date of the transaction, the account number, and the name of the broker/dealer or bank where the account is held. 4. A Portfolio Manager must review the ticket for approval and signature. If the Portfolio Manager determines the security is in the process of being actively bought or sold for clients, the security transaction will not be approved. 5. After securing a Portfolio Manager's approving signature, the CCO must review the ticket for approval and signature. Trade Tickets will be given to the CCO for approval prior to 12:30 p.m. Pacific Time (and only on days that the NYSE is open). The CCO will review the trade ticket for completeness and verify that no purchases or sells have been entered for clients. Trades must be entered between 12:30 p.m. Pacific Time and the close of the market at 1:00 p.m. Pacific Time. For days that the NYSE closes early, trades will be entered within the half-hour before the market closes. 6. Trade tickets MUST carry the pre-approving signature of a Portfolio Manager. However, in the absence of the CCO (or in place of the CCO if he/she is placing a trade for their own account), the Trade Ticket may carry a secondary approval signature from the President or a Managing Director of ZCI or a designated 9 employee with like responsibility. That individual will have all responsibilities of the CCO in acting on their behalf. 7. The CCO will hold trade tickets until 12:30 p.m. (or one-half hour prior to the market close on days when the NYSE closes early) and then return the ticket to the appropriate Employee Access Person for appropriate order entry. 8. Once the Employee Access Person or their Associated Person enters the trade, they are to initial the ticket as such and time stamp the Trade Ticket immediately following entry of the order. 9. Employee Access Persons and their Associated Persons may use an email format rather than a trade ticket, as long as all the required information is included and appropriate signatures obtained. 10. In some isolated instances, a Portfolio Manager or the CCO may refuse to authorize a securities transaction for a reason that is confidential; in those instances, an explanation is not required. 11. If, despite best efforts, an Employee Access Person's or their Associated Person's trade has been entered after 12:30 p.m. and then a client trade is entered for the same security at the end of the day, the Employee trade will not be canceled unless it was an intentional violation or there was a material impact to the price of the security bought or sold for the client. 12. For Employee Access Persons or their Associated Persons wishing to purchase or sell mutual fund shares outside of their 401k for those funds where ZCI, or an affiliate of ZCI, provides direct investment advisory services, trade tickets will be completed as described above, but will indicate the dollar amount of the investment rather than shares. Transactions (either purchases or sales) for these funds will be allowed ONLY on the second Friday of each month. (If the second Friday of the month is a holiday, then trades will be allowed on the next business day.) Trade tickets for these transactions do not require the approval signature of a Portfolio Manager. All other procedures will mirror those followed for other security transactions. 13. Employee Access Persons that participate in ZCI's 401k retirement plan, by virtue of the Plan's investment options, will have the choice of investing in proprietary mutual funds (those managed by ZCI or ZCI's affiliate). Therefore, should you elect to change the allocation of monies already invested in your 401k you must complete a 401k Execution Form and provide it to the CCO on the day you make a change to your 40lk allocation (this reporting requirement does NOT pertain to changes you may make to allocations of future monies you will be investing in your 401k). Employee Access Persons' 401k allocation changes are restricted to every 60 days to mirror our short-term trading restriction for all other securities and to avoid any market timing abuse (see "Prohibited Transactions" for further details). Reporting, Record Keeping and Review Procedures 1. Employee Access Persons must provide ZCI with brokerage account statements containing information as required by Section 204-2(a)(12) of the Investment Advisers Act of 1940, including name of Employee Access Person or their Associated Person, security, number of shares, nature of the transaction (purchase or sale), date trade was executed, price trade was executed at and the broker/dealer the trade was executed through. For Employee Access Persons participating in ZCI's 401k plan, an account statement must be provided quarterly. Non-Employee Access Persons may choose to provide a transaction report in place of brokerage statements and 401k statements, such transaction report must contain the same information stated above. 2. Records of Access and Associated Persons transactions must be provided no later than 30 days after the end of the calendar quarter in which the transaction was executed. ZCI will be considered to have made the required record under 204-2(a)(12) if, 1) ZCI receives an account statement, trade confirmation or transaction report within 30 days of quarter-end, and 2) the account statement, confirmation or transaction report contains all required information. 3. ZCI will maintain an exception ledger recording any Access Persons trading activity not in compliance with this Policy. The exception ledger will contain the name of the Access Person, the security, the number of shares, the nature of the transaction (purchase or sale), date trade was executed, price trade was executed at, broker/dealer trade was executed through and the best client execution price, details surrounding the excepted transaction and details of resolution to the exception. 4. The CCO will review Employee Access Persons' and their Associated Persons' trades and the President or a Managing Director of ZCI will review the CCO's transactions. Quarterly, the President of ZCI will further 10 review any material exceptions and a determination will be made as to whether profits should be disbursed and/or disciplinary action taken. 5. ZCI will request a quarterly Report of Personal Investment Transactions from every Access Person that all personal trades have been made within the guidelines of this Policy and that the CCO has been notified of any new accounts and/or investments of the Access and Associated Persons. 6. All Employee Access Persons and their Associated Persons must request that the custodians of their accounts provide Zevenbergen Capital with duplicate copies of confirmations and statements of all securities transactions in a timely manner. Employee Access Persons 401k accounts with ZCI are exempt from this requirement. 7. Access and Associated Persons brokerage statements will be treated with strict confidentiality, but statements may be made available to the following upon request; ZCI's President, Managing Directors, Board of Directors, designated legal counsel, consultants and auditors hired by ZCI, affiliates and/or the Securities and Exchange Commission or as otherwise required by law. 8. Any material revisions to this Policy will be provided to all Access Persons immediately, with receipt of such revisions being acknowledged in writing by all Access Persons. Absent any changes, this Policy will be provided to all Access Persons annually with Access Persons providing written acknowledgement of such. 9. All records associated with this Policy will be kept for a minimum of five years following the end of the calendar year to which the records were related (including policies, statements, acknowledgements, Reports of Personal Investment Transactions and Trade Tickets, etc.) with the two most recent years onsite. Exemptions from Pre-Clearance Requirements The following securities transactions are exempt from ZCI's required pre-clearance compliance procedures outlined earlier in this Policy. However, they are still reportable to ZCI as detailed in the Reporting, Recordkeeping and Review procedures described above: 1. Certain Corporate Actions - any acquisition of securities through stock dividends, dividend reinvestments, stock splits, reverse stock splits, mergers, consolidations, recapitalizations, spin-offs, or other similar corporate reorganizations or distributions generally applicable to all holders of the same class of securities; 2. Systematic Investment Plans - any acquisition of a security pursuant to a systematic investment plan that has previously been approved pursuant to this Policy. A systematic investment plan is one in which a prescribed investment will be made automatically on a regular, predetermined basis without affirmative action by the Access or Associated Person; 3. Options-Related Activity - any acquisition or disposition of a security in connection with an option-related securities transaction that has been previously approved pursuant to this Policy. For example, if an Access or Associated receives approval to write a covered call, and the call is later exercised, no further approval is necessary; 4. Commodities, Futures and Options on Futures - any security transaction involving commodities, futures (including currency futures and futures on securities comprising part of a broad-based, publicly traded market based index of stocks) and options on futures; 5. Rights - any acquisition of securities through the exercise of rights issued by an issuer pro rata to all holders of a class of its securities, to the extent the rights were acquired in the issue; 6. "No Knowledge" Accounts - accounts over which the Access Person has no direct or indirect influence or control; where the Access Person has no knowledge of transactions before they are completed and is neither consulted nor advised of trades before they are executed. Examples of such accounts may include: 1) investment partnerships or investment clubs, where the Access Person does not provide recommendations and is neither consulted nor advised of trades before they are executed, and 2) accounts held by Associated Persons, where the Access Person does not provide recommendations and is neither consulted nor advised of trades before they are executed, or 3) accounts of Access or Associated Persons where discretionary authority has been formally given to a third party for management of the account (i.e. investment advisory relationship). These "No Knowledge" accounts will be reviewed for trading irregularities on a regular basis. If necessary, the CCO may impose further restrictions and safeguards on a case-by-case basis. In addition to normal reporting requirements under this Policy, Access Persons shall be required to submit an annual written statement for such account(s) certifying that they have no direct or indirect influence or control over the account in question. 11 Exemptions from Pre-Clearance and Reporting Requirements As these securities present little opportunity for improper trading, the following securities are exempt from both ZCI's pre-clearance procedures and reporting, recordkeeping and review requirements described earlier in this Policy: - Transactions and holdings in direct obligations of the Government of the United States; - Transactions and holdings in money market instruments -- banker's acceptances, bank certificates of deposits, commercial paper and high quality short-term (issuance less than 366 days) debt instruments including repurchase agreements; - Transactions and holdings in money market funds; - Transactions and holdings in U.S. registered open-end mutual funds (except those advised by ZCI or an affiliate of ZCI, as described earlier), and - Transactions and holdings in a unit investment trust if the unit investment trust is invested exclusively in unaffiliated mutual funds, to include interests in variable insurance products or variable annuities. Sanctions for Personal Trading Violations If it is determined that a material, intentional violation of this Policy has occurred, the President of ZCI will be notified immediately and appropriate sanctions will be imposed which may include disbursement of profits, censure, suspension or termination of employment, depending on the severity and circumstances. If the trade did not cause an adverse effect for a client of ZCI, but was an intentional violation of this Policy, ZCI need not provide a warning and may terminate the Employee without notice. If the trade is of criminal nature, the appropriate regulatory authorities will be notified. Disbursement of Profits In situations where material, non-compliant trades occur, the following will apply: - Tax-Exempt Loss on Non-Compliant Trade: No further action is necessary. - Tax-Exempt Profit on Non-Compliant Trade: Access Person will pay to Zevenbergen Capital the amount of the profit (from a source other than the tax-exempt account). - Taxable Loss on Non-Compliant Trade: Access Person will pay to Zevenbergen Capital the amount of taxable benefit realized. - Taxable Profit on Non-Compliant Trade: Access Person will pay to Zevenbergen Capital for amount of the profit. Any payments Zevenbergen Capital receives as disbursement of profits on noncompliant trades will be clearly identified and segregated for accounting purposes. The proceeds will be used for charitable donations but Zevenbergen Capital will not receive any taxable benefit for those donations. 12 INSIDER TRADING Access or Associated Persons of Zevenbergen Capital may not trade a security while in possession of material, nonpublic information related to that security ("insider trading"); nor may Access or Associated Persons communicate material, nonpublic information to others. This policy applies to transactions and information within and outside of an Access Person's duties at ZCI. Material Information Trading on inside information alone is not a basis for liability unless the information is material. Information is "material" when there is a substantial likelihood that a reasonable investor would consider it important in making an investment decision. Generally, this is information that if disclosed, will have a substantial effect on the price of a company's securities. Unfortunately, there is no simple test to determine whether information is material. For this reason you should direct any questions about whether information is material to the CCO. The mere fact that an individual traded on the basis of information may contribute to the conclusion that the information was material. If there is any question, always err on the side of assuming information is material. The following list, while not exhaustive, are items that might be considered material: dividend changes, changes in previously released earnings estimates, significant merger or acquisition proposals or agreements, major litigation, the acquisition or loss of a contract, a change in control or significant change in management, a call of securities for redemption, the purchase or sale of a significant asset, a change in capital investment plans, labor disputes, stock buy-backs and/or a tender offer for another company's securities. Note that material information may be information about either adverse or positive developments or conditions, and it may even relate to possible future events. Public Information Information is "public" when it has been dispersed broadly to investors in the marketplace. Tangible evidence of such disbursement is the best indication that the information is public. For example, information is public after it has become generally available through a public filing with the SEC (or other governmental agency), the Dow Jones "tape", the Wall Street Journal or other publications of general circulation. Information is considered "nonpublic" until it has been effectively communicated to the market place. An individual must be able to point to some fact to show that the information is generally public. In general, you may assume that information in reports filed with the SEC or research reports issued by a brokerage firm is public. If, however, it comes to your attention that there is particularly significant information included in the filing or report that has not otherwise been disclosed to the public, then you should not make purchases, sales or recommendations on the basis of that information. Once information has become public, insiders and those with inside information must wait to trade until the market has absorbed the information; the waiting period is at least twenty-four hours, and in some situations longer. Tender offers (a broad solicitation by a company or a third party to purchase a substantial percentage of a target company's shares) raise concerns related to insider trading for two reasons. First, tender offer trading often results in extraordinary volatility in the price of the target company's securities. Trading during this time is more likely to attract regulatory attention. Second, the SEC has adopted a rule that expressly forbids trading and "tipping" while in possession of material, nonpublic information regarding a tender offer. Access and Associated Persons should exercise extra caution any time they become aware of material nonpublic information relating to a tender offer. Any knowledge, or potential knowledge, of material non-public information is a serious issue and should be immediately reported to the CCO. Once a determination has been made that information is material and nonpublic, no transactions should be made, or recommended, on behalf of yourself or an Associated Person in the security about which this information is known. Do not communicate the information to anyone (other than to ZCI's CCO, President or designated legal counsel), inside or outside of ZCI. Furthermore, access to any sources containing material nonpublic information will be restricted (i.e. lock files, restrict computer access). 13 If the information is determined to be material and nonpublic, a decision will be made either to place the security on a restricted list (thereby prohibiting its purchase and sale by ZCI and any Access or Associated Persons) or to prevent the flow of such information to any other persons within ZCI to allow Portfolio Managers to remain uncompromised. Sanctions for Insider Trading Violations Criminal sanctions for trading on material, nonpublic information may, include significant fines and/or imprisonment. The Securities and Exchange Commission can recover more than the profits gained or losses avoided through insider trading, such recoveries can be significant. The SEC may also issue an order permanently barring the Access Person from the securities industry. Additionally, any individual or entity that traded on the other side of the market at the same time could sue the Access Person and/or ZCI. Insider trading will also result in immediate dismissal of the Access Person(s) involved. VIOLATIONS OF THIS POLICY Should an Access Person suspect that any violation of this Policy has occurred (whether it is with regard to conduct, personal trading activities, etc.); they are to report such violations to the CCO immediately. Should you suspect a violation of this Policy by the CCO, such report should be made to ZCI's President. ZCI takes any violation of this Policy with the utmost seriousness and to ensure an environment of open communication with respect to such issues, no retribution or consequences will occur as a result of someone merely reporting such violation. ZEVENBERGEN CAPITAL BOARD OF DIRECTORS - REVIEW At least annually, the CCO shall provide a report to ZCI's Board of Directors summarizing this Policy and any procedural changes made in the last year. A report of any material violation that occurred during the past year that resulted in a disciplinary action will also be included with the name of the securities involved, the date of the violation, the date the investigation began, the accounts/Access Person(s) involved, actions taken as a result of the investigations, and any recommendations for further action. CERTIFICATION OF COMPLIANCE WITH THIS POLICY ZCI shall give a copy of this Policy to all Access Persons upon employment and annually thereafter. A copy of this Policy shall also be provided whenever a material amendment to the Policy is made. Upon initial receipt, annual updates and or amendments to this Policy, all Access Persons shall certify at that time that they have read, understood and will comply with the Policy. In addition, each Access Person will certify quarterly that they have complied with all requirements of the Policy and that they have disclosed or reported all personal securities transactions required to be disclosed or reported pursuant to the requirements of this Policy. All Access Persons must verify the trading for their own personal accounts and the accounts of Associated Persons. If an Access Person and/or their Associated Persons do not have a brokerage account, they must certify that. And, annually, the certification will require Access Persons provide an updated list of all brokerage accounts and/or all reportable securities under this Policy (to include assets within their 401k at ZCI or its affiliates) for themselves and their Associated Persons. 14 -----END PRIVACY-ENHANCED MESSAGE-----