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Home My WebLink About2006 11 16 Document Referenced Regarding Regular 600Date: November 16, 2006 ATTACHED DOCUMENT WAS REFERENCED IN THE NOVEMBER 16, 2006 REGULAR RESCHEDULE BOARD OF TRUSTEES MEETING REGARDING REGULAR 600. Trusco Capital Management, Inc. City of Winter Springs General Employees' Pension Plan Third Quarter 2006 Molly Halcom Investment Manager Trusco Capital Management 407-237-4372 molly. halcom @ truscocapital.com Dianne Garcia Relationship Manager SunTrust Retirement Services 407-237-4513 dianne.garcia@suntrust.com ~ ~ ~ ~ ! ~ ~ ~ ~ ! ~ ~ ~ ~ r ~ i ~ Table of Contents Market Overview .................................. Section Portfolio Review ................................. = Section II Appendix,,...............,.... ...,...m.., .,.,..,, Sectionlll Illlr rr r r r r r1i r r I~ r r r r r Ir Ilr r r Key Q3 Themes: Fed Shifts to Neutral & Energy Prices Fall ovuices. rno, vv.~~ 's • Stocks and bonds cheered a steady Fed and falling energy prices: Large-Cap stocks, and 7z Securitized bonds (risk-adjusted) outperformed. 68 • Fed shifted to neutral but foreign central 64 banks remained focused on inflation: Bernanke and FOMC outlined their forecast of 6o moderating growth leading to lower inflation. Single-mandate central bankers, however, 56 worried about current inflation. • Oil prices retreated from record highs: Oil prices felt sharply from record nominal highs above $76/barrel, lowering prices for gasoline, home heating fuel and natural gas. The declines bolstered consumer confidence and could provide some support for upcoming holiday sales. • More evidence of housing correction: Housing continued to weaken amid falling prices and record levels of unsold homes. Lumber prices fell to five-year lows. • General economic deceleration: Economic growth continued to slow in the third quarter with mediocre job gains, slower growth in new orders, and rising inventories. However, S&P 500 operating profits growth remained in double-digits for the seventeenth consecutive quarter. • Bottom line: Investors reacted positively to relief from higher interest rates and lower energy prices amid reasonable valuations, but continued to favor assets with higher quality and sustainable growth. u• F ~_, F r ~ r ~r ~ . s ~ ~ ~ Market Snapshot .. ,.. S&P 500 Total Return 1335.85 5.7 4.1 8.5 10.8 12.3 7.0 DJIA Total Return 11679.07 5.4 6.3 10.9 13.1 10.5 8.1 Nasdaq Composite 2258.43 4.0 -3.5 2.4 5.0 8.1 8.5 Russe111000 1390.76 5.1 3.3 8.0 10.2 12.8 7.6 Russe113000 1416.48 4.6 2.6 8.0 10.2 13.0 8.1 ~ ~. ~ Russell 1000 Growth 346.65 3.9 -0.1 3.0 6.0 8.4 4.4 Russell 1000 Value 470.66 6.2 6.8 13.2 14.6 17.4 10.7 Russell TOP 200 Growth 598.85 5.3 1.5 2.9 5.8 6.6 2.5 Russell TOP 200 Value 793.50 7.3 8.4 14.1 15.5 15.9 8.2 ~ ~. ~ Russell MidCap Growth 828.73 0.9 -3.8 3.5 7.0 14.5 12.0 Russell MidCap Value 1059.68 3.5 3.0 10.8 12.3 21.4 16.6 ~ ~. ~ Russell 2000 Growth 2211.09 -1.8 -8.9 4.2 5.9 11.8 10.1 Russell 2000 Value 4013.98 2.6 -0.2 13.3 14.0 19.2 17.0 • ~ ~ ~. ~ S&P 100 620.03 7.0 5.5 8.8 9.4 7.5 3.1 S&P 400 MidCap 754.25 -1.1 -4.2 3.1 6.6 15.2 13.1 S&P 600 SmallCap 371.78 -0.9 -5.4 6.7 7.2 17.4 15.0 Russell TOP 200 568.27 6.3 4.9 8.3 10.5 11.0 5.3 Russell MidCap 2371.12 2.1 -0.5 7.1 9.6 18.2 14.8 Russell 2000 SmallCap 1803.33 0.4 -4.6 8.7 9.9 15.6 13.8 Russe113000 1416.48 4.6 2.6 8.0 10.2 13.0 8.1 Consumer Discretionary 275.84 5.0 4.5 7.6 8.9 9.3 12.5 Consumer Staples Energy 260.75 411.38 5.7 -1.7 8.8 2.5 10.5 11.7 11.0 3.5 10.2 30.6 10.7 31.1 Financials 465.83 8.0 7.9 11.3 20.5 13.7 16.5 Health Care 384.92 10.2 4.7 6.0 7.6 7.6 2.7 Industrials 306.29 -0.1 -0.1 7.0 12.3 14.1 13.6 Information Technology 336.28 8.5 -1.9 2.2 3.3 6.1 9.5 Materials 195.56 -0.5 -0.9 6.4 18.4 15.7 22.6 Telecommunication Services 143.89 10.6 10.0 25.9 25.7 17.3 -3.4 '~,Utiliies 172.33 6.1 12.1 10.8 4.8 20.2 11.2 ,~ r ~ ~ ~ ~ ~ r ~^s "Source: FactSet r `-~ r rr r . r~ r . ~ s r~ rrl ,r rr r r~ r r Moderating Growth Should Slow Future Inflation Economic momentu-n slowed, and Fed policy remained steady at the August a-td September FOMC meetings, breaking a string of 17 conseczztive i-terea.ces. Core inflation above 2~7c~ is still a concern however. Global monetary tlghte-t l -tg co-tlinttes, htzt recession risks are likely to move lowe-• in light of the steady rate polic.V and the recent decline in ener~~y p-•ices. ,. - -. •. - . Fading Fading Fading Weak housing and elevated energy process dampened consumer spending, though modest job gains and recent oil/gasoline price declines may provide a partial offset. Relatively Positive / Neutral Above-average profit growth, strong cash flow, High Neutral and need for productivity gains should continue to support capital spending, though slowing earnings growth will curb pace of future investment. Low Neutral Positive Stubborn trade deficit likely to narrow from recent record level. Exports are improving. China policy a key focus. Stable / Core Core Sharp oil price drop likely to soften headline Slightly Moderately Moderately inflation near-term. Core inflation above 2% Lower Higher Higher remains a policy concern, however. Capacity is tighter, and unit labor costs may have begun a late-cycle advance. Moderately Moderately Restrictive / Fed on hold at 5'/a% following 17 rate hikes Restrictive Restrictive Neutral since 6/30/04. Anti-inflation rhetoric continuing and "data-dependent" policy approach likely to keep markets volatile. Tax revenues enjoying cyclical growth, offset in Neutral Neutral Neutral part by stimulus from hurricane relief in addition to war costs. This perspective was prepared for clients and prospective clients of Trusco Capital Management, Inc. Neither Trusco or any affiliations make any representation or warranties as to the accuracy or merit of this analysis for individual use. Past returns are not indicative of future results. Comments and projections were based on information available at the time of writing, are for informational purposes only, are not intended as individual or specific advice, and may not be relied upon for future investing. Investors are advised to consult with their investment professional about their specific financial needs and goals before making any investment decisions. r r r~ r r rr rr irr r r ~^~r r~ r r r r^~ r~ r r Domestic Equity Markets in the Third Quarter, 2006 Value 1s°ro ia.s% 10.3°'0 outperformed 10% 3.s°~° 5.1°~, s.2°r° s.o°. s% Growth in the o% , barge-Cap space -s% -1 o°r dilrl/tg tote thll'd and quarter 2006 1 Year Ending 9/30/2006 quarter acid the ^ Russell 1000 Growth Index ^ Russell 1000 Core Index ^ Russell 1000 Value Index past year. Mid-caps trailed zoi Large-Caps for ls~° 12.3% the quarter and s.s°~~ over the past 12- 3.5% months. Value 5r' o.s°i° 2.1°i° o°r° outperformed in 3rd quarter 2006 1 Year ending 9/30/2006 hotlt pcrrodc. Russell Nid-Cap Growth Index ^ Russell Mid-Cap Core Index ^ Russell Nid-Cap Value Index Small-caps trailed both Mid zor° ° ia.o°r° 9.9% 10% ° 2.6% 5.9 /° and Large-Caps ao o.a/° in Q3. Value _10% -i.a°i° outperformed _20% ~irOl4't~l. 3rd Quarter 2006 1 Year Ending 9/30/2006 ^ Russell 2000 Growth Index ^ Russell 2000 Core Index ^ Russell 2000 Value Index Drivers of Return • Telecom, Health Care, Technology, Financials Detractors from Return • Energy, Materials, Industrials Drivers of Return • Telecom. Utilities, Financials, Technology Detractors from Return • Energy, Industrials, Materials Drivers of Return • Consumer Staples, Telecom. Utilities. Financials Detractors from Return • Energy, Industrials, Materials rr r rr ^r r rr r ~r r rr ~r r r r r rr rr rr rr International Equity Markets in the Third Quarter, 2006 International Large-Cap MSCI EAFE index lagged the S&P 500 slightly in the third quarter, while the Small- Cap EAFE index WaS rOllgltly evert with its domestic cottrtterpart. L'mer~~ing market stocks recovered following a weak Q2. Ecortorrtic growth continued to improve overseas. 2s°io 20% 1 s% l o% s°ro o% 2s % 20 % 15% 10% 5% 0% 25 20% ls% lo% International Large Cap Core Drivers of Return • Spain, Belgium, Denmark, Ireland Detractors from Return • Norway, Japan International Small Cap Drivers of Return • Ireland. Denmark, Australia, Spain Detractors from Return • Japan, Norway, France, Canada International Emerging Market Drivers of Return • India, Indonesia, China, Columbia, Mexico s.o r 5% Detractors from Return 0%~ • Argentina, Venezuela 3rd Quarter 1 Year Ending 9/30/2006 o MSCI EAFE Emerging Mkts. Index Past Performance is not indicative of future results. Please refer to appendix for full disclosure. `Source: FactSet ,9.~, 4.0% 3rd Quarter 1 Year Ending 9/30/2006 ~ MSCI EAFE Index ,s.s~,o o.s r 3rd Quarter T 1 Year Ending 9/30/2006 c7 MSCI EAFE Index Small Cap Index 2o.a o ~r r r r~ r r r ~r rr rr e r r rr r r r~ r Bond Markets in Q3, 2006 US Treasury Benchmark Security Yields 5.5 5.0 4.5 4.0 35 9/29/2006 6/30/2006 12/30/2005 9/30/2005 0 5 10 15 20 25 30 10.0 8.0 6.0 4.0 2.0 0.0 -2.0 -4.0 US Treasury Benchmark Returns ..,ail I 3Mn 6Mo 2Yr 5Yr 10Yr 30Yr ^ 3-Mos. 1.34 1.40 1.98 3.37 5.00 8.07 Y TD 3.57 3.52 2.80 1.97 0.91 -1.53 1-Yr. 4.52 4.56 3.48 2.11 1.21 -0.10 US Sector Benchmark Returns A sharp drop in oil prices, the decision by the Fed to hold short-term interest rates steady, and further evidence of decelerating growth buoyed the bond market in the third 10.0 quarter. 8.0 The yield curve shifted lower, but remained slightly 6.o inverted. The yield on the 10-year Treasury note fell nearly a.o 50 basis points to 4.63%. The downward shift in the yield curve favored longer 2~0 maturity bonds in the third quarter, though short-term o.o securities outperformed year-to-date. Agg G/G I G/C Tr Agy Cred ABS MBS HiYd Mun All major bond sectors improved in the third quarter. ^ 3-Mos. 3.81 3.91 3.19 3.68 3.23 4.50 2.86 3.62 4.07 3.33 Investment-grade Corporates and High Yield outperformed YTD 3.06 2.71 3.01 2.35 3.24 2.89 3.58 3.56 7.36 3.49 on an absolute basis, while Mortgages (Securitized) 1-Yr. 3.67 3.32 3.54 3.10 3.81 3.39 4.18 4.19 8.09 4.17 outperformed when adjusted for duration risk. 'Sources: FactSet, Lehman Brothers ~ ll r~~!Il ~~ - - rr r r i^~r lllr r lllllls l~ r r rrf r llr llr r r ll~ llllr r tion: t All A Current Strate oca sse gy NEUTRAL Neutral. Higher bond yields, inverted yield Stock Market ~ U S Bonds ~ curve, increased energy prices, and . . excessive confidence raising risks. Lar a/Small • - September 30, 2006 g ~'" Small ~ Attractive relative valuation. Flatter yield D December 31, 2005 ,_ - curve. GrowthNalue ~ o Extended value outperformance. Slowing Value earnings growth favors consistent growers. Domestic/Foreign ~ ~ Improved foreign growth prospects in Asia Foreign and Europe. Projected weaker dollar. (developed) Extended outperformance by high yield. High Yield • - - Overweight ~ Historically narrow credit spreads. U.S. Dollar ~ ~~ - Slowing economic momentum. Rising BUIIISh ~^ federal deficit. Chinese yuan revaluation. • Economic growth continuing at asub-average pace. Recession probability higher but still low; imbalances are limited, Fed policy is on hold, and energy prices have declined noticeably in August and September. However, housing will continue to slow and the pace of consumer spending will soften. CAPEX growth is likely to remain relatively firm, though profits growth will slow to single-digits and disappoint more optimistic forecasts. • Core inflation likely to trend somewhat higher in 2006 and remain a focus for policymakers. • "Data-dependent" -Economic volatility around slower growth rates will help generate market volatility. • Fed now on hold. • Valuations are reasonable though not compelling. Near-term risks are reduced given the drop in energy prices and the decline in bond yields, but 2007 profit expectations remain lofty, in our view, and vulnerable to cuts. • Neutral weighting in Equities, but still favoring quality: Large-Cap and Growth. Overweight International. • We favor increased cash positions where appropriate. Bonds, as with stocks, emphasize quality. Underweight Corporates and High Yield. New overweight in Mortgages. Performance Comparisons TOTAL PORTFOLIO Total Equity High Grade Relative Value" Russell 1000 Value Index S&P 500 Index High Grade Growth Russell 1000 Growth Index S&P 500 Index International Index MSCI-EAFE Index Mid Cap Equity Russell Mid Cap Index Small Cap Growth Russell 2000 Growth Index Small Cap Value Russell 2000 Value Index Total Fixed Income High Grade Bond Lehman Govt Credit Bond Lehman Aggregate Bond 4.30% 8.63% 11.15% 7.78% 8.68% 9.35% 4.70% 11.20% 14.65% 8.76% 9.35% 10.89% 5.45 % 11.33% 15.89% 8.47% 9.27% 10.29% 6.22% 14.62% 17.25 % 10.73% 11.20% 12.30% 5.67% 10.79% 12.30% 6.97% 8.58% 10.61% 7.34% 10.38% 8.17% 4.69% 9.59% 10.91 3.94% 6.04% 8.35% 4.42% 5.45% 8.44% 5.67% 10.79% 12.30% 6.97% 8.58% 10.61% 3.92% 19.27% 22.15% 13.81 % 8.15 % -- 3.92% 19.17% 22.32% 14.26% 6.79% 7.69% -0.05% 5.48% 16.97% 9.46% -- -- 2.11% 9.57% 18.22 % 14.81 % 11.94% 12.87% -5.39% -0.45% 12.59% 11.76% -- -- -1.76% 5.88% 11.81 % 10.15% 4.03% -- -0.94% 13.11 % 21.34% 18.98% 14.03% -- 2.55 % 14.01 % 19.04% 16.96% 13.37% 13.24% 3.60% 3.08% 2.80% 4.56% 6.37% 6.12% 3.60% 3.10% 3.04% 4.76% 6.46% 6.19% 3.91 % 3.33% 3.08% 4.96°/ 6.34% 6.08% 3.81 % 3.67% 3.38% 4.81 % 6.42% 6.21 Period Ending September 30, 2006 'Inception is 154 months "" -Inception 6/30/2002. Longer term results are linked to the Past Performance is not indicative of future results. STI Classic Growth and Income Fund to show results prior to inception. Please refer to appendix for full disclosure. Source: First Rate investment performance system ~ ~ ~ ~ r ~ ~ ~ r ~ r ~ +~ ~ r• ~ ~ ~ ~ Account Activity Summary Beginning Portfolio Market Value 6/30/06 $ 12,701,669.44 Portfolio Additions/Withdrawals Additions $ 349,648.84 Withdrawals $ (74,654.08) Total Additions/Withdrawals $ 274,994.76 Portfolio Earnings Net Accrued Income $ 528.03 Interest and Dividends $ 5, 821.24 Gains/Losses $ 545,516.62 Total Portfolio Earnings $ 551,865.89 Ending Portfolio Market Value 9/30/06 $ 13,528,530.09 Net Change $ 826,860.65 Period Ending September 30, 2006 Please refer to appendix for full disclosure. Source: First Rate investment performance system. Data includes accrued income. ~ ~ ~ ~ ~ ~ ~ ~ i ~ r ~ ~ ~ ~ ~ ~ ~ ~ Account Activity Summary Beginning Portfolio Market Value 9/30/05 Portfolio Additions/Withdrawals Additions Withdrawals Total Additions/Withdrawals Portfolio Earnings Net Accrued Income Interest and Dividends Gains/Losses Total Portfolio Earnings Ending Portfolio Market Value 9/30/06 $ 11, 251, 700.38 $ 1, 505, 020.29 $ (256, 037.83) $ 1, 248, 982.46 $ 884.82 $ 104, 536.17 $ 922, 426.26 $ 1, 027, 847.25 $ 13, 528, 530.09 Net Change $ 2,276,829.71 Period Ending September 30, 2006 Please refer to appendix for full disclosure. Source: First Rate investment performance system. Data includes accrued income. ~ ~ ~ ~ ~ +^~ ~ ~ r ~ ~ ~ ~ ~ ^~ ~ ~ ~ ~ Portfolio Composition Total C--` 0.3° Fixed Income 30.9% High Grade Relative Value High Grade Growth International Index Mid Cap Equity Small Cap Growth Small Cap Value High Grade Bond Please refer to appendix for full disclosure. $ 3,242,541 $ 3,154,568 $ 1 ,425,381 $ 843,734 $ 328,735 $ 312.153 $ 4,185,790 S 4,185.790 $ 34,320 Total Equily 68.8% 24.0% 23.3% 10.5% 6.2% 2.4% 2.3°i° 30.9% Period Ending September 30, 2006 Period Ending September 30, 2006. SunTrust Retirement High Grade Growth Fund Fund Type: I_argr, Growth - -. Value Blend Growth Annualized Large Three Year to One Three Five Ten Inception Medium Months Date Year Years Years Years 4/1 /1990 Small Fund 7.34% 7.04% 10.38% 8.17% 4.69% 9.59% 10.82% Objective and Strategy The Fund seeks capital appreciation by investing primarily in large, weu- Lipper Large Cap Growth Index 1.85% -1.14% 2.46% 7.96% 3.56% N/A N/A established domestic corporations. Ti,e Fund is designed to comply with ' • - - • guidelines that are based principally on Florida laws governing the investment of CharaCterlStlC Fund ss°o municipal retirement plans for fire. police Dividend Yeld (Current) o 1.2 /o Consumer Discretionary 10.1°0 ~ ~~o and general government employees. . EPS GrOWth (5 yr. est.) 14.3% Consumer Staples 960,0 Portfolio Data Market Capitalization ($bil) 78.3 Energy a 4~0 Cusip ....................990001273 s ago Benchmark............ S&P 500 Index Price-tO-Book 3.4x Financials 1s.a~.0 unit value .................. $60.3o P/E (12 months trailing) 20.4x 22.3' Assets (8mll) ............... S3928 Return on Equity o 20.0 /o I-leanhcare 1 ,z ~~a 8.5% 'Portfolio Characteristics are subject to change. Industrials 142°° Portfolio Manager 1° 3`' FIOtt Perny. GFA Int orrretion Technology a 24.1 °0 Top Holdings* %FUnd - Materials 29"000 Microsoft Corp. 3.8 U S Stocks 0 07 /° 96 Telecom Serv ices 0.0°0 Praxair Inc. 3.3 ............. . . Cash ..... . 93% 3 3.5°.0 ° 0' Baxter International Inc. 3.1 ................... ..... . LRilRies 3 4°0 Fund Procter & Gamble Co. 3.0 ^ Index F~psiCo Inc. 2.9 Hew lett-Packard Co. 2.8 Lockheed Martin Corp. 2.8 American Express Co. 2.7 Wells Fargo & Co. 2.7 American International Group I 2.6 "Holdings are subject to change. Period Ending September 30, 2006 SunTrust Retirement High Grade Growth Fund -continued After a weak start in July, the stock market rallied strongly on the Fed's pause in raising interest rates. While the economy has slowed somewhat, growth is still good and inflation expectations have fallen. For the quarter, the Fund was up 7.34% while the S&P 500 was up 5.67%. The best returns came from Telecommunication, Healthcare, Technology, and Financials. The weakest sectors were Energy, Materials, and Industrials. The returns benefited from both good sector allocation and good stock selection. Looking forward, the portfolio is well positioned to perform well in a period of slowing overall corporate earnings growth. Elliott Perny, CFA 2002 2003 2004 2005 2006 First Quarter 2.39% -2.02% 1.30 % -3.60% 2.19% Second Quarter -10.89% 9.57% 0.96% 0.12% -2.42% Third Quarter -14.94% 2.03% -3.40% 0.91% 7.34% Forth Quarter 4.03% 10.41 % 7.01 % 3.12% Fund -19.26% 20.94°~ 6.62% 0.43% 7.04% Lipper Large Cap Growth Index -24.20% 26.97% 7.50% 7.58% -1.14 ~e~,~~~ $50,000 ~v 1J~ ~ ~ $40,000 ~%-/ - $30, 000 ~ $20,000 s- ~„~,,,~,,,,.,, $10,000 I - - $Q l I I I 1 1 I Apr-90 Apr-92 Apr-94 Apr-96 Apr-98 Apr-00 Apr-02 Apr-04 Apr-06 Fund S&P 500 3 Year Sharpe Standard Alpha Beta R-Squared Ratio Deviation Fund -0.28 0.97 89.86 0.71 7.76 Period Ending September 30, 2006 SunTrust Retirement High Grade Relative Value Fund Fund Type: Large Value Value Blend Grow[h Large Medium Small Objective and Strategy The Fund seeks long-term capital appreciation with a secondary goal of current income by using avalue-oriented investment strategy. The Fund is designed to comply with guidelines that are based principally on Florida laws governing the investment of municipal retirement plans for fire, police and general government employees. Portfolio Data Cusip ....................990001182 Benchmark..... .. Russell Value Index Unit Value .................. $15.20 Assets ($mil) ............... X41.45 Annualized Three Year to One Two Three Inception Months Date Year Years Years 6/30/2002 Fund 5.45% 8.55% 11.33% 13.97% 15.89% 10.36% Russell Value Index 6.22°~ 13.19~~° 14.62°0 15.65°° 1725°,; 12.16°~ S&P 500 5.67% 8.53% 10.79% 11.52% 12.30% 9.26% •. - - - Characteristic Fund ~ - Dividend Yield (Current) 2.0% ~ 2.5°<, Consumer Discretionary 9.2°° a.3°'° EPS Growth (3-5 yr est ) 11 6% 9 6% Consumer Staples " °i° ° . . . . 7.7 0 Market Capitalization ($bil) 81.2 101.7 ,o.,~° ~r,ergy , 3.3' ° Price-to-Book 2.6x 2.1 x P/E (12 months trailing) 15.6x 14.1x Financials 24.3°e 5 Year Return on Equity 18.9% 16.7x Healthcare 12'5°° ° 7.6 ° Portfolio Characteristics are su bject to cha nge. 101°'° Industrial, 6.9°~° 36.7°~0 Portfolio Manager Charles B. Arrington. CFA Information Technology ~Zao 3 5°6 Top Holdings' % Fund Materials 3.4~° 3s% 1. ConocoPhilli ~s { 2 U.S. Stocks ................ 99.58°0 2 T i l S 3.0 0 . erv e ecom ces 6 2°,° 2. Pfizer 2.1 Cash ...................... 0.42% ~ Fund 3. Citigroup 2.1 Utilities a.o°o s z°° ^ Index 4. Chevron 2.1 5. Exxon Mobil 2.1 6. General Electric 1.9 7. Bank of America 1.9 8. Microsoft 1.8 9. Berkshire Hathaway B 1.8 10. Cisco Systems 1.7 'Holdings are subject to change. This fund is a common fund managed by Trusco Capital Management and trusteed by SunTrust Bank. r ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ r 1~ Period Ending September 30, 2006 SunTrust Retirement High Grade Relative Value Fund -continued Despite a rocky start in July, the market recovered and 2002 2003 2004 2005 2006 produced an uncharacteristically solid third quarter with First Quarter N/A -4.11% 2.36% 1.68% 4.00% the Russell 1000 Value Index gaining 6.2% and the Second Quarter N/A 13.45% 2.59% 1.16% -1.02% S&P 500 advancing by 5.7%. The Fund registered a Third Quarter -17.45% 2.10% 0.05% 3.94% 5.45% return of 5.5% for the period. The rally was fueled by FOUrth quarter 6 53% 14 05% 14% 9 2 57% continued strong corporate profits, an apparent Fed . . . . policy shift into neutral that also triggered a rally in Fund -12.05% 26.68% 14.67% 9.65% 8.55% bonds, and accumulating evidence of economic Russell Value Index -11.29°~ 30.03°~; 16.49°~ 7.05°:, 13.19°~ deceleration that helped to shift the emphasis away S&P 500 -10 30% 28 68% 10 88% 4 91% 8 53% from energy and commodities and towards the rest of . . . . . the market. The quarter also witnessed the long- awaited re-emergence of "mega-cap" stocks. Cyclical ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ changes both in market leadership and the economic landscape are trends we have been anticipating $16,000 $15,000 $14,000 $13,000 $12,000 $11,000 $10,000 $9,000 $8,000 $7,000 Jun Sept Dec Mar Jun Sept Dec Mar June Sept Dec Mar June Sept Dec Mar June Sept SunTrust Retirement High Grade Relative Value Russell 1000 Value r r~ rr ~r rr rr rr r rr it rr r r~ r~ rr ^r w~ r ~ Period Ending September 30, 2006 Su nTrust Retirement Mid-Cap Equity Fund Fund Type: Mid-Cap Blencl - -. Value Blend Grow[h Annualized Large Three Year to One Three Five Inception Medium Months Date Year Years Years 12/1996 Small Fund -0.05% 3.67% 5.48% 16.97% 9.46% 13.37% Russell Mid-Cap Index 2.11°~, 7.06°o 9.57°~ 18.22°~ 14.81°~ 11.40°° Objective and Strategy The Fund seeks long-term capital growth Lipper Mid-Cap Core Funds Avg. ' 0.27% 4.63% 7.27% 14.32% 11.76% 9.38% by investing in domestic corporations with 'Source: Lipper Inc. a market capitalization between $1 billion and X15 billion. The Fund is designed to . ~ ~ ~ _ _ ~ ~ _ comply with guidelines that are based principally on Florida laws governing the Characteristic Fund Index Investment of municipal retirement plans for fire, police and general government Dividend Yield (Current) 1.2% 1.4°~ Consumer Discretionary employees. EPS Growth (3 yr. hist.) 30.7% 25.9°'o Consurer Staples Portfolio Data Cusip ... ................990001653 Market Capitalization ($bil) 7.4 7.8 energy Benchmark... Russell Mid-Cap Index Price-to-Book 2.7x 2.5x Unit value ............... $34.05 P/E (12 months trailing) 16.1 x 17.8x Financials Assets ($mil) .......... .... X37.19 Return on Equity 16.7% 16.3°'o Healthcare Portfolio Mana ers 9 `Portfolio Characteristics are su hject to ch ange. Industrials Chad Deakins, CFA SCOtt YUSChak. CFA Information Technology TOp HoldirlgS* % Fund Materials 1. Pepsi Bottling Group 1.7 U.S. Stocks ............. ... 100.00°,a 2. DIIIard S InC. 1 .5 Telecom Services 3. J.C. Penney Co. Inc. 1.4 4. PG&E Corp. 1.4 Utilities 5. Thermo Electron Corp. 1.4 6. MGIC Investment Corp. 1.3 7. Alliant Energy Corp. 1.3 8. PMI Group Inc. 1.3 9. CIT Group Inc. 1.2 10. Sybase Inc. 1.2 "Holdings are subject to change. ~ to.zr ~.s~~o 18.2 t~.~ 20.4 io ^ Fund ^ Index Period Ending September 30, 2006 SunTrust Retirement Mid-Cap Equity Fund -continued The Russell Mid Cap advanced 2.1 % in the 3rd quarter of 2006. The Telecommunications sector had the best performance, advancing 9.3%. The Utilities sector, up 5.9°0, and the Financials sector, up 5.8°/ , were also strong. The worst performance came from Energy, which fell 12.1%. The Industrials sector declined 5.3% and Materials fell 1.1%. The Russell Midcap Value Index advanced 3.5% and the Russell Midcap Growth Index advanced 0.9%. The SunTrust Retirement Mid- Cap Equity Fund total return for the quarter was a decline of 0.1%. During the quarter we added to Consumer Discretionary, Consumer Staples, Financials, Telecommunications, and Utilities sectors and reduced the weightings in the Energy, Industrials, Information Technology, and Materials sectors. Health Care remained unchanged. First quarter Second Quarter Third Quarter Fourth Quarter Fund Russell Mid-Cap Index Lipper Mid-Cap Core Funds Avg.' $ao,ooo $35,000 $so,ooo $25,000 $20,000 $5,000 $0,000 $5,000 $O 2002 2003 2004 2005 2006 -5.53% -4.92% 3.78% 1.60% 5.98% -13.42% 14.12% 0.50% 5.40% -2.14% -15.34% 4.05% 0.18% 5.98% -0.05% 0.45% 13.20% 13.01 % 1.80% -30.44% 28.37% 18.04% 15.49% 3.67% -16.19~a 40.06°a 20.20°0 12.65°.0 7.06°0 -17.37% 36.11 % 15.50% 10.30% 4.63% 'Source: L ipper Inc. ~~ ~~~~~~~ ~~~ ~~~ g~~~~~~~~~~e ~~~~~~~ '~ Fund Russell M id-Cap Index 3 Year Sharpe Standard Alpha Beta R-Squared Ratio Deviation Fund -0.14 1.05 0.94 1.30 11.01 Russell Mid-Cap Index 0.00 1.00 1.00 1.54 10.13 This fund is a common fund managed by Trusco Capital Management and trusteed by SunTrust Bank. r ~r ^r r r r r . r~ r~ r~ r r~ r r r r r r Period Ending September 30, 2006 STI Classic Small Cap Value Fund Fund Type: Small Value Value Blend Growth Large Medium Small Objective and Strategy The fund seeks long-term capital appreciation and income by investing in the stocks of companies with a market capitalization between 850 million and 83 billion. Portfolio Data Ticker .... .... SCETX Benchmark.... Russell 2000 Value Index Expense Ratio ......... ..... 1.20°~0 NAV ................. ..... 819.99 Assets (Smil) . S692.50 Portfolio Manager Brett Bamer. CFA Top Holdings" % Fund 1. Grupo Aeroportuario 2.71 2. Graco Inc. 2.47 3. Cooper Cos. 2.40 4. Airgas Inc. 2.21 5. Companhia de Saneamento 1.91 6. CHC Helicopter Corp. 1.86 7. bebe Stores Inc. 1.83 8. Hub International Ltd. 1.81 9. Movado Group Inc. 1.80 10. Wabtec 1.78 `Holdings are subject to change. Fund Russell 2000 Value Index Lipper Small Cap Value Index Three Year to One Months Date Year -0.94% 9.23% 13.11 2.55°~~ 13.26°0 14.01°° 0.47% 8.27% 9.72% Characteristic Fund Index Dividend Yield (Current) 1.7% 1.9% EPS Growth (5 yr. est.) 13.9% 10.9°0 Market Capitalization ($bil) 1.8 1.1 Price-to-Book 2.2x 1.7x P/E (12 months trailing) 16.6x 15.7x 30 Day SEC Yield 0.44% Portfolio Characteristics are subject to change U.S.Stocks ............... Non-U.S. Stocks ........... . Cash ...................... 85.1 14.8% 0.1 Consumer Discretionary Consumer Staples Energy Flnancials Healthcare Industrials Information Technology Materials Telecom Services Utilities 35.6°'0 ^ Fund ^ Index Small capitalization funds typically carry additional risks since smaller companies generally have a higher risk of failure. Equity securities (stocks) are more volatile and carry more risk than other forms of investments, including investments in high-grade fixed income securities. The net asset value per share this Fund will fluctuate as the value of the securities in the portfolio changes. Value-based investments are subject to the risk that the broad market may not recognize their intrinsic value. The performance quoted represents past performance of the SunTrust Bank's internally managed common trust fund, adjusted for fees and expenses for periods prior to 1/31/97. The common trust fund was not registered under the 1940 Act and therefore was not subject to certain investment restrictions which may have adversely affected performance. Past performance does not guarantee future results. The performance data quoted represents past performance, and current returns may be lower or higher. Total return figures include change in share price, reinvestment of dividends and capital gains. The investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. For performance data current to the most recent month end, visit our website at www.sticlassicfunds.com ;#~ J " - • 11 ~~~!II t a, Annualized Three Five Ten Inception Years Years Years 8/31/1994 21.34% 18.98% 14.04% 15.76% 19.04°° 16.96°° 13.37°° 13.60°~ 17.80% 16.87% 12.71 % 12.85% ^~ r~ rr it rr r rr rr r r rr r rr r r~ ~r r~ r r Period Ending September 30, 2006 STI Classic Small Cap Value Fund _continued The STI Classic Small Cap Value Equity Fund declined 0.94% during the third quarter, trailing the Russell 2000 Value Index which returned 2.55%. Negative earnings announcements detracted from performance during the third quarter, but positive stock selection in the Consumer Discretionary and Health Care sectors offset declines. The Fund continues to maintain an overweight stance within the Industrials sector to leverage positive long term fundamentals. Looking forward, an active M&A environment offers positive implications for Small Caps as larger companies look to deploy the record levels of cash on their balance sheets. Our strict discipline adherence drives Fund performance over long time periods, directed by our bottoms- up, dividend paying investment process, which prefers quality, undervalued stocks over riskier, unprofitable companies. 2002 2003 2004 2005 2006 First Quarter 9.71% -6.40% 5.69% -1.88% 14.02% Second quarter -1.81 % 17.10% 3.94% 1.43% -3.29% Third Quarter -12.57% 7.88% 0.15% 9.14% -0.94% Fourth quarter 4.33% 15.92% 14.05% 3.55% Fund -1.74% 37.05% 25.47% 12.46% 9.23% Russell 2000 Value Index -11.43°~ 46.03°~ 22.25°0 4.71°~ 13.26~~ Lipper Small Cap Value Index -11.21 % 47.53% 20.65% 7.46% 8.27% ~ ~~~ YS Om S55 wG ~:.. ~ ~~. ~~ 52s xo sx om ss ~ _, .e~.. ,.,, .: sec w% aµSb - Sep~9g Se4~00 eo-01 Seo-~ Seo-o3 ep^1 Seo-~ Se0-~ Fund Russell 2000 Value Index • 3 Year Alpha Beta R-Squared Sharpe Ratio Std. Deviation Fund 0.86 0.92 83.40 1.49 12.79 Russell 2000 Value Index 0.00 1.OU 100.00 1 .33 12.65 Past performance does not guarantee future results. The performance data quoted represents past performance, and current returns may be lower or higher. Total return figures include change in share price, reinvestment of dividends and capital gains. The investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. For performance data current to the most recent month end, visit our website at www.sticlassicfunds.com 1 rr rr r rr r rr rr ~r r ~r rr r rr rr ^r rr rr rr rr Period Ending September 30, 2006 STI Classic Small Cap Growth Stock Fund Fund Type: Small Growth Value Blend Growth Large Medium Small Objective and Strategy The fund seeks long-term capital appreciation by investing in the stocks of companies with market capitalization between $50 million and $2 billion at the f h Fund Russell 2000 Growth Index Lipper Small Cap Growth Average' Three Year to One Months Date Year -5.39% -2.86% -0.45% -1.76°-~ 4.21°~ 5.88°~ -2.74% 1.87% 3.70% Annualized time o purc ase. Characteristic Fund Index Portfolio Data Dividend Yield (Current) 0.4% 0.5% Consumer Discretionary Ticker ..................... SSCTX EPS Growth (5 yr. est.) 19.6% 20.5% Consumer Sta les P Benchmark... Russell 2000 Growth Index Market Capitalization ($bil) 1.2 1.1 Expense Ratio .............. 1.19°o Enef9Y NAV ...................... $20.37 Price-to-Book 2.8x 3.1 x Assets ISmil) .............. $1.273.32 P/E 12 months trailin ( 9) 20.9x 21.4x Rnancials Return on Equity 13.4% 1 1.0°o Healthcare Portfolio Managers 30 Day SEC Yield n/a Jim Foster and Stu Van Arsdale. CFA Intlustrials "Portfolio Characteristics are subj ect to cha nge. Three Five Inception Years Years 10/8/1998 12.59% 11.76% 13.52% 1 1.81 °~ 10.15°a 6.06°~ 10.41 % 8.75% 11.70% `Source: Lipper Inc t s.a r 16.4% 1 .6°. Z 5°° s.7°~o 6.3°° s.si 9.3% L18.1 ~ 20.2% 1 s.a ~o 16.7% Top Holdings* % Fund In(ornk3ti°n Tec hnoloyy 24 1°,0 1. Trimble Navigation Ltd. 0 8 - . . 3 a°^ 2. NCI Building Systems Inc. 0.8 nnacer'~'s 3 ~°° 3. LifeCell Corp. 0.8 U.S. Stocks ................ 98.85% os~° 4. Flow International Corp. 0.8 reiec°m Services 1.3°-° 5. Copart Inc. O.g Cash ...................... 1.15% ^ Fund Utilities 0.0°~° 6. bebe Stores Inc. 0.8 0.1°~0 ^ Index 7. Hologic Inc. 0.8 8. General Cable Corp 0.8 9. Genlyte Group Inc. 0.7 10. Per-Se Technologies Inc. 0.7 'Holdings are subject to change. Small capitalization funds typically carry additional risks since smaller companies generally have a higher risk of failure. Equity securities (stocks) are more volatile and carry more risk than other forms of investments, including investments in high-grade fixed income securities. The net asset value per share of this Fund will fluctuate as the value of the securities in the portfolio changes. Past performance does not guarantee future results. The performance data quoted represents past performance, and current returns may be lower or higher. Total return figures include change in share price, reinvestment of dividends and capital gains. The investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. For performance data current to the most recent month end, visit our website at www.sticlassicfunds.com 11 1 ^r r rr rr r rr rr rii~ r ~r r r rr r~ r rr r r r~ Period Ending September 30, 2006 STI Classic Small Cap Growth Stock Fund _continued Continuing the trend that began in May, small cap growth stocks posted negative returns for the third quarter. The Russell 2000 Growth index returned -1.8% for the period as falling oil prices led to a double digit decline in the Energy sector. The cyclical Industrial and Materials groups also fell amid concerns regarding the future pace of economic growth. Financials and the defensive Consumer and Health Care sectors outperformed. The Small Cap Growth Fund returned - 5.4% for the quarter as an overweight to the Energy sector coupled with adverse stock selection in the Health Care, Financials, and Consumer Discretionary sectors negatively impacted relative performance. Absolute and relative returns improved as the quarter progressed and we expect continued improvement as investor's sentiment towards small cap growth stocks First Quarter Second Quarter Third Quarter Fourth Quarter Fund Russell 2000 Growth Index Lipper Small Cap Growth Average' $35, 000 $30, 000 $2s, o00 $20, o00 $is,ooo $ i o, 000 $s, o00 $o Orl-9H Jiil dd9 Aor-00 Jan-01 Oct-01 Jul-02 Apr-03 Jan-04 Oct-04 Jul-o5 Apr-o6 Fund Russell 2000 Grow th Index 3 Year Sharpe Standard AEI ha Beta R-Squared Ratio Deviation Fund 0.10 0.96 0.94 0.63 15.74 Russell 2000 Growth Index 0.00 1.00 1.00 0.58 15.89 Past performance does not guarantee future results. The performance data quoted represents past performance, and current returns may be lower or higher. Total return figures include change in share price, reinvestment of dividends and capital gains. The investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. For performance data current to the most recent month end, visit our website at www.sticlassicfunds.corn {a 2002 2003 2004 2005 2006 1.10% -6.40% 8.08% -4.58% 12.78% -10.20% 24.19% -0.61% 3.25% -8.96% -19.90% 9.74% -3.54% 6.88% -5.39% 6.20% 14.21 % 15.06% 2.49% -22.70% 45.63% 19.21 % 7.92% -2.86% -30.26°0 48.54"'0 14.31°.c 4.15°~ 4.21°0 -29.72% 44.36% 10.65% 5.66% 1.87% `Source: Liooer Inc. Period Ending September 30, 2006 STI Classic International Equity Index Fund Fund Type: Foreign Stock -. Value Blend Growth Large .r-~Ilfl.: 2.;1L6p Three Year to One Three Five Ten Inception Medium Months Date Year Years Years Years 6/1/1994 Small Fund 3.92% 14.10% 19.27% 22.15% 13.81 % 8.15% 7.57% MSCI SAFE GDP Weighted 3.68°;~ 12.39°,0 17.13°~ 20.77°0 12.89°-~ 6.75°° 6.50°~ Objective and Strategy The Fund seeks to provide diversification Lipper International Funds Average' 3.72% 12.99% 18.08% 20.90% 13.53% 7.44% 7.26% and capital appreciation by investing in -Source. dipper Inc. securities of companies headquartered or based in foreign countries to replicate the. . ~ ~ ~ _ Morgan Stanley EAFE GDP Index. Characteristic Fund Index Portfolio Data 23.3°° Japan Ticker .............. SIEIX Dividend Yield (Current) 2.5% 2.5°~ z3.3~° 14.4°° Benchmark.. MSCI EAFE GDP Weighted EPS Growth (5 yr. est.) 10.0% 10.0°0 ~ern,a~,v ta.a°° Expense Ratio .............. .66°0 NAV .................... $16.43 Market Capitalization ($bil) 41.2 41.2 ~~.s°° United Kingdom Assets 15mi1) .... .......... 5886.79 Price-to-Book 2.2x 2.2x 1 5~° t o.s°-° France Portfolio Managers P/E (12 months trailing) 14.7x 14.7x to.e~ Chad Deakins. CFA Return on Equity 17.9% 17.9°-o n,w 93°0 Andrew Atkins 30 Day SEC Yield n/a s 3°,° span Top Holdings' % Fund ~ Portfolio Charantenstins are subject to change. 3 g°° s-s°'° 1. ENI S.p.A. 1.6 r~~u,e~ianus 3y°° 2. Total S.A. 1 .4 _ 3. Toyota Motor Corp. 1.4 a~str aoa 3.&'~c 4. Unicredito Italiano S.p.A. 1.3 s a°° 5. Allianz AG 1,3 Non-U.S. Stocks ............ 96.50 %o z.o~o 6. Siemens AG 1.3 Be1g"'m 2 o°a 7. E.ON AG 1.3 Cash ..................... 3.50% 2 00.0 ^ Fund 8. Banco Santander Central 1.3 swazeuand z.o°~a ^ Index 9. Deutsche Bank AG 1.1 10. Banco Bilboa Vizcaya 1.0 "Holdings are subject to change. International investing involves increased risk and volatility. Equity securities (stocks) are more volatile and carry more risk than other forms of investments, including investments in high-grade fixed income securities. The net asset value per share of this Fund will fluctuate as the value of the securities in the portfolio changes. It is important to remember that there are risks associated with index investing, including the potential risk of market decline, as well as the risks associated with investing in specific companies. Past performance does not guarantee future results. The performance data quoted represents past performance, and current returns may be lower or higher. Total return figures include change in share price, reinvestment of dividends and capital gains. The investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. For performance data current to the most recent month end, visit our website at www.sticlassicfunds.com - - Period Ending September 30, 2006 STI Classic International Equity Index Fund -continued The MSCI EAFE GDP was up 3.7% in the third quarter. The Fund returned 3.9%. The best performing sectors were Utilities +10.2%, Consumer Staples +7.6%, and Financials +6.2%. The weakest sectors were Energy - 2.8%, Information Technology +1.1%, and Industrials +1.6%. From a country standpoint, the best performing markets were Spain +12.2°0, Belgium +11.3% and Netherlands +10.3. The only negative markets were Norway -6.2% and Japan -0.7%. Investors continued to prefer lower valued stocks. Large cap stocks outperformed small and mid cap stocks and higher dividend yielding stocks were significantly stronger than lower yielding ones. All of these trends are continuations from 2Q. First Quarter Second Quarter Third Quarter Fourth Quarter Fund MSCI EAFE GDP Weighted Lipper International Funds Average* $25,000 $20, 000 $15, 000 $10, 000 $5, 000 2002 2003 2004 2005 2006 0.85% -8.20% 4.77% -1.00% 9.79% -1.47% 20.08% 0.17% -1.71% 0.00% -20.53% 8.90% -0.90% 10.86% 3.92% 5.70% 17.02% 16.36% 4.53% -16.50% 40.54% 21.06% 12.76% 14.10% -17.30°~0 40.00°0 20.15°0 10.19°0 12.39.0 -16.70% 34.70% 18.05% 14.70% 12.99% `Source: Lipper Inc. ~GO~~GO~~GO~~GO~~~ 0~~40~~GO~~GO~~GO~~GO~~GO~~GO~~G ~~9 c29~~9 c~9~:9 c~9~~9 c~9~~9 c9~9 c19~0 c0~0 c0~0 ~O~b c0~0 c0~~ cO~b sr srS S6 E»8 89 90 O ! 1~ ~~ v'u sTSS6 Fund MSCI EAFE GDP Weighted • - - - 3Year Sharpe Standard Alpha Beta R-Squared Ratio Deviation Fund 0.19 0.95 0.98 1.85 10.52 MSCI EAFE GDP Weighted 0.00 1.00 1.00 1.62 10.96 Past performance does not guarantee future results. The performance data quoted represents past performance, and current returns may be lower or higher. Total return figures include change in share price, reinvestment of dividends and capital gains. The investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. For performance data current to the most recent month end, visit our website at www.sticlassicfunds.com 'r~ ;~ ' • n ~l~~r, ~ 1 - :. ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ i ~ ~ ~ Period Ending September 30, 2006 Su nTrust Retirement H i h G rade Bond Fund g Fund Type: Intermediate-Term Bond Shon Int. Long • • • High Annualized Medium Three Year to One Three Five Ten Inception Months Date Year Years Years Years 8/31/1989 L°`~ Fund 3.60% 2.33% 3.10% 3.04% 4.76% 6.46% 7.55% Merrill Lynch Gov't~Credit A+ Index 3.76°0 2.71°-0 3.36°0 2.93°~0 4.68°0 6.39"0 7.29°0 Objective and Strategy The fund seeks to provide a high level of total return through current income and capital appreciation by investing ill ' • - domestic corporate investment grade bonds rated A or higher by major credit Characteristic Fund Index rating agencies and U.S. Government Average Rating AGY AAA securities. Average Coupon 4.8% 5.3% Portfolio Data Current Yield 4.8% 5.2°0 Cusip ..................990001265 Yield-to-Maturity 5.0% 5.0°,0 Benchmark ............. Merrill Lynch Government/Credit Average Maturity (Years) 8.2 7.2 A Rated and Above Index Effective Duration (Years) 4.6 4.9 Unit Value ................. $33.84 Assets ($mil) ............... $201.93 Portfolio Characteristics are su bject to change. Portfolio Managers ~ _ _ John Talty. CFA Perry Troisi Characteristic Fund Index Treasury 51.8% 49.6°0 Quality Distribution % Fund TIPS 0.0% 0.0% Treasury 51.8 Agency/Gov't Related 11.7% 25.2°i° AAA 39.9 AA 3 7 Mortgages 24.8% 0.0% A 4.6 Corporate Bond 10.8% 25.2% Cash Equivalents 0.9% 0.0% 0-1 Year 1-3 Years 3-5 Years 5-7 Years 7-10 Years 10+ Years r 37.1 Fund Index This fund is a common fund managed by Trusco Capital Management and trusteed by SunTrust Bank. ~ ~ ~ ~ ~ S ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ i ~ Period Ending September 30, 2006 SunTrust Retirement High Grade Bond Fund -continued The third quarter followed the Fed's final tightening move to a 5.25% Fed Funds target on June 28th, essentially ending the sequence of 17 rate hikes begun in June 2004. The resulting positive sentiment aided by falling energy prices and signs of slower economic growth caused bond prices to rise, producing the highest quarterly returns in four years. In fact, rates retraced about 75% of the rise that occurred in the year's first half. With the pause in monetary policy we adjusted our strategy by reducing Treasury holdings and adding Federal Agencies and both commercial and pass-through mortgage backed securities, as valuations improved during the period. Increasing exposure to these sectors adds yield to the fund without sacrificing quality or liquidity. In contrast, as credit yield spreads have remained extremely tight, we have maintained our underweight in corporate bonds. The premiums for assuming credit risk are simply not attractive. However, with growing corporate bond supply and a slowing economy, we are monitoring the markets for opportunities. 2002 2003 2004 2005 2006 First Quarter -0.49% 1.56% 2.90% -0.11% -1.15% Second Quarter 4.21 % 2.52% -2.96% 3.01 % -0.07% Third Quarter 5.74% -0.41% 3.27% -0.88% 3.60% Fourth Quarter 1.53% -0.06% 0.97% 0.76% Fund 11.33% 3.63% 4.12% 2.76% 2.33% Merrill Lynch Gov't/Credit A+ Index 11.63°0 3.20"a 3.73°~ 2.62°~ 2.71°-0 $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 - --~ $5,000 Aug-89 Aug-92 Aug-95 Aug-98 Aug-01 Aug-04 Fund Merrill Lynch Gov'UCredit A+ Index Important Disclosure Information This material must be preceded or accompanied by a prospectus. An investor should consider the fund's investment objectives, risks, and charges and expenses carefully before investing or sending money. This and other important information about the STI Classic Funds can be found in the fund's prospectus. To obtain a prospectus, please call 1-800-STI-FUND, or by visiting www.sticlassicfunds.com. Please read the prospectus carefully before investing. Mutual fund investing involves risk, including possible loss of principal. STI Classic Funds are advised by Trusco Capital Management, Inc., which receives a fee for its services, and are distributed by BISYS Fund Services, LP, which is not affiliated with Trusco Capital Management, Inc. MPT STATISTICS/OTHER MEASUREMENTS Alpha - is defined as the difference between the average realized return of a portfolio manager with private information and the expected return of the passive strategy based upon public information with equal systematic risk. Beta - is a measure of an investment's volatility, relative to an appropriate asset class. R-Squared - a statistical measure of how well a regression line approximates real data points; an r-squared of 1.0 (100%) indicates a perfect fit. r- squared measures how well the Capital Asset Pricing Model predicts the actual performance of an investment or portfolio. Sharpe Ratio -also known as Reward-to-Volatility-Ratio, indicates the excess return per unit of risk associated with the excess return. The higher the Sharpe Ratio, the better the performance. Standard Deviation - a statistical measurement of dispersion about an average, which, for a mutual fund, depicts how widely the returns varied over a certain period of time. PORTFOLIO CHARACTERISTICS DEFINITIONS 30 Day SEC Yield - is calculated by dividing the net investment income per share for the 30 days ended on the date of calculation by the offering price per share on that date. The figure is compounded and annualized. 5 Year EPS Growth - is the five-year reported earnings per share growth rate for each company in percent per year. Price-to-Book - is used to compare a stock's market value to its book value. This ratio gives some idea of whether you're paying too much for what would be left if the company went bankrupt immediately. P/E (12 months trailing) - is the price of a stock divided by its historical earnings per share. Return on Equity- is a measure of a corporation's profitability, calculated by taking a company's net income and dividing it by the shareholder's equity. Investments in the STI Classic Funds are not insured by the FDIC or any other Federal agency nor are they guaranteed by any bank, and may lose value. Important Disclosure Information INVESTMENT PERFORMANCE Past performance is not indicative of future results. Performance data related to accounts managed by Trusco represents returns gross of investment management fees. See Trusco's Form ADV, Part II for a description of investment advisory fees. The performance information reported herein may be for a variety of products which have different methods of presenting performance data, i.e. net of fees, gross of fees, or a combination of these. This information should not be evaluated independent of or without reference to the investment advisory agreement that more specifically addresses applicable investment advisory fees. Fees have a compounding effect on cumulative results. For example, assume the account achieves a 10% annual return prior to the deduction of fees each year for a period of ten years. If an annual fee of 0.5% of assets under management were charged each of the ten years, the resulting annual average return net of fees would be reduced to 9.48%. YIELD INFORMATION Yield information more closely reflects the current earnings of the Fund than the total return. In the absence of current fee waivers the yield would be reduced. A SEC Yield relates aggregate net earnings of a fund to its aggregate net assets. In any given period a fund may distribute more or less than its actual income. SECTOR WEIGHTINGS AND PORTFOLIO CHARACTERISTICS The sector weightings and portfolio characteristics are presented as of the date shown in the left-hand corner of this presentation, and may change without notice. A complete list of sector weightings and individual security positions for any specific period are available upon request. ECONOMIC AND MARKET REVIEW This perspective was prepared for clients and prospective clients of Trusco Capital Management, Inc. Neither Trusco nor any affiliations make any representation or warranties as to the accuracy or merit of this analysis for individual use. Comments and projections are based on information available at the time of writing and believed to be accurate, are for informational purposes only, and may not be relied upon for future investing. Investors are advised to consult with their investment professional about their specific circumstances before making any investment decisions. COMMON AND COLLECTIVE FUNDS Are operated by SunTrust Bank as Trustee and managed by Trusco Capital Management, in accordance with the laws of Georgia and applicable banking regulations. They open to investment only by trusts for which SunTrust Bank serves as trustee or qualified retirement plans which adopt the terms of a collective trust. They are not subject to direct regulation by the United States Securities and Exchange Commission and are exempt from registration as securities. The Plan and Declaration documents which govern their operations are available upon request. The sheets should not be used by anyone who is a registered rep absent approval from the compliance office of the broker through whom they are registered. Recent experience suggests that such approval is unlikely. Period Ending March 31, 2006 Thank You! ~~ CAPITAL III I I MANAGEMENT