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THE ADVISORS' INNER CIRCLE FUND
Investment Adviser:
SAGE GLOBAL FUNDS, LLC
The Advisors' Inner Circle Fund (the "Trust") provides a convenient and
economical means of investing in professionally managed portfolios of
securities. This Prospectus offers shares of the following mutual fund (the
"Fund"), which is a separate series of the Trust.
- SAGE CORPORATE BOND FUND
This Prospectus sets forth concisely the information about the Trust and the
Fund that a prospective investor should know before investing. Investors are
advised to read this Prospectus and retain it for future reference. A Statement
of Additional Information dated November 1, 1997 has been filed with the
Securities and Exchange Commission and is available without charge by calling
1-888-227-0595. The Statement of Additional Information is incorporated into
this Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
November 1, 1997
SAG-F-001-01
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SUMMARY
The following provides basic information about the SAGE Corporate Bond Fund (the
"Fund"). The Fund is one of the mutual funds comprising The Advisors' Inner
Circle Fund (the "Trust").
WHAT IS THE INVESTMENT OBJECTIVE? The Fund seeks a high level of current income
consistent with preservation of capital.
WHAT ARE THE PERMITTED INVESTMENTS? The Fund seeks to achieve its objective by
investing at least 80% of its total assets under normal conditions in investment
grade corporate bonds. See "Investment Objectives and Policies" and "Description
of Permitted Investments and Risk Factors."
WHAT ARE THE RISKS INVOLVED WITH AN INVESTMENT IN THE FUND? The Fund invests in
securities that fluctuate in value, and investors should expect the Fund's net
asset value per share to fluctuate. Values of fixed income securities and,
correspondingly, of mutual funds invested in such securities, such as the Fund,
generally tend to vary inversely with interest rates and may be affected by
other market and economic factors as well. See "Investment Objectives and
Policies" and "Description of Permitted Investments and Risk Factors."
WHO ARE THE ADVISER AND SUB-ADVISER? SAGE Global Funds, LLC (the "Adviser")
serves as the investment adviser of the Fund. Standard Asset Group, Inc. (the
"Sub-Adviser") serves as the investment sub-adviser of the Fund. See "Expense
Summary," "The Adviser" and "The Sub-Adviser."
WHO IS THE ADMINISTRATOR? SEI Fund Resources (the "Administrator") serves as the
administrator and shareholder servicing agent of the Fund. See "The
Administrator."
WHO IS THE TRANSFER AGENT? DST Systems, Inc. (the "Transfer Agent") serves as
the transfer agent and dividend disbursing agent for the Trust. See "The
Transfer Agent."
WHO IS THE DISTRIBUTOR? SEI Investments Distribution Co. (the "Distributor")
acts as the distributor of the Fund's shares. See "The Distributor."
IS THERE A SALES LOAD? No, shares of the Fund are offered on a no-load basis.
IS THERE A MINIMUM INVESTMENT? Yes, the minimum initial investment in the Fund
is $2,000 for investment in Investment Retirement Accounts ("IRAs") and $10,000
for all other accounts ("Non-IRA Accounts"). Subsequent investments for the Fund
must be at least $500. The Trust reserves the right to accept smaller purchases
at its sole discretion.
HOW DO I PURCHASE AND REDEEM SHARES? Purchases and redemptions may be made
through the Transfer Agent on any day when the Federal Reserve Banks are open
for business, except Good Friday (a "Business Day"). A purchase order will be
effective as of the Business Day received by the Transfer Agent if the Transfer
Agent receives an order and payment with readily available funds prior to 4:00
p.m., Eastern time. To purchase shares by wire, you must first call
1-800-808-4921. Redemption orders placed with the Transfer Agent prior to 4:00
p.m., Eastern time on any Business Day will be effective that day. The purchase
and redemption price for shares is the net asset value
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per share determined as of the end of the day the order is effective. The Fund
reserves the right, upon 30 days' written notice, to redeem a Non-IRA Account if
the net asset value of the shares in that account falls below $10,000. See
"Purchase and Redemption of Shares."
HOW ARE DISTRIBUTIONS PAID? The Fund distributes substantially all of its net
investment income (exclusive of capital gains) in the form of dividends, which
are declared and paid monthly. Any capital gain is distributed at least
annually. Distributions are paid in additional shares unless the shareholder
elects to take the payment in cash. See "General Information--Dividends and
Distributions."
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EXPENSE SUMMARY
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
SAGE CORPORATE BOND FUND
- -----------------------------------------------------------------
<S> <C>
Maximum Sales Load Imposed on Purchases.............. None
Maximum Sales Load Imposed on Reinvested Dividends... None
Deferred Sales Charges............................... None
Redemption Fees*..................................... None
Exchange Fees........................................ None
- -----------------------------------------------------------------
* Shareholders are charged a fee, currently $10.00,
for redemptions by wire.
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
SAGE CORPORATE BOND FUND
- -----------------------------------------------------------------
<S> <C>
Management Fees (after fee waivers)(1)............... .00%
Other Expenses (after fee waivers)(1)................ .90%
- -----------------------------------------------------------------
Total Operating Expenses (after fee waivers)(1)...... .90%
- -----------------------------------------------------------------
</TABLE>
(1) The Adviser has voluntarily agreed to waive a portion or all of its
advisory fees and to reimburse expenses in order to limit Total Operating
Expenses to an annual rate of not more than .90%. Absent any voluntary
waivers, the Management Fee for the Fund would be .55%, Other Expenses
would be 1.52% and Total Operating Expenses, based on estimates of Other
Expenses, would be 2.07% of the Fund's average daily net assets. The
Adviser's fee waivers are expected to remain in effect for the current
fiscal year. Total Operating Expenses are expected to remain at .90% of
the Fund's average daily net assets for the current fiscal year.
<TABLE>
<CAPTION>
EXAMPLE
SAGE CORPORATE BOND FUND
- ----------------------------------------------------------------------------------------------------------
1 Yr. 3 Yrs.
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming (1) 5% $ 9 $ 29
annual return and (2) redemption at the end of each time period:
- ----------------------------------------------------------------------------------------------------------
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. THE FUND IS NEW AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN. The purpose of the expense summary and example is to assist the investor
in understanding the various costs and expenses that may be directly or
indirectly borne by shareholders of the Fund. Additional information may be
found under "The Adviser" and "The Administrator."
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THE TRUST AND THE FUND
The Advisors' Inner Circle Fund (the "Trust") offers shares in a number of
mutual funds, each of which is a separate series ("portfolio") of the Trust.
Each share of each portfolio represents an undivided, proportionate interest in
that portfolio. This Prospectus offers shares of the Trust's SAGE Corporate Bond
Fund (the "Fund"), a diversified investment portfolio. Information regarding the
other portfolios in the Trust is contained in separate prospectuses that may be
obtained by calling 1-888-227-0595.
INVESTMENT OBJECTIVE AND POLICIES
The Fund seeks a high level of current income consistent with preservation of
capital by investing in a portfolio of investment grade corporate bonds that, in
the Adviser's or Sub-Adviser's opinion, will maintain an already established
credit rating or will benefit from an improvement in the issuer's credit rating.
There can be no assurance that the Fund will be able to achieve its investment
objective.
Under normal conditions the Fund will invest at least 80% of its total assets in
corporate bonds rated in one of the four highest rating categorizes ("investment
grade") by a nationally recognized statistical rating organization (an "NRSRO")
or that the Sub-Adviser determines are of comparable quality. Additional
securities in which the Fund may invest consist of: (i) U.S. Government
securities; (ii) mortgage-backed securities, including collateralized mortgage
obligations and real estate mortgage investment conduits; (iii) floating or
variable rate securities; (iv) U.S. dollar denominated fixed income securities
issued by U.S. or foreign corporations or issued or guaranteed by foreign
governments, their political subdivisions, agencies or instrumentalities; (v)
U.S. dollar denominated obligations of supranational entities; (vi) short term
bank obligations; (vii) commercial paper; (viii) asset backed securities; (ix)
loan participations; (x) preferred stock that is rated investment grade quality
by an NRSRO or determined to be of comparable quality by the Sub-Adviser; and
(xi) repurchase agreements. The Fund may invest in foreign securities in the
form of depositary receipts. The Fund may engage in reverse repurchase
agreements with banks and dealers in amounts up to 33 1/3% of the Fund's total
assets at the time the Fund enters into the agreements, and may purchase
securities on a when-issued basis.
The Sub-Adviser seeks to identify investment grade corporate bonds where a
credit rating improvement is likely. The Sub-Adviser's research is company
specific and similar in nature to the traditional fundamental research used to
make common stock selections. Companies chosen as rating upgrade candidates are
placed on the Sub-Adviser's "upgrade list" and purchases are made when
intermediate maturity issues become available at an advantageous price.
Individual decisions are made on a "buy to hold" basis. A credit downgrade will
trigger a sell decision automatically. Securities rated in the lowest category
of investment grade securities have speculative characteristics.
Normally, the Fund will maintain a dollar-weighted average portfolio maturity of
between four and six years. There are no restrictions on the maturity of any
single instrument. For temporary defensive purposes when the Sub-Adviser
determines that market conditions warrant, the Fund may also invest up to 100%
of its assets in money market securities or hold cash.
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PORTFOLIO TURNOVER
The Fund's portfolio turnover rate is not expected to exceed 40%.
INVESTMENT LIMITATIONS
The investment objective of the Fund and the investment limitations set forth
below and in the Statement of Additional Information are fundamental policies of
the Fund. Fundamental policies cannot be changed without the consent of the
holders of a majority of the Fund's outstanding shares.
The Fund may not:
1. Purchase securities of any issuer (except securities issued or guaranteed by
the United States, its agencies or instrumentalities and repurchase agreements
involving such securities) if as a result more than 5% of the total assets of
the Fund would be invested in the securities of such issuer. This restriction
applies to 75% of the Fund's total assets.
2. Purchase any securities which would cause 25% or more of the total assets of
the Fund to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this
limitation does not apply to investments in obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities and repurchase agreements
involving such securities. For purposes of this limitation, (i) utility
companies will be divided according to their services, for example, gas
distribution, gas transmission, electric and telephone will each be considered a
separate industry, and (ii) financial service companies will be classified
according to the end users of their services, for example, automobile finance,
bank finance and diversified finance will each be considered a separate
industry.
The foregoing percentages will apply at the time of the purchase of a security.
Additionally, it is a non-fundamental policy of the Fund to: (i) limit
borrowings to no more than 5% of its total assets (fully collateralized reverse
repurchase agreements are not considered borrowings for purposes of the
foregoing limitation); and (ii) to refrain from investing in the following
derivative instruments: options, futures, swaps, structured notes or residuals.
THE ADVISER
SAGE Global Funds, LLC (the "Adviser" or "SAGE") is a professional investment
management firm organized as a Massachusetts limited liability company that was
founded in July, 1997. SAGE is majority-owned by Standard Asset Group, Inc., the
Fund's sub-adviser. The Adviser's principal business address is 55 William
Street, Wellesley, Massachusetts 02181.
The Adviser has been retained under an investment advisory agreement with the
Trust (the "Advisory Agreement") to act as the investment adviser for the Fund.
Under the Advisory Agreement, the Adviser makes the investment decisions for the
assets of the Fund and continuously reviews, supervises and administers the
Fund's investment program, subject to the supervision of, and policies
established by, the Trustees of the Trust.
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The Adviser has not previously served as an investment adviser to a registered
investment company, and, as such, does not have extensive experience advising a
highly regulated entity such as an investment company. This may present
additional risks for the Fund.
For its services, the Adviser is entitled to a fee, which is calculated daily
and paid monthly, at an annual rate of .55% of the average daily net assets of
the Fund. The Adviser has voluntarily agreed to waive a portion of its advisory
fees in order to limit total operating expenses of the Fund to not more than
.90% of average daily net assets. The Adviser reserves the right, in its sole
discretion, to terminate its fee waiver at any time. Additionally, the Adviser
has contractually agreed to waive its entire advisory fee for any calendar year
which follows a calendar year in which the Fund's net asset value per share
declines, adjusted for dividends and distributions paid during such year. The
Adviser may, from its own resources, compensate broker-dealers whose clients
purchase shares of the Funds.
THE SUB-ADVISER
Standard Asset Group, Inc. (the "Sub-Adviser") is a professional investment
management firm organized as Massachusetts corporation that was founded in 1987.
Gordon J. Rollert controls a majority of the Sub-Adviser's outstanding voting
stock. As of July, 1997, the Sub-Adviser had approximately $200 million of
assets under management. The Sub-Adviser currently serves as the investment
adviser or sub-adviser to institutional clients including SAGE Advisory
Services, LLC, which, in turn, provides advisory services to individuals. The
Sub-Adviser's principal business address is 55 William Street, Wellesley,
Massachusetts 02181.
The Sub-Adviser has been retained under an investment sub-advisory agreement
with the Adviser (the "Sub-Advisory Agreement") to act as the investment
sub-adviser for the Fund. Under the Sub-Advisory Agreement, the Sub-Adviser
manages the investments of the Fund, selects investments, and places all orders
for purchases and sales of the Fund's securities, subject to the general
supervision of the Trustees of the Trust and the Adviser.
For the services provided and expenses incurred pursuant to the Sub-Advisory
Agreement, the Sub-Adviser is entitled to receive a fee, which is calculated
daily and paid monthly at an annual rate of .20% of the average daily net assets
of the Fund. The Sub-Advisor has voluntarily agreed to waive its sub-advisory
fees in the same proportion as the Adviser waives its advisory fees from the
Fund. In addition, the Sub-Adviser will not be entitled to receive sub-advisory
fees during any calendar year in which the Adviser is not entitled to receive
any advisory fees.
Gordon J. Rollert has had primary responsibility for managing the Fund since it
commenced operations. Mr. Rollert has served as President of the Sub-Adviser
since 1987. He has managed institutional portfolios since 1965, initially as a
portfolio manager with Eaton Vance and later as a portfolio manager and
executive officer of the following investment advisory firms: Alliance Capital,
Rollert & Sullivan, Trust Management Bank, the Nova Fund and SAGE Advisory
Services, LLC. He is a Chartered Financial Analyst and member of the Boston
Security Analysts Society and the New York Society of Security Analysts. He
holds a BA in Economics and History from DePauw University and a MBA from the
University of Michigan. He is a trustee of DePauw University, having chaired the
Finance and Investment Committees.
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THE ADMINISTRATOR
SEI Fund Resources (the "Administrator"), provides the Fund with administrative
services, including regulatory reporting and all necessary office space,
equipment, personnel and facilities.
For these administrative services, the Administrator is entitled to a fee, which
is calculated daily and paid monthly, at an annual rate of: 0.15% on the first
$100 million of the Fund's average daily net assets; 0.125% on the next $100
million of average daily net assets; and 0.10% on the average daily net assets
over $200 million. However, the Fund pays a minimum annual administration fee of
$75,000, which would be increased by $15,000 per additional class. Due to the
minimum annual administration fee, the administration fee that the Fund pays
will decline according to the administration fee schedule described above only
after the Fund's net asset level reaches $50 million.
The Administrator also serves as shareholder servicing agent for the Fund.
THE TRANSFER AGENT
DST Systems, Inc., 1004 Baltimore Street, 2nd Floor, Kansas City, Missouri 64105
(the "Transfer Agent") serves as the transfer agent and dividend disbursing
agent for the Trust.
THE DISTRIBUTOR
SEI Investments Distribution Co. (the "Distributor"), Oaks, Pennsylvania, 19456,
a wholly-owned subsidiary of SEI Investments Company, serves as the Trust's
distributor. No compensation is paid to the Distributor for distribution
services for the shares of the Fund.
PURCHASE AND REDEMPTION OF SHARES
Investors may purchase and redeem shares of the Fund directly through the
Transfer Agent at: The Advisors' Inner Circle Fund, P.O. Box 419009, Kansas
City, Missouri 64141-6009, by mail, wire transfer or through an Automated
Clearing House ("ACH") transfer. Shareholders may place purchase and redemption
orders by telephone at 1-800-808-4921; when market conditions are extremely
busy, it is possible that investors may experience difficulties placing orders
by telephone and may wish to place orders by mail. Purchases and redemptions of
shares of the Fund may be made on any day on which the Federal Reserve Banks are
open for business, except Good Friday (a "Business Day"). Shares of the Fund are
offered only to residents of states in which such shares are eligible for
purchase.
MINIMUM INVESTMENTS
The minimum initial investment in the Fund is $2,000 for IRAs and $10,000 for
Non-IRA Accounts. Subsequent investments must be at least $500. The Fund
reserves the right to accept smaller purchases at its sole discretion.
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MINIMUM ACCOUNT SIZES AND INVOLUNTARY REDEMPTIONS OF SHARES
If the value of the Fund in a Non-IRA Account falls below $10,000 because of
shareholder redemption(s), the Trust will notify the shareholder, and if the
account value remains below $10,000 for a continuous 60-day period, the shares
in such account are subject to redemption by the Trust and, if redeemed, the
daily net asset value of such shares will be promptly paid to the shareholder.
The Trust, however, will not redeem shares based solely upon changes in the
market that reduce the net asset value of shares.
The Trust reserves the right to modify or terminate the involuntary redemption
features of the shares as stated above at any time upon 60 days' notice to
shareholders.
PURCHASES BY MAIL
An account may be opened by mailing a check or other negotiable bank draft
(payable to the name of the Fund) for $2,000 or more for IRAs and $10,000 or
more for Non-IRA Accounts together with a completed Account Application to The
Advisors' Inner Circle Fund, P.O. Box 419009, Kansas City, Missouri 64141-6009.
Subsequent investments may also be mailed directly to the Transfer Agent. All
purchases made by check should be in U.S. dollars and made payable to SAGE
Corporate Bond Fund. Third party checks, credit cards, credit card checks and
cash will not be accepted. When purchases are made by check, redemption proceeds
will be forwarded only upon collection of payment for such shares, which may
take up to 15 days from the date of purchase.
PURCHASES BY WIRE TRANSFER
INITIAL PURCHASES: Before making an initial investment by wire, an investor must
first telephone 1-800-808-4921 to be assigned an account number. The investor's
name, Fund's name, account number, taxpayer identification number or Social
Security number and address must be specified in the wire. In addition, an
Account Application should be promptly forwarded to the Transfer Agent at: The
Advisors' Inner Circle Fund, P.O. Box 419009, Kansas City, Missouri 64141-6009.
Shareholders having an account with a commercial bank that is a member of the
Federal Reserve System may purchase shares of the Fund by requesting their bank
to transmit funds by wire to: United Missouri Bank; ABA #10-10-00695 for Account
Number 98-7052-396-5; Further Credit: SAGE Corporate Bond Fund. The
shareholder's name, the Fund's name and account number must be specified in the
wire.
SUBSEQUENT PURCHASES: Additional investments may be made at any time through the
wire procedures described above, which must include the shareholder's name, the
Fund's name and account number. The investor's bank may impose a fee for
investments by wire.
PURCHASE BY AUTOMATED CLEARING HOUSE ("ACH")
This service allows the purchase of additional shares through an electronic
transfer of money from a checking or savings account. When an additional
purchase is made by telephone, the Transfer Agent will automatically debit the
pre-designated bank account for the desired amount. Shareholders may call
1-800-808-4921 to request an ACH transaction.
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GENERAL INFORMATION REGARDING PURCHASES
A purchase order will be effective as of the day received by the Transfer Agent
if the Transfer Agent receives the order and payment before 4:00 p.m., Eastern
time. Payment may be made by check or readily available funds. The purchase
price of shares of the Fund is the daily net asset value per share next
determined after a purchase order is received. Purchases will be made in full
and fractional shares of the Fund calculated to three decimal places. The Fund
will not issue certificates representing shares of the Fund.
The Fund reserves the right to reject a purchase order when the Distributor or
the Transfer Agent determines that it is not in the best interest of the Trust,
the Fund and/or its shareholders to accept such offer.
REDEMPTIONS
Redemption orders received by the Transfer Agent prior to 4:00 p.m., Eastern
time on any Business Day will be effective that day. The redemption price of
shares of the Fund is the net asset value per share of that Fund next determined
after a valid redemption order, in good form, is received. Payment on redemption
will be made as promptly as possible and, in any event, within seven days after
the redemption order is received. Shareholders may not close their accounts by
telephone.
Shareholders may receive redemption payments in the form of a check or by
Federal Reserve or ACH wire transfer. There is no charge for having a check for
redemption proceeds mailed. A wire charge, currently $10.00, will be deducted
from the amount of a Federal Reserve wire redemption payment made at the request
of a shareholder, except that certain institutions may be exempt from this
charge. Shareholders cannot redeem shares of the Fund by Federal Reserve wire on
federal holidays restricting wire transfers. The Fund does not charge for ACH
wire transactions; however, such transactions will not be posted to a
shareholder's bank account until the second Business Day following the
transaction.
Shareholders are granted telephone redemption privileges automatically. Neither
the Trust nor the Transfer Agent will be responsible for the authenticity of the
redemption instructions received by telephone if it reasonably believes those
instructions are genuine. The Trust and the Transfer Agent will each employ
reasonable procedures to confirm that telephone instructions are genuine, and
may be liable for losses resulting from unauthorized or fraudulent telephone
transactions if it does not employ those procedures.
The right of redemption may be suspended or the date of payment of redemption
proceeds postponed during certain periods as set forth more fully in the
Statement of Additional Information.
NET ASSET VALUE
The net asset value per share of the Fund is determined by dividing the total
market value of the Fund's investments and other assets, less any liabilities,
by the total outstanding shares of the Fund. Net asset value per share is
determined daily as of 4:00 p.m., Eastern time on any Business Day. The Fund
will use a pricing service to provide market quotations. The pricing service may
use a
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matrix system of valuation for fixed income securities which considers factors
such as securities prices, yield features, call features, ratings and
developments related to a specific security.
PERFORMANCE
From time to time, the Fund may advertise its yield and total return. These
figures will be based on historical results and are not intended to indicate
future performance. No representation can be made regarding actual future yields
or returns. The yield of the Fund refers to the annualized income generated by
an investment in the Fund over a specified 30-day period. The yield is
calculated by assuming that the same amount of income generated by the
investment during that period is generated in each 30-day period over one year
and is shown as a percentage of the investment.
The total return of the Fund refers to the average compounded rate of return on
a hypothetical investment, for designated time periods (including but not
limited to the period from which the Fund commenced operations through the
specified date), assuming that the entire investment is redeemed at the end of
each period and assuming the reinvestment of all dividend and capital gain
distributions.
The Fund may periodically compare its performance to that of other mutual funds
tracked by mutual fund rating services (such as Lipper Analytical Services,
Inc.), financial and business publications and periodicals, broad groups of
comparable mutual funds, unmanaged indices, including indices produced by Lehman
Brothers, which may assume investment of dividends but generally do not reflect
deductions for administrative and management costs, or other investment
alternatives. The Fund may quote Morningstar, Inc., a service that ranks mutual
funds on the basis of risk-adjusted performance. The Fund may quote Ibbotson
Associates of Chicago, Illinois, which provides historical returns of the
capital markets in the U.S. The Fund may use long-term performance of these
capital markets to demonstrate general long-term risk versus reward scenarios
and could include the value of a hypothetical investment in any of the capital
markets. The Fund may also quote financial and business publications and
periodicals as they relate to fund management, investment philosophy, and
investment techniques.
The Fund may quote various measures of volatility and benchmark correlation in
advertising and may compare these measures to those of other funds. Measures of
volatility attempt to compare historical share price fluctuations or total
returns to a benchmark while measures of benchmark correlation indicate how
valid a comparative benchmark might be. Measures of volatility and correlation
are calculated using averages of historical data and cannot be calculated
precisely.
TAXES
The following summary of federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial or
administrative action.
No attempt has been made to present a detailed explanation of the federal, state
or local income tax treatment of the Fund or its shareholders. Accordingly,
shareholders are urged to consult their tax advisers regarding specific
questions as to federal, state and local income taxes.
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TAX STATUS OF THE FUND
The Fund is treated as a separate entity for federal income tax purposes and is
not combined with the Trust's other portfolios. The Fund intends to qualify for
the special tax treatment afforded regulated investment companies as defined
under Subchapter M of the Internal Revenue Code of 1986, as amended. So long as
the Fund qualifies for this special tax treatment, it will be relieved of
federal income tax on that part of its net investment income and net capital
gain (the excess of net long-term capital gain over net short-term capital loss)
which it distributes to shareholders.
TAX STATUS OF DISTRIBUTIONS
The Fund will distribute all of its net investment income (including, for this
purpose, net short-term capital gain) to shareholders. Dividends from net
investment income will be taxable to shareholders as ordinary income whether
received in cash or in additional shares. Distributions from net investment
income will qualify for the dividends-received deduction for corporate
shareholders only to the extent such distributions are derived from dividends
paid by domestic corporations; dividends of the Fund are not expected to qualify
for this deduction. Any net capital gain will be distributed annually and will
be taxed to shareholders as long-term capital gain, regardless of how long the
shareholder has held shares. The Fund will make annual reports to shareholders
of the federal income tax status of all distributions.
Income received on direct U.S. obligations is exempt from income tax at the
state level when received directly and may be exempt, depending on the state,
when received by a shareholder from the Fund provided certain state-specific
conditions are satisfied. The Fund will inform shareholders annually of the
percentage of income and distributions, if any, derived from direct U.S.
obligations. Shareholders should consult their tax advisers to determine whether
any portion of the income dividends received from the Fund is considered tax
exempt in their particular state.
Dividends declared by the Fund in October, November or December of any year and
payable to shareholders of record on a date in one of those months will be
deemed to have been paid by the Fund and received by the shareholders on
December 31 of that year, if paid by the Fund at any time during the following
January.
The Fund intends to make sufficient distributions prior to the end of each
calendar year to avoid liability for federal excise tax.
Sale, exchange or redemption of the Fund's shares is a taxable event to the
shareholder.
GENERAL INFORMATION
THE TRUST
The Trust, an open-end management investment company, was organized under
Massachusetts law as a business trust under a Declaration of Trust dated July
18, 1991. The Declaration of Trust permits the Trust to offer separate series
("portfolios") of shares. All consideration received by the Trust for shares of
any portfolio and all assets of such portfolio belong to that portfolio and are
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subject to liabilities related thereto. The Trust reserves the right to create
and issue shares of additional portfolios.
The Fund pays its (i) operating expenses, including fees of its service
providers, expenses of preparing prospectuses, proxy solicitation material and
reports to shareholders, costs of custodial services and registering its shares
under federal and state securities laws, pricing and insurance expenses and pays
additional expenses, brokerage costs, interest charges, taxes and organization
expenses and (ii) pro rata share of the Trust's other expenses, including audit
and legal expenses. The Fund's expense ratios are disclosed under "Expense
Summary."
TRUSTEES OF THE TRUST
The management and affairs of the Trust are supervised by the Trustees under the
laws of the Commonwealth of Massachusetts. The Trustees have approved contracts
under which, as described above, certain companies provide essential management
services to the Trust.
VOTING RIGHTS
Each shareholder of record is entitled to one vote or fraction thereof for each
share or fractional share held. The Fund will vote separately on matters
relating solely to it. As a Massachusetts business trust, the Trust is not
required to hold annual meetings of shareholders but shareholders' approval will
be sought for certain changes in the operation of the Trust and for the election
of Trustees under certain circumstances. 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.
REPORTING
The Trust issues unaudited financial information semiannually and audited
financial statements annually for the Fund. The Trust also furnishes periodic
reports and, as necessary, proxy statements to shareholders of record.
SHAREHOLDER INQUIRIES
Shareholder inquiries should be directed to The Advisors' Inner Circle Fund,
P.O. Box 419009, Kansas City, Missouri 64141-6009 or by calling 1-888-227-0595.
Purchase and redemption transactions should be made through the Transfer Agent
by calling 1-800-808-4921.
DIVIDENDS AND DISTRIBUTIONS
The Fund declares dividends of substantially all of its net investment income
(exclusive of capital gains) monthly and pays such dividends on the first
Business Day of each month. Shares purchased begin earning dividends on the
Business Day following receipt of funds by the Transfer Agent. Normally, this
will occur within two Business Days after an order is received. If any capital
gain is realized, substantially all of it will be distributed at least annually.
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Shareholders automatically receive all income dividends and capital gain
distributions in additional shares, unless the shareholder has elected to take
such payment in cash. Shareholders may change their election by providing
written notice to the Transfer Agent at least 15 days prior to the distribution.
Shareholders may receive payments for cash distributions in the form of a check
or ACH.
Dividends and other distributions of the Fund are paid on a per-share basis. The
value of each share will be reduced by the amount of the payment. If shares are
purchased shortly before the record date for a distribution of capital gains, a
shareholder will pay the full price for the shares and receive some portion of
the price back as a taxable distribution or dividend.
COUNSEL AND INDEPENDENT PUBLIC ACCOUNTANTS
Morgan, Lewis & Bockius LLP serves as counsel to the Trust. Arthur Andersen LLP
serves as the independent public accountants of the Trust.
CUSTODIAN
CoreStates Bank, N.A., Broad and Chestnut Streets, P.O. Box 7618, Philadelphia,
Pennsylvania 19101 acts as custodian (the "Custodian") of the Fund. The
Custodian holds cash, securities and other assets of the Fund as required by the
Investment Company Act of 1940, as amended (the "1940 Act").
DESCRIPTION OF PERMITTED INVESTMENTS AND RISK FACTORS
The following is a description of some permitted investments for the Fund, and
the associated risk factors:
AMERICAN DEPOSITARY RECEIPTS ("ADRS") - ADRs are securities, typically issued by
a U.S. financial institution (a "depositary"), that evidence ownership interests
in a security or a pool of securities issued by a foreign issuer and deposited
with the depositary. ADRs 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, whereas, an unsponsored
facility may be established by a depositary without participation by the issuer
of the underlying security. Holders of unsponsored depositary receipts generally
bear all the costs of the unsponsored facility. The depositary of an unsponsored
facility frequently is under no obligation to distribute shareholder
communications received from the issuer of the deposited security or to pass
through, to the holders of the receipts, voting rights with respect to the
deposited securities.
ASSET-BACKED SECURITIES - Asset-backed securities are secured by non-mortgage
assets such as company receivables, truck and auto loans, leases and credit card
receivables. Such securities are generally issued as pass-through certificates,
which represent undivided fractional ownership interests in the underlying pools
of assets. Such securities also may be debt instruments which are also 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 such
assets and issuing such debt.
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CORPORATE BONDS - A corporate bond is a debt instrument issued by a private
domestic or foreign corporation, as distinct from one issued by a governmental
agency or municipality. Corporate bonds generally have the following features:
(1) they are taxable; (2) they have a par value of $1,000 (domestic bonds); and
(3) they have a term maturity. They are sometimes traded on major exchanges.
FIXED INCOME SECURITIES - The market value of the fixed income investments in
which the Fund invests will 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 also affect the value of these
investments. Changes in the value of these securities will not necessarily
affect cash income derived from these securities but will affect the Fund's net
asset value.
INVESTMENT COMPANY SECURITIES - The Fund may invest up to 10% of its total
assets in the securities of other open-end investment companies that invest
exclusively in those securities which the Fund may invest directly. The Fund's
purchase of investment company securities will cause shareholders to bear not
only their proportionate share of the expenses of the Fund (including operating
expenses and the fees of the Adviser), but also similar expenses of the
underlying investment companies.
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, and sold by the lending bank or syndicate member
("intermediary bank"). In a loan participation, the borrower corporation will be
deemed to be 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 in any way, a loan participation is
subject to the credit risks generally associated with the underlying corporate
borrower. In the event of the bankruptcy or insolvency of the corporate
borrower, a loan participation may be subject to certain defenses that can be
asserted by such borrower as a result of improper conduct by the intermediary
bank. In addition, in the event the underlying corporate borrower fails to pay
principal and interest when due, the Fund may be subject to delays, expenses and
risks that are greater than those that would have been involved if the Fund had
purchased a direct obligation of such 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, if any, for these loan participations is limited.
MONEY MARKET INSTRUMENTS - Money market instruments 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 an NRSRO 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.
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Bankers' Acceptances: Bankers' acceptances are bills of exchange or time drafts
drawn on and accepted by a commercial bank. Bankers' acceptances are used by
corporations to finance the shipment and storage of goods. 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.
Commercial Paper: Commercial paper is a term used to describe unsecured
short-term promissory notes issued by banks, municipalities, corporations and
other entities. Maturities on these issues vary from a few to 270 days.
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.
MORTGAGE-BACKED SECURITIES - Mortgage-backed securities are instruments that
entitle the holder to a share of all interest and principal payments from
mortgages underlying the security. The mortgages backing these securities
include conventional thirty-year fixed rate mortgages, graduated payment
mortgages and adjustable rate mortgages. During periods of declining interest
rates, prepayment of mortgages underlying mortgage-backed securities can be
expected to accelerate. Prepayment of mortgages which underlie securities
purchased at a premium often results in capital losses, while prepayment of
mortgages purchased at a discount often results in capital gains. Because of
these unpredictable prepayment characteristics, it is often not possible to
predict accurately the average life or realized yield of a particular issue.
Government Pass-Through Securities: These are securities that are issued or
guaranteed by a U.S. Government agency representing an interest in a pool of
mortgage loans. The primary issuers or guarantors of these mortgage-backed
securities are the Government National Mortgage Association ("GNMA"), Fannie Mae
and the Federal Home Loan Mortgage Corporation ("FHLMC"). Fannie Mae and FHLMC
obligations are not backed by the full faith and credit of the U.S. Government
as GNMA certificates are, but Fannie Mae and FHLMC securities are supported by
the instrumentalities' right to borrow from the U.S. Treasury. GNMA, Fannie Mae
and FHLMC each guarantees timely distributions of interest to certificate
holders. GNMA and Fannie Mae also each guarantees timely distributions of
scheduled principal. FHLMC has in the past guaranteed only the ultimate
collection of principal of the underlying mortgage loan; however, FHLMC now
issues mortgage-backed securities (FHLMC Gold PCS) which also guarantee timely
payment of monthly principal reductions. Government and private guarantees do
not extend to the securities' value, which is likely to vary inversely with
fluctuations in interest rates.
Private Pass-Through Securities: These are mortgage-backed securities issued by
a non-governmental entity, such as a trust. These securities include
collateralized mortgage obligations ("CMOs") and real estate mortgage investment
conduits ("REMICs") that are rated in one of the top four rating categories.
While they are generally structured with one or more types of credit
17
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enhancement, private pass-through securities typically lack a guarantee by an
entity having the credit status of a governmental agency or instrumentality.
CMOs:__CMOs are debt obligations or multiclass pass-through certificates issued
by agencies or instrumentalities of the U.S. Government or by private
originators or investors in mortgage loans. In a CMO, series of bonds or
certificates are usually issued in multiple classes. Principal and interest paid
on the underlying mortgage assets may be allocated among the several classes of
a series of a CMO in a variety of ways. Each class of a CMO, often referred to
as a "tranche," is issued with a specific fixed or floating coupon rate and has
a stated maturity or final distribution date. Principal payments on the
underlying mortgage assets may cause CMOs to be retired substantially earlier
then their stated maturities or final distribution dates, resulting in a loss of
all or part of any premium paid.
REMICs: A REMIC is a CMO that qualifies for special tax treatment under the
Code and invests in certain mortgages principally secured by interests in real
property. 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, FHLMC or GNMA
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, and also guarantees the payment of principal as payments are
required to be made on the underlying mortgage participation certificates.
Fannie Mae REMIC Certificates are issued and guaranteed as to timely
distribution of principal and interest by Fannie Mae. GNMA REMIC Certificates
are supported by the full faith and credit of the U.S. Treasury.
Adjustable Rate Mortgage Securities ("ARMS"): ARMS are a form of pass-through
security representing interests in pools of mortgage loans whose interest rates
are adjusted from time to time. The adjustments usually are determined in
accordance with a predetermined interest rate index and may be subject to
certain limits. While the value of ARMS, like other debt securities, generally
vary inversely with changes in market interest rates (increasing in value during
periods of declining interest rates and decreasing in value during periods of
increasing interest rates), the values of ARMS should generally be more
resistant to price swings than other debt securities because the interest rates
of ARMS move with market interest rates. The adjustable rate feature of ARMS
will not, however, eliminate fluctuations in the prices of ARMS, particularly
during periods of extreme fluctuations in interest rates. Also, since many
adjustable rate mortgages only reset on an annual basis, it can be expected that
the prices of ARMS will fluctuate to the extent that changes in prevailing
interests rates are not immediately reflected in the interest rates payable on
the underlying adjustable rate mortgages.
Stripped Mortgage-Backed Securities ("SMBs"): SMBs are usually structured with
two classes that receive specified proportions of the monthly interest and
principal payments from a pool of mortgage securities. One class may receive all
of the interest payments and is thus termed an interest-only class ("IO"), while
the other class may receive all of the principal payments and is thus termed the
principal-only class ("PO"). The value of IOs tends to increase as rates rise
and decrease as rates fall; the opposite is true of POs. SMBs are extremely
sensitive to changes in interest rates because of the impact thereon of
prepayment of principal on the underlying mortgage securities. During times when
interest rates are experiencing fluctuations, such securities can be
18
<PAGE>
difficult to price on a consistent basis. The market for SMBs is not as fully
developed as other markets; SMBs therefore may be illiquid.
Estimated Average Life: Due to the possibility of prepayments of the underlying
mortgage instruments, mortgage-backed securities generally do not have a known
maturity. In the absence of a known maturity, market participants generally
refer to an estimated average life. An average life estimate is a function of an
assumption regarding anticipated prepayment patterns, based upon current
interest rates, current conditions in the relevant housing markets and other
factors. The assumption is necessarily subjective, and thus different market
participants can produce different average life estimates with regard to the
same security. There can be no assurance that estimated average life will be a
security's actual average life.
OBLIGATIONS OF SUPRANATIONAL ENTITIES - Supranational entities are entities
established through the joint participation of several governments, and include
the Asian Development Bank, Inter-American Development Bank, International Bank
for Reconstruction and Development (World Bank), African Development Bank,
European Economic Community, European Investment Bank and Nordic Investment
Bank. The governmental members, or "stockholders," usually make initial capital
contributions to the supranational entity and in many cases are committed to
make additional capital contributions if the supranational entity is unable to
repay its borrowings.
PREFERRED STOCK - Preferred stock is a class of equity security that pays
dividends at a specified rate and that has preference over common stock in the
payment of dividends and the liquidation of assets. Investment in preferred
stocks are subject to market risks that may cause their prices to fluctuate over
time. Changes in the value of preferred stock will not necessarily affect cash
income derived from these securities but will affect the Fund's net asset value.
REPURCHASE AGREEMENTS - Repurchase agreements are agreements by which the Fund
obtains a security and simultaneously commits to return the security to the
seller at an agreed upon price on an agreed upon date within a number of days
from the date of purchase. The Custodian will hold the security as collateral
for the repurchase agreement. The Fund bears a risk of loss in the event the
other party defaults on its obligations and the Fund is delayed or prevented
from exercising its right to dispose of the collateral or if the Fund realizes a
loss on the sale of the collateral. The Fund will enter into repurchase
agreements only with financial institutions deemed to present minimal risk of
bankruptcy during the term of the agreement based on established guidelines.
Repurchase agreements are considered loans under the 1940 Act.
REVERSE REPURCHASE AGREEMENTS - Reverse repurchase agreements are agreements by
which the Fund sells securities to financial institutions and simultaneously
agrees to repurchase those securities at a mutually agreed-upon date and price.
At the time the Fund enters into a reverse repurchase agreement, the Fund will
place liquid assets having a value equal to the repurchase price in a segregated
custodial account and monitor this account to ensure equivalent value is
maintained. Reverse repurchase agreements involve the risk that the market value
of securities sold by the Fund may decline below the price at which the Fund is
obligated to repurchase the securities. Reverse repurchase agreements may be
considered to be borrowings by the Fund under the 1940 Act.
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<PAGE>
SECURITIES OF FOREIGN GOVERNMENTS - The Fund may invest in U.S. dollar
denominated obligations or securities of the Government of Canada and its
provincial and local governments and U.S. dollar denominated securities issued
or guaranteed by other foreign governments, their political subdivisions,
agencies or instrumentalities. Permissible investments may consist of
obligations or foreign branches of U.S. banks and of foreign banks, including
Yankee Certificates of Deposit. In addition, the Fund may invest in American
Depositary Receipts. These instruments may subject the Fund to investment risks
that differ in some respects from those related to investments in obligations of
U.S. domestic issuers. Such 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, or
the adoption of other foreign governmental restrictions which might adversely
affect the payment of principal and interest on such obligations. Such
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.
SECURITIES OF FOREIGN ISSUERS - There are certain risks connected with investing
in foreign securities. These include risks of adverse political and economic
developments (including possible governmental seizure or nationalization of
assets), the possible imposition of exchange controls or other governmental
restrictions, less uniformity in accounting and reporting requirements, the
possibility that there will be less information on such securities and their
issuers available to the public, the difficulty of obtaining or enforcing court
judgments abroad, restrictions on foreign investments in other jurisdictions,
difficulties in effecting repatriation of capital invested abroad, and
difficulties in transaction settlements and the effect of delay on shareholder
equity. Foreign securities may be subject to foreign taxes, and may be less
marketable than comparable U.S. securities. The value of the Fund's investments
denominated in foreign currencies will depend on the relative strengths of those
currencies and the U.S. dollar, and the Fund may be affected favorably or
unfavorably by changes in the exchange rates or exchange control regulations
between foreign currencies and the U.S. dollar. Changes in foreign currency
exchange rates also may affect the value of dividends and interest earned, gains
and losses realized on the sale of securities and net investment income and
gains, if any, to be distributed to shareholders by the Fund.
U.S. GOVERNMENT SECURITIES - U.S. Government securities consist of bills, notes
and bonds issued by the U.S. Treasury, separately traded interest and principal
component parts of such obligations that are transferable through the federal
book-entry system known as Separately Traded Registered Interest and Principal
Securities ("STRIPS"), and obligations issued or guaranteed by agencies of the
U.S. Government, including, among others, the Federal Farm Credit Bank, the
Federal Housing Administration and the Small Business Administration, and
obligations issued or guaranteed by instrumentalities of the U.S. Government,
including, among others, FHLMC, the Federal Land Banks and the U.S. Postal
Service. Some of these securities 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
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<PAGE>
timely payment of principal and interest do not extend to the value or yield of
these securities nor to the value of the Fund's shares.
VARIABLE AND FLOATING RATE INSTRUMENTS - Certain obligations may carry variable
or floating rates of interest, and may involve a conditional or unconditional
demand feature. Such instruments bear interest at rates which are not fixed, but
which vary with changes in specified market rates or indices. The interest rates
on these securities may be reset daily, weekly, quarterly or some other reset
period, and may have a floor or ceiling on interest rate changes. There is a
risk that the current interest rate on such obligations may not accurately
reflect existing market interest rates. A demand instrument with a demand notice
exceeding seven days may be considered illiquid if there is no secondary market
for such security.
WHEN-ISSUED SECURITIES - When-issued or delayed delivery basis transactions
involve the purchase of an instrument with payment and delivery taking place in
the future. Delivery of and payment for these securities may occur a month or
more after the date of the purchase commitment. The Fund will maintain with the
Custodian a separate account with liquid securities or cash in an amount at
least equal to these commitments. The interest rate realized on these securities
is fixed as of the purchase date and no interest accrues to the Fund before
settlement. These securities are subject to market fluctuation due to changes in
market interest rates and it is possible that the market value at the time of
settlement could be higher or lower than the purchase price if the general level
of interest rates has changed.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY.................................................................................. 3
EXPENSE SUMMARY.......................................................................... 5
THE TRUST AND THE FUND................................................................... 6
INVESTMENT OBJECTIVE AND POLICIES........................................................ 6
PORTFOLIO TURNOVER....................................................................... 7
INVESTMENT LIMITATIONS................................................................... 7
THE ADVISER.............................................................................. 7
THE SUB-ADVISER.......................................................................... 8
THE ADMINISTRATOR........................................................................ 9
THE TRANSFER AGENT....................................................................... 9
THE DISTRIBUTOR.......................................................................... 9
PURCHASE AND REDEMPTION OF SHARES........................................................ 9
PERFORMANCE.............................................................................. 12
TAXES.................................................................................... 12
GENERAL INFORMATION...................................................................... 13
DESCRIPTION OF PERMITTED INVESTMENTS AND RISK FACTORS.................................... 15
</TABLE>
<PAGE>
Trust:
THE ADVISORS' INNER CIRCLE FUND
Fund:
SAGE CORPORATE BOND FUND
Adviser:
SAGE GLOBAL FUNDS, LLC
Sub-Adviser:
STANDARD ASSET GROUP, INC.
Distributor:
SEI INVESTMENTS DISTRIBUTION CO.
Administrator:
SEI FUND RESOURCES
Legal Counsel:
MORGAN, LEWIS & BOCKIUS LLP
Independent Public Accountants:
ARTHUR ANDERSEN LLP
November 1, 1997
<PAGE>
TRUST:
THE ADVISORS' INNER CIRCLE FUND
FUND:
SAGE CORPORATE BOND FUND
INVESTMENT ADVISER:
SAGE GLOBAL FUNDS, LLC
This STATEMENT OF ADDITIONAL INFORMATION is not a prospectus and relates only to
the SAGE Corporate Bond Fund (the "Fund"). It is intended to provide additional
information regarding the activities and operations of The Advisors' Inner
Circle Fund (the "Trust") and the Fund and should be read in conjunction with
the Fund's Prospectus dated November 1, 1997. The Prospectus for the Fund may be
obtained by calling 1-888-227-0595.
TABLE OF CONTENTS
<TABLE>
<S> <C>
THE TRUST........................................................................... S-2
DESCRIPTION OF PERMITTED INVESTMENTS................................................ S-2
INVESTMENT LIMITATIONS.............................................................. S-5
THE ADVISER......................................................................... S-7
THE SUB-ADVISER..................................................................... S-7
THE ADMINISTRATOR................................................................... S-8
THE DISTRIBUTOR..................................................................... S-9
TRUSTEES AND OFFICERS OF THE TRUST.................................................. S-9
PERFORMANCE INFORMATION............................................................. S-12
PURCHASE AND REDEMPTION OF SHARES................................................... S-13
DETERMINATION OF NET ASSET VALUE.................................................... S-13
TAXES............................................................................... S-14
PORTFOLIO TRANSACTIONS.............................................................. S-15
DESCRIPTION OF SHARES............................................................... S-16
SHAREHOLDER LIABILITY............................................................... S-17
LIMITATION OF TRUSTEES' LIABILITY................................................... S-17
EXPERTS............................................................................. S-17
</TABLE>
November 1, 1997
SAG-F-002-01
<PAGE>
THE TRUST
This Statement of Additional Information relates only to the SAGE Corporate Bond
Fund (the "Fund"). The Fund is a separate series of The Advisors' Inner Circle
Fund (the "Trust"), an open-end investment management company established under
Massachusetts law as a Massachusetts business trust under a Declaration of Trust
dated July 18, 1991. The Declaration of Trust permits the Trust to offer
separate series ("portfolios") of shares of beneficial interest ("shares"). Each
portfolio is a separate mutual fund, and each share of each portfolio represents
an equal proportionate interest in that portfolio. See "Description of Shares."
No investment in shares of a portfolio should be made without first reading that
portfolio's prospectus. Capitalized terms not defined herein are defined in the
Prospectus offering shares of the Fund.
DESCRIPTION OF PERMITTED INVESTMENTS
The following sets forth certain information as a supplement to the "Investment
Objective and Policies" and "Description of Permitted Investments and Risk
Factors" sections of the Prospectus.
AMERICAN DEPOSITARY RECEIPT--The Fund may invest in American Depositary
Receipts. These instruments may subject the Fund to investment risks that differ
in some respects from those related to investments in obligations of U.S.
domestic issuers. Such 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. 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.
ASSET-BACKED SECURITIES--The Fund may invest in asset-backed securities secured
by assets including company receivables, truck and auto loans, leases and credit
card receivables. The Fund may invest in other asset-backed securities that may
be created in the future if the Adviser or Sub-Adviser determines they are
suitable. These issues may be traded over-the-counter and typically have a
short-intermediate maturity structure depending on the paydown characteristics
of the underlying financial assets which are passed through to the security
holder.
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
S-2
<PAGE>
instruments underlying such securities. For example, there is a risk that
another party could acquire an interest in the obligations superior to that of
the holders of the asset-backed securities. There also is the possibility that
recoveries on repossessed collateral may not, in some cases, be available to
support payments on those securities. 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 collateralized mortgage obligations
("CMOs"). In addition, credit card receivables are unsecured obligations of the
card holder. There may be a limited secondary market for asset-backed
securities.
INVESTMENT COMPANY SHARES--The Fund may invest up to 10% of its total assets in
shares of other investment companies that invest exclusively in those securities
in which the Fund may invest directly. These investment companies typically
incur fees that are separate from those fees incurred directly by the Fund. The
Fund's purchase of such investment company securities results in the layering of
expenses, such that shareholders would indirectly bear a proportionate share of
the operating expenses of such investment companies, including advisory fees, in
addition to paying Fund expenses. Under applicable regulations, the Fund is
prohibited from acquiring the securities of another investment company if, as a
result of such acquisition: (1) the Fund owns more than 3% of the total voting
stock of the other company; (2) securities issued by any one investment company
represent more than 5% of the Fund's total assets; or (3) securities (other than
treasury stock) issued by all investment companies represent more than 10% of
the total assets of the Fund.
MORTGAGE-BACKED SECURITIES--The Fund may invest in mortgage-backed securities,
principally collateralized mortgage obligations ("CMOs") and real estate
mortgage investment conduits ("REMICs"). CMOs are securities collateralized by
mortgages, mortgage pass-throughs, mortgage pay-through bonds (bonds
representing an interest in a pool of mortgages where the cash flow generated
from the mortgage collateral pool is dedicated to bond repayment), and
mortgage-backed bonds (general obligations of the issuers payable out of the
issuers' general funds and additionally secured by a first lien on a pool of
single-family detached properties).
Many CMOs are issued with a number of classes or series that have different
maturities and are retired in sequence. Investors purchasing such CMOs in the
shortest maturities receive or are credited with their pro rata portion of the
scheduled payments of interest and principal on the underlying mortgages plus
all unscheduled prepayments of principal up to a predetermined portion of the
total CMO obligation. Until that portion of such CMO obligation is repaid,
investors in the longer maturities receive interest only. Accordingly, the CMOs
in the longer maturity series are less likely than other mortgage pass-throughs
to be prepaid prior to their stated maturity. Although some of the mortgages
underlying CMOs may be supported by various types of insurance, and some CMOs
may be backed by GNMA certificates or other mortgage pass-throughs issued or
guaranteed by U.S. Government agencies or instrumentalities, the CMOs themselves
generally are not guaranteed.
S-3
<PAGE>
REMICs, which were authorized under the Internal Revenue Code of 1986, as
amended (the "Code"), are private entities formed for the purpose of holding a
fixed pool of mortgages secured by an interest in real property. REMICs are a
form of CMO, and issue multiple classes of securities.
OBLIGATIONS OF SUPRANATIONAL AGENCIES--The Fund may purchase obligations of
supranational agencies. Currently, the Fund only intends to invest in
obligations issued or guaranteed by the Asian Development Bank, Inter-American
Development Bank, International Bank for Reconstruction and Development (World
Bank), African Development Bank, European Coal and Steel Community, European
Economic Community, European Investment Bank and Nordic Investment Bank.
REPURCHASE AGREEMENTS--The Fund may enter into repurchase agreements with
primary securities dealers recognized by the Federal Reserve Bank of New York or
with national member banks as defined in Section 3(d)(1) of the Federal Deposit
Insurance Act, as amended. A repurchase agreement will have an agreed-upon price
(including principal and interest) and an agreed-upon repurchase date within a
number of days (usually not more than seven) from the date of purchase. The
resale price reflects the purchase price plus an agreed-upon market rate of
interest which is unrelated to the coupon rate or maturity of the underlying
security. A repurchase agreement involves the obligation of the seller to pay
the agreed upon price, which obligation is in effect secured by the value of the
underlying security.
The repurchase agreements entered into by the Fund will provide that the
underlying security at all times shall have a value at least equal to 102% of
the resale price stated in the agreement; the Adviser monitors compliance with
this requirement. Under all repurchase agreements entered into by the Fund, the
Custodian or its agent must take possession of the underlying collateral.
However, if the seller defaults, the Fund could realize a loss on the sale of
the underlying security to the extent that the proceeds of sale including
accrued interest are less than the resale price provided in the agreement
including interest. In addition, even though the Federal Bankruptcy Code
provides protection for proceedings, the Fund may incur delay and costs in
selling the underlying security or may suffer a loss of principal and interest
if the Fund is treated as an unsecured creditor and required to return the
underlying security to the seller's estate.
UNITED STATES GOVERNMENT AGENCIES--Certain United States Government agencies
have been established as instrumentalities of the United States Government to
supervise and finance certain types of activities. Agencies of the United States
Government which issue such obligations consist of, among others, the Export
Import Bank of the United States, Farmers Home Administration, Federal Farm
Credit Bank, Federal Housing Administration, Government National Mortgage
Association ("GNMA"), Maritime Administration, Small Business Administration,
and the Tennessee Valley Authority. Obligations of instrumentalities of the
United States Government include securities issued by, among others, Federal
Home Loan Banks, Federal Home Loan Mortgage Corporation, Federal Intermediate
Credit Banks, Federal Land Banks, Fannie Mae and the United States Postal
Service. Some of these securities are supported
S-4
<PAGE>
by the full faith and credit of the United States Treasury. Others are supported
by the right of the issuer to borrow from the Treasury and still others are
supported only by the credit of the instrumentality. Guarantees of principal by
agencies or instrumentalities of the United States 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 the
value of the obligation prior to maturity.
VARIABLE OR FLOATING RATE INSTRUMENTS--The Fund may invest in variable or
floating rate instruments which may involve a demand feature and may include
variable amount master demand notes which may or may not be backed by bank
letters of credit. The holder of an instrument with a demand feature may tender
the instrument back to the issuer at par prior to maturity. A variable amount
master demand note is issued pursuant to a written agreement between the issuer
and the holder, its amount may be increased by the holder or decreased by the
holder or issuer, it is payable on demand, and the rate of interest varies based
upon an agreed formula. The quality of the underlying credit must, in the
opinion of the Adviser, be equivalent to the long-term bond or commercial paper
ratings applicable to permitted investments for the Fund. The Adviser or
Sub-Adviser will monitor on an ongoing basis the earnings 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.
WHEN-ISSUED SECURITIES--The Fund may purchase debt obligations on a when-issued
basis, in which case delivery and payment normally take place on a future date.
The Fund will make commitments to purchase obligations on a when-issued basis
only with the intention of actually acquiring the securities, but may sell them
before the settlement date. During the period prior to the settlement date, the
securities are subject to market fluctuation, and no interest accrues on the
securities to the purchaser. The payment obligation and the interest rate that
will be received on the securities at settlement are each fixed at the time the
purchaser enters into the commitment. Purchasing obligations on a when-issued
basis may be used as a form of leveraging because the purchaser may accept the
market risk prior to payment for the securities. The Fund, however, will not use
such purchases for leveraging; instead, as disclosed in the Prospectus, the Fund
will set aside assets to cover its commitments. If the value of these assets
declines, the Fund will place additional liquid assets aside on a daily basis so
that the value of the assets set aside is equal to the amount of the commitment.
INVESTMENT LIMITATIONS
FUNDAMENTAL POLICIES
The following investment limitations are fundamental policies of the Fund that
cannot be changed without the consent of the holders of a majority of the Fund's
outstanding shares. The phrase "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.
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<PAGE>
The Fund may not:
1. Acquire more than 10% of the voting securities of any one issuer.
2. Invest in companies for the purpose of exercising control.
3. Issue any class of senior security or sell any senior security of which it
is the issuer, except that the Fund may borrow from any bank, provided that
immediately after any such borrowing there is asset coverage of at least
300% for all borrowings of the Fund, and further provided that, to the
extent that such borrowings exceed 5% of the Fund's total assets, all
borrowings shall be repaid before the Fund makes additional investments. The
term "senior security" shall not include any temporary borrowings that do
not exceed 5% of the value of the Fund's total assets at the time the Fund
makes such temporary borrowing. In addition, investment strategies that
either obligate the Fund to purchase securities or require the Fund to
segregate assets will not be considered borrowings or senior securities.
This investment limitation shall not preclude the Fund from issuing multiple
classes of shares in reliance on SEC rules or orders.
4. Make loans if, as a result, more than 33 1/3% of its total assets would be
lent to other parties, except that the Fund may (i) purchase or hold debt
instruments in accordance with its investment objective and policies; (ii)
enter into repurchase agreements; and (iii) lend its securities.
5. Purchase or sell real estate, real estate limited partnership interests,
physical commodities or commodities contracts except that the Fund may
purchase commodities contracts relating to financial instruments, such as
financial futures contracts and options on such contracts.
6. Make short sales of securities, maintain a short position or purchase
securities on margin, except that a Fund may obtain short-term credits as
necessary for the clearance of security transactions and sell securities
short "against the box."
7. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling the Fund security.
8. Purchase securities of other investment companies except as permitted by the
Investment Company Act of 1940, as amended (the "1940 Act") and the rules
and regulations thereunder.
NON-FUNDAMENTAL POLICIES
The following investment limitation of the Fund is non-fundamental and may be
changed by the Trust's Board of Trustees without shareholder approval:
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<PAGE>
1. The Fund may not invest in illiquid securities in an amount exceeding, in
the aggregate, 15% of the Fund's net assets.
Except with respect to the Fund's policy concerning borrowing and illiquid
securities, if a percentage restriction is adhered to at the time of an
investment, a later increase or decrease in percentage resulting from changes in
values or assets will not constitute a violation of such restriction.
THE ADVISER
SAGE Global Funds LLC (the "Adviser" or "SAGE") and the Trust have entered into
an advisory agreement dated October 31, 1997 (the "Advisory Agreement"). 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 continuance of the Advisory Agreement, after the first two years, must be
specifically approved at least annually (i) by the vote of the Trustees or by a
vote of the shareholders of the Fund, and (ii) by the vote of a majority of the
Trustees who are not parties to the Agreement or "interested persons" of any
party thereto, cast in person at a meeting called for the purpose of voting on
such approval. The Advisory Agreement will terminate automatically in the event
of its assignment, and is terminable at any time without penalty by the Trustees
of the Trust or, with respect to the Fund, by a majority of the outstanding
shares of that Fund, on not less than 30 days' nor more than 60 days' written
notice to the Adviser, or by the Adviser on 90 days' written notice to the
Trust.
For its services, the Adviser is entitled to a fee, which is calculated daily
and paid monthly, at an annual rate of .60% of the average daily net assets of
the Fund. The Adviser has voluntarily agreed to waive a portion of its advisory
fees in order to limit total operating expenses of the Fund to not more than
.90% of average daily net assets. The Adviser reserves the right, in its sole
discretion, to terminate its fee waiver at any time. Additionally, the Adviser
has contractually agreed to waive its entire advisory fee for any calendar year
which follows a calendar year in which the Fund's net asset value per share
declines, adjusted for dividends and distributions paid during such year.
For the fiscal year ended October 31, 1997, the Fund had not commenced
operations and therefore did not pay advisory fees.
THE SUB-ADVISER
Standard Asset Group, Inc. serves as investment sub-adviser to the Fund pursuant
to a sub-advisory agreement by and between Standard Asset Group, Inc. and the
Adviser (the "Sub-Advisory Agreement"). Pursuant to the Sub-Advisory Agreement,
Standard Asset Group, Inc. is
S-7
<PAGE>
entitled to receive a sub-advisory fee, which is calculated daily and paid
monthly at an annual rate of .20% of the average daily net assets of the Fund.
The Sub-Advisor has voluntarily agreed to waive its sub-advisory fees in the
same proportion as the Adviser waives its advisory fees from the Fund. In
addition, the Sub-Adviser will not be entitled to receive sub-advisory fees
during any calendar year in which the Adviser is not entitled to receive any
advisory fees.
For the fiscal year ended October 31, 1997, the Fund had not commenced
operations and therefore did not pay sub-advisory fees.
THE ADMINISTRATOR
The Administration Agreement provides that SEI Fund Resources (the
"Administrator") shall not be liable for any error of judgment or mistake of law
or for any loss suffered by the Fund in connection with the matters to which the
Administration Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Administrator in
the performance of its duties or from reckless disregard of its duties and
obligations thereunder.
The Administration Agreement shall remain effective for the initial term of the
Agreement and each renewal term thereof unless earlier terminated (a) by the
mutual written agreement of the parties; (b) by either party of the
Administration Agreement on 90 days' written notice, as of the end of the
initial term or the end of any renewal term; (c) by either party of the
Administration Agreement on such date as is specified in written notice given by
the terminating party, in the event of a material breach of the Administration
Agreement by the other party, provided the terminating party has notified the
other party of such breach at least 45 days' prior to the specified date of
termination and the breaching party has not remedied such breach by the
specified date; (d) effective upon the liquidation of the Administrator; or (e)
as to the Fund or the Trust, effective upon the liquidation of the Fund or the
Trust, as the case may be.
The Administrator, a Delaware business trust, has its principal business offices
at Oaks, Pennsylvania 19456. SEI Investments Management Corporation ("SIMC"), a
wholly-owned subsidiary of SEI Investments Company ("SEI Investments"), is the
owner of all beneficial interest in the Administrator. SEI Investments and its
subsidiaries and affiliates, including the Administrator, are leading providers
of funds evaluation services, trust accounting systems, and brokerage and
information services to financial institutions, institutional investors, and
money managers. The Administrator and its affiliates also serve as administrator
or sub-administrator to the following other mutual funds: The Achievement Funds
Trust, The Advisors' Inner Circle Fund, The Arbor Fund, ARK Funds, Bishop Street
Funds, Boston 1784 Funds-Registered Trademark-, CoreFunds, Inc., CrestFunds,
Inc., CUFUND, The Expedition Funds, FMB Funds, Inc., First American Funds, Inc.,
First American Investment Funds, Inc., First American Strategy Funds, Inc.,
HighMark Funds, Marquis-Registered Trademark- Funds, Monitor Funds, Morgan
Grenfell Investment Trust, The PBHG Funds, Inc., PBHG Insurance Series Fund, The
Pillar Funds, Profit Funds Investment Trust, Rembrandt
Funds-Registered Trademark-, Santa Barbara Group of Mutual Funds, Inc., SEI
Asset Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI
Institutional Investments Trust, SEI
S-8
<PAGE>
Institutional Managed Trust, SEI International Trust, SEI Liquid Asset Trust,
SEI Tax Exempt Trust, STI Classic Funds, STI Classic Variable Trust, and TIP
Funds.
The Administrator will not be required to bear expenses of the Fund to an extent
which would result in the Fund's inability to qualify as a regulated investment
company under provisions of the Code. The term "expenses" is defined in such
laws or regulations, and generally excludes brokerage commissions, distribution
expenses, taxes, interest and extraordinary expenses.
For the fiscal year ended October 31, 1997, the Fund had not commenced
operations and therefore did not pay administration fees.
THE DISTRIBUTOR
SEI Investments Distribution Co. (the "Distributor"), a wholly-owned subsidiary
of SEI Investments, and the Trust are parties to a distribution agreement (the
"Distribution Agreement"). The Distributor will not receive compensation for
distribution of shares of the Fund.
The Distribution Agreement shall remain in effect for a period of two years
after the effective date of the agreement and is renewable annually. The
Distribution Agreement may be terminated by the Distributor, by a majority vote
of the Trustees who are not interested persons and have no financial interest in
the Distribution Agreement or by a majority vote of the outstanding securities
of the Trust upon not more than 60 days' written notice by either party or upon
assignment by the Distributor.
For the fiscal year ended October 31, 1997, the Fund had not commenced
operations and therefore did not pay distribution fees.
TRUSTEES AND OFFICERS OF THE TRUST
The Trustees and Executive Officers of the Trust, their respective dates of
birth, and their principal occupations for the last five years are set forth
below. Each may have held other positions with the named companies during that
period. Unless otherwise noted, the business address of each Trustee and each
Executive Officer is SEI Investments Company, Oaks, Pennsylvania 19456. Certain
officers of the Trust also serve as officers of some or all of the following:
The Achievement Funds Trust, The Advisors' Inner Circle Fund, The Arbor Fund,
ARK Funds, Bishop Street Funds, Boston 1784 Funds-Registered Trademark-,
CoreFunds, Inc., CrestFunds, Inc., CUFUND, The Expedition Funds, FMB Funds,
Inc., First American Funds, Inc., First American Investment Funds, Inc., First
American Strategy Funds, Inc, HighMark Funds, Marquis
Funds-Registered Trademark-, Monitor Funds, Morgan Grenfell Investment Trust,
The PBHG Funds, Inc., PBHG Insurance Series Fund, Inc., The Pillar Funds, Profit
Funds Investment Trust, Rembrandt Funds-Registered Trademark-, Santa Barbara
Group of Mutual Funds, Inc., SEI Asset Allocation Trust, SEI Daily Income Trust,
SEI Index Funds, SEI Institutional Investments Trust, SEI Institutional Managed
Trust, SEI International Trust, SEI Liquid Asset Trust, SEI Tax Exempt Trust,
STI Classic Funds, STI
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<PAGE>
Classic Variable Trust and TIP Funds, each of which is an open-end management
investment company managed by SEI Fund Resources or its affiliates and, except
for Profit Funds Investment Trust, Rembrandt Funds-Registered Trademark-, and
Santa Barbara Group of Mutual Funds, Inc., are distributed by SEI Investments
Distribution Co.
ROBERT A. NESHER (DOB 08/17/46)--Chairman of the Board of Trustees*--Currently
performs various services on behalf of SEI Investments for which Mr. Nesher is
compensated. Executive Vice President of SEI Investments, 1986-1994. Director
and Executive Vice President of the Administrator and the Distributor,
1981-1994. Trustee of The Advisors' Inner Circle Fund, The Arbor Fund, Boston
1784 Funds-Registered Trademark-, The Expedition Funds, Marquis Funds, Pillar
Funds, Rembrandt Funds-Registered Trademark-, SEI Asset Allocation Trust, SEI
Daily Income Trust, SEI Index Funds, SEI Institutional Investments Trust, SEI
Institutional Managed Trust, SEI International Trust, SEI Liquid Asset Trust and
SEI Tax Exempt Trust.
JOHN T. COONEY (DOB 01/20/27)--Trustee**--Retired since 1992. Formerly Vice
Chairman of Ameritrust Texas N.A., 1989-1992, and MTrust Corp., 1985-1989.
Trustee of The Advisors' Inner Circle Fund, The Arbor Fund, The Expedition Funds
and Marquis Funds-Registered Trademark-.
WILLIAM M. DORAN (DOB 05/26/40)--Trustee*--2000 One Logan Square, Philadelphia,
PA 19103. Partner, Morgan, Lewis & Bockius LLP (law firm), counsel to the Trust,
Administrator and Distributor, Director and Secretary of SEI Investments.
Trustee of The Advisors' Inner Circle Fund, The Arbor Fund, The Expedition
Funds, Marquis Funds-Registered Trademark-, SEI Asset Allocation Trust, SEI
Daily Income Trust, SEI Index Funds, SEI Institutional Investments Trust, SEI
Institutional Managed Trust, SEI International Trust, SEI Liquid Asset Trust and
SEI Tax Exempt Trust.
FRANK E. MORRIS (DOB 12/30/23)--Trustee**--Retired since 1990. Peter Drucker
Professor of Management, Boston College, 1989-1990. President, Federal Reserve
Bank of Boston, 1968-1988. Trustee of The Advisors' Inner Circle Fund, The Arbor
Fund, The Expedition Funds, Marquis Funds-Registered Trademark-, SEI Asset
Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI Institutional
Investments Trust, SEI Institutional Managed Trust, SEI International Trust, SEI
Liquid Asset Trust and SEI Tax Exempt Trust.
ROBERT A. PATTERSON (DOB 11/05/27)--Trustee**--Pennsylvania State University,
Senior Vice President, Treasurer (Emeritus). Financial and Investment
Consultant, Professor of Transportation (1984-present). Vice
President-Investments, Treasurer, Senior Vice President (Emeritus) (1982-1984).
Director, Pennsylvania Research Corp.; Member and Treasurer, Board of Trustees
of Grove City College. Trustee of The Advisors' Inner Circle Fund, The Arbor
Fund, The Expedition Funds, and Marquis Funds-Registered Trademark-.
GENE PETERS (DOB 06/03/29)--Trustee**--Private investor from 1987 to present.
Vice President and Chief Financial Officer, Western Company of North America
(petroleum service company) (1980-1986). President of Gene Peters and Associates
(import company) (1978-1980).
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<PAGE>
President and Chief Executive Officer of Jos. Schlitz Brewing Company before
1978. Trustee of The Advisors' Inner Circle Fund, The Arbor Fund, The Expedition
Funds and Marquis Funds-Registered Trademark-.
JAMES M. STOREY (DOB 04/12/31)--Trustee**--Partner, Dechert Price & Rhoads, from
September 1987 - December 1993; Trustee of The Advisors' Inner Circle Fund, The
Arbor Fund, The Expedition Funds, Marquis Funds-Registered Trademark-, SEI Asset
Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI Institutional
Investments Trust, SEI Institutional Managed Trust, SEI International Trust, SEI
Liquid Asset Trust and SEI Tax Exempt Trust.
DAVID G. LEE (DOB 04/16/52)--President and Chief Executive Officer--Senior Vice
President of the Administrator and Distributor since 1993. Vice President of the
Administrator and Distributor, 1991-1993. President, GW Sierra Trust Funds
before 1991.
SANDRA K. ORLOW (DOB 10/18/53)--Vice President and Assistant Secretary--Vice
President and Assistant Secretary of the Administrator and Distributor since
1988.
KEVIN P. ROBINS (DOB 04/15/61)--Vice President and Assistant Secretary--Senior
Vice President, General Counsel and Assistant Secretary of SEI Investments,
Senior Vice President, General Counsel and Secretary of the Administrator and
Distributor since 1994. Vice President and Assistant Secretary of SEI
Investments, the Administrator and Distributor, 1992-1994. Associate, Morgan,
Lewis & Bockius LLP (law firm), 1988-1992.
RICHARD W. GRANT (DOB 10/25/45)--Secretary--2000 One Logan Square, Philadelphia,
PA 19103, Partner, Morgan, Lewis & Bockius LLP (law firm), counsel to the Trust,
Administrator and Distributor.
KATHRYN L. STANTON (DOB 11/19/58)--Vice President and Assistant
Secretary--Deputy General Counsel of SEI Investments, Vice President and
Assistant Secretary of the Administrator and Distributor since 1994. Associate,
Morgan, Lewis & Bockius LLP (law firm), 1989-1994.
MARK E. NAGLE (DOB 10/20/59)--Controller and Chief Financial Officer--Vice
President of Fund Accounting and Administration of SEI Fund Resources since
November 1996. Vice President of Fund Accounting, BISYS Fund Services, September
1995 to November 1996. Senior Vice President and Site Manager, Fidelity
Investments, 1981 to September 1995.
TODD B. CIPPERMAN (DOB 02/14/66)--Vice President and Assistant Secretary--Vice
President and Assistant Secretary of SEI Investments, the Administrator and the
Distributor since 1995. Associate, Dewey Ballantine (law firm) (1994-1995).
Associate, Winston & Strawn (law firm) (1991-1994).
BARBARA A. NUGENT (DOB 06/18/56)--Vice President and Assistant Secretary--Vice
President and Assistant Secretary of SEI Investments, the Administrator and
Distributor since
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1996. Associate, Drinker Biddle & Reath (law firm) (1994-1996). Assistant Vice
President/Administration, Delaware Service Company, Inc. (1992-1993); Assistant
Vice President--Operations of Delaware Service Company, Inc. (1988-1992).
MARC H. CAHN (DOB 06/19/57)--Vice President and Assistant Secretary--Vice
President and Assistant Secretary of SEI Investments, the Administrator and
Distributor since 1996. Associate General Counsel, Barclays Bank PLC
(1995-1996). ERISA counsel, First Fidelity Bancorporation (1994-1995),
Associate, Morgan, Lewis & Bockius LLP (1989-1994).
- ------------------------
* Messrs. Nesher and Doran are Trustees who may be deemed to be "interested"
persons of the Trust as that term is defined in the 1940 Act.
** Messrs. Cooney, Morris, Patterson, Peters and Storey serve as members of the
Audit Committee of the Trust.
The Trustees and officers of the Trust own less than 1% of the outstanding
shares of the Trust. The Trust pays the fees for unaffiliated Trustees.
The following table exhibits Trustee compensation for the fiscal year ended
October 31, 1997.
<TABLE>
<CAPTION>
AGGREGATE COMPENSATION FROM REGISTRANT PENSION OR RETIREMENT BENEFITS
FOR THE FISCAL YEAR ENDED OCTOBER 31, ACCRUED AS PART OF TRUST
NAME OF PERSON, POSITION 1997 EXPENSES
- -------------------------------------------- --------------------------------------- -------------------------------
<S> <C> <C>
John T. Cooney, Trustee..................... $ 8,154 N/A
Frank E. Morris, Trustee.................... $ 8,154 N/A
Robert Patterson, Trustee................... $ 8,154 N/A
Eugene B. Peters, Trustee................... $ 8,154 N/A
James M. Storey, Esq., Trustee.............. $ 8,154 N/A
William M. Doran, Esq., Trustee............. $ 0 N/A
Robert A. Nesher, Chairman of the Board..... $ 0 N/A
</TABLE>
PERFORMANCE INFORMATION
From time to time, the Trust may advertise yield and total return of the Fund.
These figures will be based on historical earnings and are not intended to
indicate future performance. No representation can be made concerning actual
future yields or returns. The yield of the Fund refers to the annualized income
generated by an investment in the Fund over a specified 30-day period. The yield
is calculated by assuming that the income generated by the investment during
that 30-day period is generated in each period over one year and is shown as a
percentage of the investment. In particular, yield will be calculated according
to the following formula:
Yield = 2[((a-b)/cd+1)(6)-1], where a = dividends and interest earned during the
period; b = expenses accrued for the period (net of reimbursement); c = the
average daily number of shares
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outstanding during the period that were entitled to receive dividends; and d =
the maximum offering price per share on the last day of the period.
The total return of the Fund refers to the average compounded rate of return to
a hypothetical investment for designated time periods (including, but not
limited to, the period from which that Fund commenced operations through the
specified date), assuming that the entire investment is redeemed at the end of
each period. In particular, total return will be calculated according to the
following formula: P (1 + T)(n) = ERV, where P = a hypothetical initial payment
of $1,000; T = average annual total return; n = number of years; and ERV =
ending redeemable value, as of the end of the designated time period, of a
hypothetical $1,000 payment made at the beginning of the designated time period.
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions may be made through the Distributor on a day on which
the Federal Reserve Banks are open for business, except Good Friday. Shares of
the Fund are offered on a continuous basis. Currently, the holidays observed by
the Federal Reserve Banks are as follows: New Year's Day, Presidents' Day,
Martin Luther King Jr. Day, Memorial Day, Independence Day, Labor Day, Columbus
Day, Veterans' Day, Thanksgiving and Christmas.
It is currently the Trust's policy to pay all redemptions in cash. The Trust
retains the right, however, to alter this policy to provide for redemptions in
whole or in part by a distribution in-kind of securities held by a Fund in lieu
of cash. Shareholders may incur brokerage charges on the sale of any such
securities so received in payment of redemptions. The Trust has received
exemptive relief from the Securities and Exchange Commission (the "SEC"), which
permits the Trust to make in-kind redemptions to those shareholders that are
affiliated with the Fund solely by their ownership of a certain percentage of
the Fund.
The Trust reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the SEC by rule or regulation) as a result of which
the disposal or valuation of the Fund's securities is not reasonably
practicable, or for such other periods as the SEC has by order permitted. The
Trust also reserves the right to suspend sales of shares of any Fund for any
period during which the New York Stock Exchange, the Federal Reserve Banks, the
Adviser, the Administrator, the Transfer Agent and/or the custodian are not open
for business.
DETERMINATION OF NET ASSET VALUE
The securities of the Fund are valued by the Administrator. The Administrator
will use an independent pricing service to obtain valuations of securities. The
pricing service relies primarily on prices of actual market transactions as well
as trader quotations. However, the service may also use a matrix system to
determine valuations of fixed income securities, which system
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considers such factors as security prices, yields, maturities, call features,
ratings and developments relating to specific securities in arriving at
valuations. The procedures of the pricing service and its valuations are
reviewed by the officers of the Trust under the general supervision of the
Trustees.
TAXES
The following is only a summary of certain tax considerations generally
affecting the Fund and its shareholders, and is not intended as a substitute for
careful tax planning. Shareholders are urged to consult their tax advisers with
specific reference to their own tax situations, including their state and local
tax liabilities.
FEDERAL INCOME TAX
The following discussion of federal income tax consequences is based on the Code
and the regulations issued thereunder as in effect on the date of this Statement
of Additional Information. New legislation, as well as administrative changes or
court decisions, may significantly change the conclusions expressed herein, and
may have a retroactive effect with respect to the transactions contemplated
herein.
The Fund intends to qualify as a "regulated investment company" ("RIC") as
defined under Subchapter M of the Code. By following such a policy, the Fund
expects to eliminate or reduce to a nominal amount the federal taxes to which it
may be subject.
In order to qualify for treatment as a RIC under the Code, the Fund generally
must distribute annually to its shareholders at least 90% of its investment
company taxable income (generally, net investment income plus net short-term
capital gain) (the "Distribution Requirement") and also must meet several
additional requirements. Among these requirements are the following: (i) at
least 90% of the Fund's gross income each taxable year must be derived from
dividends, interest, payments with respect to securities loans, and gains from
the sale or other disposition of stock or securities, or certain other income;
(ii) at the close of each quarter of the Fund's taxable year, at least 50% of
the value of its total assets must be represented by cash and cash items, U.S.
Government securities, securities of other RICs and other securities, with such
other securities limited, in respect to any one issuer, to an amount that does
not exceed 5% of the value of the Fund's assets and that does not represent more
than 10% of the outstanding voting securities of such issuer; and (iii) at the
close of each quarter of the Fund's taxable year, not more than 25% of the value
of its 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 which the Fund controls and which are engaged in the same, similar or
related trades or businesses.
Notwithstanding the Distribution Requirement described above, which requires
only that a Fund distribute at least 90% of its annual investment company
taxable income and does not require any minimum distribution of net capital gain
(the excess of net long-term capital gain over net short-
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term capital loss), the Fund will be subject to a nondeductible 4% federal
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
(the excess of short- and long-term capital gains over short- and long-term
capital losses) for the one-year period ending on October 31 of that year, plus
certain other amounts. The Fund intends to make sufficient distributions of its
ordinary income and capital gain net income prior to the end of each calendar
year to avoid liability for excise tax.
Any gain or loss recognized on a sale or redemption of shares of the Fund by a
non-exempt shareholder who is not a dealer in securities generally will be
treated as a long-term capital gain or loss if the shares have been held for
more than twelve months and otherwise generally will be treated as a short-term
capital gain or loss. If shares of a Fund 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 a
long-term capital loss to the extent of the long-term capital gain distribution.
In certain cases, the Fund will be required to withhold, and remit to the United
States Treasury, 31% of any distributions paid to a shareholder who (1) has
failed to provide a correct taxpayer identification number, (2) is subject to
backup withholding by the Internal Revenue Service, or (3) has not certified to
the Fund that such shareholder is not subject to backup withholding.
If the Fund fails to qualify as a RIC for any taxable year, it will be subject
to tax on its taxable income at regular corporate rates. In such an event, all
distributions from that Fund generally would be eligible for the corporate
dividend received deduction.
STATE TAXES
The Fund is not liable for any income or franchise tax in Massachusetts if it
qualifies as a RIC for federal income tax purposes. Fund shareholders should
consult with their tax advisers regarding the state and local tax consequences
of investments in the Fund.
PORTFOLIO TRANSACTIONS
The Fund has no obligation to deal with any broker-dealer or group of
broker-dealers in the execution of transactions in portfolio securities. Subject
to policies established by the Trustees of the Trust, the Adviser and
Sub-Adviser are responsible for placing the orders to execute transactions for
the Fund. In placing orders, it is the policy of the Trust to seek to obtain the
best net results taking into account such factors as price (including the
applicable dealer spread), the size, type and difficulty of the transaction
involved, the firm's general execution and operational facilities and the firm's
risk in positioning the securities involved. While each of the Adviser and
Sub-Adviser generally seeks reasonably competitive spreads or commissions, the
Fund will not necessarily be paying the lowest spread or commission available.
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The money market instruments in which the Fund invests are traded primarily in
the over-the-counter market. Bonds and debentures are usually traded
over-the-counter, but may be traded on an exchange. Where possible, the Adviser
and Sub-Adviser will deal directly with the dealers who make a market in the
securities involved except in those circumstances where better prices and
execution are available elsewhere. Such dealers usually are acting as principal
for their own account. On occasion, securities may be purchased directly from
the issuer. Money market instruments are generally traded on a net basis and do
not normally involve either brokerage commissions or transfer taxes. The cost of
executing portfolio securities transactions of the Fund will primarily consist
of dealer spreads and underwriting commissions.
It is expected that the Fund may execute brokerage or other agency transactions
through the Distributor, which is a registered broker-dealer, for a commission
in conformity with the 1940 Act, the Securities Exchange Act of 1934 and rules
promulgated by the SEC. Under these provisions, the Distributor is 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 Distributor
and the Trust expressly permitting the Distributor to receive and retain such
compensation. These rules further require that commissions paid to the
Distributor 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
Trust, have adopted procedures for evaluating the reasonableness of commissions
paid to the Distributor and will review these procedures periodically.
Since the Trust does not market its shares through intermediary brokers or
dealers, it is not the Trust's practice to allocate brokerage or principal
business on the basis of sales of its shares which may be made through such
firms. However, the Adviser and Sub-Adviser may place portfolio orders with
qualified broker-dealers who recommend the Fund's shares to clients, and may,
when a number of brokers and dealers can provide best net results on a
particular transaction, consider such recommendations by a broker or dealer in
selecting among broker-dealers.
The Fund is required to identify any securities of its "regular brokers or
dealers" (as such term is defined in the 1940 Act, which the Fund has acquired
during its most recent fiscal year. For the fiscal year ended October 31, 1997,
the Fund had not commenced operations.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
portfolios and shares of each portfolio, each of which represents an equal
proportionate interest in the portfolio with each other share. Shares are
entitled upon liquidation to a pro rata share in the net assets of the
portfolio. 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
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would belong to that series and would be subject to the liabilities related
thereto. Share certificates representing shares will not be issued.
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 shareholder 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 or
her 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 or her willful misfeasance, bad faith, gross negligence or reckless
disregard of his or her duties.
EXPERTS
Arthur Andersen LLP serves as independent public accountants to the Trust.
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