AIG MONEY MARKET FUND
Investment Adviser:
AIG CAPITAL MANAGEMENT CORP.
This Statement of Additional Information is not a prospectus and relates only to
the Class A and Class B shares of the AIG Money Market Fund (the "Portfolio").
It is intended to provide additional information regarding the activities and
operations of The Advisors' Inner Circle Fund (the "Fund") and the Portfolio.
This Statement of Additional Information should be read in conjunction with the
Portfolio's Prospectuses dated February 28, 1997, as amended or supplemented
from time to time. A copy of the Prospectuses for the Class A and Class B shares
of the Portfolio may be obtained by calling 1-800-249-7445.
TABLE OF CONTENTS
THE FUND ................................................................. S-2
DESCRIPTION OF PERMITTED INVESTMENTS...................................... S-2
INVESTMENT LIMITATIONS.................................................... S-3
THE ADVISER............................................................... S-4
THE ADMINISTRATOR......................................................... S-5
THE DISTRIBUTOR........................................................... S-6
TRUSTEES AND OFFICERS OF THE FUND......................................... S-7
COMPUTATION OF YIELD AND TOTAL RETURN..................................... S-10
PURCHASE AND REDEMPTION OF SHARES......................................... S-11
DETERMINATION OF NET ASSET VALUE.......................................... S-12
TAXES..................................................................... S-13
PORTFOLIO TRANSACTIONS.................................................... S-15
DESCRIPTION OF SHARES..................................................... S-17
SHAREHOLDER LIABILITY..................................................... S-17
LIMITATION OF TRUSTEES' LIABILITY......................................... S-17
5% SHAREHOLDERS........................................................... S-17
FINANCIAL STATEMENTS...................................................... S-19
APPENDIX ................................................................. A-1
February 28, 1997, as supplemented May 1, 1997
AIG-F-003-04
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THE FUND
This Statement of Additional Information relates only to the AIG Money Market
Fund (the "Portfolio"). The Portfolio is a separate series of The Advisors'
Inner Circle Fund (the "Fund"), an open-end management investment 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
Fund to offer separate series ("portfolios") of shares of beneficial interest
("shares"). Shares of the Portfolio may be purchased through two separate
classes (Class A and Class B) which provide for variations in distribution fees,
voting rights and dividends. Except for these differences, each share of the
Portfolio represents an equal proportionate interest in the Portfolio. See
"Description of Shares." No investment in shares of the Portfolio should be made
without first reading the applicable Prospectus of the Portfolio. Capitalized
terms not defined herein are defined in the Prospectuses.
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 Prospectuses.
Asset-Backed Securities - The Portfolio may invest in asset-backed securities
secured by assets including company receivables, truck and auto loans, leases
and credit card receivables. The Portfolio may invest in other asset-backed
securities that may be created in the future if the 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 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.
Securities of Foreign Governments - The Portfolio may invest in U.S. dollar
denominated obligations of foreign governments. These instruments may subject
the Portfolio 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
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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. 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.
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, Federal National Mortgage Association ("FNMA") and the United States
Postal Service. Some of these securities are supported by the full faith and
credit of the United States Treasury (e.g., GNMA securities). 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 (e.g., FNMA
securities). 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.
INVESTMENT LIMITATIONS
In addition to the limitations listed in the "Investment Limitations" section in
the Prospectuses, the Portfolio may not:
1. Acquire more than 5% of the voting securities of any one issuer.
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2. Invest in companies for the purpose of exercising control.
3. Pledge, mortgage or hypothecate assets except to secure temporary
borrowings as disclosed in the fundamental policies described in the
Prospectuses in aggregate amounts not to exceed 10% of total assets
taken at current value at the time of the incurrence of such loan.
4. Purchase or sell real estate, real estate limited partnership
interests, futures contracts, commodities or commodities contracts and
interests in a pool of securities that are secured by interests in real
estate. However, subject to the permitted investments of the Portfolio,
it may invest in municipal securities or other marketable obligations
secured by real estate or interests therein.
5. Make short sales of securities, maintain a short position or purchase
securities on margin, except that the Portfolio may obtain short-term
credits as necessary for the clearance of security transactions.
6. Act as an underwriter of securities of other issuers except as it may
be deemed an underwriter in selling the Portfolio security.
7. Purchase securities of other investment companies except as permitted
by the 1940 Act and the rules and regulations thereunder.
8. Issue senior securities (as defined in the 1940 Act) except in
connection with permitted borrowings as described above or as permitted
by rule, regulation or order of the SEC.
9. Purchase or retain securities of an issuer if, to the knowledge of the
Portfolio, an officer, trustee, partner or director of the Fund or any
investment adviser of the Portfolio owns beneficially more than 0.5% of
the shares or securities of such issuer and all such officers,
trustees, partners and directors owning more than 0.5% of such shares
or securities together own more than 5% of such shares or securities.
10. Invest in interests in oil, gas or other mineral exploration or
development programs and oil, gas or mineral leases.
11. Write puts, calls, options or combinations thereof or invest in
warrants.
The foregoing percentages will apply at the time of the purchase of a security.
THE ADVISER
The Fund and AIG Capital Management Corp. (the "Adviser") have entered into an
advisory agreement dated November 21, 1994 (the "Advisory Agreement"). The
Advisory Agreement provides that the Adviser shall not be protected against any
liability to the Fund or its shareholders
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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.
For the fiscal period ended October 31, 1995 and the fiscal year ended October
31, 1996, the Adviser was paid $548,035 and $1,023,856, respectively, and waived
fees of $243,994 and $81,307, respectively, with respect to the Portfolio.
The continuance of the Advisory Agreement must be specifically approved at least
annually (i) by the vote of the Trustees or by a vote of the shareholders of the
Portfolio, 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 Fund or,
with respect to the Portfolio, by a majority of the outstanding shares of the
Portfolio, 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 Fund.
THE ADMINISTRATOR
The Fund and SEI Fund Resources (the "Administrator") have entered into an
administration agreement (the "Administration Agreement"). The Administration
Agreement provides that 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 by
it of its duties and obligations thereunder. The Administration Agreement shall
remain in effect with respect to the Portfolio until November 21, 1997 and shall
continue in effect for successive periods of two years unless terminated by
either party on not less than 90 days' written notice to the other party. For
the fiscal period ended October 31, 1995 and the fiscal year ended October 31,
1996, the Administrator received a fee of $331,829 and $411,405, respectively
from the Portfolio. The Administrator waived $13,365 of fees for the fiscal year
ended October 31, 1996.
The Fund and the Administrator have also entered into a shareholder servicing
agreement pursuant to which the Administrator provides certain shareholder
services in addition to those set forth in the Administration Agreement.
The Administrator, a Delaware business trust, has its principal business offices
at Oaks, Pennsylvania 19456. SEI Financial Management Corporation ("SFM"), a
wholly-owned subsidiary of SEI Investments Company ("SEI"), is the owner of all
beneficial interests in the Administrator. SEI and its 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 to the following other mutual funds:
The Achievement Funds Trust, The Arbor Fund, ARK Funds, Bishop Street Funds,
CoreFunds, Inc., CrestFunds, Inc., CUFUND, FMB Funds, First American Funds,
Inc.,
S-5
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First American Investment Funds, Inc., First American Strategy Funds,
Inc., HighMark Fund, Marquis Funds(R), Monitor Funds, Morgan Grenfell Investment
Trust, The PBHG Funds, Inc., The Pillar Funds, Profit Funds Investment Trust,
Rembrandt Funds(R), Santa Barbara Group of Mutual Funds, Inc., 1784 Funds(R),
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, Stepstone
Funds, STI Classic Funds and STI Classic Variable Trust.
THE DISTRIBUTOR
SEI Financial Services Company (the "Distributor"), a wholly-owned subsidiary of
SEI, and the Fund are parties to a distribution agreement dated November 14,
1991 ("Distribution Agreement") which applies to both Class A and Class B shares
of the Portfolio.
The Distribution Agreement 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 of the outstanding shares of the Fund upon not more than 60
days' written notice by either party or upon assignment by the Distributor. The
Distributor does not receive compensation for distribution of Class A shares of
the Portfolio. Class B shares are subject to the terms of a distribution plan
dated August 8, 1994 (the "Class B Plan").
Class B Plan
The Distribution Agreement and the Class B Plan adopted by the sole initial
shareholder of the shares provide that the Class B shares of the Portfolio will
pay the Distributor a fee of .35% of the average daily net assets of the Class B
shares which the Distributor may use to compensate broker-dealers and service
providers, including the Adviser and its affiliates which provide administrative
and/or distribution services to the Class B Shareholders or their customers who
beneficially own Class B shares. The Distributor has appointed AIG Equity Sales
Corp. (the "Sub-Distributor"), a wholly-owned subsidiary of AIG and an affiliate
of the Adviser, as sub-distributor and servicing agent with respect to the Class
B shares of the Portfolio.
The Fund has adopted the Class B Plan in accordance with the provisions of Rule
12b-1 under the 1940 Act which regulates circumstances under which an investment
company may directly or indirectly bear expenses relating to the distribution of
its shares. Continuance of the Class B Plan must be approved annually by a
majority of the Trustees of the Fund and by a majority of the Trustees who are
not parties to the Distribution Agreement or interested persons (as defined by
the 1940 Act) of any party to the Distribution Agreement ("Qualified Trustees").
The Class B Plan requires that quarterly written reports of amounts spent under
the Class B Plan and the purposes of such expenditures be furnished to and
reviewed by the Trustees. The Class B Plan may not be amended to increase
materially the amount which may be spent thereunder without approval by a
majority of
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the outstanding Class B shares of the Portfolio. All material amendments of the
Plan will require approval by a majority of the Trustees of the Fund and of the
Qualified Trustees.
For the fiscal year ended October 31, 1996, the Distributor received from the
Portfolio, pursuant to the Class B Plan, distribution fees in the amount of
$397,438 with respect to the Class B shares. The entire amount of these fees was
paid by the Distributor to the Sub-Distributor, as compensation for its
services, in accordance with an agreement between the Distributor and the
Sub-Distributor.
TRUSTEES AND OFFICERS OF THE FUND
The management and affairs of the Fund are supervised by the Trustees under the
laws of the Commonwealth of Massachusetts. The Fund pays the fees for
unaffiliated Trustees.
The Trustees and Executive Officers of the Fund, 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 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 Fund also serve as officers of some or all of the following: The
Achievement Funds Trust, The Arbor Fund, ARK Funds, Bishop Street Funds,
CoreFunds, Inc., CrestFunds, Inc., CUFUND, FMB Funds, Inc., First American
Funds, Inc., First American Investment Funds, Inc., First American Strategy
Funds, Inc, HighMark Fund, Marquis Funds(R), Monitor Funds, Morgan Grenfell
Investment Trust, The PBHG Funds, Inc., The Pillar Funds, Profit Funds
Investment Trust, Rembrandt Funds(R), Santa Barbara Group of Mutual Funds, Inc.,
1784 Funds(R), 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, Stepstone
Funds, STI Classic Funds, and STI Classic Variable Trust, 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(R),
and Santa Barbara Group of Mutual Funds, Inc., are distributed by SEI Financial
Services Company.
ROBERT A. NESHER (DOB 08/17/46) -- Chairman of the Board of Trustees* -- Retired
since 1994. Executive Vice President of SEI, 1986-1994. Director and Executive
Vice President of the Administrator and the Distributor, 1981-1994. Trustee of
the Arbor Fund, Marquis Funds(R), Advisors' Inner Circle Fund, SEI Asset
Allocation Trust, SEI Daily Income Trust, SEI Index Funds, SEI Institutional
Managed Trust, SEI International Trust, SEI Institutional Investments Trust, SEI
Liquid Asset Trust, SEI Tax Exempt Trust, Insurance Investment Products Trust,
1784 Funds(R), Pillar Funds, Rembrandt Funds, and Stepstone Funds.
JOHN T. COONEY (DOB 01/20/27) -- Trustee** -- 569 N. Post Oak Lane, Houston, TX
77024. Retired since 1992. Formerly Vice Chairman of Ameritrust Texas N.A.,
1989-1992, and MTrust Corp., 1985-1989. Trustee of the Arbor Fund, Marquis
Funds(R), and Advisors' Inner Circle Fund.
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<PAGE>
WILLIAM M. DORAN (DOB 05/26/40) - Trustee* - 2000 One Logan Square,
Philadelphia, PA 19103. Partner, Morgan, Lewis & Bockius (law firm), counsel to
the Trust, Administrator and Distributor, Director and Secretary of SEI. Trustee
of the Arbor Fund, SEI Liquid Asset Trust, SEI Tax Exempt Trust, SEI Daily
Income Trust, SEI Index Funds, SEI Institutional Managed Trust, SEI
International Trust, SEI Asset Allocation Trust, SEI Institutional Investments
Trust, Insurance Investment Products Trust, The Advisors' Inner Circle Fund, and
Marquis Funds(R).
FRANK E. MORRIS (DOB 12/30/23) -- Trustee** -- 105 Walpole Street, Dover, MA
02030. Retired since 1990. Peter Drucker Professor of Management, Boston
College, 1989-1990. President, Federal Reserve Bank of Boston, 1968-1988.
Trustee of The Arbor Fund, Marquis Funds(R), Advisors' Inner Circle Fund, SEI
Liquid Asset Trust, SEI Tax Exempt Trust, SEI Daily Income Trust, SEI Index
Funds, SEI Institutional Managed Trust, SEI International Trust, Insurance
Investment Products Trust, SEI Asset Allocation Trust and SEI Institutional
Investments Trust.
ROBERT A. PATTERSON (DOB 11/05/27) -- Trustee** -- 208 Old Main, University
Park, PA 16802. 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 Arbor Fund,
Marquis Funds(R), and Advisors' Inner Circle Fund.
GENE PETERS (DOB 06/03/29)--- Trustee** -- 943 Oblong Road, Williamstown, MA
01267. 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). President and Chief Executive Officer of Jos. Schlitz Brewing
Company before 1978. Trustee of the Arbor Fund, Marquis Funds(R) and Advisors'
Inner Circle Fund.
JAMES M. STOREY (DOB 04/12//31) -- Trustee** -- Partner, Dechert Price & Rhoads,
from September 1987 - December 1993; Trustee of the Arbor Fund, Marquis
Funds(R), Advisors' Inner Circle Fund, SEI Liquid Asset Trust, SEI Tax Exempt
Trust, SEI Daily Income Trust, SEI Index Funds, SEI Institutional Managed Trust,
SEI International Trust, Insurance Investment Products Trust, SEI Asset
Allocation Trust, and SEI Institutional Investments 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.
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KEVIN P. ROBINS (DOB 04/15/61) -- Vice President and Assistant Secretary --
Senior Vice President, General Counsel and Assistant Secretary of SEI, Senior
Vice President, General Counsel and Secretary of the Administrator and
Distributor since 1994. Vice President and Assistant Secretary of SEI, 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, A 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, Vice President and Assistant Secretary of the
Administrator and Distributor since 1994. Associate, Morgan, Lewis & Bockius LLP
(law firm), 1989-1994.
JOSEPH P. LYDON (DOB 09/27/59)-- Vice President and Assistant Secretary --
Director, Business Administration of Fund Resources, April 1995. Vice President,
Fund Group, Dremen Value Management, LP, President, Dremen Financial Services,
Inc. prior to 1995.
STEPHEN G. MEYER (DOB 07/12/65) -- Controller, Chief Financial Officer-Vice
President and Controller of SEI Fund Resources since 1995. Director, Internal
Audit and Risk Management, SEI Corporation, 1992-1995. Senior Associate, Coopers
and Lybrand, 1990-1992.
TODD B. CIPPERMAN (DOB 01/14/66) -- Vice President and Assistant Secretary --
Vice President and Assistant Secretary of SEI, 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, the Administrator and Distributor
since 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, 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 Fund 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 Fund.
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The Trustees and officers of the Fund own less than 1% of the outstanding shares
of the Fund. The Fund pays the fees for unaffiliated Trustees.
The following table exhibits Trustee compensation for the fiscal year ended
October 31, 1996.
<TABLE>
<CAPTION>
Total Compensation
From Registrant and
Fund Complex Paid
Aggregate Compensation Pension or Retirement Estimated Annual to Trustees for the
From Registrant for the Fiscal Benefits Accrued as Benefits Upon Fiscal Year Ended
Name of Person, Position Year Ended October 31, 1996 Part of Fund Expenses Retirement October 31, 1996
- ------------------------ --------------------------- --------------------- ---------------- ----------------------
<S> <C> <C> <C> <C>
John T. Cooney $9,859 N/A N/A $9,859 for services on
1 board
Frank E. Morris $10,006 N/A N/A $10,006 for services
on 1 board
Robert Patterson $10,006 N/A N/A $10,006 for services
on 1 board
Eugene B. Peters $10,006 N/A N/A $10,006 for services
on 1 board
James M. Storey, Esq. $10,006 N/A N/A $10,006 for services
on 1 board
William A. Doran, Esq. $0 N/A N/A $0 for services on 1
board
Robert A. Nesher $0 N/A N/A $0 for services on 1
board
</TABLE>
COMPUTATION OF YIELD AND TOTAL RETURN
From time to time, the Fund may advertise yield and effective yield of the
Portfolio. 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. The yield of the Portfolio refers to the
annualized income generated by an investment in the Portfolio over a specified
7-day period. The yield is calculated by assuming that the income generated by
the investment during that 7-day period is generated in each period over one
year and is shown as a percentage of the investment. The "effective yield" is
calculated similarly, but when annualized, the income earned by an investment in
the Portfolio is assumed to be reinvested. The "effective yield" will be
slightly higher than the "yield" because of the compounding effect of this
assumed investment. In particular, yield will be calculated according to the
following formula:
The current yield of the Portfolio will be calculated daily based upon the seven
days ending on the date of calculation ("base period"). The yield is computed by
determining the net change during the period (exclusive of capital changes) in
the value of a hypothetical pre-existing shareholder account having a balance of
one share at the beginning of the period, subtracting a hypothetical charge
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reflecting deductions from shareholder accounts, and dividing such net change by
the value of the account at the beginning of the same period to obtain the base
period return and multiplying the result by (365/7). Realized and unrealized
gains and losses are not included in the calculation of the yield. The effective
yield of the Portfolio is determined by computing the net change during the
period, exclusive of capital changes, in the value of a hypothetical
pre-existing account having a balance of one share at the beginning of the
period, subtracting a hypothetical charge reflecting deductions from shareholder
accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and then
compounding the base period return, according to the following formula:
Effective Yield = [(Base Period Return + 1)365/7] - 1.
The current and the effective yields reflect the reinvestment of net income
earned daily on the Portfolio's assets.
For the 7-day period ended October 31, 1996, the end of the Portfolio's most
recent fiscal year, the current and effective yields for Class A shares of the
Portfolio were 5.15% and 5.28%, respectively, and for Class B shares were 4.80%
and 4.91%, respectively.
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions may be made through the Distributor on a day when the
New York Stock Exchange and Federal Reserve wire system are open for business.
Shares of the Portfolio are offered on a continuous basis. Currently, the
Portfolio is closed for business when the following holidays are observed: New
Year's Day, Martin Luther King Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Columbus Day, Veterans' Day, Thanksgiving and
Christmas.
It is currently the Fund's policy to pay all redemptions in cash. The Fund
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 the Portfolio
in lieu of cash. Shareholders may incur brokerage charges on the sale of any
such securities so received in payment of redemptions.
The Fund 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 Portfolio's securities is not reasonably
practicable, or for such other periods as the SEC has by order permitted. The
Fund also reserves the right to suspend sales of shares of any Portfolio for any
period during which the New York Stock Exchange, the Adviser, the Administrator,
the Transfer Agent and/or the custodian are not open for business.
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DETERMINATION OF NET ASSET VALUE
The net asset value per share of each class of the Portfolio is calculated by
adding the value of securities and other assets, subtracting liabilities and
dividing by the number of outstanding shares. Securities will be valued by the
amortized cost method which involves valuing a security at its cost on the date
of purchase and thereafter (absent unusual circumstances) assuming a constant
amortization to maturity of any discount or premium, regardless of the impact of
fluctuations in general market rates of interest on the value of the instrument.
While this method provides certainty in valuation, it may result in periods
during which a security's value, as determined by this method, is higher or
lower than the price the Portfolio would receive if it sold the instrument.
During periods of declining interest rates, the daily yield of the Portfolio may
tend to be higher than a like computation made by a company with identical
investments utilizing a method of valuation based upon market prices and
estimates of market prices for all of its portfolio securities. Thus, if the use
of amortized cost by the Portfolio resulted in a lower aggregate portfolio value
on a particular day, a prospective investor in the Portfolio would be able to
obtain a somewhat higher yield than would result from investment in a company
utilizing solely market values, and existing investors in the Portfolio would
experience a lower yield. The converse would apply in a period of rising
interest rates.
The use of amortized cost valuation by the Portfolio and the maintenance of the
Portfolio's net asset value at $1.00 are permitted by regulations promulgated by
Rule 2a-7 under the Investment Company Act of 1940 (the "1940 Act"), provided
that certain conditions are met. Under Rule 2a-7 as amended, a money market
portfolio must maintain a dollar-weighted average maturity in the Portfolio of
90 days or less and not purchase any instrument having a remaining maturity of
more than 397 days. In addition, money market funds may acquire only U.S. dollar
denominated obligations that present minimal credit risks and that are "eligible
securities" which means they are (i) rated, at the time of investment, by at
least two nationally recognized statistical rating organizations (one if it is
the only organization rating such obligation) in the highest short-term rating
category or, if unrated, determined to be of comparable quality (a "first tier
security"), or (ii) rated according to the foregoing criteria in the second
highest short-term rating category or, if unrated, determined to be of
comparable quality ("second tier security"). The Adviser will determine that an
obligation presents minimal credit risks or that unrated instruments are of
comparable quality in accordance with guidelines established by the Trustees.
The Trustees must approve or ratify the purchase of any unrated securities or
securities rated by only one rating organization. In addition, investments in
second tier securities are subject to the further constraints that (i) no more
than 5% of the Portfolio's assets may be invested in such securities in the
aggregate, and (ii) any investment in such securities of one issuer is limited
to the greater of 1% of the Portfolio's total assets or $1 million. The
regulations also require the Trustees to establish procedures which are
reasonably designed to stabilize the net asset value per share at $1.00 for the
Portfolio. However, there is no assurance that the Portfolio will be able to
meet this objective. The Fund's procedures include the determination of the
extent of deviation, if any, of the Portfolio's current net asset value per unit
calculated using available market quotations from the Portfolio's amortized cost
price per share at such intervals as the Trustees deem appropriate and
reasonable in light of market conditions and periodic reviews of
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the amount of the deviation and the methods used to calculated such deviation.
In the event that such deviation exceeds 1/2 of 1%, the Trustees are required to
consider promptly what action, if any, should be initiated. If the Trustees
believe that the extent of any deviation may result in material dilution or
other unfair results to Shareholders, the Trustees are required to take such
corrective action as they deem appropriate to eliminate or reduce such dilution
or unfair results to the extent reasonably practicable. In addition, if the
Portfolio incurs a significant loss or liability, the Trustees have the
authority to reduce pro rata the number of shares of the Portfolio in each
Shareholder's account and to offset each Shareholder's pro rata portion of such
loss or lability from the Shareholder's accrued but unpaid dividends or from
future dividends.
The securities of the Portfolio 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, which system 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 Fund
under the general supervision of the Trustees.
TAXES
The following is only a summary of certain tax considerations generally
affecting the Portfolio 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 Portfolio intends to qualify as a "regulated investment company" ("RIC") as
defined under Subchapter M of the Code. By following such a policy, the
Portfolio 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 Portfolio
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 Portfolio'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
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certain other income; (ii) the Portfolio must derive less than 30% of its gross
income each taxable year from the sale or other disposition of stocks or
securities held for less than three months; (iii) at the close of each quarter
of the Portfolio'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 Portfolio's assets and that does not represent more than 10% of
the outstanding voting securities of such issuer; and (iv) at the close of each
quarter of the Portfolio'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 Portfolio controls and which are engaged in the same, similar or related
trades or businesses.
Notwithstanding the Distribution Requirement described above, which requires
only that the Portfolio 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-term capital loss), the
Portfolio 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 Portfolio 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 federal excise tax.
Certain securities purchased by the Portfolio are sold with original issue
discount and thus do not make periodic cash interest payments. The Portfolio
will be required to include as part of its current income the accrued discount
on such obligations even though the Portfolio has not received any interest
payments on such obligations during that period. Because the Portfolio
distributes all of its net investment income to its shareholders, the Portfolio
may have to sell portfolio securities to distribute such accrued income, which
may occur at a time when the Adviser would not have chosen to sell such
securities and which may result in a taxable gain or loss.
Any gain or loss recognized on a sale or redemption of shares of the Portfolio
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 the Portfolio 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 capital gain distribution.
In certain cases, the Portfolio 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 Portfolio that such shareholder is not subject to backup withholding.
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Dividends to shareholders who are non-resident individuals or entities may be
subject to a 31% United States withholding tax under existing provisions of the
Code applicable to foreign individuals and entities unless a reduced rate of
withholding or a withholding exemption is provided under applicable treaty law.
Non-resident shareholders are urged to consult their own tax advisers concerning
the applicability of the U.S. withholding tax.
If the Portfolio 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 the Portfolio generally would be eligible for the
corporate dividend received deduction.
State Taxes
The Portfolio is not liable for any income or franchise tax in Massachusetts if
it qualifies as a RIC for federal income tax purposes. Portfolio shareholders
should consult with their tax advisers regarding the state and local tax
consequences of investments in the Portfolio.
PORTFOLIO TRANSACTIONS
The Portfolio 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 Fund, the Adviser is responsible
for placing the orders to execute transactions for the Portfolio. In placing
orders, it is the policy of the Fund 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 the Adviser generally seeks reasonably
competitive spreads or commissions, the Portfolio will not necessarily be paying
the lowest spread or commission available.
The money market instruments in which the Portfolios invest are traded primarily
in the over-the-counter market. Bonds and debentures are usually traded
over-the-counter, but may be traded on an exchange. Where possible, the Adviser
will deal directly with the dealers who make a market in the securities involved
except in those circumstances where better prices and execution are available
elsewhere. Such dealers usually are acting as principal for their own account.
On occasion, securities may be purchased directly from the issuer. 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 Portfolio will primarily consist of dealer
spreads and underwriting commissions.
The Adviser may, consistent with the interests of the Portfolio, select brokers
on the basis of the research services they provide to the Adviser. Such services
may include analyses of the business or prospects of a company, industry or
economic sector, or statistical and pricing services. Information so received by
the Adviser will be in addition to and not in lieu of the services required to
be performed by the Adviser under the Advisory Agreement. If, in the judgment of
the Adviser, a
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Portfolio or other accounts managed by the Adviser will be benefitted by
supplemental research services, the Adviser is authorized to pay brokerage
commissions to a broker furnishing such services which are in excess of
commissions which another broker may have charged for effecting the same
transaction. These research services include advice, either directly or through
publications or writings, as to the value of securities, the advisability of
investing in, purchasing or selling securities, and the availability of
securities or purchasers or sellers of securities; furnishing of analyses and
reports concerning issuers, securities or industries; providing information on
economic factors and trends; assisting in determining portfolio strategy;
providing computer software used in security analyses; and providing portfolio
performance evaluation and technical market analyses. The expenses of the
Adviser will not necessarily be reduced as a result of the receipt of such
supplemental information, such services may not be used exclusively, or at all,
with respect to the Portfolio or account generating the brokerage, and there can
be no guarantee that the Adviser will find all of such services of value in
advising the Portfolio. For the fiscal period ended October 31, 1996, the
Portfolio directed no transactions to broker-dealers for research services.
It is expected that the Portfolio 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 Portfolio on an exchange if a written contract is in effect
between the Distributor and the Fund expressly permitting the Distributor to
receive and retain such compensation. These rules further require that
commissions paid to the Distributor by the Portfolio for exchange transactions
not exceed "usual and customary" brokerage commissions. The rules define "usual
and customary" commissions to include amounts which are "reasonable and fair
compared to the commission, fee or other remuneration received or to be received
by other brokers in connection with comparable transactions involving similar
securities being purchased or sold on a securities exchange during a comparable
period of time." The Trustees, including those who are not "interested persons"
of the Fund, have adopted procedures for evaluating the reasonableness of
commissions paid to the Distributor and will review these procedures
periodically.
Since the Portfolio does not market its shares through intermediary brokers or
dealers, it is not the Fund'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 may place portfolio orders with qualified
broker-dealers who recommend the Portfolio' 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 Portfolio is required to identify any securities of its "regular brokers or
dealers" (such term is defined in the 1940 Act, which the Portfolio has acquired
during its most recent fiscal year. As of October 31, 1996, the Portfolio held
$19,901,000 of debt securities issued by Merrill Lynch, $4,971,000 of debt
securities issued by J.P. Morgan and $19,000,000 of debt securities issued by
Morgan Stanley & Co. Incorporated.
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DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
portfolios and different classes of 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 Fund may create additional series of
shares divided into different classes. All consideration received by the Fund
for shares of any additional series and all assets in which such consideration
is invested would belong to that series and would be subject to the liabilities
related thereto. Share certificates representing shares will not be issued.
SHAREHOLDER LIABILITY
The Fund 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 Fund were held to be a partnership, the
possibility of the shareholders incurring financial loss for that reason appears
remote because the Fund's Declaration of Trust contains an express disclaimer of
shareholder liability for obligations of the Fund 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 Fund or the Trustees, and because the
Declaration of Trust provides for indemnification out of the Fund property for
any shareholder held personally liable for the obligations of the Fund.
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 Fund 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 Fund 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 Fund. 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.
5% SHAREHOLDERS
As of February 1, 1997, the following persons were the only persons who were
record owners (or to the knowledge of the Fund, beneficial owners) of 5% or more
of each class of the Portfolio's shares.
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<TABLE>
<CAPTION>
Shareholder Number of Shares %
- ----------- ---------------- -----
CLASS A:
- --------
<S> <C> <C>
AIG Life Insurance Investment 56,506,056.680 19.14%
c/o AIG Inc.
70 Pine Street, 19th Floor
New York, NY 10270-0002
Transatlantic Reinsurance Investment 53,318,475.060 18.06%
c/o AIG Inc.
70 Pine Street, 19th Floor
New York, NY 10270-0002
AI Life Assurance Investment 29,886,231.930 10.12%
c/o AIG Inc.
70 Pine Street, 19th Floor
New York, NY 10270-0002
AI Aviation Premium 24,387,567.660 8.26%
c/o AIG Inc.
70 Pine Street, 19th Floor
New York, NY 10270-0002
CLASS B:
NUF/Machine Deductible 38,126,665.550 34.96%
Attn: AIG Treasury
70 Pine Street, 19th Floor
New York, NY 10270-0002
NUF of Pittsburgh/Reinsurance 12,937,114.600 11.86%
c/o AIG Treasury Group
70 Pine Street, 19th Floor
New York, NY 10270-0002
National Union Fire Insurance Co. 6,011,045.310 5.51%
of Pittsburgh PA as a Secured Party
Montgomery Ward & Co. Inc. as
Pledgor
844 N. Larrabee Street
Chicago, IL 60610
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National Union Fire Insurance Co. of 5,969,296,820 5.47%
Pittsburgh PA as Secured Party
Leased Equipment Reinsurance Co. Inc. as
Pledgor
P.O. Box 152
Hamilton, Bermuda
</TABLE>
The Fund believes that most of the shares referred to above were held by the
above persons in accounts for their fiduciary, agency or custodial customers.
FINANCIAL STATEMENTS
The financial statements for the fiscal year ended October 31, 1996, including
notes thereto and the report of Arthur Andersen LLP thereon, are herein
incorporated by reference in reliance upon the authority of said firm as experts
in giving said report. A copy of the 1996 Annual Report to Shareholders must
accompany the delivery of this Statement of Additional Information.
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APPENDIX
DESCRIPTION OF RATINGS
The following descriptions are summaries of published ratings.
Short-term obligations rated A by Standard & Poor's ("S&P") is regarded by S&P
as having the greatest capacity for timely payment. Issues rated A are further
refined by use of the numbers 1 + and 2, 1 to indicate the relative degree of
safety. Issues rated A-1+ are those which possess extremely strong safety
characteristics. Those rated A-1 reflect a "very strong" degree of safety
regarding timely payment. Those rated A-2 reflect a safety regarding timely
payment but not as high as A-1.
Short-term obligations issues rated Prime-1 or Prime-2 by Moody's Investors
Service, Inc. ("Moody's") are judged by Moody's to be of the "highest" quality
and "higher" quality respectively on the basis of relative repayment capacity.
The rating Fitch-1 (Highest Grade) is the highest commercial rating assigned by
Fitch Investors Service, Inc. ("Fitch"). Paper rated Fitch-1 is regarded as
having the strongest degree of assurance for timely payment. The rating Fitch-2
(Very Good Grade) is the second highest short-term obligations rating assigned
by Fitch which reflects an assurance of timely payment only slightly less in
degree than the strongest issues.
The rating Duff-1 is the highest short-term obligations rating assigned by Duff
& Phelps, Inc. ("Duff"). Paper rated Duff-1 is regarded as having very high
certainty of timely payment with excellent liquidity factors which are supported
by ample asset protection. Risk factors are minor. Paper rated Duff-2 is
regarded as having good certainty of timely payment, good access to capital
markets and sound liquidity factors and company fundamentals. Risk factors are
small. The designation A1 by IBCA, Inc. ("IBCA") indicates that the obligation
is supported by a very strong capacity for timely repayment. Those obligations
rated A1+ are supported by the highest capacity for timely repayment.
Obligations rated A2 are supported by a strong capacity for timely repayment,
although such capacity may be susceptible to adverse changes in business,
economic or financial conditions.
A-1
<PAGE>
