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FMC STRATEGIC VALUE FUND
Investment Adviser:
FIRST MANHATTAN CO.
This Prospectus offers shares of the FMC Strategic Value Fund (the "Fund"),
which is a separate series of The Advisors' Inner Circle Fund (the "Trust").
This Prospectus sets forth concisely the information about the Fund and the
Trust 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 July 22, 1998 has been filed with the Securities
and Exchange Commission and is available without charge by calling
1-800-932-7781. The Statement of Additional Information is incorporated into
this Prospectus by reference. The Statement of Additional Information, material
incorporated by reference into this document, and other information regarding
the Trust is maintained electronically with the Securities and Exchange
Commission at its internet web site (http://www.sec.gov).
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.
JULY 22, 1998
THE ADVISORS' INNER CIRCLE FUND
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SUMMARY
The following provides basic information about the FMC Strategic Value Fund (the
"Fund"), one of the mutual funds comprising The Advisors' Inner Circle Fund (the
"Trust"). This summary is qualified in its entirety by reference to the more
detailed information provided elsewhere in this Prospectus and in the Statement
of Additional Information.
WHAT IS THE FUND'S INVESTMENT OBJECTIVE AND POLICIES? The Fund seeks to obtain
long-term capital appreciation by investing primarily in a portfolio of equity
securities.
WHAT ARE THE RISKS INVOLVED WITH AN INVESTMENT IN THE FUND? An investment in
the Fund entails certain risks and considerations of which investors should be
aware. The Fund invests in equity securities that fluctuate in value, and
investors should expect the Fund's net asset value per share to fluctuate in
value. The Fund also may invest in securities that have speculative
characteristics. See "Investment Objective," "General Investment Policies,"
"Risk Factors" and "Description of Permitted Investments and Risk Factors."
WHO IS THE ADVISER? First Manhattan Co. (the "Adviser") serves as the
investment adviser to the Fund. In addition to advising the Fund, the Adviser
provides advisory services to individuals, partnerships, trusts, pension and
other employee benefit plans, and eleemosynary and other institutions as well as
the FMC Select Fund, another series of the Trust. See "The Adviser."
WHO IS THE ADMINISTRATOR? SEI Investments Mutual Funds Services (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")
serves 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? The Fund requires a minimum initial investment
of $10,000, and subsequent investments must total $1,000 or more. These minimum
purchase requirements may be reduced or waived by the Distributor or for
investors who purchase shares of the Fund through omnibus accounts maintained by
registered broker-dealers who have executed sub-distribution agreements with the
Distributor.
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HOW DO I PURCHASE AND REDEEM SHARES? Purchases and redemptions may be made on
any day when the New York Stock Exchange is open for business ("a Business
Day"). A purchase order will be effective as of the Business Day received by the
Fund's Transfer Agent if the Transfer Agent receives an order and payment by
check or with readily available funds prior to the time the Fund calculates its
net asset value (normally, 4:00 p.m., Eastern time). To open an account using
wired funds, you must first call 1-800-808-4921. Redemption orders placed prior
to the time the Fund calculates its net asset value (normally, 4:00 p.m.,
Eastern time) on any Business Day will be effective that day. The Trust has also
authorized certain broker-dealers and other financial intermediaries to accept
purchase orders and redemption requests up to the times mentioned above on
behalf of the Fund. The Fund also offers both a Systematic Investment Plan and a
Systematic Withdrawal Plan. The purchase and redemption price for shares is the
net asset value per share determined as of the end of the day the order is
effective. 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 quarterly
dividends. Any realized capital gain is distributed at least annually.
Distributions of net investment income and capital gains 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 FMC STRATEGIC VALUE FUND
<S> <C>
- -------------------------------------------------------------------------------------------
Sales Load Imposed on Purchases............................ None
Sales Load Imposed on Reinvested Dividends................. None
Deferred Sales Load........................................ None
Redemption Fees(1)......................................... None
Exchange Fees.............................................. None
- -------------------------------------------------------------------------------------------
</TABLE>
(1) A wire redemption charge, currently $10.00, is deducted from the amount of a
Federal Reserve wire redemption payment made at the request of a
shareholder.
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets) FMC STRATEGIC VALUE FUND
<S> <C>
- -------------------------------------------------------------------------------------------
Advisory Fees.............................................. 1.00%
12b-1 Fees................................................. None
Other Expenses (after waivers and reimbursements)(2)(3).... .30%
- -------------------------------------------------------------------------------------------
Total Operating Expenses (after waivers and
reimbursements)(3)....................................... 1.30%
- -------------------------------------------------------------------------------------------
</TABLE>
(2) The Adviser has, on a voluntary basis, agreed to reimburse Fund expenses in
order to limit the Fund's total operating expenses to a maximum of 1.30% of
average daily net assets. The Administrator has, on a voluntary basis,
agreed to waive a portion of its administration fees. The other expenses and
total operating expenses shown reflect these voluntary arrangements, which
are expected to remain in effect for the current fiscal year. However, each
of the Adviser and the Administrator reserves the right to terminate its
arrangement at any time in its sole discretion. Absent such expense
reimbursements and waivers, the Fund's estimated other expenses, which
include shareholder servicing fees, and annual total operating expenses for
its initial twelve months of operations would be 2.59% and 3.59% of average
daily net assets, respectively. See "The Adviser" and "The Administrator."
(3) Other expenses are based on estimates for the Fund's initial fiscal year.
EXAMPLE
<TABLE>
<CAPTION>
FMC STRATEGIC VALUE FUND
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1 YEAR 3 YEARS
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
You would pay the following expenses on a $1,000 investment in the Fund assuming (1) 5% annual
return and (2) redemption at the end of each time period.................................... $ 13 $ 41
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. The
purpose of the expense table 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."
4
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THE TRUST AND THE FUND
The Advisors' Inner Circle Fund (the "Trust") is designed to provide a
convenient and economic means of investing in professionally managed portfolios
of securities by offering shares in a number of separately-managed 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 FMC Strategic Value Fund (the
"Fund"), a diversified portfolio.
INVESTMENT OBJECTIVE
The Fund seeks to obtain long-term capital appreciation by investing in a
portfolio of equity securities. There can be no assurance that the Fund will be
able to achieve its investment objective.
GENERAL INVESTMENT POLICIES
The policy of the Fund is to invest in equity securities which the Adviser
believes offer the possibility of increase in value, primarily common stocks
that meet the criteria described below.
In selecting equity securities for the Fund, the Adviser will not attempt to
forecast either the economy or the stock market, but rather will focus its
efforts on searching out investment opportunities in equity securities by
carefully scrutinizing financial statements with particular attention to the
quality of cash flow and an evaluation of stocks selling at a discount to
estimated private market values. The Adviser emphasizes companies where it
perceives it has a substantial understanding of both the industry and the
business in which the company operates. In addition, the Adviser will
concentrate its efforts on companies where a catalyst has been identified which
the Adviser believes can have a significant impact on the price of the security.
Such catalysts include spin-offs, corporate restructurings, divestiture
programs, share repurchases, merger and acquisition activity, and significant
changes in management or key personnel.
The Fund may invest in common stocks, preferred stocks, and convertible
securities of domestic companies, as well as warrants to purchase such
securities that are traded on registered exchanges or the over-the-counter
market in the United States. The Fund may also purchase equity securities
(including depositary receipts) and preferred stocks (including depositary
stocks convertible into common stocks) issued by foreign companies, as well as
debt securities convertible into common stock of such companies.
Although the Fund's portfolio will normally be fully invested in equity
securities (other than as considered appropriate for cash reserves), for
temporary defensive purposes during periods when the Adviser determines that
market conditions warrant, up to 100% of the Fund's assets may be held from time
to time in cash or cash equivalents. In general cash or cash equivalents will be
held in U.S. Treasury bills, high quality commercial paper, certificates of
deposit and money market instruments.
FOREIGN SECURITIES -- The Fund may purchase securities denominated in foreign
currencies in amounts up to 10% of its total assets. The Fund does not have a
corresponding limitation with respect to foreign securities denominated in U.S.
dollars.
AUXILIARY POLICIES
Although not primary strategies employed by the Adviser in managing the Fund,
the Fund may engage in a number of investment practices in order to meet its
investment objective. In this regard, the Fund may invest in variable and
floating rate obligations, enter into forward commitments, purchase and sell
"when-issued" securities prior to their delivery to the Fund and sell securities
short against the box. The Fund may
5
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also purchase put and call options and write covered call options on equity
securities, and may enter into futures contracts (including index futures
contracts), purchase options on futures contracts, and lend its securities.
It is anticipated that the annual portfolio turn-over rate for the Fund will not
exceed 100%.
For a description of the permitted investments of the Fund and the associated
risk factors, see "Description of Permitted Investments and Risk Factors." For a
description of ratings, see the Appendix to the Statement of Additional
Information.
RISK FACTORS
EQUITY SECURITIES -- Investments in common stocks are subject to market risks
which may cause their prices to fluctuate over time. The value of convertible
securities is also affected by prevailing interest rates, the credit quality of
the issuer and any call provisions. Changes in the value of portfolio securities
will not necessarily affect cash income derived from these securities but will
affect the Fund's net asset value.
OPTIONS -- Risks associated with options transactions include the following:
(1) if hedging, the success of such a strategy may depend on an ability to
accurately predict movements in the prices of individual securities,
fluctuations in markets and movements in interest rates; (2) there may be an
imperfect correlation between the movement in prices of options and the
securities underlying them; (3) there may not be a liquid secondary market for
an option; and (4) while the Fund will receive a premium when it writes covered
call options, it may not participate fully in a rise in the market value of the
underlying security.
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 government 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 of foreign
investments in other jurisdictions, difficulties in effecting repatriation of
capital invested abroad, and the 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.
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 with respect to the Fund
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 as
to principal and interest 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 U.S. Government securities and
repurchase agreements involving such securities. For purposes of this limitation
(i) utility companies will be classified
6
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according to their services, for example, gas, gas transmission, electric and
telephone will each be considered a separate industry, (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, and (iii) supranational entities will be
considered to represent one industry.
3. Borrow money except for temporary or emergency purposes and then only in an
amount not exceeding 10% of the value of its total assets. The Fund will not
purchase additional securities while borrowings exceed 5% of its assets.
As relating to investment limitation numbers 1 and 2, the foregoing percentages
will apply at the time of the purchase of a security. Additional investment
limitations are set forth in the Statement of Additional Information.
THE ADVISER
First Manhattan Co. is a professional investment management firm organized as a
limited partnership that was founded in 1964. Because of the amount of his
ownership of the firm's outstanding partnership interests, Mr. David S.
Gottesman is deemed to control the Adviser. As of December 31, 1997, the Adviser
had management authority with respect to approximately $7 billion of assets. The
principal business address of the Adviser is 437 Madison Avenue, New York, New
York 10022.
The Adviser serves as the Fund's investment adviser pursuant to an investment
advisory agreement (the "Advisory Agreement"). Under the terms of 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. In addition to advising the Fund, the Adviser provides
advisory services to individuals, partnerships, trusts, pension and other
employee benefit plans, and eleemosynary and other institutions as well as the
FMC Select Fund, another series of the Trust.
Edward I. Lefferman, CFA, a Managing Director of the Adviser, will manage the
Fund. Mr. Lefferman has been a portfolio manager with the Adviser since 1986.
For its services, the Adviser is entitled to a fee, which is calculated daily
and paid monthly, at an annual rate of 1.00% of the average daily net assets of
the Fund. The Adviser has voluntarily agreed to waive a portion of its advisory
fee in order to limit total operating expenses of the Fund to not more than
1.30% of its average daily net assets. The Adviser reserves the right, in its
sole discretion, to terminate its fee waiver at any time.
THE ADMINISTRATOR
SEI Investments Mutual Funds Services (the "Administrator") serves as the
Administrator of the Trust. The Administrator provides the Trust 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 .15% of the Fund's average daily net assets. The
Administrator's fee is subject to an annual minimum of $75,000. The
Administrator has voluntarily agreed to waive a portion of its fee for the
Fund's initial fiscal year.
The Administrator also serves as shareholder servicing agent for the Fund under
a shareholder servicing agreement with the Trust.
THE TRANSFER AGENT
DST Systems, Inc., 330 W. 9th St., Kansas City, Missouri 64105 (the "Transfer
Agent") serves as the transfer agent and dividend disbursing agent
7
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for the Trust under a transfer agency agreement with 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 pursuant to a distribution agreement (the "Distribution Agreement").
No compensation is paid to the Distributor for distribution services for the
shares of the Fund.
The Fund has adopted a shareholder servicing plan for shares (the "Service
Plan") under which a shareholder servicing fee of up to .25% of average daily
net assets attributable to shares will be paid to the Distributor. Under the
Service Plan, the Distributor may perform, or may compensate other service
providers for performing, the following shareholder services: subaccounting;
providing information on share positions to clients; forwarding shareholder
communications to clients; processing purchase, redemption orders; and
processing dividend payments. Under the Service Plan, the Distributor may retain
as a profit any difference between the fee it receives and the amount it pays to
third parties.
FUND TRANSACTIONS
The Advisory Agreement authorizes the Adviser to select broker-dealers that will
execute the purchase or sale of securities for the Fund and directs the Adviser
to seek to obtain the best net results. The Fund expects to execute all or a
substantial portion of its brokerage or other agency transactions through the
Adviser, and may execute agency transactions through the Distributor, for which
each may receive usual and customary compensation.
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, or by contacting the Adviser. Shareholders may place
purchase and redemption orders by telephone; 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 when the New York Stock
Exchange is open for business (a "Business Day"). Shares of the Fund are offered
only to residents of states in which such shares are eligible for purchase. In
addition, the Trust has authorized certain broker-dealers and other financial
intermediaries (collectively "Authorized Broker-Dealers") to act as the Fund's
agent for the purposes of accepting purchase orders and redemption requests. The
Fund will be deemed to have received a purchase order or redemption request upon
receipt of the order or request by an Authorized Broker-Dealer.
The minimum initial investment in the Fund is $10,000, and subsequent purchases
must be at least $1,000. These minimum purchase requirements may be reduced or
waived by the Distributor or for investors who purchase shares of the Fund
through omnibus accounts maintained by registered broker-dealers who have
executed sub-distribution agreements with the Distributor. No minimum applies to
subsequent purchases effected by dividend reinvestment. As described below,
subsequent purchases through the Fund's Systematic Investment Plan must be at
least $100.
PURCHASES BY MAIL
An account may be opened by mailing a check or other negotiable bank draft
(payable to the FMC Strategic Value Fund) for $10,000 or more, together with a
completed Account Application, to the Transfer Agent at: The Advisors' Inner
Circle, P.O. Box 419009, Kansas City, Missouri 64141-6009. Third-party checks,
credit cards, credit card checks and cash will not be accepted.
8
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Subsequent investments may also be mailed directly to the Transfer Agent.
PURCHASES BY WIRE TRANSFER
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, N.A.; ABA #10-10-00695; for
Account Number 9870601087; Further Credit: FMC Strategic Value Fund. The
shareholder's name and account number must be specified in the wire.
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, 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.
SUBSEQUENT PURCHASES: Additional investments may be made at any time through the
wire procedures described above, which must include a shareholder's name and
account number. The investor's bank may impose a fee for investments by wire.
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 the Fund calculates
its net asset value, normally, 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 net asset value per share next determined after a purchase order is
effective. Purchases will be made in full and fractional shares of the Fund
calculated to three decimal places. The Trust will not issue certificates
representing shares of the Fund.
If a check received for the purchase of shares does not clear, the purchase will
be canceled, and the investor could be liable for any losses or fees incurred.
The Trust reserves the right to reject a purchase order when the Trust
determines that it is not in the best interest of the Trust or its shareholders
to accept such order.
SYSTEMATIC INVESTMENT PLAN
A shareholder may also arrange for periodic additional investments in the Fund
through automatic deductions by Automated Clearing House ("ACH") transactions
from a checking or savings account by completing the appropriate section of the
Account Application form. This Systematic Investment Plan is subject to account
minimum initial purchase amounts and a minimum pre-authorized investment amount
of $100 per month. An Account Application form may be obtained by calling
1-800-932-7781.
REDEMPTIONS
Redemption orders received by the Transfer Agent prior to the time the Fund
calculates its net asset value (normally, 4:00 p.m., Eastern time) on any
Business Day will be effective that day. The redemption price of shares is the
net asset value of the Fund next determined after the redemption order is
effective. Payment on redemption will be made as promptly as possible and, in
any event, within seven days after the redemption order is received, provided,
however, that redemption proceeds for shares purchased by check (including
certified or cashier's checks) will be forwarded only upon collection of payment
for such shares; collection of payment may take up to 15 days. Shareholders may
not close their accounts by telephone.
Shareholders may receive redemption payments in the form of a check or by
Federal Reserve wire transfer or Automated Clearing House ("ACH")
9
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wire transfer. There is no charge for having a check for redemption proceeds
mailed. The custodian will deduct a wire charge, currently $10.00, from the
amount of a Federal Reserve wire redemption payment made at the request of a
shareholder. Shareholders cannot redeem shares of the Fund by Federal Reserve
wire on Federal holidays restricting wire transfers. The Trust does not charge
for ACH wire transfers; however, such transactions will not be posted to a
shareholder's bank account until the second Business Day following the
transaction.
SYSTEMATIC WITHDRAWAL PLAN -- The Fund offers a Systematic Withdrawal Plan
("SWP") for shareholders who wish to receive regular distributions from their
account. Upon commencement of the SWP, the account must have a current value of
$25,000 or more. Shareholders may elect to receive automatic payments via ACH
wire transfers of $100 or more on a monthly, quarterly, semi-annual or annual
basis. An application form for SWP may be obtained by calling 1-800-932-7781.
Shareholders should realize that if withdrawals exceed income dividends, their
invested principal in the account will be depleted. Thus, depending on the
frequency and amounts of the withdrawal payments and/or any fluctuations in the
net asset value per share, their original investment could be exhausted
entirely. To participate in the SWP, shareholders must have their dividends
automatically reinvested. Shareholders may change or cancel the SWP at any time,
upon written notice to the Transfer Agent.
ADDITIONAL REDEMPTION INFORMATION -- 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 to be genuine. The
Trust and the Transfer Agent will each employ reasonable procedures to confirm
that telephone instructions are genuine. Such procedures may include taping of
telephone conversations.
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.
CALCULATION OF 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 the regularly-scheduled
close of normal trading on the New York Stock Exchange (normally, 4:00 p.m.,
Eastern time) on any Business Day. Purchase or redemption orders received by the
Fund after its net asset value has been calculated will be priced at the next
Business Day's net asset value. The Fund will use a pricing service to provide
market quotations. With respect to fixed income securities, the pricing service
may use a matrix system of valuation 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 total return. These figures will
be based on historical earnings and are not intended to indicate future
performance. No representation can be made regarding actual future returns.
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.
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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.), or by financial and business publications and periodicals, broad groups
of comparable mutual funds and unmanaged indices. The performance of unmanaged
indices 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 United States. 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.
TAXES
The following summary of certain 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.
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 funds. The Fund intends to continue to
qualify for the special tax treatment afforded regulated investment companies
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. It can be expected that only certain dividends of
the Fund will qualify for that deduction. Any net capital gains will be
distributed annually and will be taxed to shareholders as gain from the sale of
a capital asset held for more than one year, 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, including the amount of
dividends eligible for the dividends-received deduction.
Certain securities purchased by the Fund are sold with original issue discount
and thus generally do not make periodic cash interest payments. The Fund will be
required to include as
11
<PAGE>
part of its current income a portion of the accrued discount on such obligations
even though the Fund has not received any interest payments on such obligations
during that period. Because the Fund distributes all of its net investment
income to its shareholders, the Fund may have to sell fund securities to
distribute such accreted 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.
Income received on direct U.S. government 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 derived from direct U.S.
government 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. Such distributions will
be invested in additional shares of the fund unless the investor has chosen to
receive distributions in cash.
A 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 investment management 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 of
shares. All consideration received by the Trust for shares of any portfolio and
all assets of such portfolio belong to that portfolio and would be subject to
liabilities related thereto. The Trust reserves the right to create and issue
shares of additional portfolios. Information regarding the other portfolios of
the Trust is contained in separate prospectuses that may be obtained by calling
1-800-932-7781.
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 shares
under federal and state securities laws, pricing and insurance 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.
Expenses not attributable to a specific fund are allocated across all of the
funds on the basis of relative net assets.
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 man-agement
services to the Trust.
VOTING RIGHTS
Each share held entitles the shareholder of record to one vote. The Fund will
vote separately on matters relating solely to it. As a Massachusetts business
trust, the Trust is not required, and does
12
<PAGE>
not intend, to hold annual meetings of shareholders. Shareholder approval will
be sought, however, 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 to shareholders of record for the Fund. The Trust
also furnishes periodic reports and, as necessary, proxy statements to
shareholders of record.
SHAREHOLDER INQUIRIES
Shareholder inquiries not involving orders to purchase or redeem shares may be
directed to the FMC Strategic Value Fund, c/o The Advisors' Inner Circle Fund,
P.O. Box 419009, Kansas City, Missouri 64141-6009 or by calling 1-800-932-7781.
Purchases and redemptions of shares may be made through the Transfer Agent by
calling 1-800-808-4921.
DIVIDENDS AND DISTRIBUTIONS
Substantially all of the net investment income (excluding capital gain) of the
Fund is distributed in the form of quarterly dividends. Shareholders of record
on the last Business Day of each quarter will be entitled to receive the
quarterly dividend distribution. If any capital gain is realized, sub-stantially
all of it is distributed at least annually.
Shareholders automatically receive all income dividends and capital gain
distributions in additional shares at the net asset value next determined
following the record date, 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 by Federal Reserve wire transfer or ACH wire transfer.
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 dividend or the distribution of
ordinary income or capital gains, a shareholder will pay the full price for the
shares and receive some portion of the price back as a taxable dividend or
distribution.
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
First Union National Bank, Broad and Chestnut Streets, P.O. Box 7618,
Philadelphia, Pennsylvania 19101 serves as the custodian (the "Custodian") of
the Fund. The Custodian holds cash, securities and other assets of the Trust as
required by the Investment Company Act of 1940, as amended.
13
<PAGE>
DESCRIPTION OF PERMITTED INVESTMENTS AND RISK FACTORS
The following is a description of certain permitted investments and associated
risk factors for the Fund:
CONVERTIBLE SECURITIES -- Convertible securities have characteristics of both
fixed income and equity securities. Because of the conversion feature (which may
be mandatory or optional), the market value of convertible securities tends to
move together with the market value of the underlying stock. As a result, the
Fund's selection of convertible securities is based, to a great extent, on the
potential for capital appreciation that may exist in the underlying stock. The
value of convertible securities is also affected by prevailing interest rates,
the credit quality of the issuer, and any call provisions.
EQUITY SECURITIES -- Investments in equity securities in general are subject
to market risks that may cause their prices to fluctuate over time. The value of
securities, such as warrants or convertible debt, exercisable for or convertible
into equity securities is also affected by prevailing interest rates, the credit
quality of the issuer and any call provision. Fluctuations in the value of
equity securities in which the Fund invests will cause the net asset value of
the Fund to fluctuate. An investment in the Fund may therefore be more suitable
for long-term investors.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS -- Futures contracts
provide for the future sale by one party and purchase by another party of a
specified amount of a specific security at a specified future time and at a
specified price. An option on a futures contract gives the purchaser the right,
in exchange for a premium, to assume a position in a futures contract at a
specified exercise price during the term of the option. The Fund may use futures
contracts and related options for BONA FIDE hedging purposes, to offset changes
in the value of securities held or expected to be acquired, to minimize
fluctuations in foreign currencies, or to gain exposure to a particular market
or instrument. The Fund will minimize the risk that it will be unable to close
out a futures contract by only entering into futures contracts which are traded
on national futures exchanges.
There are risks associated with these activities, including the following: (1)
the success of a hedging strategy may depend on an ability to accurately predict
movements in the prices of individual securities, fluctuations in markets and
movements in interest rates, (2) there may be an imperfect or no correlation
between the changes in market value of the securities held by the Fund and the
prices of futures and options on futures, (3) there may not be a liquid
secondary market for a futures contract or option, (4) trading restrictions or
limitations may be imposed by an exchange, and (5) government regulations may
restrict trading in futures contracts and futures options.
MONEY MARKET INSTRUMENTS -- These high quality, short-term debt instruments
consist of U.S. Government securities; certificates of deposit, time deposits
and bankers' acceptances issued by high quality banks or savings & loan
associations; commercial paper rated A-1 or A-2 by S&P or Prime-1 or Prime-2 by
Moody's, or, if not rated, determined by the Adviser to be of comparable
quality; repurchase agreements involving any of the foregoing securities; and,
to the extent permitted by applicable law, shares of other investment companies
investing solely in money market instruments.
MORTGAGE BACKED SECURITIES -- The Fund may acquire securities representing an
interest in a pool of mortgage loans that are issued or guaranteed by a U.S.
Government agency. The primary issuers or guarantors of these mortgage-
14
<PAGE>
backed securities are the Government National Mortgage Association ("GNMA"),
Fannie Mae and Federal Home Loan Mortgage Corporation ("FHLMC"). The Fund may
also purchase collateralized mortgage obligations and real estate mortgage
investment conduits issued by governmental and non-governmental entities. The
mortgages backing these securities include conventional 30 year fixed rate
mortgages, graduated payment mortgages, and adjustable rate mortgages.
These mortgages may be supported by various types of insurance, may be backed by
GNMA certificates or other mortgage pass-throughs issued or guaranteed by the
U.S. Government, its agencies or instrumentalities. However, the guarantees do
not extend to the mortgage backed securities' market value, which is likely to
vary inversely with fluctuations in interest rates. These certificates are in
most cases "pass-through" instruments, through which the holder receives a share
of all interest and principal payments from the mortgages underlying the
certificate. Because the prepayment rates of the underlying mortgages fluctuate,
it is not possible to predict accurately the average life or anticipated yield
of a particular issue of pass-through certificates. During periods of declining
interest rates, prepayment of mortgages underlying mortgage backed securities
can be expected to accelerate. When the mortgage obligations are prepaid, the
Fund reinvests the prepaid amounts in securities, the yield of which reflects
interest rates prevailing at the time. Moreover, prepayments of mortgages which
underlie securities purchased at a premium could result in capital losses.
OPTIONS -- A put option gives the purchaser of the option the right to sell,
and the writer of the option the obligation to buy, the underlying security at
any time during the option period. A call option gives the purchaser of the
option the right to buy, and the writer of the option the obligation to sell,
the underlying security at any time during the option period. The premium paid
to the writer is the consideration for undertaking the obligations under the
option contract. The initial purchase (sale) of an option contract is an
"opening transaction." In order to close out an option position, the Fund may
enter into a "closing transaction," which is simply the sale (purchase) of an
option contract on the same security with the same exercise price and expiration
date as the option contract originally opened.
The Fund may purchase put and call options to protect against a decline in the
market value of the securities in its fund or to protect against an increase in
the cost of securities that the Fund may seek to purchase in the future. When
purchasing put and call options, the Fund pays a premium therefor. If price
movements in the underlying securities are such that exercise of the options
would not be profitable for the Fund, loss of the premium paid may be offset by
an increase in the value of the Fund's securities or by a decrease in the cost
of acquisition of securities by the Fund.
The Fund may write covered call options as a means of increasing the yield on
its fund and as a means of providing limited protection against decreases in its
market value. When the Fund sells an option, if the underlying securities do not
increase or decrease to a price level that would make the exercise of the option
profitable to the holder thereof, the option generally will expire without being
exercised and the Fund will realize as profit the premium received for such
option. When a call option of which the Fund is the writer is exercised, the
Fund will be required to sell the underlying securities to the option holder at
the strike price, and will not participate in any increase in the price of such
securities above the strike price. The Fund may purchase and write options only
on an exchange.
REPURCHASE AGREEMENTS -- Repurchase Agreements are agreements by which a
person obtains a security and simultaneously commits to
15
<PAGE>
return the security to the seller at an agreed upon price (including principal
and interest) on an agreed upon date within a number of days from the date of
purchase. The Custodian or its agent will hold the security as collateral for
the repurchase agreement. Collateral must be maintained at a value at least
equal to 102% of the purchase price. 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 its right to dispose of the collateral securities or if the Fund realizes a
loss on the sale of the collateral securities. The Adviser will enter into
repurchase agreements on behalf of the Fund only with financial institutions
deemed to present minimal risk of bankruptcy during the term of the agreement
based on guidelines established and periodically reviewed by the Trustees.
Repurchase agreements are considered to be loans by the Fund.
SECURITIES OF FOREIGN ISSUERS -- The Fund will purchase only those securities
of foreign issuers (including American Depositary Receipts or "ADRs") that are
traded on registered exchanges or the over-the-counter market in the United
States. ADRs are typically issued by a U.S. financial institution and evidence
ownership of underlying securities issued by a foreign issuer. Investments in
securities of foreign issuers are subject to special risks such as future
adverse political and economic developments, possible seizure, nationalization
or expropriation of foreign investments, less stringent disclosure requirements,
the possible establishment of exchange controls or taxation at the source,
greater fluctuation in value due to changes in exchange rates, or the adoption
of other foreign governmental restrictions. Foreign securities issuers are often
subject to accounting treatment and engage in business practices different from
those respecting domestic securities issuers.
SECURITIES LENDING -- In order to generate additional income, the Fund may
lend securities which it owns pursuant to agreements requiring that the loan be
continuously secured by collateral consisting of cash, securities of the U.S.
Government or its agencies equal to at least 100% of the market value of the
securities lent. The Fund continues to receive interest on the securities lent
while simultaneously earning interest on the investment of cash collateral.
Collateral is marked to market daily. There may be risks of delay in recovery of
the securities or even loss of rights in the collateral should the borrower of
the securities fail financially or become insolvent.
U.S. GOVERNMENT SECURITIES -- Certain federal agencies have been established
as instrumentalities of the U.S. Government to supervise and finance certain
types of activities. Issues of these agencies, while not direct obligations of
the U.S. Government, are either backed by the full faith and credit of the
United States or are guaranteed by the Treasury. Issues of other agencies or
instrumentalities are supported only by the issuing agency's right to borrow
from the Treasury or by the credit of the agency or instrumentality. Any
guaranty by the U.S. Government, its agencies or instrumentalities of the
securities in which the Fund invests guarantees only the payment of principal
and interest on the guaranteed security and does not guarantee the yield or
value of that security or the yield or value of shares of the Fund.
U.S. TREASURY SECURITIES -- U.S. Treasury securities consist of bills, notes
and bonds issued by the U.S. Treasury and separately traded interest and
principal component parts of such obligations that are transferable through the
federal book-entry system known as Separately Traded Registered Interest and
Principal Securities ("STRIPS").
WHEN-ISSUED TRANSACTIONS -- The Fund may enter into forward commitments or
purchase
16
<PAGE>
securities on a when-issued basis, in which case delivery and payment normally
take place at a future date. The interest rate on these securities is fixed as
of the purchase date although no interest accrues until the settlement date.
These securities are subject to market fluctuation due to changes in market
interest rates during the period between the purchase date and the delivery
date.
Please see the Statement of Additional Information for more information about
the permitted investments of the Fund.
17
<PAGE>
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
SUMMARY.................................................... 2
EXPENSE SUMMARY............................................ 4
THE TRUST AND THE FUND..................................... 5
INVESTMENT OBJECTIVE....................................... 5
GENERAL INVESTMENT POLICIES................................ 5
AUXILIARY POLICIES......................................... 5
RISK FACTORS............................................... 6
INVESTMENT LIMITATIONS..................................... 6
THE ADVISER................................................ 7
THE ADMINISTRATOR.......................................... 7
THE TRANSFER AGENT......................................... 7
THE DISTRIBUTOR............................................ 8
FUND TRANSACTIONS.......................................... 8
PURCHASE AND REDEMPTION OF SHARES.......................... 8
PURCHASES BY MAIL.......................................... 8
PURCHASES BY WIRE TRANSFER................................. 9
GENERAL INFORMATION REGARDING PURCHASES.................... 9
SYSTEMATIC INVESTMENT PLAN................................. 9
REDEMPTIONS................................................ 9
PERFORMANCE................................................ 10
TAXES...................................................... 11
TAX STATUS OF THE FUND..................................... 11
TAX STATUS OF DISTRIBUTIONS................................ 11
GENERAL INFORMATION........................................ 12
DESCRIPTION OF PERMITTED INVESTMENTS
AND RISK FACTORS......................................... 14
</TABLE>
FUND:
FMC STRATEGIC VALUE FUND
P.O. Box 419009
Kansas City, MO 64141-6009
ADVISER:
FIRST MANHATTAN CO.
437 Madison Avenue
New York, NY 10022
DISTRIBUTOR:
SEI INVESTMENTS DISTRIBUTION CO.
Oaks, PA 19456
ADMINISTRATOR:
SEI INVESTMENTS MUTUAL FUNDS SERVICES
Oaks, PA 19456
LEGAL COUNSEL:
MORGAN, LEWIS & BOCKIUS LLP
1800 M Street N.W.
Washington, DC 20036
INDEPENDENT PUBLIC ACCOUNTANTS:
ARTHUR ANDERSEN LLP
1601 Market Street
Philadelphia, PA 19103
For Information call: 1-800-932-7781
FMC-F-005-01
FMC STRATEGIC
VALUE FUND
PROSPECTUS
JULY 22, 1998
ADVISED BY:
FIRST
MANHATTAN
CO.
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---------------------------------------------
<PAGE>
FUND:
THE ADVISORS' INNER CIRCLE FUND
PORTFOLIO:
FIRST MANHATTAN CO.
This STATEMENT OF ADDITIONAL INFORMATION is not a prospectus and relates only to
the FMC Select Fund (the "Select Fund") and the FMC Strategic Value Fund (the
"Strategic Value Fund") (each a "Fund" and collectively, the "Funds"). It is
intended to provide additional information regarding the activities and
operations of The Advisors' Inner Circle Fund (the "Trust") and the Funds and
should be read in conjunction with the Funds' prospectuses dated February 27,
1998 and June 30, 1998. The Prospectuses for the Funds may be obtained by
calling 1-800-932-7781.
TABLE OF CONTENTS
<TABLE>
<S> <C>
THE TRUST AND THE FUNDS............................................................... S-2
DESCRIPTION OF PERMITTED INVESTMENTS.................................................. S-2
INVESTMENT LIMITATIONS................................................................ S-4
THE ADVISER........................................................................... S-5
THE ADMINISTRATOR..................................................................... S-6
THE DISTRIBUTOR....................................................................... S-6
TRUSTEES AND OFFICERS OF THE TRUST.................................................... S-7
COMPUTATION OF YIELD AND TOTAL RETURN................................................. S-9
PURCHASE AND REDEMPTION OF SHARES..................................................... S-10
DETERMINATION OF NET ASSET VALUE...................................................... S-10
TAXES................................................................................. S-10
FUND TRANSACTIONS..................................................................... S-12
DESCRIPTION OF SHARES................................................................. S-13
SHAREHOLDER LIABILITY................................................................. S-14
LIMITATION OF TRUSTEES' LIABILITY..................................................... S-14
5% SHAREHOLDERS....................................................................... S-14
EXPERTS............................................................................... S-14
FINANCIAL STATEMENTS.................................................................. S-14
APPENDIX.............................................................................. A-1
</TABLE>
July 22, 1998
FMC-F-006-01
<PAGE>
THE TRUST AND THE FUNDS
This Statement of Additional Information ("Statement") relates only to the FMC
Select Fund (the "Select Fund") and the FMC Strategic Value Fund (the "Strategic
Value Fund") (each a "Fund" and collectively, the "Funds"). Each 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 ("funds") 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 Prospectuses offering
shares of the Funds.
DESCRIPTION OF PERMITTED INVESTMENTS
MORTGAGE BACKED SECURITIES
The Funds may invest in securities issued or guaranteed by the Government
National Mortgage Association ("GNMA"), a wholly-owned U.S. Government
corporation which guarantees the timely payment of principal and interest. The
market value and interest yield of these instruments can vary due to market
interest rate fluctuations and early prepayments of underlying mortgages. These
securities represent ownership in a pool of federally insured mortgage loans.
GNMA certificates consist of underlying mortgages with a maximum maturity of 30
years. However, due to scheduled and unscheduled principal payments, GNMA
certificates have a shorter average maturity and, therefore, less principal
volatility than a comparable 30-year bond. Since prepayment rates vary widely,
it is not possible to accurately predict the average maturity of a particular
GNMA pool. The scheduled monthly interest and principal payments relating to
mortgages in the pool will be "passed through" to investors. GNMA securities
differ from conventional bonds in that principal is paid back to the certificate
holders over the life of the loan rather than at maturity. As a result, there
will be monthly scheduled payments of principal and interest. In addition, there
may be unscheduled principal payments representing prepayments on the underlying
mortgages. Although GNMA certificates may offer yields higher than those
available from other types of U.S. Government securities, GNMA certificates may
be less effective than other types of securities as a means of "locking in"
attractive long-term rates because of the prepayment feature. For instance, when
interest rates decline, the value of a GNMA certificate likely will not rise as
much as comparable debt securities due to the prepayment feature. In addition,
these prepayments can cause the price of a GNMA certificate originally purchased
at a premium to decline in price to its par value, which may result in a loss.
The Funds may invest in MORTGAGE BACKED SECURITIES consisting of 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). CMOs typically are issued with a number of classes or series which
have different maturities and which are retired using cash flow from underlying
collateral according to a specified plan.
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
S-2
<PAGE>
mortgage pass-throughs issued or guaranteed by U.S. Government agencies or
instrumentalities, the CMOs themselves are not generally guaranteed.
REMICs, which were authorized under the Tax Reform Act of 1986, are private
entities formed for the purpose of holding a fixed pool of mortgages secured by
an interest in real property. REMICs are similar to CMOs in that they issue
multiple classes of securities.
REPURCHASE AGREEMENTS are agreements by which a person (e.g., the Funds) obtains
a security and simultaneously commits to return the security to the seller (a
member bank of the Federal Reserve System or primary securities dealer as
recognized by the Federal Reserve Bank of New York) at an agreed upon price
(including principal and interest) on an agreed upon 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.
Repurchase agreements are considered to be loans by the Funds for purposes of
their investment limitations. The repurchase agreements entered into by the
Funds 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 a 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 Bankruptcy Code
provides protection for most repurchase agreements, if the seller should be
involved in bankruptcy or insolvency proceedings, a 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 is required to
return the underlying security to the seller's estate.
The Funds only invest in investment grade fixed income securities; however, they
may hold up to 5% of their total assets in convertible debt securities which are
rated as low as Caa by Moody's or CCC by S&P. Such below investment grade
instruments are high risk, high yield securities (known as "JUNK BONDS") that
involve greater risk of default or price declines than investment grade
securities due to changes in the issuers' creditworthiness and the outlook for
economic growth. The market for these securities may be thinner and less active
causing market price volatility and limited liquidity in the secondary market.
This may limit the ability of a Fund to sell such securities at their market
value. In addition, the market for these securities may also be adversely
affected by legislative and regulatory developments. Credit quality in the junk
bond market can change suddenly and unexpectedly, and even recently issued
credit ratings may not fully reflect the actual risks imposed by a particular
security. For these reasons, it is each Fund's policy to use such ratings in
conjunction with the Adviser's own independent, ongoing review of credit
quality.
The Funds may invest in VARIABLE AMOUNT MASTER DEMAND NOTES which may or may not
be backed by bank letters of credit. These notes permit the investment of
fluctuating amounts at varying market rates of interest pursuant to direct
arrangements between a Fund, as lender, and the borrower. Such notes provide
that the interest rate on the amount outstanding varies on a daily, weekly or
monthly basis depending upon a stated short-term interest rate index. Both the
lender and the borrower have the right to reduce the amount of outstanding
indebtedness at any time. There is no secondary market for the notes. It is not
generally contemplated that such instruments will be traded.
Each Fund may invest in WHEN-ISSUED SECURITIES. These securities involve the
purchase of debt obligations on a when-issued basis, in which case delivery and
payment normally take place at a future date. The Fund may also sell such
"when-issued" securities prior to receiving delivery. A Fund will only make
commitments to purchase obligations on a when-issued basis with the intention of
actually acquiring the securities, but may sell them before the settlement date.
The when-issued securities are subject to market fluctuation, and no interest
accrues on the security to the purchaser during this period. The payment
obligation and the
S-3
<PAGE>
interest rate that will be received on the securities are each fixed at the time
the purchaser enters into the commitment. Purchasing obligations on a
when-issued basis is a form of leveraging and can involve a risk that the yields
available in the market when the delivery takes place may actually be higher
than those obtained in the transaction itself. In that case there could be an
unrealized loss at the time of delivery.
Segregated accounts will be established with the custodian, and a Fund will
maintain liquid assets in an amount at least equal in value to its commitments
to purchase when-issued securities. If the value of these assets declines, a
Fund will place additional liquid assets in the account on a daily basis so that
the value of the assets in the account is equal to the amount of such
commitments.
Each Fund may invest in WARRANTS in an amount not exceeding 5% of a Fund's net
assets as valued at the lower of cost or market value. Included in that amount,
but not to exceed 2% of a Fund's net assets, may be warrants not listed on the
New York Stock Exchange or American Stock Exchange.
INVESTMENT COMPANY SHARES
The Select Fund may invest in shares of other investment companies, to the
extent permitted by applicable law and subject to certain restrictions. These
investment companies typically incur fees that are separate from those fees
incurred directly by the 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 the Fund's
usual expenses. See also "Investment Limitations."
INVESTMENT LIMITATIONS
The following policies are, except for policies 3, 6, 8 and 10, non-fundamental
policies of each Fund. Non-fundamental polices may be changed or eliminated by
the Trust's Board of Trustees without a vote of a Fund's shareholders. The term
"majority of the outstanding shares" of a Fund or the Trust, respectively, means
the vote of (i) 67% or more of a Fund's or the Trust's shares present at a
meeting, if more than 50% of the outstanding shares of a Fund or the Trust are
present or represented by proxy, or (ii) more than 50% of a Fund's or the
Trust's outstanding shares, whichever is less.
No Fund may:
1. Acquire more than 10% of the voting securities of any one issuer.
2. Invest in companies for the purpose of exercising control.
3. Borrow money except for temporary or emergency purposes and then only in an
amount not exceeding 10% of the value of total assets. Borrowings from a
bank require asset coverage of at least 300%. In the event that such asset
coverage shall at any time fall below 300%, a Fund shall, within three days
thereafter or such longer period as the Securities and Exchange Commission
(the "SEC") may prescribe by rules and regulations, reduce the amount of its
borrowings to such an extent that the asset coverage of such borrowings
shall be at least 300%. All borrowings in excess of 5% of total assets will
be repaid before making additional investments and any interest paid on such
borrowings will reduce income.
4. Make loans, except that a Fund may purchase or hold debt instruments in
accordance with its investment objective and policies, may lend its
portfolio securities, and may enter into repurchase agreements, as described
in the Prospectus and in this Statement of Additional Information.
5. Pledge, mortgage or hypothecate assets except to secure borrowings permitted
by (3) above in aggregate amounts not to exceed 10% of total assets taken at
current value at the time of the incurrence of such loan.
S-4
<PAGE>
6. Purchase or sell real estate, real estate limited partnership interests or
commodities provided that this shall not prevent a Fund from investing in
readily marketable securities of issuers which can invest in real estate or
commodities, institutions that issue mortgages, and real estate investment
trusts which deal in real estate or interests therein, and provided further
that this shall not prevent a Fund from investing in commodities contracts
relating to financial instruments.
7. 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 may sell securities
short "against the box."
8. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling a portfolio security.
9. Invest its assets in securities of any investment company, except as
permitted by the Investment Company Act of 1940 or pursuant to an order of
exemption therefrom.
10. Issue senior securities (as defined in the Investment Company Act of 1940)
except as permitted by rule, regulation or order of the SEC.
11. Invest in interests in oil, gas or other mineral exploration or development
programs and oil, gas or mineral leases.
12. In addition, the following are non-fundamental limitations. Each Fund may
not invest more than 15% of its net assets in illiquid securities. An
illiquid security is a security which cannot be disposed of in the usual
course of business within seven days, at approximately the value at which a
Fund has valued the instrument. Illiquid securities include repurchase
agreements maturing in excess of seven days, time deposits with a withdrawal
penalty, non-negotiable instruments and instruments for which no market
exists.
The foregoing percentages will apply at the time of the purchase of a security
and shall not be considered violated unless an excess occurs or exists
immediately after and as a result of a purchase of such security as to each
limitation except number 3.
THE ADVISER
The Trust and First Manhattan Co. (the "Adviser") have entered into an advisory
agreement (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.
For the fiscal period ended October 31, 1995 and the fiscal years ended October
31, 1996 and October 31, 1997, the Select Fund paid the Adviser $90,353,
$268,433, and $458,786, respectively, and for the fiscal period ended October
31, 1995, the Adviser reimbursed fees of $53,582 and for the fiscal years ended
October 31, 1996 and October 31, 1997, the Adviser waived fees of $38,766 and
$46,194, respectively. For the fiscal year ended October 31, 1997, the Strategic
Value Fund had not commenced operations and therefore did not pay advisory fees.
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 a Fund, and (ii) by the vote of a majority of the
Trustees who are not parties to the Advisory Agreement or "interested persons"
of any party thereto, 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, 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.
S-5
<PAGE>
THE ADMINISTRATOR
The Trust and SEI Investments Mutual Funds Services (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 Trust 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 for a period of five years after
the effective date of the agreement and shall continue in effect for successive
periods of two years unless terminated by either party on not less than 90 days'
prior written notice to the other party.
For the fiscal period ended October 31, 1995 and the fiscal years ended October
31, 1996 and October 31, 1997, the Select Fund paid to the Administrator fees of
$36,370, $81,018, and $126,246, respectively. For the fiscal year ended October
31, 1997, the Strategic Value Fund had not commenced operations and therefore
did not pay fees to the Administrator.
The Trust 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 Investments Management Corporation ("SIMC"), a
wholly-owned subsidiary of SEI Investments Company, 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 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, the
Nevis Funds, Marquis Funds-Registered Trademark-, Monitor Funds, Morgan Grenfell
Investment Trust, Oak Associates Funds, The PBHG Funds, Inc., PBHG Insurance
Series Fund, Inc., The Pillar Funds, 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 Classic Variable Trust, TIP Funds
and TIP Institutional Funds.
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 the
distribution of shares of the Fund.
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 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.
Services under the shareholder service plan may include establishing and
maintaining customer accounts and records; aggregating and processing purchase
and redemption requests from customers; placing net purchase and redemption
orders with the Distributor; automatically investing customer account cash
balances; providing periodic statements to customers; arranging for wires;
answering customer inquiries concerning their investments; assisting customers
in changing dividend options, account designations, and addresses; performing
sub-accounting functions; processing dividend payments from the Trust on behalf
of
S-6
<PAGE>
customers; and forwarding shareholder communications from the Trust (such as
proxies, shareholder reports, and dividend distribution and tax notices) to
these customers with respect to investments in the Trust. Certain state
securities laws may require those financial institutions providing such
distribution services to register as dealers pursuant to state law.
TRUSTEES AND OFFICERS OF THE TRUST
The management and affairs of the Trust are supervised by the Trustees under the
laws of the Commonwealth of Massachusetts. Each may have held other positions
with the named companies during that period. The Trust pays fees for
unaffiliated Trustees.
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 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, Oak Associates Funds, The PBHG Funds, Inc., PBHG Insurance
Series Fund, Inc., The Pillar Funds, 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 Classic Variable Trust, TIP Funds and TIP Institutional Funds, each
of which is an open-end management investment company managed by SEI Fund
Resources or its affiliates and, except for Santa Barbara Group of Mutual Funds,
Inc., 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 Arbor Fund, Boston 1784 Funds-Registered Trademark-,
The Expedition Funds, Marquis Funds-Registered Trademark-, Oak Associates Funds,
Pillar Funds, 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 Arbor Fund, The Expedition Funds, Marquis
Funds-Registered Trademark- and Oak Associates Funds.
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 Arbor Fund, The Expedition Funds, Marquis
Funds-Registered Trademark-, Oak Associates Funds, 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 Arbor Fund, The Expedition Funds,
Marquis Funds-Registered Trademark-, Oak Associates Funds, 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.
S-7
<PAGE>
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 Arbor Fund, The Expedition Funds, Marquis
Funds-Registered Trademark- and Oak Associates Funds.
EUGENE B. 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). President and Chief Executive Officer
of Jos. Schlitz Brewing Company before 1978. Trustee of The Arbor Fund, The
Expedition Funds, Marquis Funds-Registered Trademark- and Oak Associates Funds.
JAMES M. STOREY (DOB 04/12/31)--Trustee**--Partner, Dechert Price & Rhoads, from
September 1987-December 1993; Trustee of The Arbor Fund, The Expedition Funds,
Marquis Funds-Registered Trademark-, Oak Associates Funds, 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.
SANDRA K. ORLOW (DOB 10/18/53)--Vice President and Assistant
Secretary--Secretary of the Distributor since 1998; Vice President of the
Distributor since 1988, Vice President and Assistant Secretary of the Manager
since 1988. Assistant Secretary of the Distributor from 1988 to 1998.
KEVIN P. ROBINS (DOB 04/15/61)--Vice President and Assistant Secretary--Senior
Vice President and General Counsel of SEI Investments, the Administrator and the
Distributor since 1994. Assistant Secretary of SEI Investments since 1992;
Secretary of the Administrator since 1994. Vice President, General Counsel and
Assistant Secretary of the Administrator and the Distributor, 1992-1994.
Associate, Morgan, Lewis & Bockius LLP (law firm), 1988-1992.
JOHN H. GRADY, JR. (DOB 06/01/61)--Secretary--1800 M Street, N.W., Washington,
D.C. 20036, Partner since 1995, Morgan, Lewis & Bochius LLP (law firm), counsel
to the Trust, SEI Investments, the Administrator and the Distributor.
MARK E. NAGLE (DOB 10/20/59)--President and Chief Executive Officer--Vice
President of Fund Accounting and Administration for SEI Fund Resources and
Vice-President of the Administrator since 1996. Vice President of the
Distributor since 1997. Vice President, Fund Accounting, BISYS Fund Services,
September 1995 to November 1996. Senior Vice President and Site Manager,
Fidelity Investments from 1981 to September 1995.
KATHRYN L. STANTON (DOB 11/19/58)--Vice President and Assistant
Secretary--General Counsel, Investment Systems and Services 1997. Deputy General
Counsel of SEI Investments since 1996. Vice President and Assistant Secretary of
SEI Investments, the Administrator and Distributor since 1994. Associate,
Morgan, Lewis & Bockius LLP (law firm), 1989-1994.
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).
JOSEPH M. O'DONNELL (DOB 11/13/54)--Vice President and Assistant Secretary--Vice
President and Assistant Secretary of the Administrator and Distributor since
1998. Vice President and General Counsel, FPS Services, Inc., 1993-1997. Staff
Counsel and Secretary, Provident Mutual Family of Funds, 1990-1993.
LYDIA A. GAVALIS (DOB 6/5/64)--Vice President and Assistant Secretary--Vice
President and Assistant Secretary of the Administrator and the Distributor since
1998. Assistant General Counsel and Director of Arbitration, Philadelphia Stock
Exchange (1989-1998).
S-8
<PAGE>
LYNDA J. STRIEGEL (DOB 10/30/48)--Vice President and Assistant Secretary--Vice
President and Assistant Secretary of the Administrator and the Distributor since
1998. Senior Asset Management Counsel, Barnett Banks, Inc. (1997-1998). Partner,
Groom and Nordberg, Chartered (1996-1997). Associate General Counsel, Riggs
Bank, N.A. (1991-1995).
KATHY HEILIG (DOB 12/21/58)--Vice President and Assistant Secretary--Treasurer
of SEI Investments Company since 1997; Assistant Controller of SEI Investments
Company since 1995; Vice President of SEI Investments Company since 1991;
Director of Taxes of SEI Investments Company 1987 to 1991; Tax Manager-Arthur
Andersen LLP prior to 1987.
- ------------------------
* 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 Funds.
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>
TOTAL COMPENSATION
AGGREGATE FROM REGISTRANT AND
COMPENSATION FROM PENSION OR FUND COMPLEX* PAID
REGISTRANT FOR THE RETIREMENT BENEFITS ESTIMATED ANNUAL TO TRUSTEES FOR THE
FISCAL YEAR ENDED ACCRUED AS PART OF BENEFITS UPON FISCAL YEAR ENDED
NAME OF PERSON, POSITION OCTOBER 31, 1997 FUND EXPENSES RETIREMENT OCTOBER 31, 1997
- -------------------------- ------------------- ------------------- ------------------- ------------------------------------
<S> <C> <C> <C> <C>
John T. Cooney............ $ 8,154 N/A N/A $ 8,154 for services on 1 board
Frank E. Morris........... $ 8,154 N/A N/A $ 8,154 for services on 1 board
Robert Patterson.......... $ 8,154 N/A N/A $ 8,154 for services on 1 board
Eugene B. Peters.......... $ 8,154 N/A N/A $ 8,154 for services on 1 board
James M. Storey, Esq...... $ 8,154 N/A N/A $ 8,154 for services on 1 board
William M. 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>
- ------------------------
* For the purpose of this table, the Trust is the only investment company in the
"Trust Complex."
COMPUTATION OF YIELD AND TOTAL RETURN
From time to time the Trust may advertise the yield and total return of the
Select Fund and the total return of the Strategic Value 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 Select 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:
6
Yield = 2 [((a-b)/cd + 1) - 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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<PAGE>
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.
For the 30-day period ended October 31, 1997, the yield for the Select Fund was
1.06%.
The total return of a 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.
For the fiscal year ended October 31, 1997 and for the period from May 8, 1995
(commencement of operations) through October 31, 1997, the total return for the
Select Fund was 30.51% and 26.43% (annualized) respectively. The cumulative
total return for the Select Fund from May 8, 1995 through October 31, 1997 was
78.97%. The Strategic Value Fund was not operational as of the fiscal year ended
October 31, 1997.
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions may be made through the Transfer Agent on any Business
Day. Shares of each Fund are offered on a continuous basis. Currently, the Funds
are closed for business when the following holidays are observed: New Year's
Day, Martin Luther King Jr. Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor 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, readily marketable 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
obtained an exemptive order from the SEC that permits the Trust to make in-kind
redemptions to those Shareholders that are affiliated with the Trust solely by
their ownership of a certain percentage of the Trust's investment portfolios.
The Trust reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period during which trading
on the 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
disposal or valuation of a 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 Adviser, the Administrator, the Transfer
Agent and/or the Custodian are not open for business.
DETERMINATION OF NET ASSET VALUE
The securities of the Funds are valued by the Administrator. The Administrator
uses 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 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 federal income tax considerations
generally affecting the Funds and its shareholders, and is not intended as a
substitute for careful tax planning. Shareholders are urged to
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<PAGE>
consult their tax advisors 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
Internal Revenue Code of 1986 (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.
Each Fund intends to qualify as a "regulated investment company" ("RIC") as
defined under Subchapter M of the Code. By following such a policy, each 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, each Fund must
distribute annually to its shareholders at least the sum of 90% of its net
interest income excludable from gross income plus 90% of its investment company
taxable income (generally, net investment income plus net short-term capital
gain) ("Distribution Requirement") and also must meet several additional
requirements. Among these requirements are the following: (i) at least 90% of a
Fund's gross income each taxable year must be derived from dividends, interest,
payments with respect to securities loans and gains from the sale or other
disposition of stock or securities, or certain other income; (ii) at the close
of each quarter of each 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 each 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 or which are engaged in the same, similar or
related trades or business.
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-term capital loss),
each 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.
Any gain or loss recognized on a sale or redemption of shares of a 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 eighteen months, will be treated as a mid-term capital gain if the
shares have been held for more than twelve, but not more than eighteen, 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, a 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
that Fund that such shareholder is not subject to backup withholding.
S-11
<PAGE>
If any Fund fails to qualify as a RIC for any taxable year, it will be taxable
at regular corporate rates. In such an event, all distributions (including
capital gains distributions) will be taxable as ordinary dividends to the extent
of that Fund's current and accumulated earnings and profits and such
distributions will generally be eligible for the corporate dividends-received
deduction.
STATE TAXES
No Fund is liable for any income or franchise tax in Massachusetts if it
qualifies as a RIC for federal income tax purposes. Distributions by any Fund to
shareholders and the ownership of shares may be subject to state and local
taxes.
FUND TRANSACTIONS
The Funds have 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 is responsible
for placing the orders to execute transactions for the Funds. 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 the Adviser generally seeks reasonably competitive
spreads or commissions, the Funds will not necessarily be paying the lowest
spread or commission available.
The money market instruments in which each Fund may 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. Fixed income
securities are generally traded on a net basis and do not normally involve
either brokerage commissions or transfer taxes. The cost of executing fixed
income portfolio securities transactions of the Funds will primarily consist of
dealer spreads and underwriting commissions.
The Adviser may, consistent with the interests of the Funds, 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 Fund 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 a Fund or account generating the brokerage, and there can be no
guarantee that the Adviser will find all of such services of value in advising a
Fund. For the fiscal year ended October 31, 1997, the Select Fund directed all
of its brokerage to the Adviser.
It is expected that a Fund will execute all or substantially all of the Funds'
brokerage or other agency transactions through the Adviser, and may execute
agency transactions through the Distributor, for a commission in conformity with
the Investment Company Act of 1940, the Securities Exchange Act of 1934
S-12
<PAGE>
and rules promulgated by the SEC. Under these provisions, the Adviser and the
Distributor are permitted to receive and retain compensation for effecting
portfolio transactions for a Fund on an exchange. These rules further require
that commissions paid to the Adviser or the Distributor by a 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 a Fund, have adopted procedures for
evaluating the reasonableness of commissions paid to the Adviser and the
Distributor and will review these procedures periodically.
For the fiscal year ended October 31, 1997, the Select Fund paid no brokerage
commissions to the Distributor. For the fiscal years ended October 31, 1996 and
October 31, 1997, all securities transactions for the Select Fund were directed
to the Adviser. For the fiscal period ended October 31, 1995, and the fiscal
years ended October 31, 1996 and October 31, 1997, the Select Fund paid $48,428,
$56,991 and $60,672, respectively, in commissions to the Adviser.
For the fiscal years ended October 31, 1996 and October 31, 1997, the portfolio
turnover rate for the Select Fund was 24.39% and 21.71%, respectively.
For the fiscal year ended October 31, 1997, no commissions were paid on
brokerage transactions, pursuant to an agreement or understanding, to brokers in
return for research services provided by the brokers.
For the period ended October 31, 1995 and for the fiscal years ended October 31,
1996 and 1997, the Fund paid the following brokerage commissions:
<TABLE>
<CAPTION>
TOTAL BROKERAGE AMOUNT PAID TO
COMMISSIONS SEI INVESTMENTS(1)
--------------------------------- ------------------------
1995 1996 1997 1995 1996 1997
--------- --------- --------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Select Fund.................................. $51,140 $56,991 $60,672 $ 0 $ 0 $ 0
Strategic Value Fund......................... * * * * * *
</TABLE>
- ------------------------
* An asterisk indicates that the Fund had not commenced operations for the
period indicated.
For the fiscal period and years indicated, the Fund paid the following brokerage
commissions:
<TABLE>
<CAPTION>
% OF TOTAL % OF TOTAL
TOTAL $ AMOUNT BROKERAGE BROKERAGE
OF BROKERAGE COMMISSIONS TRANSACTIONS
TOTAL $ AMOUNT COMMISSIONS PAID TO EFFECTED
OF BROKERAGE PAID TO THE THROUGH
COMMISSIONS AFFILIATED AFFILIATED AFFILIATED
PAID BROKERS BROKERS BROKERS
------------------------------- ------------------------------- ------------- -------------
1995 1996 1997 1995 1996 1997 1997 1997
--------- --------- --------- --------- --------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Select Fund...................... $ 48,428 $ 56,991 $ 60,672 $ 48,428 $ 56,991 $ 60,672 100% 100%
Strategic Value Fund............. * * * * * * * *
</TABLE>
- ------------------------
* An asterisk indicates that the Fund had not commenced operations as of the
period indicated.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number of
portfolios and shares of each portfolio. Each share of a portfolio represents an
equal proportionate interest in that 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. All consideration received by
the Trust for shares of any portfolio
S-13
<PAGE>
and all assets in which such consideration is invested would belong to that
portfolio 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.
5% SHAREHOLDERS
As of April 30, 1998, the following persons were the only persons who were
record owners (or to the knowledge of the Trust, beneficial owners) of 5% or
more of each class of the Select Fund's shares.
<TABLE>
<CAPTION>
SHAREHOLDER NUMBER OF SHARES %
- ------------------------------------------------------------------------------------ ----------------- ---------
<S> <C> <C>
First Manhattan Co. Thrift Plan and Trust........................................... 1,504,487 26
Attn: Neal K. Stearns
437 Madison Avenue
New York, NY 10022-7001
</TABLE>
The Trust believes that most of the shares referred to above were held by the
persons indicated in accounts for their fiduciary, agency or custodial
customers.
EXPERTS
The financial statements of the Select Fund for the fiscal year ended October
31, 1997, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are
incorporated by reference hereto in reliance upon the authority of said firm as
experts in giving said report.
FINANCIAL STATEMENTS
The financial statements of the Select Fund for the fiscal year ended October
31, 1997, including notes thereto and the report of Arthur Andersen LLP thereon,
are herein incorporated by reference. A copy of the relevant Annual Report to
Shareholders of the Select Fund must accompany the delivery of this Statement of
Additional Information.
S-14
<PAGE>
APPENDIX
DESCRIPTION OF COMMERCIAL PAPER RATINGS
The following descriptions of commercial paper ratings have been published by
Standard & Poor's Corporation ("S&P") and Moody's Investors Service, Inc.
("Moody's"), respectively.
A-1--This is S&P's highest category and indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+) designation.
PRIME-1--Issues rated Prime-1 (or supporting institutions) by Moody's have a
superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
DESCRIPTION OF CORPORATE BOND RATINGS
The following descriptions of corporate bond ratings have been published by S&P
and Moody's, respectively.
Debt rated AAA has the highest rating S&P assigns to a debt obligation. Such a
rating indicates an extremely strong capacity to pay principal and interest.
Debt rated AA also qualifies as high-quality debt. Capacity to pay principal and
interest is very strong, and differs from AAA issues only in small degree. Debt
rated A has a strong capacity to pay interest and repay principal although it is
somewhat more susceptible to the adverse effects of changes in circumstances and
economic conditions than debt in higher rated categories.
Debt rated BBB by S&P is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
Debt rated BB has less near-term vulnerability to default than other speculative
grade debt. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions that could lead to inadequate
capacity to meet timely interest and principal payments. The BB rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied BBB rating.
Debt rate B has greater vulnerability to default but presently has the capacity
to meet interest payments and principal repayments. Adverse business, financial,
or economic conditions would likely impair capacity or willingness to pay
interest and repay principal. The B rating category also is used for debt
subordinated to senior debt that is assigned an actual or implied BB rating.
Debt rated CCC has a current identifiable vulnerability to default, and is
dependent on favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category also is
used for debt subordinated to senior debt that is assigned an actual or implied
B rating.
A-1
<PAGE>
Bonds which are rated Aaa by Moody's are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large, or an exceptionally
stable, margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues. Bonds rated Aa by
Moody's are judged by Moody's to be of high quality by all standards. Together
with bonds rated Aaa, they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
Bonds which are rated A possess many favorable investment attributes and are to
be considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Bonds rated Baa by Moody's are considered as medium grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Bonds which are rated Ba are judged to have speculative elements; their future
cannot be considered as well-assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Bonds which are rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
A-2
